Indivior 'should emerge' in time, but analysts cautious for now
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Analysts said Indivior will need to take significant action to reduce the cost base and address its debt arrangements after losing a key US court decision.
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Analysts including RBC Capital Markets and Numis sent notes to clients on Wednesday after the US Court of Appeals for the Federal Circuit annulled an injunction that was preventing generic drugmaker Dr Reddy's Laboratories from selling its copycat version of Indivior's Suboxone Film. It is now seen as highly likely that Reddy's will launch "at risk" of Indivior's patents with its generic version of Suboxone Film.
RBC Capital Markets said it was surprised by the decision after taking expert advice on the topic. "Whilst we expect the shares will recover somewhat from the lows, buyers will need to be brave given the risk of follow-on generic launches and a potential DoJ outcome before any inflection point likely for Sublocade."
RBC had foreseen a "window" for Indivior to convert Suboxone Film users to its recently launched monthly treatment, Sublocade, but only if the Film market remained closed to generics for a while longer.
"This window now appears to be closing and think we should be looking to more prudent scenarios. Whilst our forecasts suggest the company should emerge, in time, to a growth asset this is based upon the Sublocade improving, which we would suggest some caution with as the forecast risk remains high."
RBC downgraded its rating to 'sector perform' from 'outperform' and slashed its revenue estimates around 43% in the coming 2019 and 2020 financial years. However, it predicted management will step up cost saving measures ahead of those already guided, with an "extra $75m not impossible...which keeps the business at a broadly breakeven level in FY19E".
With an estimated $625m of net cash by year-end, RBC said this will be needed for potential fines so investors "will no doubt be looking for a refinancing of the debt facility to avoid any concerns here".
RBC's valuation, taking just the RoW franchise plus the residual Suboxone Film business, comes to 130p per share and potentially 290p if Sublocade still takes off.
Broker Numis had three key considerations: how much a Reddy's generic film would take market share from the 40% currently held by other generic tablets; whether the branded Suboxone film, which is thought to be stronger, can retain market share, or if Indivior launches an authorised generic; and whether a reduction in pricing and spend on dailies would free up budget for payers to spend on Sublocade.
Numis kept its 'buy' rating on the shares felt the current enterprise value of around $500m is "largely supported by the RoW business (c.2x sales) and so heavily discounts Sublocade (despite the increasing opioid epidemic) and Perseris (long acting schizophrenia treatment)", adding that it retained its recommendation on the basis of a sum-of-the-parts analysis "that assigns zero value to Suboxone in the US, although do caution that the settlement with the Department of Justice remains outstanding and the shares will remain volatile with highly binary events ahead and balance sheet concerns becoming more pressing".