The chief executive of Indivior, the FTSE 250 addiction specialist, flew into London last week for a brief visit, including to catch up with employees at the group’s UK office in Slough.
Staff at the mid-cap pharmaceuticals company should have had cause for encouragement from Mark Crossley, the American former finance chief, after more than five years of uncertainty for the workforce and investors on both sides of the Atlantic.
Indivior has been beset by costly patent litigation as well as the fallout from a US regulatory investigation into the marketing of Suboxone Film, its bestselling anti-opioid treatment.
Finally, though, Indivior is showing signs of turning a corner as it prepares to issue full-year results on February 22.
Indivior was spun off in 2014 from Reckitt, the consumer goods group behind Nurofen and Dettol, and has built a dominant position in America, where its treatments are prescribed to recovering addicts to reduce withdrawal symptoms.
However, its reputation, balance sheet and share price were hammered by the lawsuits and litigation.
In 2020 Indivior agreed to pay $600 million to US authorities and pleaded guilty to a criminal charge to resolve an investigation into the marketing of Suboxone Film.
The company, whose global headquarters are in Virginia, had continued to battle lawsuits over allegations from groups of claimants that it violated antitrust and consumer protection laws in marketing Suboxone.
In a potentially pivotal moment in October, Indivior reached a $385 million agreement to resolve outstanding legal claims with direct purchasers, or drug wholesalers, in the US before a trial that had been scheduled to begin late that month.
That agreement followed shortly after a $30 million resolution with insurers in America in August and a $103 million deal in June to resolve claims brought by more than 40 states.
Significantly, Indivior confirmed in its third quarter results in November that the agreement had removed the “material uncertainty related to Indivior’s going concern basis of accounting”, which it had issued alongside its half-year results in July.
The agreements are believed to remove the bulk of the outstanding claims facing Indivior and have allowed management to more clearly focus on the company’s drugs pipeline and investments.
Indivior had $774 million cash and investments at the end of its third quarter and expected to pay the $385 million settlement from its cash in its fourth quarter.
The progress on wading through the protracted litigation has gradually lifted the overhang on Indivior’s share price. The stock, which traded at more than £20 in 2018, hit a low of about 173p in January 2020 but have since rallied, hitting £19.78 a year ago. The price has also been supported by a share buyback.
The focus for investors is now on the outlook for Suboxone Film as it loses market share to generic rivals and more significantly the growth prospects of Sublocade, its oral next-generation injectable anti-opioid treatment.
Shortly before Christmas, Indivior reached a patent dispute agreement with Actavis Laboratories, a subsidiary of Teva, the generics drugs company, which delays its competitor launching a copycat version of Suboxone Film in the US by about nine months to 2025. The agreement is expected to slow competition and market share losses for Suboxone Film, although there are already four other generic versions on the market.
Suboxone Film share remained resilient in the third quarter, averaging 18 per cent, and Indivior reiterated its full year net revenue and profit guidance, boosted by Sublocade.
It expects net revenue between $1.03 billion and $1.09 billion, growth of 18 per cent at the mid-point compared year-on-year.
Sublocade, meanwhile, is set for revenues of between $610 million to $630 million, compared with previous guidance of $590 million to $630 million, as it continues to expand sales in the US health system, including in prisons. That was offset by weaker than expected sales of Perseris, its treatment for schizophrenia which forms part of Indivior’s attempts to diversify its portfolio.
Those efforts have also included seeking to enter the cannabis use disorder market via a strategic collaboration in June 2021 with Aelis Farma, a private biotechnology company in Bordeaux.
Advice Hold
Why Indivior seems to be through the worst of the litigation and retains a dominant position in the market
Rio Tinto
Rio Tinto has had its fair share of upsets. The Juukan Gorge disaster that saw the company demolish a sacred cave looms particularly large. So investors will be relieved that the mining giant avoided any Anglo American-shaped disasters in its latest quarter. Production figures were in line with consensus and up 3 per cent at its core Pilbara mine in Australia (Emma Powell writes).
This year will be dominated by work finally starting on the development of the Simandou in Guinea, the world’s biggest untapped high-grade iron ore deposit. Rio co-owns one half of the deposit through its Simfer joint venture with a Chinese consortium led by Chinalco.
Once fully ramped up, the project is expected to produce 27 million tonnes of iron ore for Rio every year, which would equate to about 8 per cent of output from Pilbara. The idea is that the high-grade ore Rio expects to mine can be used to produce steel in a less carbon-intensive way, which means it could fetch a premium price.
Rio’s share of capital expenditure will be $6.2 billion over the next three years. Together with essential spending including maintenance and replacement of assets, total capital expenditure is forecast to total $7 billion annually over the next three years.
Shouldering the funding burden should not be an issue: the group has churned out cash of between $12 and $25 billion over the five years to 2022 and analysts forecast free cashflow of $7.11 billion next year and $6.9 billion in 2025, after capital expenditure. That is expected to support a dividend of 414 cents a share this year, which would translate to a dividend yield of 6 per cent at the current price.
Macroeconomic fluctuations are a potential curveball — particularly in China, one of the world’s largest steel importers. Those nerves are reflected in what investors are prepared to stump up for the Anglo-Australian miner. An enterprise valuation of 4.6 times forecast earnings before interest, taxes and other items is towards the lower end of the long-running range.
Iron ore prices rose 17 per cent in the final three months of last year, helped by stimulus from Beijing. Rio is betting on a recovery in Chinese demand taking hold in the second half of the year. A depressed valuation should help investors stomach the lingering uncertainty.
Advice: Buy
Why: Strong cash generation should support dividend