Indivior plc

The opioid crisis in the US claimed many lives and the US government went after pharmaceutical companies manufacturing drugs for opioid recovery with a vengeance. Indivior, an LSE listed company, was one of them. It manufactures buprenorphine-based prescription drugs for opioid dependency and related mental disorders.

The US Department of Justice (DoJ) is suing the company for $3bn in damages, which would more than wipe out the equity of the company. Its current net worth, adding back provisions of $438m for the case, stands under a mere $650m as at December 31^st, 2019.

Further, its blockbuster drug ‘SUBOXONE’ went off patent in February 2019, which spawned generics competition, and was the main reason for decline in revenues from US$ 1bn to $785m in 2019. Operating profits before taxes fell from $292m to $178m.

Management has indicated further revenue losses in 2020 to US$ 525-585m with losses of $20m to $50m – primarily to grow market share for its two recently approved drugs ‘SUBLOCADE’ and ‘PERSERIS’. Management sees combined potential annual sales of $1.2bn for these two drugs.

The company is selling for GBP 325m (or US$ 400m today) at the current share price of 44.44p per share. On every indication of past performance, this is absurdly cheap. Management ability, therefore, appears to be grossly undervalued in the market.

The crux of the matter appears to hinge on the DoJ trial beginning May 2020. Management are at pains to disclose that they cannot predict with any certainty what the ultimate cost will be.

An interesting clue for a prospective buyer is offered by insider purchases in recent weeks. The head of the audit committee (and non-executive director) purchased 50,000 shares at prices ranging from 37.54p to 44.46p between February 25^th and March 3^rd. In addition, Goldman Sachs, current holder of 12% of the equity, purchased over 14m shares at prices around 43p in the week ending March 23^rd.

The market tends to overvalue lawsuits resulting in depressed share prices. While there is no way we can handicap the odds of outcome of the lawsuit, it would not be unintelligent to invest in Indivior plc at current market prices – preferably as part of a group operation of similarly undervalued situations. In the aggregate of such situations, the odds are likely to favor the investor.