Sell Indivior ahead of sales crunch

Indivior's share price has been buoyed recently by a better than expected performance from Suboxone. In the first nine months of the current financial year, Suboxone Film, which accounts for almost four-fifths of group revenues, managed to cling onto its 59 per cent market share - although that compares with 63 per cent on average in 2014. This better than expected outcome for the first three quarters led management to tweak full-year guidance upwards.

But this year has also provided further evidence of the pressure the drug and its market are under. Despite the earnings upgrades, aggressive pricing by branded competitors meant that Suboxone has lost a number of accounts with US health insurers, which is likely to result in "modest erosion" in the drug's market share in the next six months. In the third quarter net revenue fell 8 per cent, pushing operating profit down by more than 40 per cent, and EPS down 46 per cent, all at actual exchange rates.

The truly existential threat to the business comes from generic competition, though. There are six companies seeking FDA approval to market generic copies of Suboxone Film in the US. Indivior is currently battling to preserve its patents in court and news on its success or failure to protect its market is expected from next month. Any generic product approvals from regulators could decimate Suboxone sales. Success in court could buy Indivior time to develop patent-protected improved versions of Suboxone - a monthly depot and swallowable capsule - which may have the potential to shore up its position in the market when generic films eventually emerge. However, drug development is itself riddled with uncertainty.

One of Indivior's products, the new oral buprenorphine medication known as RBP-6300, already suffered a a setback and will have to undergo additional Phase II testing that will push its possible European launch date back to 2018. The company has a number of other products in development that are at various stages. Before the end of the year, the group hopes the US Food and Drug Administration (FDA) will approve its new nasal-spray overdose-rescue drug. However, Indivior needs to come up with a product to take over the sales mantle from Suboxone Film, otherwise the top line will come under significant pressure in the coming years.

As things stand, analysts (see table) are forecasting declining sales, earnings and dividends. Add in the other risks to the business and drug-development uncertainties, and we think little store can be set by the seemingly low forecast price-to-earnings ratio.