Opioid based medications are paradoxical. Whilst an incredible pharmacologic solution to serious pain, opioids can be addictive with their overuse often proving detrimental.

America is often held up as the poster child for what not to do when it comes to their opioid epidemic which has seen more than 263,000 people die from prescription opioid overdoses between 1999 and 2020, leaving a big question for policymakers and medical professionals as to how we fix the epidemic without leaving chronic pain patients behind. 

The answer may lie in alternative analgesia prescribed to combat post operative pain. New developments in the analgesia market have seen a marked decrease in opioid prescription rates, especially in the US. A report released by the American Medical Association (AMA) revealed a 44.4% decrease in opioid based medicine prescriptions in the past decade. 

The UK and Australia have seen similar trends with safe opioid prescription and pain management at the forefront of doctors’ and regulators’ agendas. This trend may have been the nail in the coffin for Palla Pharma (ASX: PAL), one of three licensed poppy processors in Australia, creating finished medicines from opiate based Narcotic Raw Material. 

Collocated in Australia and Norway, the Company had an international reputation for high quality products at competitive prices. Their reputation looks a little different now after entering voluntary administration in December 2021.

The embattled company cited COVID impacts on elective surgery volumes as the reason behind declining sales. That being said, there is still a booming market for opioid analgesia with the global market size at a whopping USD $4.4 billion in 2020, and growing. 

After ironing out the finer details with administrators for several months, the Company has today provided an update to shareholders deeming their shares worthless. “The Liquidators declare there are reasonable grounds to believe shareholders will not receive a distribution,” the announcement reads. Ouch. 

The decision to liquidate came after a review of the Company’s strategy and operations in September 2021 following poor financial performance for 1H21 which included a dramatic increase in overhead costs by 14.9% and significant drops in revenue of -42.3% as well as operating EBITDA (-$4.3m) and gross profit (-$5.2m). 

For Palla, it was a perfect storm of regulator delays pushing back the launch of their products in the UK, reduced poppy seed revenue as a result of a reduction in domestic harvest growing area and a slowing of elective surgeries, decreasing demand for post operative analgesia. 

Despite providing shareholders with a refreshed plan and route to market, the financial results triggered a mass sell off well before results were released with the Company requesting more time to finalise their results, hinting to clued in investors that something was off. 

Whilst the writing was on the wall, the Company made one last attempt at reclaiming something with the sale and lease back of their Coolaroo facility. The Company didn’t admit to collapsing in on itself, announcing that they had sold the facility for $33 million, but had signed a lease to retain access for a further 18 months. The Company even received an ASX price query letter on December 9th, following a significant increase in volume of shares traded and dramatic price drop. Palla responded, effectively saying there was nothing to see here but just weeks later, the Company entered into voluntary administration. For the shareholders left behind, all they get is the tax loss.

It’s unclear whether poor leadership, market demands or COVID was the ultimate undoing of Palla Pharma, given that there is still significant demand for opioids, but hopefully the story reminds other listed companies that transparency is key, and that investors are paying more attention than you think.