Indivior increases profits, legal provisions, 2018 guidance

Indivior, the opioid addiction drug specialist, increased its financial provisions over potential US litigation by $210m as it reported 3% revenue growth for last year and guided to further growth in 2018.

The FTSE 250 group generated £1.09bn of sales, mostly from its Suboxone film to treat opioid addiction, which saw its market share shrink to 56% by the end of 2017 from 61% a year before as generic rivals made slower incursions on its territory than expected.

Operating profits of $193m were up 30%, while on an adjusted basis, excluding $185m legal provisions in the fourth quarter that took the year's increase to $210m, operating profit grew 4% to $403m due to increased sales and lower R&D expenses.

The fourth-quarter of the year saw a loss due to pre-launch investments for Sublocade, its new monthly long-term 'depot' version of Suboxone and RBP-7000, a once-monthly long-acting injection for the treatment of schizophrenia.

Net income for the year of $58m was up from $35m a year earlier, which also reflected one-off refinancing costs, a non-cash charge of $15m related to US tax reform and other tax adjustments, with adjusted net income up 6% to $270m.

Earnings per share of 8 cents were up from the 5 cents a year before. Underlying EPS of 37 cents was in line with the consensus forecast.

Cash balance at period end was $863m, with $376m of net cash. Management looked to reduce financial risks further by improving and extending its term loan borrowing facility to $487m, reducing interest payments and gaining more favourable covenants.

After reaching a settlement with one generic rival during the year, the group said it was continuing "active discussions with the various governmental and other entities about possible resolutions to their investigative and antitrust litigation matters". Total legal provisions stood at $438m, up from $228m, though Indivior said the final aggregate settlement amount "may be materially different from this provision".

Chief executive Shaun Thaxter characterised 2017 as "a year of significant accomplishment" for Indivior and guided to another year of top- and bottom-line growth in 2018.

Net revenue is expected in a range of $1.13-1.17bn and net income in a range 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.

"We look forward to launching Sublocade later this month, and we continue to expect peak annual net sales of at least $1bn. We are also excited about the potential for RBP-7000 based on the unmet needs we see in schizophrenia. We are establishing a new, stand-alone business unit to launch this asset in the fourth quarter of 2018, assuming approval, and we target peak annual net sales of $200 to $300m."

Indivior shares tumbled almost 10% to 366.8p on Thursday morning.

Sales were in line with guidance, noted broker Numis, which was driven by 2% growth in US, and 7% outside America as the opioid crisis spreads.

Analysts said the company was "well placed" with former parent Reckitt Beckiser to settle with Department of Justice but the increased provision of $438m was "toward the higher end" of its $300-500m assumptions.

The guidance for 2018 "looks well ahead of market expectations and could imply >10% upgrades from consensus", wrote analyst Paul Cuddon. "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 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."

Jefferies' analysts said the increased legal provision "could signal progress", with the stronger balance sheet that should "allow settlement of indicated potential liabilities from existing internal resources".

Sublocade "is key to sentiment", they added, but visibility is not expected until interim results in July, with sales consensus varying significantly.