Pain is a growth market

I'm not going all existential on you, don't worry. Pain is a growth market for pharmaceuticals; and this is good news for fine chemical companies that have a DEA license to manufacture controlled substances, as Steve Klosk, CEO of Cambrex, pointed out in the company's recent earnings call:

The control substances market in the U.S. is far and away the most significant controlled substance market in the world. It is dominated by a small handful of domestic players that have been qualified by the DEA to produce or sell these substances and whom have little or no competition from foreign manufacturers due to DEA requirements.

Cambrex is one of the few companies situated to produce a wide range of APIs for sales to end markets. Last year, we sold approximately $15 million worth of controlled substances and have already sold a little over $10 million through June of this year. Our current products are focused on the attention deficit and hyperactivity disorder market and pain management.

Pain management is the key therapeutic growth area and we intend to develop more products to this segment of the market.

Western fine chemical companies have been focusing on technology and other capabilities, such as a DEA license, to differentiate themselves from low-cost Asian competitors. Later in the call, Klosk says that the company will be relying on controlled substances and proprietary drug delivery technologies (like its taste-masking Camouflage) to bring gross margins back to the 30% range.

I think the key, Mike, is we have talked about is driving the mix toward products that are influenced by our IP. So the two key strategic initiatives in terms of growing the controlled substance business and growing the drug delivery business are frankly going to be the biggest key towards driving the margins back toward the mid-30s. And hopefully higher than that as we go out in the later years.