Jefferies reiterates 'buy' on Indivior's strong guidance

Jefferies, RBC Capital Markets and Numis reiterated their positive recommendations on Indivior as the opioid addiction drug maker's shares slipped on the back of final results on Thursday.

Sales, mostly from the Suboxone opioid addiction film, grew 3% to £1.09bn in 2017, in line with management's previous guidance, noted Numis, driven by 2% growth in US, and 7% outside America "as the opioid crisis spreads".

Legal provision was increased by $185m in the fourth quarter to $438m was "toward the higher end" of Numis's $300-500m assumptions, but analysts felt the company was "well placed" with former parent Reckitt Beckiser to make a settlement with the US Department of Justice.

Cash balance at period end was $863m, with $376m of net cash.

Jefferies, which reiterated its 'buy' rating and 500p, said the increased legal provision "could signal progress" with the DoJ, with the stronger balance sheet that should "allow settlement of indicated potential liabilities from existing internal resources".

Sublocade, the newly approved monthly long-term 'depot' version of Suboxone, is "key to sentiment", Jefferies added, but visibility is not expected until interim results in July, with sales consensus in the City varying significantly.

Indivior's directors guided to another year of top- and bottom-line growth in 2018, with net revenue of $1.13-1.17bn and net income of $290-320m, excluding exceptional items and at constant FX and assuming no launch of a generic film rival and "modest" expectations for Sublocade in its first year.

Consensus had 2018 revenues of $1,08bn and EPS of circa 32 cents, implying upgrades are likely.

The guidance for 2018 "looks well ahead of market expectations and could imply >10% upgrades from consensus", wrote the Numis analysts. "We await more details on costs (lower legals?) in FY18, which appear to be slightly lower than we had forecast, but otherwise happy with our top of the range numbers with the company more bullish than we normally expect at this time of the year."

RBC Capital Markets, which stayed with its 'outperform' and 540p price target, said the results have missed its EPS expectations 3.8% due to higher costs, but the 2018 guidance was seen a positive, "in line with our estimates and meaningfully ahead of consensus", and while investor sentiment might focus on the higher DoJ provision, "the company can afford this".

RBC also noted that Q1 has, historically, "been a cautious guide before upgrading at Q2 when visibility improves."