Health Care Costs Shifting

Trend: Employers are transferring health care costs to employees.

John Markman as MSN Money recommends a drug company with products that are not optional. Excerpts below.

Link: The Fed's desperation move - MSN Money.

There has been a widespread shift of health care responsibilities from employers to employees at cost-cutting companies. Yet there are still some drug companies whose products are so necessary that they are battling the trend and profiting handsomely.

One that has caught my eye is Endo Pharmaceuticals (ENDP), which focuses its research and production efforts on pain-management drugs. Where you might skip a visit to a doctor if you have the flu or other minor ailment, chances are you will fill a painkiller prescription for a broken bone even if you have to pay out of pocket.

Endo's portfolio of drugs, which includes Percocet (oxycodone with acetaminophen), generates annual sales in excess of $1.2 billion. The company's top-selling product is the Lidoderm patch, a lidocaine patch with Food and Drug Administration approval to treat shingles that is commonly used off-label for general pain relief. Sales have climbed from $40 million in 2001 to more than $700 million last year. No generic alternative is expected until 2013, which gives the company time to invest in its next generation of pain relievers. Other drugs include Frova, which is approved for use in the treatment of menstrual migraines, and Voltaren Gel, with is a topical anesthetic used to treat joint pain associated with osteoarthritis.

For better or worse, pain relief is a growth industry as the baby boomers age. According to the U.S. Census Bureau, nearly 8,000 individuals turn 60 each day. Their health care expenditures typically rise from $2,695 when age 45 to 54, to $3,262 when 55 to 64 and then to $3,899 when 65 and over. Endo has recovered nicely from a swoon in October and is still cheap at around $24 a share. It could probably get to $30 over the next year if it gets any kind of broad-market help at all.

Disclosure: We may own ENDP at any time.