Indivior fights off generic challenges but the threat of litigation remains

Weaker than expected generic erosion of its key Suboxone film product has allowed Indivior to raise full-year guidance.

Today’s 16% rise in Indivior’s share price has less to do with the group selling more of its opioid dependency treatment products than with the inability of its generic competitors to sell theirs.

Indivor thrilled the market with substantially upgraded full-year guidance for 2019, as it appeared that generics companies like Dr Reddy's and Mylan had failed to convince patients to try their version of Indivior’s Suboxone film. The product, which has continued to defy conventional wisdom around generic sales erosion, still accounts for the majority of Indivior sales.

Another demonstration of Suboxone’s continued grip on the US opioid substitution market is that the product still makes up over 70% of opioid substitution products. This figure includes the 24% of sales contributed by the authorised generic Indivior launched in February as a countermeasure to copycats.

Despite the strong showing today Indivior's shares, which have been falling since June 2018 when the FDA approved generic versions of Suboxone film, are still down 55% on the year.

Settling for a billion

Indivior’s guidance came on the same day that its former parent, Reckitt Benckiser, announced that it had reached an agreement with the Department of Justice and Federal Trade Commission to pay up to $1.4bn to settle claims it had participated in fraudulent marketing schemes to increase sales of Suboxone.

As the current owner of Suboxone, Indivior was also named in the investigation. But the UK company has denied the allegations, which it has described as “self-serving” and based on events four years before Indivior was spun out of Reckitt in 2014.

Reckitt’s $1.4bn settlement is one of the biggest the industry has seen, though it is still eclipsed by Glaxosmithkline’s eye-watering $3bn payout for failing to disclose safety information around diabetes drug Avandia.

Read-through?

While it might not be pharma’s largest payout, $1.4bn is still a large amount of money even if the compay on the hook for it has a market cap of £47bn. And here is the rub for Indivior, which for litigation purposes has far shallower pockets than Reckitt. So far Indivior, which only has a market cap of £389m ($480m), has set aside $438m for any form of payout.

Indivior has also chosen to go to trial to refute the DoJ/FTC allegations. A hearing is not expected until 2020 and could take up to two years to conclude, meaning any overhang to Indivior shares could continue for another three years.

But what today’s announcement by Reckitt shows is that it is possible to settle with the DoJ without any requirement to admit wrongdoing. This non-prosecution type agreement is important if Indivior wants to retain its current access to US government Medicare and Medicaid contracts, which currently represent around half of its US business.

As to the size of any settlement for which Indivior might be liable, some analysts are not expecting the amount forked out by Reckitt, which would effectively bankrupt Indivior. “The DoJ knows that they are not going to get $1.5bn out of Indivior, but they might get a bit more than what Indivior has set aside. If they can get $600m or $700m and settle then everyone can move on,” said one healthcare analyst.

Until then, despite its success in holding off the more immediate generic threats, Indivior will still remain a tricky investment case.

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