Indivior PLC (INDV) 2017 Q1 法說會逐字稿

Good day, and welcome to the Indivior PLC First Quarter Results 2017 Conference Call. At this time, I would like to turn the conference over to Mr. Shaun Thaxter, Chief Executive Officer. Please go ahead, sir.

Good morning, everybody, and welcome to our first quarter financial results call. I am the CEO, and I have with me Mark Crossley, our CFO; Christian Heidbreder, Chief Scientific Officer; and Javier Rodriguez, Chief Legal Officer. As usual, we're going to make some preliminary remarks, and then we'll be happy to take your questions.

So we're obviously pleased. We're off to a good start to the year. Our Q1 results were in line with our plan, which as you know, has seen no material deterioration in the market environment. Therefore, we're pleased to confirm our financial guidance for the current year and to confirm the spending profile within the guidance. I hope you've all noticed that our expenses in Q1 were phased to have lower levels of spend on litigation and R&D, while the incremental investment will impact progressively from Q2 onwards.

We're pleased with our progress against our key strategic priorities in the U.S. The Suboxone Film share remains resilient at just under 60%, despite ongoing intense competition, particularly in the managed Medicaid sector. We remain on track to file our NDAs for both our major pipeline products with the FDA this year. The RBP-6000, the monthly depot of buprenorphine; and RBP-7000, the monthly depot of risperidone, are progressing well.

We're going to invest appropriately across the year to help ensure the successful launch of these products upon approval. And you're aware that we're going to increase our investment in the range of $40 million to $60 million this year to ensure that we have a successful launch. Our finances continue to improve, with our net cash having increased to $182 million at the end of Q1.

With respect to our 2 big risks, our legal matters, there's no new news to share with you. We continue in discussions with the Department of Justice about a possible resolution to its investigation. But of course, as we've said before, we cannot predict with any certainty whether it will reach -- we will reach ultimate resolution with the DOJ or any or all of the other parties or, indeed, the actual cost of resolving all these matters. We've given more detail on this in pages 5 to 7 if you'd like to get the latest information there.

With respect to the ANDA litigation on the generics, you are aware that we are awaiting a court decision with Dr. Reddy's. We expect this decision to come any day now, really, but we don't control the timing of the decision from the court, so we would expect to receive it sometime this quarter.

So just to summarize the key detail of the results. Net revenue growth was 3% to $265 million, primarily reflecting strong market growth in the U.S. Operating profit of $128 million was up 27%, primarily reflecting lower litigation and R&D expenses, which due to planned phasing of activity, are expected to increase over the remainder of the year. In addition, planned incremental investments in 2017 of $40 million to $60 million related to our key pipeline assets are expected to accelerate from Q2 onward.

Net income was $80 million, which on an adjusted basis, increased 46% after a lower tax charge of 32%. Cash balance at quarter-end increased to $729 million, giving net cash at quarter-end of $182 million. I know that you're all interested particularly in an update on the progress with RBP-6000, our monthly depot of buprenorphine, so I'll now ask Christian to give you an update.

Thank you, Shaun. First, I will update you on the status of RBP-6000, our monthly depot of buprenorphine. I am delighted to tell you that we are on track to file our NDA with the FDA in the current quarter. I can also preview for you the information that we are proposing to present at the 79th Annual Scientific Meeting of the College on Problems of Drug Dependence, also called CPDD, that will be held in Montreal, June 17 to 22, and how we are hoping to share this information with investors. For CPDD, we have submitted an abstract for late-breaking research, which, if approved, may translate into a final talking session totally dedicated to important late-breaking findings that were generated after December 9, 2016.

This presentation will summarize the key findings of our Phase III trial that, as you know, assess the efficacy and safety of RBP-6000 in average, seeking medication assistant treatment for opioid use disorder. The presentation will also provide a high-level summary of our exposure response modeling that established a very clear relationship between buprenorphine plasma concentrations as consistently delivered by RBP-6000, predicted whole brain mu-opioid receptor occupancy, abstinence, opioid craving and withdrawal symptoms. Within a few days of CPDD, we then propose to do a webcast event for analysts and investors, who will have the opportunity to review these data in a bit more detail with Q&As. We don't have a final date for this event yet, but we will let you know as soon as possible.

Very importantly, we are committed to present our Phase III data at 4 additional conferences in 2017: first, the American Conference on Pharmacometrics, also called ACOP, in Fort Lauderdale, October 15 through 18, 2017, with a focus on our PK/PD/receptor occupancy model based on our Phase III trials; second, the Annual Meeting and Scientific Conference of the Canadian Society of Addiction Medicine, also called CSAM, in Niagara Falls, October 19 to 21. This will be yet another session [indicated in our] Phase III efficacy and safety results. Third, the Annual National Conference of the Association for Medical Education and Research in Substance Abuse, also called AMERSA, in Washington, D.C., November 2 to 4, with a focus on our health economics and outcomes research Phase III endpoints. And last but not least, the Annual Meeting of the American College of Neuropsychopharmacology in Palm Springs, California, December 3 to 7, 2017. And now back to you, Shaun.

Thank you, Christian. Well, I'm sure, as many of you know, that Jason Thompson has joined us as VP of Investor Relations and is gradually assuming responsibility for our Investor Relations activity. Tom Corran is handing on the baton, although he will be around with us for a while to help with the transition. So I hope that you will join me in welcoming Jason and thanking Tom for his wisdom and guidance and immense contribution over the first 2.5 years of our life as a PLC.

So that concludes our formal remarks, and now we are happy to take your questions. So as you ask them, if you could please give your name and the institution you represent. And now I hand it back to the operator.

(Operator Instructions) We'll now take our first question, which comes from Graham Parry of Bank of America.

So I've got 2. Firstly, on the loss of the managed Medicaid contract, you talked about that being a much more competitive area. I wonder if you could just help us or remind us what percentage of your U.S. business is managed Medicaid? And also what percentage could still turn over in contracting to the remainder of this year? Or are you pretty much locked in for the next 12 months? And it's really -- next year, we have to start thinking about those contracts kicking in again. And then secondly, a question on RBP-6000. A competitor data from CAM2038, Camurus released some long-term Phase III data very recently that showed in the headline data, an average of 75% of urine samples negative for illicit opioids at 48 weeks. Can you help us interpret that data in the context of your headline data on RBP-6000 that you released at the R&D Day last year, which showed a 48% of samples opioid free in weeks 21 to 34, so that we can perhaps try and work out how we should compare those 2 numbers?

Okay. So I'll take the first question, then I'll ask Christian to take the second one. We've always said that the most price sensitive part of our business is about 25% to 30% of the business in the U.S. And the U.S. comprises 80% of our revenues. So the government, that comprises the sort of managed Medicaid and cash pay sort of side of the business. With respect to the sort of level of contracting, yes, you're right, contracting terms tend to go on a 12-month cycle. But all of the contracts have escape clauses that they can be got out of along the way. So I would sort of proceed with caution. We're thinking that because a contract's signed, it's definite and it's banked, and it can't be broken. But generally, they do work on a 12-month cycle. So Christian, would you like to take the question on Camurus?

Certainly. Regarding CAM2038 and their recent press release regarding the 75% of urine samples negative for illicit opioid across the 48-week period. You were mentioning 48% in abstinence in RBP-6000. Please remember that this was at the 6-month time point. We are currently evaluating our data following 12-month exposure. We only have interim analysis, so I will not be able to comment on our numbers. Please keep in mind, however, that the definition of the 75% needs to take into account a lot of factors. For example, are we talking about completers only? As you know, Camurus is working on a mixed patient population of new to treatment with also very stable patients. So it's very important to understand the percentage of patients in each group; how were missing data handled? And last but not least, as you know, booster injections were being used with the Camurus product. So we are currently on track, as we said before, to file our NDA. I will not comment any longer on our own long-term safety extension study. The results will be part of the NDA submission.

We'll now move to our next question, which comes from Nick Nieland of Citi.

I just have 2 questions. Firstly, what would be the magnitude of the impact on your gross margin from the mix effect of increasing sales of RBP-6000, obviously, assuming a successful launch from the beginning of next year? And secondly, given the progress in your net debt position, what do you plan to do with your bank loans?

Mark, would you like to?

Sure. Nick, we haven't commented or given guidance with regards to gross margin. And I think we'd probably handle that when we get to providing guidance on 2018 near the end of the year. With regards to the capital structure and the use of the capital structure, I think if things remain, we still are taking the cash to the balance sheet. We continue to have the 2 major overhangs on the business that Shaun spoke to in his introductory remarks, specifically the ANDA and the various investigative matters. And until those -- we come through those and get certainty with regards to the resolution, we're going to continue to keep the cash there to help enable what the actual resolution is, as well as the strategic imperative of a very successful RBP-6000 launch.

(Operator Instructions) We'll now move to our next question, which comes from Nick Keher of RBC.

First of all, on top-line revenues in the U.S., you also mentioned a destocking effect in the period. Could you give us an idea of how big that was, what the quantum was on your actual U.S. revenues in the period?

Sure. What we've talked to with regards to kind of the market conditions is we're seeing low double-digit growth on the top line, a modest share loss during the period, but mostly happening at the very end of the quarter, reflecting the managed Medicaid losses that we've talked about that will then carry a shadow through the rest of the year. That, plus the destocking, account for the amount of growth that we've got in the market. We're not specifically talking about the levels of actual destocking, but if you work through your models -- we've talked previously that the price increase and mandatory rebates associated with that are offsetting our tactical rebates, so that can get shipped into the ballpark.

Perfect. And then there was a very minor change in the size of the provision in the period from $220 million to $218 million. Are we just being a bit more specific now on not because you've got greater visibility what the top charge will be? Or is there any other reason why the value's changed?

The value's changed, and it just has to do with the accounting treatment. As you know, with regards to the accounting guidelines, it typically consists of the settlement plus the very direct cost of reaching that settlement. So what you've seen is that we've had about a run rate of about $1 million worth of cost per quarter since we've taken the provision with regards to the exact portion of the discussions with the DOJ on the settlement. Other costs related to the other investigative matters all flow through the normal P&L.

Okay. Perfect. And then finally just on actual SG&A and R&D costs going forward for the rest of the year, what kind of profile should we be expecting? Because obviously you have outperformed quite materially in Q1. And should we expect this reversal to happen from Q2 onwards and to build up during the year again? Just a bit of a help in terms of modeling for the rest of the year.

Sure. I think Shaun has talked through a little bit of the dynamics in the opening. The first thing is that we do confirm our guidance and the cost profile that was built into those. So I think we believe that, that guidance holds. Primarily in Q1, it was year-over-year differences in legal and R&D phasing in activity, specifically things like the Alvogen activity was delayed into Q3, in the back half of the year. As we look moving forward, I think the activities parallel very nicely with regards to the key value drivers that we have for the business. The first thing is that the R&D activity will pick up with regards to the submissions and the new pipeline assets that we're working on with regards to AP on that. $40 million to $60 million of incremental investment, which we talked about, the different go-to-market model at the fiscal year-end, the investment we need behind that, we continue to remain compliant with engagement with doctors on reimbursement, as well as the medical story, is all going to be ramping up into the back half as well as the typical launch activity you'd expect leading into that.

And then lastly, the legal activity that we have, you have a calendar of events with regards to when those things are happening. We continue to vigorously defend our IP with regards to the Mylan and Alvogen trials and expected appeals coming out of the decision that should come within this quarter. So -- and then of course, the various government investigations that we've spoken to. So that accounts for kind of the ramp-up in costs, Q2 through Q4.

(Operator Instructions) We'll now move to our next question, which comes from Patrick Chen of Morgan Stanley.

First, a big picture on pricing. Can you give us a bit more color on where you're seeing the most pressure in pricing right now and from which players, whether branded, generic and which generic specifically? And secondly, on -- that is more point of clarification, but can you remind us if there is any requirement on the speed of debt paydown? Or are you free to pay down as you will?

Okay, so the pressure on pricing, I mean, there's been a long-term sort of gradual glide path on generic pricing. So we're seeing that roughly in the sort of 60% discount off of list range at the moment. So there's no real sort of disruption to that trend, obviously, as it glides down the gap, the gap continues to widen. We are seeing some increasingly sort of desperate moves from the branded competitors as they're failing to make progress in the doctor's office. That they're targeting key Medicaid accounts with heavy price discounting to try and generate some volume, which is understandable. So that's why we're sort of separated out this time, managed Medicaid pails because clearly that cheap pricing doesn't work with value pails. But where people are just saying, well, I'd like to make my decisions based on value, but the practical reality is I'm forced to focus on cost, which really is the managed Medicaid sector, that's where we think the vulnerability is. So it's more targeted account-by-account from branded competitors looking for a little bit of extra volume than it is a wholesale switching from generics.

And then with regards to the debt, what you've seen so far from us is we have made some strategic repurchases that interact nicely with the covenants and the quarterly mandatory payments, as well as the cash sweep at the end of the year to take advantage of the various thresholds within there, within the fiscal year '17. As of now, we're expecting kind of a normal paydown in line with those covenants.

We'll now move to our next question, which comes from Paul Cuddon of Numis Securities.

I just have 2 questions. We've discussed in the past a alternative supply chain being required for RBP-6000. And I would be grateful for sort of any insight you can provide in how that's coming together. And then secondly, Christian, I appreciate your comments on Camurus, but perhaps you could elaborate on some of the -- testing data that's come out on Camurus, I think, in December, where it looks like 2 of their doses don't last the entire month. And if you could comment on your 100 and 300 collection lasting a month, that would be great.

Okay. So yes, there you're right to identify that the distribution system for the RBP-6000 will be different to the sort of traditional pharmacy model. We think that that's important because we want to minimize the potential for diversion and misuse of the product. So what we're working towards, and have made good progress with the support from the DEA, is a model where the product gets shipped directly to the physician's office, where it is going to be administered into the patient. So that the patient never really handles the product, so they don't have the opportunity to do anything with it that they ought not to do.

Clearly, it is a change. We have spent an immense amount of energy and time benchmarking how other similar distribution models work, so that we can benefit from the work that others have done and draw learnings from that to build the strongest distribution system that we can to support the product. So it is an additional cost, that's part of the extra cost that's going in this year. But I think as investors, there is a value to that because it helps support the overall ongoing asset to always be trying to bring down the diversion and misuse in the disease space. And of course, it's a point of competitive advantage over time, because it's a cost of entry for other potential competitors to have to think about. So we're making very good progress there. Christian, would you like to pick up on the other point?

Absolutely. So please remember that RBP-6000 was really designed to establish a very clear correlation between plasma concentrations of buprenorphine and, again, predicted mu-opioid receptor occupancy in the brain. So the reason why we embarked on a very refined PK, PD and receptor occupancy model is to clearly establish that relationship and then, ultimately, link the pharmacokinetics to the pharmacodynamic endpoints in our Phase III trial, looking at abstinence but also withdrawal symptoms and opioid craving. What we clearly see with RBP-6000 is that we deliver the therapeutically relevant concentrations of buprenorphine consistently over the entire monthly dosing interval, which is a significant difference versus our competitors in this area.

The reason why we also are focusing on 2 dosage strength is, number one, all subjects are administered with the 300 milligram dosage strength. And the reason for that is to make sure that during the most vulnerability period of patients at the beginning of treatment, we make sure that they will not suffer from withdrawal and opioid craving that may ultimately lead to relapse or reinstatement of drug seeking and drug taking behaviors. The 100 milligram may then give physicians the flexibility to either keep patients on the 300 milligram because they estimated they are doing extremely well, or because of inter-individual variability in pharmacokinetics, bring them down to 100 milligram for the remaining part of the treatment.

(Operator Instructions) We'll now move to our next question, a follow-up question from Graham Parry of Bank of America.

Just had a couple of additional financial questions. So firstly on the COGS ratio, that was a meaningful improvement on first quarter '16. Can you just help us understand the dynamics of that? Any one-offs that would have benefited it in the quarter? And how that might fluctuate through the course of the year? And then secondly, on tax, again, your tax rate was, although a little below Q1 '16, it was above the annual run rate since 2016. Can you just talk us through, again, your expectations for the remainder of the year on tax?

Sure, Graham. With regards to the COGS, we did have some favorable one-offs within the quarter with regards to volume associated with inventory builds and some rest of world, one-off shipments favorably impacted that. We'd expect the run rate to be in the 91 to 92 range, as we've typically seen in the past. With regards to the tax line, yes, the rate's a little higher than the guidance we gave at fiscal year-end. We'd expect that throughout the year that with the mix of revenue and spend across our different assets, that will still come down to our guidance on the whole year.

(Operator Instructions) As we seem to have no further questions in the queue, I would now like to turn the call back to our speakers for any additional or closing remarks.

Okay. I'd just like to thank everyone for their continued interest and support in Indivior and for participating in our call today. Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.