Indivior tumbles as rivals win key drug approval

Indivior's main revenue-generating product, Suboxone film, came under pressure overnight as rival Dr Reddy’s Labs and Mylan won regulatory approval to its generic version of the sublingual film.

Dr Reddy's announced the approval from US Food & Drug Administration and said is launching buprenorphine and naloxone film to treat adults with opioid addiction.

Suboxone had US sales of roughly $1.86bn for the most recent twelve months ending in April, according to IMS Health.

The news, which saw Indivior's shares slide more than 15% lower 420p on Friday morning, was not unexpected as recent correspondence from the FDA for Dr Reddy’s in the previous quarter, which suggested an approval was imminent.

With the Federal Appeal ongoing and the recent assertion of three additional Orange Book listed patents, analysts said Dr Reddy’s would be launching 'at-risk' and therefore liable for substantial damages if the new patents are found to be valid and/or infringed. Still, analysts said it was still a negative for Indivior and current forecast assumptions.

Indivior has reacted to losing a recent court case by suing companies who are developing generic versions of its opioid addiction treatment.

In April, Slough-based Indivior filed patent lawsuits against generic drugmakers including Dr Reddy's for infringing a new US patent relating to their respective proposed generic versions of its Suboxone film. Indivior's lawsuits allege that the generic companies infringe the patent and comes on the back of other patent infringement litigation over its earlier issued patents covering Suboxone with the same companies.

But not long after, the company reached a settlement to resolve patent litigation against Par Pharmaceutical, allowing Par to begin selling a generic version of Suboxone film from 1 January 2023.

In giving its 2018 guidance, Indivior said the numbers assumed “no material changes in market conditions in the US, chiefly that an "at risk" launch of a generic buprenorphine/naloxone film product will not take place”.

While the Reddy's news increases the forecast risk for Indivior, analysts at RBC Capital Markets told clients "to see any material negative movement as an opportunity" to buy shares, given the legal complexities for any Suboxone Film launch and the value for its Sublocade monthly treatment, which RBC sees as a $1.5bn asset.

Jefferies analysts said, assuming a 40% net price reduction in the second half of 2018 and with generic film taking an 11% share in the second half, it estimates that EPS in 2018 could be impacted by as much as 50%.

Jefferies said the Sublocade ramp-up was "now more critical than ever" for Indivior. Its 630p sum-of-the-parts valuation has Suboxone Film at 112p but a downside case of mid-2019 generics of 65p. "Even assuming 50% of our downside case valuation for Suboxone Film we can make an investment case due to Sublocade; however if momentum is stalled on Sublocade roll-out and the value proposition becomes more challenging, it would be a greater concern on fundamentals, in our view."

Broker Numis saw potential for Indivior’s market share to fall to 40% in the current financial year and 20% in the 2019, leading to 22% and 28% downgrades to revenue and 38% and 52% downgrades to EPS.

But with Indivior possessing substantial cash and having launched its monthly Sublocade, for which it believes the cheaper generic versions of the daily film do not change the ultimate need, Numis analysts also saw the share price fall as a "buying opportunity".

Numis said a Dr Reddy’s at-risk launch was around a year ahead of its expectations. "Mylan had previously reached an agreement with Indivior to not launch until January 2023, but with Dr Reddy's launching we presume they would become unrestricted."