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The events which could lift Indivior by 95%
Stockbroker Numis believes that shares in specialty pharmaceutical business Indivior (INDV) could surge by up to 95% over the next year thanks to three potential catalysts.
Since its spin-off from Reckitt Benckiser (RB.) in late 2014, Indivior’s strategy has been built on its prescription medicine Suboxone Film. The drug aims to help people tackle addiction to opioids and painkillers.
Indivior has experienced share price volatility over the last 12 months thanks to legal issues and lower profit. In its full year results, pre-tax profit in 2016 dropped to $98m, down from $285m in 2015.
There are several imminent events which could renew interest in the stock. Over the next few weeks, Indivior is expecting a decision from the US District Court of Delaware concerning its patent challenge trials against Dr Reddy’s, Actavis and Par for Suboxone. The companies are trying to get rid of Invidior’s license for the medicine so they can launch similar products.
Numis analyst Paul Cuddon speculates the patent will remain as the company won the first case and evidence was uncovered that Dr Reddy’s is struggling to manufacture a uniform film.
If Indivior loses the case, it would allow others to release a generic version of Suboxone, although they would still require approval from the US Food and Drug Administration (FDA).
Another potential source of upside is a settlement with the US Department of Justice over marketing and promotion practices, paediatric safety concerns and overprescribing of medication by specific physicians.
Cuddon assumes that Indivior, which has $220m set aside for this litigation, will pay at least $300m if a settlement is agreed, although notes this could rise to $500m.
However, he believes it is ‘less material to a longer term cash flow valuation analysis’ thanks to substantial existing cash resources and imminent future cash flow from its injectable treatment RBP-6000.
RBP-6000 aims to treat opioid addiction through a monthly injection and is currently in Phase III trials, with management hoping for approval from the FDA by the end of 2017.
New drug launch
Indivior has upgraded its projected peak net revenue forecast for this new product from a range of $400m to $700m to a higher figure of $1bn.
With a planned launch for the first quarter of 2018, Cuddon attributes most of the share price potential upside to the approval of RBP-6000, if it happens.
Numis has a bull case target price of 640p and the shares currently trade at 328.7p. Its base case target is 490p.