This de-risking pharma stock remains overlooked

Enthusiasm was even stronger when generics giant Teva Pharmaceuticals (US:TEVA) offered $4.35bn to resolve lawsuits relating to its involvement in the opioid crisis last year. Its shares soared more than 21 per cent after the Israel-based company announced the terms of its proposal. Settlements eliminate the risk of a case going to a costly and reputationally-ruinous trial. Legally speaking, they represent the path of least resistance. 

Shareholders in Indivior (INDV) were spared a courtroom drama of their own earlier this month when the company agreed to pay $102.5mn to settle antitrust claims brought by 41 US states and the District of Columbia. The lawsuits alleged that the company used underhanded tactics to shield Suboxone Film, one of its portfolio of opioid-addiction treatments, from generic competition. It was claimed that Indivior – which was spun out of Reckitt Benckiser (RKT) in 2014 – made slight changes to the drug’s formulation to prolong the life of its patents. 

Settling shareholder nerves

In this instance, the companies promoted the idea that the Suboxone Film was safer than the tablet version because children were less likely to be exposed to the film product. The medicine itself contains buprenorphine, an opioid, and is designed to reduce cravings and withdrawal symptoms among people dealing with opioid use disorder. The Federal Trade Commission, the agency that enforces civil antitrust laws, ultimately deemed Indivior’s safety claims “unsupported”. Indivior paid $600mn to settle the investigations in 2020.

Settlement or no, some might be inclined to view Indivior as yet another disreputable pharmaceutical company profiting from a public health emergency (which itself started with the aggressive marketing of opioid painkillers). But this does not do justice to the fact that Indivior’s products are a crucial part of combating a crisis that has shown few signs of abating. 

Earnings drivers

Nearly all of Indivior’s revenue currently comes from the sale of buprenorphine-based opioid addiction treatments. In addition to Suboxone, it also makes the chemically-similar Sublocade and Subutex and one drug, Perseris, used in the treatment of schizophrenia, although this accounted for just 3 per cent of sales in its last full financial year. Pharmaceutical investors might ordinarily be cautious around a company with sales heavily concentrated in just one therapeutic area. However, it has a market-leading position in the US, where Suboxone Film is among the most-prescribed treatments for opioid addiction. 

Last month, the Food and Drug Administration (FDA) also approved Indivior’s Opvee, an emergency treatment for the rapid reversal of opioid overdose. The drugmaker acquired the treatment when it purchased Opiant Pharmaceuticals earlier this year. “We believe OPNT003 [Opvee] will compete effectively with Narcan, the current leading treatment for opioid overdose, given its faster onset of action, longer duration of activity and improved ability to reverse the effects of synthetic opioid-induced opioid overdose,” commented Stifel analysts in January. 

The company plans to launch the medicine, which takes the form of a nasal spray, in the US in the fourth quarter of this year. Stifel analysts expect the treatment to gain at least a 25 per cent share of the opioid overdose market, with sales reaching $181mn by 2027. There is some evidence that Narcan is becoming less effective at dealing with overdoses of synthetic opioids, such as fentanyl, which are becoming more common across North America. 

According to the FDA, there were almost 102,000 fatal overdoses in the US in the 12 months to the end of October 2022, primarily as a result of synthetic opioids. Meanwhile, Stifel estimates that around 5.4mn packs of Narcan were sold in the country last year.

However, the primary near-term driver of sales for Invidior will almost certainly be Sublocade, a once-monthly buprenorphine injection, which accounted for nearly half of all sales in the year to the end of Q1 2023. Management has previously predicted that sales would peak at $1.5bn by 2030, and cross the billion-dollar threshold in 2025.

“Sublocade patients at the end of the first quarter were approximately 95,000. This is just over one-third of the way toward the estimated 270,000 patients we're targeting to achieve our [...] net revenue goal for this important treatment,” said Indivior chief executive Mark Crossley on an April earnings call. “While we're pleased with our progress, it still only represents 3 per cent of the 3.1mn people diagnosed with opioid use disorder.”

Residual risk?

Although demand for its market-leading treatments will almost certainly remain high, Indivior is not immune to competition. In May, the FDA approved a second long-acting injectable for the treatment of opioid use disorder, a buprenorphine-based drug called Brixadi from Swedish pharmaceutical group Camurus (SE:CAMX). For the past five years, Sublocade has been the only product of its kind available in the US – and Brixadi will no doubt claim some of its market share.

But the growing demand for treatments for opioid use disorder means that Indivior’s revenue and profit figures should continue to rise. There are also some residual legal matters that could have an impact on the bottom line – although this looks increasingly unlikely. The company is still in settlement negotiations with two additional groups of plaintiffs over the Suboxone claims, and a trial is scheduled to start on 18 September if no agreement has been reached.

The company has set aside $290mn to deal with the total impact of the litigation. Analysts at broker Jefferies called the first part of the settlement “a positive step,” stating: “With the 42 states settled, the other two remaining class actions are with direct and end payors. Although the final outcomes for these are uncertain, we view it positively that 1) one has been settled; and 2) the settlement is in line with the original provision (thus the overall provision should reduce from $290mn to $187.5mn).”

FactSet broker consensus puts Indivior’s full-year price/earnings multiple at 19.2, although this is predicted to fall to 13.2 by the end of next year. The shares have been trading higher since the first Suboxone settlement was announced at the start of the month, but they are still lowly in comparison to the company’s earning potential. In the longer term, Indivior will need to diversify into new therapeutic areas. For now, it has to keep supplying its products to the people and communities that need them.