Indivior first half marred by ongoing Dr Reddy's litigation

Discussions with the Department of Justice were also said to be at the "advanced" stage over resolution to investigations into the FTSE 250 company's marketing and promotion practices of its Subxone Film treatment for opioid addiction, pediatric safety claims and overprescribing of medication by some doctors.

Indivior had cash balances of $951m at the end of June, up from from $863m, with net cash of $469m that is broadly in line with its provisions for potential penalties and antitrust litigation with generic rivals.

This was after a six month period when net revenue on a reported basis declines 5% to $524m, with solid US market growth largely driven by the Medicaid channel, and growth in the rest of the world more than offset by tactical rebating and an unfavourable mix due to increased growth in the most price sensitive channel of Medicaid.

Subxone Film, which has been the revenue-generating backbone of the company since it was spun out of Reckitt Benckiser at the end of 2014, lost 500 basis points of market share during the half-year to 52%, averaging 54% in the period, down from 59% year-on-year.

The most recent Suboxone share stood at 49% at 13 July, reflecting the impact of the generic version of sublingual film launched by Dr Reddy's Laboratories' sold into the US market prior to the US District Court of New Jersey granting Indivior's request for a temporary restraining order on 15 June. A preliminary injunction was subsequently granted by the District Court on 13 July.

The company said the adverse impact on its full-year net revenue was anticipated to be at least $25m, and could be materially higher.

Under the preliminary injunction, Dr Reddy’s Laboratories is unable to use, import, sell or offer to sell its generic buprenorphine/naloxone sublingual film product, pending the outcome of recently-filed litigation against it related to US Patent No. 9,931,305, or a decision of the US Court of Appeals for the Federal Circuit dissolving the injunction.

Dr Reddy’s Laboratories had appealed the grant of the preliminary injunction, and the bond amount to the Court of Appeals, and had asked for an expedited briefing.

It also asked the Court of Appeals to stay the preliminary injunction pending the appeal. On 24 July, Indivior filed its opposition to the motions to expedite the preliminary injunction and stay the injunction pending appeal.

First half adjusted operating profit decreased 32% to $183m, with lower net revenue, the expected annualisation of investments in the new Sublocade once-monthly 'depot' version of Suboxone and the on-going setup of the behavioural health unit to launch its RBP-7000 schizophrenia treatment - if approved - were partially offset by lower research and development expenses. EBITA fell 29% to $84m.

SUBLOCADE BLOCKAGE

The firm said first half Sublocade net revenues were $2m, with initial net revenue levels reflecting challenges with the duration and success rate of the prescription journey, as well as the rate of HCP trial. Full-year Sublocade net revenues were forecast to be in the range of $25m to $50m.

While there is a high awareness of 79% among buprenorphine-prescribing physicians, 1,300 physicians have initiated prescription journeys and only 384 have actually injected Sublocade.

Strengths of the launch performance to date included anecdotal reports of patient experience and satisfaction, payor coverage - with 67% lives covered as of 14 July - and ease and efficiency of the refill process for second and third prescriptions, Indivior reported. The company said it remained confident of peak Sublocade annual net revenue of at least $1bn.

Indivior also launched a cost saving initiative, initially targeting at least $25m in savings in 2018, to partially offset the financial impact of recent adverse US market developments.

The intended launch of RBP-7000 in the fourth quarter, dependent on a regulatory review date of 28 July, Indivior said the launch date would be reviewed if Dr Reddy’s won an expedited appeal on the preliminary injunction ruling.

GUIDANCE ON GUIDANCE

Indivior withdrew its 2018 full-year guidance on 11 July and said that, in light of the current uncertainties over the depth of Dr Reddy’s market entry prior the temporary restraining order, it was unable to issue new guidance.

The company said it was committed to providing updated guidance as soon as reasonably practicable, but no later than its third quarter results - currently scheduled for 1 November.

“While our base US business has recently been impacted by known risks that have materialised, we remain committed to our vision to ensure that patients around the world have access to evidence-based treatment for their addiction and its co-occurring disorders,” said Indivior chief executive Shaun Thaxter.

“Our primary focus is to ensure the successful progression of Sublocade as it begins its transformation of the treatment of opioid use disorder.”

Thaxter said that, despite the reality that initial revenues were below the company’s financial plan as patients and healthcare providers continued to adjust to a new and unfamiliar specialty distribution and reimbursement model, the board was “encouraged” by the early success of the drivers of long term product success and remained confident in the annual $1bn-plus annual net revenue goal for Sublocade.

MARKET REACTION

Shares in the company, which had fallen to 238p when guidance was removed earlier this month but rallied somewhat since, fell more than 20% in early trade to below 263p, but bounced back to 284p as midday approached.

"Since its spin-out from Reckitt Benckiser, Indivior has been a wasting asset," said analyst Andy Smith at Edison Investment Research. "Its 21.3% fall in net income and nearly 7% fall in revenues and guidance withdrawal reported this morning highlighted the perils of relying on what Malcom X would have described as using ‘any means necessary’ to defend its main drug – Suboxone Film from generic competition.

"Investors in life science stocks have long realised that there are three certainties in life; death, taxes and patent expiries and as much as Indivior have tried to prevent the latter in the courts, they tacitly admitted today that the bloodbath whereby multiple generic competitors can decimate a branded products revenues by 80% in a few months, is all but inevitable.

"Having spent much more effort on trying to prevent Suboxone Film generics, rather than (like Sweden’s Orexo) managing the pricing and reimbursement issues associated with a patent expiry head-on, or investing in its pipeline and business development, the future is distinctly uncertain for Indivior.”

Broker Numis said second-quarter sales of $268m were in line with wider expectations of $266m and were down 7% over a very strong quarter last year, with the 29% fall in EBITA to $84m reflective of period of reduced R&D, heavy litigation and launch costs for Sublocade.

Sublocade was "a little slower than expected". Sublocade sales of $2m in the first quarter "helps explain" the downgraded full year expectation, with a focus on increasing lives covered, reducing the time taken to fill prescriptions and increasing the success rate in getting patients onto Sublocade treatment.

"With 67% of US lives covered (of which just 8% have prior authorisation restrictions), expediting the prescription to treatment to around a month, and increasing the success rate on the prescription journey to 36% offer encouragement toward the end of Q2 with sales likely to be weighted to Q4."

Looking forward, Numis said key events in the next six months would be reinstating guidance, overcoming the Reddy's appeal, resolving the DoJ and improving the ramp of Sublocade, whilst defending against a potential FDA approval and “at-risk” launch from another rival, Alvogen. "In the nearer term, the FDA might approve RBP-7000 in the next few days, although investment in the sales launch will be linked to the outcome of the various litigation events."

Analysts at Stifel said the $2m of Sublocade sales was lower than buy-side expectations: "In particular, the prescription journey (time taken from prescription initiation to injection) has been slow although INDV has lowered it from 43-62 days at launch to 27-36 days currently. Additionally, payer coverage increased to 67% of lives covered, which is positive".

While there is a high awareness of 79% among buprenorphine-prescribing physicians, 1,300 physicians have initiated prescription journeys and only 384 have actually injected Sublocade, "which highlights the initial inertia getting Sublocade access to meet demand," Stifel said. "That said, only 30 physicians are treating fewer than 5 patients so there is clearly slow adoption at this stage."

(Editing by Oliver Haill)