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Is Indivior a falling knife to buy after plunging 20%?

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Shares in FTSE 250 drug maker Indivior (LSE: INDV) took a battering Wednesday, losing 24% at one point in morning trading. As the firm released first-half figures, it also issued a profit warning over a bigger-than-expected financial hit from a generic competitor for the firm’s key opioid addiction treatment Suboxone.

Dr. Reddy’s Laboratories, an Indian pharmaceuticals firm, has been temporarily prevented from selling its generic competitor by a preliminary injunction on 13 July, but it seems that in the preceding days the firm was able to get a large amount of it out to the market.

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Indivior had anticipated a 2018 revenue hit of at least $25m, but now says it could be “materially higher“. Although sales of Dr. Reddy’s alternative have been stopped for now, the drug had already gained Food and Drug Administration approval in the USA. That approval is being contested by Indivior, alleging that it infringes on its patents, and the whole issue is heading for the US courts with both sides seeking a speedy judgment.

Profits down

The rest of the H1 results seemed barely significant in comparison, but included a 7% fall in net revenue at constant exchange rates, and a 34% drop in adjusted operating profit with adjusted EPS down 16%.

The question is, are the shares an oversold bargain now? I’d say that is a total gamble. Should the courts rule in favour of Indivior, we could see business back to usual. But there will still be a one-off hit from the generic drug already released, and the competitors will still be there when the patent expires.

With around 80% of Indivior’s 2017 revenue coming from Suboxone and making it pretty much a one-trick pony, could a judgment in favour of Dr, Reddy’s even wipe out the company?

Another faller

Among the rest of the day’s fallers, my eye was caught by Tern (LSE: TERN), which describes itself as an “investment company specialising in the Internet of Things.” That’s something which makes me a bit nervous these days, as I can’t help feeling it’s a buzz phrase that has perhaps been overhyped a little.

Tern shares lost 16% in early trading, on the day the company revealed that it has raised £2.9m through a placing at 26p per share. That was 6p lower than Tuesday’s closing price, so a drop to just under 28p in response doesn’t seem all that surprising.

Chief executive Al Sisto said it will “enhance our opportunity to further develop our underlying net asset value,” which I take to mean keep the company afloat for a while longer until it achieves sustainable profitability.

Asset acquisition

There was other, apparently good, news on the day too, after InVMA, a company in which Tern has a 50% holding, announced it has acquired “the intellectual property and other assets of  Cambridge-based AMIHO Technology.” AMIHO, apparently, is working on “the problem of connectivity for the smart energy industry.” And though I don’t pretend to understand what that means, it sounds like it’s developed a bunch of application-specific communications technology.

What does it all mean for me as an investor? Not a lot, frankly. What I see is a ‘jam tomorrow’ company working in a sector that I don’t really understand, and whose share price has been gyrating wildly. Not for me.

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Alan Oscroft 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.

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