Indivior PLC (INDV) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter three results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Shaun Thaxter, CEO. Please go ahead, sir.

Good morning, everybody, and welcome to the Indivior Q3 2016 results conference call. As you know, I'm Shaun Thaxter, CEO of Indivior. Also on the call with me, I have Cary Claiborne, who is the CFO, Christian Heidbreder, the Chief Scientific Officer, and, unfortunately, Javier Rodriguez, our Chief Legal Officer, who would have joined us, has been called away on a family emergency. So unfortunately, he won't be here and we wish him well with what he's dealing with.

I will make an introductory statement and then we will be happy to take a few questions. I assume that you've read the forward-looking statement in the press release. So I will start with the key points about the year-to-date results. The company has recorded a charge of $220 million in the third quarter in 2016 for the investigative and the anti-trust litigation matters noted on pages six to eight of the press release. Because these matters are at various stages, Indivior cannot predict with any certainty the ultimate resolution nor the cost of all the matters. The final amount might be materially different from this reserve.

In the nine months, net revenue increased 4% versus prior year to $799 million. This is the third consecutive quarter of net revenue growth. We should note, however, that there are some accelerated shipments in quarter three in both the US and Europe, which flatter this result slightly.

We're very pleased to say that US market growth in 2016 continues to be in the mid to high single digits with a slight increase in growth in recent months. Suboxone film share was at 60.5% and slightly ahead of the 2015 share.

On an adjusted basis, operating profit was $315 million, the same as last year. Clearly, once you take the legal charge into account, operating profit as reported was well below last year. Because of the charge, net income as reported was a loss, however on an adjusted basis, net income at $205 million was ahead of last year.

We've seen further progress on our new product pipeline. Positive topline results from the Phase three efficacy study of RBP-6000, which, as you know, is the monthly depot Buprenorphine were published on August 17, achieving both primary and secondary endpoint.

The Phase three safety extension study was completed in quarter three 2016 and we're on track for current timelines for both the monthly depot Buprenorphine and the monthly depot Risperidone.

I remind you that the next round of Unger trials is due to commence next week on November 7 with the trial against Dr. Reddy on the orange book-listed patents and against activist Parr and Dr. Reddy on the process patent. Other results of the uncertainty around the investigative and anti-trust litigation matters and the imminent Unger trial, the company decided to temporarily suspend the process leading to a US listing of Indivior shares.

I'll turn now to our updated guidance for the full year. Due to the higher market share and faster market growth in the US than we anticipated, and the fact that we now have three quarters of over performance behind us, we are today raising our guidance for the full-year 2016 to a net revenue of $1.60 billion to $1.075 billion. So that's the range on net revenue. And the range on net income is $250 million to $265 million; both at constant exchange and excluding all exceptional items. So for the avoidance of doubt, excluding the legal charge I meant earlier, and assuming that the current market conditions continue for the rest of the year, and that the effect of those accelerated shipments in US and the EU do not repeat in Q4.

Before I open up the call to questions, I realize that you will be wanting to ask us many questions about the charge for litigation matters. Please understand, however, that I really can't comment on any legal matters beyond what's said in the disclosures, as always.

I now invite questions, and if you're asking a question, please, can you identify yourself and the company you work for?

(Operator instructions) Graham Parry, Bank of America.

Firstly, just wondering if you could quantify the benefit of shipments in the quarter? And you talked about the guidance not being expected to occur in the fourth quarter, but it, in fact, actually, could you effectively see a reversal, because of the pulling through of orders?

Secondly, your [fed] to net pricing improving during the quarter. Could you explain the cause of this? Is that list price, lower rebates, or channel mix or something else?

And, thirdly, R&D was down 19% in the quarter. Is that an ongoing trend, given some of the terminations you've seen during the year? And I'm just putting this in the context of the incremental spending that you'd frankly you'd be spending throughout this year. Is that now not going to happen or should we be expecting that to now happen in the fourth quarter?

So your first question on the accelerated shipments, yeah, the quantification is roughly $4 million to $5 million. We don't see the issue of it reversing in the fourth quarter. It was primarily some of the wholesalers taking on additional stock that they're going to maintain from what we understand through the year. So it was really a one-time benefit, which is why we wanted to call that out in terms of how your look at the fourth quarter. I'll also say, because there's only one quarter left, you can do the math on the range and estimate, well, what Q4 would be based on our guidance.

Your question on the net pricing, it's really a year over year comparison that we're talking about where we now are starting to annualize the impact on additional rebates and discounts we took in 2015. So we're not seeing the same kind of year over year negative impact of that that we saw earlier in the year.

And as far as R&D being down 19%, yes, it was in the quarter down, but that's primarily because of the ramp last year and fourth quarter being a higher number. Year-to-date it's down 4%, which is in line with our expectations, so it's not really driven by -- so much by the ongoing change in our portfolio. And I think that was all your questions.

And just to follow up on the pricing, so just to be clear about it. So therefore, you're saying you're not seeing as negative of a price impact year-on-year. But you're not also saying that net pricing is increasing.

That's correct. We're not -- does not impact on our increased guidance.

Patrick Chen, Morgan Stanley.

Thanks for taking my questions. I have two, if possible. One, on the trend on the litigation, but can you give us some color on how you came to a $220 million provision for the litigation?

And secondly, you also mentioned that new physician certifications are running ahead of last year. Do you believe that incremental investment might [be used] on your part to target a growing physician base?

Okay. With the respect to the $220 million, I think we've made it very clear in the statement that this is a provision that's been made for all of the investigation matters that are going on at the moment. We've said for a very long time that we're cooperating with the government. We are answering their questions. And this is just where we are at the moment. So I'm not able to offer you any more color behind the $220 million.

With respect to the increase in newly trained doctors, clearly there is an environment here where patients need to access treatment. The government is doing a tremendous job in creating improved legislative and regulatory framework to encourage more health professionals to, you know, get themselves trained and certified and to provide more access to treatment for patients. All of course within a very responsible framework to make sure that the standards of care are maintained as the distribution of treatment services increases.

We're obviously doing our part to make sure that we not only provide the educational resources to help enable that, but to make sure that we continue to invest in other areas of our business and in compliance infrastructure to make sure that we're able to meet this increase in growth.

Sarah Thomas, Deutsche Bank.

Three questions, please. Just on the US listing, when you made announcement that you were going to list in the US, you already knew about the Unger trial and you knew about the ongoing FTC investigation. So I'm just wondering what's changed here? Is something now worse than what than when you originally planned for this?

Just secondly, could you clarify anything on your relationship with Reckitt in terms of these ongoing investigations given you were still part of Reckitt, kind of what was signed legally or where does full responsibility sit just from a legal perspective?

And then finally, just a high level question on China. I know you said you're going to be filing the tablet this coming quarter. How should we expect the China market to evolve? Do you think you're going to have to invest quite heavily to start to build this market and is that kind of a next year story? What do you think you're going to have to do to get this project off the ground there?

So regarding the US listing, yes, you're correct. We did -- have always disclosed that we've had these legal matters as well as the anti-litigation. I think it's just a convergence of where we were in the listing process with the SEC and where we are in terms of some preliminary discussions regarding the legal matters that we just feel at this time it makes more sense to suspend that until we have more visibility on some of those matters before we complete the listing process.

In terms of the relationship with RB, of course, back at the end of 2014 we became an independent company from RB. So there is no connectivity to RB. And in the last two years we've run our affairs as a standalone company. So I'm unable to, obviously, speak to the relationship between RB and any government litigation. That's something that is clearly a question for them and something I'm not able to comment on.

What I can comment on is from a China point of view that we are progressing our NDA submission in China. We are thinking about our plans for China at the moment, and we will share more information when we're ready as we move forward.

Sarah, sorry. This is [Tom Carr]. Briefly, I would just call your attention to the fact that RB made their own disclosure in respect of the Department of Justice investigation with their Q3 results, which I think were a couple of weeks ago and I'd just urge you to have a look at their disclosure.

Yes, no. I saw that. That was the premise for the question, in fact. It just implied perhaps they had some responsibility for this, whereas I had always assumed it rested with you, if there were to be any fines. So I was just looking for clarification there.

James Vane-Tempest, Jefferies.

Thanks for taking my questions. I have just a few, if I can. Earlier in the year, you talked about releasing some spending particular with SG&A. And just wondering with, I think there's the litigation, is it still happening or is increase in spending reined in, hence the guidance raise today?

A second question is just wondering if you can give us any sense on how contracting has gone. Are you having to give out any more rebates to stay on any kind of preferred lists as we look into 2017?

And a third question is I just saw, I think, depreciation was only $1 million in the quarter and I think it's been 6 a quarter since 2014. Just wondering if there's anything going on there?

And then my final question is I know you say you can't give any more details really around the $220 million, but I just noticed on the balance sheet it was taken as a current provision rather than non-current. I was just wondering if that's because we should see some resolution in the next 12 months from your perspective?

Well, I'll start with the SG&A. Yes, we are still having in our guidance to release more investment in the second half of the year. We're still planning on doing that, have done that and that is in our guidance. We have had some increased legal expense, but we've offset that increase with some of the productivity initiatives we started to talk about in the first half earnings release.

On the depreciation, it is declining. What happened through the first half of the year is the amortization of the global rights from Schering-Plough ended. So our just depreciation will be lower going forward as a result of that coming to an end.

And then I think I'll let Shaun answer the other questions you had.

So on the contract thing, I think there's not really any material change in the contracting environment. As you know, we don't discuss gross to net, because we're a one product company and we talked about that numerous times in the past.

There is continued downward pressure on pricing and there are plenty of competitors in our market sector overall, if you add branded competitors, generic competitors. So clearly, there's downward pressure on pricing. And from time to time on an account by account basis we have to make adjustments as any business would in this type of pricing environment. But beyond the normal sort of ebb and flow of the environment, as you would expect, no wholesale changes.

Max Hermann from Stifel.

Firstly, just trying to understand in terms of looking out into the launch potential of RBG-6000 and what your plans will be for the introduction and launch costs? Trying to get a feel for how that could play out, how much you're planning to invest behind that project on launch on that product.

And then secondly, just in terms of the timing of the litigation provision, obviously, you had known all the matter relating to this in previous periods and haven't provided. So what's the trigger for providing in the third quarter?

Okay. I'll take the last question first. In any type of process like this, we've been aware of these matters for some time. And as you expect, the matters move forwards, and as they move forwards, there comes a time when you feel that a provision ought to be made.

And this is something that the Company has decided in careful consultation with its auditors that the time is now right to make that provision. So I can't really go into any more detail than that. So that takes that question.

And the other question was how much are we planning to launch in the spend, invest in the launch of our depot product? We are unable to talk specifically about that today. We will be talking about our science and more about the depot product at our science day on December 9. But obviously we are approaching this that there's market education work to be done.

This is potentially a transformational product if the product gets approved and if it gets approved for the indications that we hope that will be possible, there's a lot of education work to be done. It will transform the disease base potentially, and doctors will need to develop their thinking and understanding of the patient based on new science and the role that medication can play in improving not only the lives of the individual patient, but also help benefit the communities in which those patients live.

I don't want to get ahead of -- I don't want to get ahead of next year's guidance.

I guess following, I'm just trying to understand whether within your current sort of SG&A in there it tends to be a refocusing or should we be looking at significant incremental events? So is it something that can be coped with by the existing infrastructure, refocusing sales and marketing efforts from Suboxone film into the RBP-6000 or if it's an incremental spend?

And then do you see this as a switch opportunity or do you see this as a kind of a new product introduction?

On the spend, I say we, you know, as Shaun said, we really can't comment on any spending beyond our current year guidance. We'll give new guidance for 2017 on our full-year call. So we really can't get more specific at this point.

Yeah, and with words like switch and other words people choose to use, I always encourage people in the organization not to use those words and not to think like that. What we're all about is giving patients and physicians and payers the opportunity to do what they believe is the right thing for the patient.

Obviously as a company we will talk to them about the merits of our product. They will have the opportunity to consider other products as well, and the doctors will make their decision based on what they believe is in the right thing to do for patients.

So we will go out confidently, enthusiastically, with great energy and commitment, because we believe that our products have some very good advantages that we're able to offer to doctors and patients, always within a very strong framework of compliance of course, and the doctors will make their choice.

So we hope that doctors and patients and payers will see the tremendous benefit of our new product, if it gets approved. And what they choose to do and how many patients they choose to prescribe it to within the framework of a strong psychosocial support program will be up to them. But we believe it's likely to be very well-received. So that's the sort of tone and spirit with which we will be launching the product.

[Mr. Sear], RBC.

Thank you for taking my questions. Most of them have already been asked, but just on RBC-6000 now, just looking toward launch as well, but also to getting the best reimbursement for the product. Are you going to be conducting any further studies for RBC-6000 over the course of the next 18 months?

Well, I think we have an ongoing clinical program. When you launch any new product, it's important not only to have efficacy and safety data that meets and exceeds the standards laid down by the FDA, but also to be able to show what is the value of this product in terms of what does it cost? And what are the benefits that are derived? So what is the value equation? And clearly we're doing studies and gathering data to support all of those areas as we move forward.

Okay, but there's nothing in the schedule as of yet?

No, that's not exactly correct. So it's part of thee (inaudible) trials we currently have - heads economics and outcomes research endpoints that we are collecting not only in the [FACE real] efficacy trial, but also the long-term safety extension trial. And on top of that, we are currently running two observational studies as well to Shaun points, to really understand the cost effectiveness from the product way beyond its clinical efficacy and safety.

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And then, on -- I'm just wondering, since the prescribing cap was lifted, how granular the data that you've got as being the largest provider in the market, what the impact has been so far all the physicians actually prescribing. And have you seen any meaningful prescriber that you think could be equated to the rest of the market? And what stage, if it were out, in terms of adoption as well?

Well, it -- the headline answer to that is it's too early to say. But what is encouraging is that the government worked very hard to raise this cap. And a number of doctors, as we highlighted in our press release, I think it's over 1,400 doctors have sort of got themselves qualified for this.

So clearly, when the legislation changed we had to understand what the process is and doctors have to apply, complete their applications forms, submit them to the appropriate authorities. And so there's a little bit of a lag time while all that administration process is through.

So whilst we not only recognize the courage of the government in driving this forward and the enthusiasm of the doctors to embrace the opportunity, it's too early to say what the actual impact is going to be on patients. Obviously, it will be positive. We just can't quantify it at this time.

And then finally just on the Risperidone product, has there been any further update in terms of commercialization structuring for this or potential out-licensing or anything you can update this as far as the future of the product is at stake?

Yeah, we continue to progress. The R&D time table is all very much on track, so we're pleased with that. We're still evaluating our options. I know you might say we've been doing that for a while. Yes, we have and we're still evaluating, and over the coming weeks we'll be giving more, more consideration to that. And we'll share the news when we have it.

Nick Nieland, Citibank. Your line is open.

Hi, thanks for taking my questions. I have three, please. The first one is about the impact to the launch of Probuphine. Aside from looking at IMS data, which looks very thin up to now, have you noticed any change in the market from the promotion of this product or any competitive intelligence you could share with us? And will it give an indication of the demand for a long acting version of Buprenorphine?

Second question is on our backer, (inaudible). Do you have any update as to how you plan to take this project forward given the individual variability to and the timelines involved in that now?

And the last question is can we expect preliminary guidance for 2017 at the R&D day in December, as you did last year?

So, let's have a look at the -- talk about the launch of Probuphine. We agree with you. It's a minimal, measurable impact on the market. That's not to speak unkindly of the product. We just don't see any measurable uptick that we're seeing yet. But sometimes these things do take time.

In terms of is it an indication of market receptiveness to depot, I think no because there's a very, very different proposition. This is a six-month implant, which has a minor surgical procedure to be completed versus a once a month injectable format.

We know from all of our research with doctors that the dosing interval that they would like to see if they had the choice would be a product that they could administer on a monthly basis, because that encourages the patient to come back.

So, however, lack of impact of Probuphine is one of the contributing factors to why we're performing a little bit better than we thought we might at the beginning of the year. Because whenever any new competitor comes to market, you're very arrogant not to give some consideration that they might win a little bit of market share. So because we haven't seen that, that has contributed to performance through the year.

Christian, would you like to answer the question and then I'll (inaudible)?

So, regarding (inaudible), we have very detailed plan for 2017. The first part of the plan is to work on a new formulation that will allow to hopefully significantly decrease the entire individual variability in exposure of some improved generics followed by an alcohol interaction study with that new formulation. So, we have a very detailed plan in 2017.

And, so, regarding your question on preliminary guidance on FDR and D-Day. At this time, we don't have any plans to do that. We're currently planning on doing it on the four-year call as we had in prior years.

Okay. Thank you.

Jill Walton, Credit Suisse.

Thank you. Most of the questions have been answered. I wondered if you could tell us a little bit more about your rest of world situation. You've highlighted accelerated shipments in Europe, which don't repeat in 4Q. What is behind those, please?

And, looking at the US, you've also highlighted from the beginning or through this year a slightly adverse channel mix. Do you think that that's something that could accelerate next year with all of the political pressure and perhaps people being pushed more to eligibles going from Medicare to Medicaid potentially? I wonder if you could just address the channel mix issue in the US.

I'll start with Europe. So, Europe, obviously a much smaller percentage of our overall revenue.

So, yes, we comment on it to be fully transparent in some of the drivers in the revenue. We don't see that being a major impact relative to Q4. There were some slight additional shipments in certain countries.

But the majority of the timing impact on the accelerated shipments was in the US versus Europe. So, I think that you shouldn't expect any significant change regarding the run rate we've seen for our rest of world revenues.

Yes, on the channel mix, we have seen an expansion in the Medicaid sector. So, as far as we're concerned, we're grateful for all patients who are on our medication. And so we are -- we're pleased to see that.

Where the growth and expansion continues to come from in the future is, I think it's going to be dependent on where the expansion and distribution of treatment services comes from geographically and what impact that has.

We're very pleased that nurse practitioners, who are a very capable group of health professionals now have the opportunity to get trained and treated.

And, as you say, in some of the environmental stuff around [pale] funding that's going to be helpful as well.

[Paul Covins, Numis Securities].

Hey, thanks, guys, just got three. With regards to the monthly depot, I just wonder how much work you've done with potential new prescribers of Buprenorphine and whether in addition to increased number of patients per prescriber there might be a wider prescriber base you could now target.

And, secondly, we've got a flurry of patent litigation in November. Should we expect a kind of quicker time to opinion, given that a lot of it's going over old ground?

And, then, finally, do you kind of have an intended conference slot to present the fuller detail on the monthly depot? Thank you.

So, yes. I mean we very much hope that the prescriber base will continue to widen, over time. The arrival of new technologies with which we're proud to bring one, coupled with the good work done by the government at the legislative and regulatory level.

I think the most important thing is that as the new prescribers come in, it's important to make sure that they are delivering the appropriate standard of care. And I think the government safeguards around training and certification will help insure that.

The IP litigation that takes place this month, as you say, we've known this was coming for a while. Obviously, I can't possibly second guess how long it will take the judge to issue his ruling.

So, I'm not able to give you a view on that, I'm afraid. And, yes, we do have a sort of investor day on the ninth of December, where we will be giving more information around our Buprenorphine once a month depot. We're very pleased, if you're able to join us.

Christian, did you want to?

Yes, and we will be in a position to share with you the topline efficacy results on the monthly Buprenorphine as well as a session dedicated to the monthly Risperidone with clinical efficacy and preliminary health economics and outcomes research endpoint as well.

Okay, thank you. Specifically, some of the secondary endpoints in the deeper analysis of the monthly depo Buprenorphine that I'm looking for. Okay.

Yes, again, in the context of topline results, as we announced, we will have the full data and IDCs on the efficacy only the first quarter of 2017.

James Vane-Tempest, Jefferies.

Apologies if I missed the answer earlier, but I'm going to just ask again. The provision, the $220 million taking as a current provision, rather than a non-current provision in the balance sheet. Just wondering just because if we should see some resolution in the next 12 months. Thank you.

Not necessarily. I mean, so, basically, the way accounting rules work, if there is a possibility that it could be resolved and paid within the next 12 months, we have to include it in current.

As we've said, we can't really say much more about the possible resolution of it and the timing of such, but, because there is a possibility and we would, obviously, like things resolved as soon as possible, that is could happen within 12 months. That's why we have to treat it as a current liability.

Great. Thank you.

(Operator instructions) Olivia Manser from Stifel.

It was just a very quick question on naloxone spray you've launched that in France. I was just wondering if their was an update on potentially launching that in the US or any other countries.

Yes, I think with the naloxone spray in France, that's under an authorization for temporary use. So the sort of story there is the French government were so compelled by the technology that they wanted us to make it available for what they considered to be in the public health interest in France.

So it's not a profitable project by any means, but we think it's the right thing to do for public health. We want to support the French government and any other government that's trying to do the right thing to help patients wherever they may be, so that's there.

But I wouldn't be thinking much beyond the authorization for temporary use in France at the moment. And if we have -- if that changes, we'll be sure to let you know.

Graham Parry, Bank from America.

We saw some additional and a launch back charges again this quarter. So you booked some obviously (inaudible), when I guess you didn't need those launch preparations anymore. But is this it now? Are we done or should we expect to see any more of these before the end of the year?

That, you shouldn't see any more of that. You're talking about in the exceptional costs?

Yes.

It was just some carry over until July that was reflected in the Q3.

Okay.

(Operator instructions) [Phillipa Thomas from Bearings].

Hi there. Could you maybe just talk to us a bit about the potential uses of cash other than of the investment in the organic growth? Is there anything acquisition-wise you're looking at or further debt repayment plan?

Obviously, we don't -- we can't comment on any M&A or business development opportunities that are ongoing. We're always looking at things and considering things.

Currently, we don't have any plans to do any additional debt repurchases. We've actually hit the limit in terms of what we can do in open market purchases.

So unless there was a modification or debt agreements, we wouldn't be able to do any more. We can always pay down faster at par, but just given where we are from the risk, a raw risk management standpoint, we think it's prudent just to maintain our cash levels at this point.

And just to confirm that there are no further questions in the queue at present. I'll return the call back to you for any additional remarks. Thank you.

Okay. Well, thank you very much, everyone, for your interest. As always, we appreciate your support in taking the time to join us for our call.

We will be, as always, at the various investor conferences through the year and we would be very pleased to see you all at our R&D day on the 9th of December, if you're able to join us for that, so thank you very much.

Thank you, sir. Ladies and gentlemen, just to now confirm that this concludes today's conference call. Thank you for your participation. You may now disconnect.