Indivior £15.99
Loss to date: 6.8%

Consistent upgrades to earnings from both the company and analysts resulting from strong growth in OUD (opioid use disorder) treatment Sublocade prompted us to turn positive on Indivior (INDV) in November 2022.

We argued the shares looked too cheap against the growth potential of the business but caveated the positive narrative because of the potential for adverse legacy litigation.

Both scenarios seem to be playing out at the same time after a recent trading update (16 February) showed better than expected growth, but also an unexpected $290 million exceptional provision related to legacy multi-district litigation cases.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

The shares have dropped around 15% since the trading update which saw the company fall into a full year net loss of $183 million.

The company said initial mediation meetings in late January 2023 provided new information on the ‘previously disclosed contingent liability’.

The provision is the board’s best guess and Indivior was keen to point out the final aggregate costs may be ‘materially’ different from the provision set aside.

This casts a shadow over what were otherwise positive strategic developments. Peak sales from Sublocade are expected reach more than $1.5 billion while sales of extended-release schizophrenia drug Perseris are expected to reach peak sales of between $200 million to $300 million.

The company also confirmed plans for a secondary US listing on Nasdaq which is expected to happen in the spring.

Indivior ended 2022 with cash and investments of $991 million, slightly down from $1.1 billion in the prior year after completing a second $100 million share repurchase programme which resulted in the company cancelling around 3% of its outstanding shares.

WHAT SHOULD INVESTORS DO NOW?

Although we recognised litigation as a risk, we did not expect the magnitude of the latest provision on top of the $607 million Department of Justice settlement agreed in 2020.

It seems to us an impossible task to assess the reasonable likelihood of ‘new information’ cropping up on legal cases which turn contingent liabilities into future provisions. We think it would be prudent to cut our losses now.

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