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INDV.L - Indivior PLC


kab60
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Hi guys,

 

I stumpled across a recent spinoff that I think looks interesting. This is by no means a valuation of the company, but it might be interesting for others to dig deeper into. I did a small summary of the stuff that I stumpled across looking through the Prospectus.

 

https://docs.google.com/document/d/1UFljHtQDi2DBqCNuqQYaq3VvjlAiJPADWPjmy4xUOHA/edit (it's messy, I've never done one of these before, and there might be some errors so please do your own due dilligence)

 

Basically, Reckitt Benckiser PLC spun off their pharmaceuticals division as Indivior PLC (probably after being unable to find a buyer). The company does one thing and one thing only; sell pharma to heroine addicts.

 

The market is growing, but competition is growing as well with new generics and branded products entering the scene. However, CEO has been buying back a bit of shares since spinoff and converted his RB options/awards to Indivior options/awards and it's selling at around 4xP/E 2014 (but PE will go up in 2015 due to increased competition and more expenses). They borrow at 4,5%+min. 1% LIBOR so I expect them to stay in business. Anyway, I did a writetup with links if you want to investigate further. Unfortunately, the stocks haven't sold off after the spinoff, but they were spun off just before Christmas, so that may change - or not. I really have no idea.

 

I have no position and don't know whether to initiate one. I've never invested in a pharma company and I'm not sure about the dynamics of generics entering the scene. The current valuation suggests that the future of the company is very dark, but that's not my impression after reading through parts of the prospectus. This is by no means a buy recommendation, but please do chip in with any input. I'm new at this stuff, but there was a couple of things in the prospectus that piqued my interest.

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I'm not sure if it is cheap. Revenue is declining, but I'm not sure how fast and it is a growing market. Management says the business is non-core, but if revenue went up they could probably accept that. Still, treating heroine addicts isn't exactly like treating acne or selling condoms, and there are some litigation issues.

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Is it really that "cheap" on pro forma earnings?  If so, it looks like it's definitely worth further investigation.  Has anyone had time to read the IPO document?

 

https://www.rb.com/documentdownload.axd?documentresourceid=77904

 

I haven't read all of it, but I believe I got most of it. I was mostly looking for management incentives. expectations, past performance and loan terms. I believe you get a pretty good impression of the business from just the first couples of pages, but take a look in the notes as well. There are some litigation issues that I don't really know how to value.

 

Company expects revenue to decline in 2015 due to new generics, but it seems like they have a good relationsship with physicians and actually train them in using their pharmaceuticals, so I think it's unlikely that sales will collapse. Also, it's a niche market and it seems their competitors are smaller players (I might be wrong). There have been generics around for some time, and their main product (they pretty much just have one) stills retains a 60% market share. That will come down, but at the same time they expect the market to grow low double digit.

 

Still, capex and recurring expenses will increase because they're suddenly on their own. On the other hand, it has been a non-core business for RB, so being on their own management can finally invest in the business. Lots of pieces to the puzzle, and I'm not sure how to put them all together. :)

 

They probably do a bit more than $400m net income this year, but next year recurring expenses will go up $40-50m and interest expenses around $45m. If revenues/net income stay stable that's a P/E=5,5 FY2015, but revenue will go down. If revenue goes down 30%, and net income 30% as well, and costs stay up, that might be a PE=9 FY2015. I think this is quiet conservative, but to be honest I'm not sure. The joker might be whether or not their new product from 2016 will get approved by the FDA.

 

From the prospectus:

 

"The increased pricing pressure associated with competition is likely to result in downward pressure on the Indivior Group’s net revenue in 2015, potentially continuing into 2016, before the market adjusts to the increased competitive landscape and before it begins to benefit from expected pipeline launches. In Europe, the Board expects increased austerity measures associated with price reduction decrees and generic first initiatives to impact net revenue."

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  • 1 month later...

Just wanted to update with prelimary Q4 results. Results as expected; revenue declining, but net income of $420m dollar in 2014.

 

http://otp.investis.com/clients/uk/indivior/rns/regulatory-story.aspx?cid=971&newsid=483961

 

More interestingly, guidance for 2015: Based on internal forecasts is for net Revenue in a range of $850m - $880m and net income in a range of $130m - $155m.

 

"However the outcome could be higher in a more positive environment or lower in a very adverse scenario," writes management.

 

CEO bough more stocks in the open market after announcement and now have 425.000 shares.

 

I think it's hard to handicap the downside, but obviously there's a lot of upside in their pipeline. I just don't know a thing about pharma, but here's for more knowledgeable people:

 

RBP-6000 - monthly depot buprenorphine - Current status of Phase 3 trial: Phase 3: RB-US-13-0001: Current plan is to randomize the first patient in Q1 2015.

 

Intranasal naloxone for the treatment of opioid overdose - Pre-NDA meeting with FDA in Q4 2014. NDA submission in preparation under Fast Track Designation granted in Q3 2014.

 

RBP-8000, a cocaine esterase for the treatment of cocaine intoxication - Breakthrough Therapy Designation granted by the FDA in Q4 2014. Type B meeting with the FDA scheduled for Q2 2015.

 

Arbaclofen placarbil - a novel transported prodrug of R-baclofen - Pre-IND meeting with FDA occurred in Q1 2015.

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