MENU

Why the Indivior share price could be a FTSE 250 buy after today’s 30% fall

Image source: Getty Images.

FTSE 250 pharmaceutical firm Indivior (LSE: INDV) dropped 30% when markets opened on Wednesday.

The company said that it was withdrawing its profit guidance for the year due to the launch of a cheaper generic rival to its Suboxone Film treatment for opioid addiction.

What’s happened

Indivior has been fighting court battles for several years to prevent a generic version of Suboxone Film from coming to market. Despite these efforts, two generic alternatives were approved by the US Federal Drug Administration on 14 June.

One firm, India’s Doctor Reddy Laboratories (DRL), went ahead immediately and launched its product on 15 June, despite being involved in ongoing patent litigation with Indivior.

On 18 June, Indivior managed to obtain a temporary restraining order preventing DRL from continuing with the launch, but by this point the Indian firm had already stocked its distribution channels with product that apparently can still be sold while the restraining order is in place.

Why it matters

As a result of the DRL launch, Indivior says that its market share has fallen by 2.5% to 52% in less than one month. To compete with the generic pricing, it’s now selling Suboxone Film at a discount of 75%-80% below list price. The company estimates that revenue will be at least $50m lower than expected this year as a result.

There’s also a second problem. Sales of Sublocade, a new monthly injection treatment from the firm for opioid addiction, are growing more slowly than expected. The company says that “friction in the new distribution and reimbursement model” is slowing prescription growth. I’m not sure exactly what this means, but management is working to fix these issues.

Are the shares cheap?

Chief executive Shaun Thaxter expects Sublocade to generate $1bn+ of annual sales when its growth peaks. My Foolish colleague Rupert Hargreaves believes that this patent-protected treatment could replace lost profits from Suboxone, and guarantee the company’s long-term future.

The problem for investors is that Indivior’s near-term profitability is dependent on the outcome of several rounds of uncertain legal action. With generic competition starting to bite and no guidance on profits, I’m inclined to stay away for now.

A big faller with a 6% yield

One falling stock I might consider is gambling software group Playtech (LSE: PTEC). This company has issued two profit warnings over the last year due to poor trading in Asia. The second of these came on 2 July and caused the stock to fall by a further 26%.

To combat this weakness in Asia, Playtech is focusing its efforts on expanding into newly-regulated markets such as Eastern Europe and Latin America. Its software can be used in both retail and online environments, so it’s a good option for traditional bookmakers wanting to expand online.

Cheap enough to buy?

At the last-seen price of 495p, the share price is now nearly 50% lower than it was one year ago. Profit forecasts have also fallen, but only by around 25%. This has left the stock looking relatively cheap, on a 2018 forecast P/E of 8.4 with a prospective yield of 6.1%.

Although there is still a risk of further problems, I think the shares could be worth considering as a contrarian buy at this level.

Capital Gains

In the meantime, one of our top investing analysts has put together a free report called "A Top Growth Share From The Motley Fool", featuring a mid-cap firm enjoying strong growth that looks set to continue. To find out its name and why we like it for free, click here now!

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.