Indivior PLC

LSE:INDV

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by, welcome to today's Indivior PLC First Quarter Results 2019. [Operator Instructions] I must also advise you, meeting is being recorded today, on Thursday, the 2nd of May 2019. And I would now like to turn the call over to your host and the presenter, Mr. Shaun Thaxter, the company's CEO. Please go ahead, sir.

[Shaun Thaxter, CEO & Executive Director]

Thank you. Good afternoon, good morning, everyone, and thank you for joining us to discuss our Q1 results. My name is Sean Thaxter, I'm the CEO of Indivior, and I'm joined by our CFO, Mark Crossley; Chief Legal Officer, Javier Rodriguez; and Chief Scientific Officer, Christian Heidbreder. I will make some opening remarks and then Mark will provide you with more details on the financials. And after that, as usual, we will take your questions.First off, let me begin by expressing our sincere and deeply held disappointment that our stakeholders now face additional uncertainty as a result of the recent DOJ action. We've tried to be as helpful as possible by including additional background details in our press release today.However, the matter is with our External Counsel and we will not be able to answer any questions you may have on this topic beyond referencing today's press release and the press release of the 9th of April.What I would like to emphasize though are the following key points. First, as a management team and as an organization, we are fully committed to remaining our focus and energy on executing our strategy to return Indivior to sustained long-term growth. Second, we remain pilots in the pursuit of our vision to help patients and communities struggling with Opioid addiction. And third, through our business transition, we will continue to invest in our employees, our capabilities and our compliance.With that focus in mind let me now move on to the first quarter results. In summary, Indivior delivered a solid performance in what was a challenging and complex quarter, based on strong execution and on the resilience of our longstanding leadership position in Opioid Use Disorder. Most importantly, we made progress on the top and the bottom line drivers that we believe will support our ambition of returning Indivior to sustainable growth. In the U.S. in particular, we exceeded our internal expectations by achieving net revenue growth despite the arrival of generic film competition to SUBOXONE Film midway through the quarter. This performance reflected 3 main factors.First, the resilience of branded SUBOXONE Film in the face of multiple at-risk generic film entrants with initial share loss at the lower rate than observed from industry analogs. Second initial revenues from the Indivior-authorized generic, which has captured the #1 position in the generic film market. And third, most encouragingly, solid progress with our novel long-acting new products, in particular, SUBLOCADE is tracking towards our guidance and we also launched PERSERIS later in the quarter to positive initial feedback.As a result of this resilient U.S. revenue performance and our streamlined cost base, we delivered both growth in both adjusted operating and net income. This, in turn, helped us deliver a robust quarter in terms of cash, which stood at $1.054 billion at the end of March, up from $924 million at the end of 2018. As you have seen, we have introduced full year net revenue and net income guidance, which Mark will detail in a moment. In arriving at this guidance, we are prudently assuming that we will face an accelerated pace of generic erosion for SUBOXONE Film in the coming quarters. As such, the ranges are quite wide, but they represent our best possible guidance at this early stage in the year.Now turning to the future drivers of our business, we continued to improve our execution with SUBLOCADE, leading to net revenue in the first quarter of $11 million. As we discussed at our 2018 results presentation in mid-February, we have been focused on accelerating SUBLOCADE net revenue by making progress against the twin goals of simplifying the prescription journey and increasing the health care professional prescribing base. We had measurable progress in each key area in the quarter and we are confident we remain on track to deliver our 2019 SUBLOCADE guidance.So let me take you through the KPIs. Beginning with payor coverage, this now stands at 85% of lives covered in the U.S., but importantly, we're making progress and improving the quality of coverage and this includes removing complex and the onerous prior authorization processes with improved communications between our access team and the [ payors ] and moving to a simpler pharmacy benefit where possible.The above actions have resulted in expedited and simplified patients' claims processing and they are positively impacting both the dispense yield rate and the prescription journey time.As a consequence, we achieved our initial dispense yield target in the quarter and are now consistently seeing rates that are above the 50% analog. And the prescription journey timeline remains consistently in the 14- to 20-day range from initiation to injection. Another major initiative we have taken to help accelerate SUBLOCADE net revenue growth is to unlock the opportunity we have with expanding coverage and availability to Integrated Delivery Networks, which I will refer to as IDNs.Our near-term priority is on the IDNs containing the vast majority of buprenorphine medication treatment subscribers. IDNs are important because they are enclosed ecosystems of care, consisting of health care professionals, hospitals and outpatient programs. Each has their own rules and policies for how and where prescribers are able to access treatment. So far in 2019, SUBLOCADE has gained access with a large number of important IDNs, including Boston Medical Center and the Veterans Administration and we are now turning to health care professional engagement and trial in these new treatment providers.As we continue to improve access, we have also been focused on increasing health care professional trial at SUBLOCADE. We have honed the clinical message and continue to work on improving the commercial effectiveness of our sales force for which a key element is the recent implementation of a territory reorganization.While the optimization process is ongoing, we believe that we have a highly capable team of clinical specialists in the field. They have undergone intensive training, focused on SUBLOCADE's compelling scientific messages, developing the skillset required to sell a specialty product and on exercising compliant behaviors across the promotional landscape.We are also supporting our specialists with a robust digital media plan. Since launching last September, over 100 million people have been exposed to SUBLOCADE's online messages while awareness among our targeted diagnosed population more than doubled through the end of 2018. The net impact of these factors is that we are seeing higher quality engagements amongst our targeted health care professional base.This, in turn, is leading to more rapid adoption rates, as measured by those prescribing to 5 or more patients and has also been a factor in driving our dispense yield rate to target.And of course, the pickup in the net revenue in the quarter reflects all the foregoing and leaves us well on track for $50 million to $70 million guidance for the year.So to conclude on SUBLOCADE, we continue our journey towards transforming the Opioid Use Disorder treatment paradigm with SUBLOCADE. We have made good progress in overcoming the initial payer and logistical hurdles and we believe we are on a clear path to unlocking the long-term potential we have always seen in SUBLOCADE.So turning now to PERSERIS, as you know, we launched our long-acting schizophrenia treatment in late February with a team of 50 clinical specialists and a highly targeted commercial strategy. Quarter 1 net revenue, while modest, was in line with our expectations and I'd just like to briefly mention a few key performance indicators that highlight the progress we have made in the short time since launching PERSERIS in the middle of February.First, market access already stands at over 70% in key targeted plans that cover much of the schizophrenia long-acting injectable volume. Anti-psychotic long-acting injectables are well-established in the market and among payers. So we are not having to construct new infrastructure in this disease space. Second, initial anecdotal feedback from schizophrenia specialists has been positive. Treatment providers are noting that subcutaneous injection and the fact that no loading doses or oral supplementation is recommended at the time of treatment initiation.Third, the response to our sampling program has been encouraging and we have supplied over 2.5 thousand samples to over 500 health care professionals. We are now focusing on engaging these health care professionals on the product experience that patients have had, and given the unique profile of the treatment, we would expect that to generate repeat prescriptions.And finally, over 100 health care professionals and accounts have already written PERSERIS prescriptions with many writing repeats. So it's early days, but we are encouraged by the initial reception to PERSERIS.So with that, I will hand over to Mark.

[Mark Crossley, CFO & Executive Director]

Thank you, Shaun, and good morning and good afternoon to everyone on the call. Overall, financial performance in the quarter was ahead of our expectations and we continued to execute on the key elements of our contingency plan designed to maximize cash and return Indivior to long-term growth. Taking a closer look at our financial performance in the quarter, starting with net revenue; overall, we saw a 5% decline versus the previous year at constant currency, despite facing generic film entry in mid-February.While we had some transitory items exaggerating the pressure on our rest of world net revenue, the U.S. business reported 2% growth versus the prior year. As Sean highlighted, the U.S. performance reflects 3 main factors, namely the lower than expected share loss in SUBOXONE Film, the strong launch of the authorized generic and continued growth in SUBLOCADE.Focusing on the U.S. market dynamics for a moment, SUBOXONE Film share has declined from 53% at the end of 2018 to 36% at the end of the quarter and 30% in the week of April 19. We believe SUBOXONE Film's resilience in the short term is being driven by our patient base and their success on film.In short, we believe the switch to a generic product is certainly been carefully considered by payers and HCPs. Additionally, given SUBOXONE's rebating over time, the treatment remains competitive at a net pricing level with some payers. Ultimately, however, we do not expect this to be sustainable and believe it's likely that the branded SUBOXONE Film will arrive at the share position suggested by industry analogs. This dynamic is reflected in the full year guidance we have provided today.Turning to the performance of our authorized generic film. Sandoz has proved to be a great provider for our authorized generic offering and they've executed a strong launch, resulting in the leading share among generic film providers. Our product quality along with their strong channel relationships have generated excellent pull through and market acceptance, approximately a 50% share of the generic film market.You should note that Q1 net revenue included initial stocking shipments, which won't repeat, and overall, our net revenue guidance for the authorized generic remains in the tens of millions for the fiscal year. If I switch gears to rest of world, the 33% reported decline reflected modest growth in Australia, which was more than offset by continued austerity measures and competitive pressures in Europe. Additionally, the results were exaggerated by a difficult net revenue comparison in Canada due to some onetime in nature items in the comparable periods, including generic out-of-stocks in Q1 2018.Turning to gross margin. We saw it decline to 85%. This expected decline was primarily due to product mix associated with the launch of authorized generic and lower branded SUBOXONE Film net revenue. As we discussed at fiscal year-end results in February, our gross margin could be further impacted, approximately 5 points in 2019, as the negative mix impacts increase.On a reported basis, the decline in operating income versus the prior year was primarily due to onetime restructuring charges associated with our contingency plans totaling $27 million pre-tax. The charges reflect our streamlining actions as well as modest increase to the reserve for potential damages owed to DRL and Alvogen.On an adjusted basis, operating income increased 3% in Q1 '19 to $102 million, comparable to $99 million last year. Overall OpEx, SG&A and R&D combined, was lower by 25% or $33 million as a result of our contingency planning.Our narrower strategic focus resulted in lower overhead from headcount and expense reductions as SG&A declined about $30 million year-over-year. R&D expense was modestly lower by $4 million, reflecting reprioritization of the organization to focus on study commitments and help economics outcome data generation relating to SUBLOCADE and PERSERIS in the U.S. Despite the relatively low Q1 annualized OpEx run rate, we continue to expect overall OpEx to be in the range of $440 million to $460 million for fiscal year 2019, as we expect phasing of spend to be weighted to the second half.Turning to net income. On an adjusted basis, net income was $89 million, representing a 14% increase year-over-year. This included the benefits from lower overall finance expense and modest interest income on our increased cash balance as well as benefits from our ongoing tax strategies.This improvement in net income drove our cash balance higher and we ended the quarter with $1.054 billion of cash versus $924 million at the end of 2018. Net cash at the end of the quarter was $812 million. Cash performance reflects strong Q1 operating productivity and our conservative capital allocation stance given the ongoing uncertainties we are actively confronting. This said, as we've discussed in the past, with a potential drop in film net revenue due to generic entry, we do expect a material use of cash associated with the group's negative net working capital position.Finally, turning to guidance, we currently expect fiscal year 2019 net revenue to be in the range of $525 million to $575 million. We recognize the range provided is wide, but as you can understand the U.S. film market is continuing to evolve. As such, while SUBOXONE Film recently had outperformed our expectations, we need to be prudent and expect it to revert to industry analogs specifically 70% share loss in the next month or 2 and 90% share loss by fiscal year-end.Additionally, we've also included a reversion to analog, shared in February, on the authorized generic business due to continued competitive activity and pressure from payers. As we progress through the year and have more data regarding how the U.S. film market settles out, we'll continue to keep you updated on our expectations.In terms of modeling the rest of world business, I don't recommend extrapolating the Q1 decline due to the onetime nature of items in the current and base period. We do expect continued pressure in legacy European markets due to austerity measures and intensified competition. This said, the impact should be less than half of what we saw in the quarter.As has already been mentioned, our expectations for SUBLOCADE net revenue and total OpEx remain unchanged and we expect only modest net revenue from PERSERIS.With that, we'll move on to the Q&A session.

[Operator]

[Operator Instructions] And we have a question from the line of Harry Sephton of Jefferies.

[Harry Thomas d'Alton Sephton, Equity Analyst]

Yes, it's Harry Sephton form Jefferies. Firstly, could I just quickly clarify what you're now expecting to be the ceiling rate – sorry, the ceiling conversion rates for SUBOXONE Film now that you've got to that 50% conversion rate? And also, clearly, the SUBOXONE film share has held up relatively well compared to what we normally expect of a generic. Given that a generic would normally just be simply substitutable, what have really been the drivers as to retaining this higher share of SUBOXONE film?

[Mark Crossley, CFO & Executive Director]

Thank you, Harry. First of all, with respect to the yield, I think that we've always been clear that we don't consider the job done by hitting 50%. That's the analog. That's what everyone else does. We are going to -- we aspire to have the yield within the 60% to 70% range. So whilst we think it's worth commenting that we've sort of hit the analog benchmark, our ambition is to strive higher than that.I can't really give you a ceiling, but the sort of normal rate on SUBOXONE Film which is exclusively a pharmacy benefit is around 65%, 67%. So it'd be very difficult to imagine getting beyond 70% and we're striving towards that at the moment. Of course, we'll have to see the progress we make.With respect to the SUBOXONE Film?

[Shaun Thaxter, CEO & Executive Director]

Yes, I think Harry, the SUBOXONE Film has exceeded analogs at this time. We think it probably has to do with being a chaotic patient base and doctors really liking the SUBOXONE Film, hesitating to change in the short term. As well as the fact that it is a -- it is a mature product that has some discounting associated with it.As you know, in Government channels, we have been -- have been having mandatory discounts for some time associated with CPI protection. So for some payers, it just doesn't make sense to switch over in the short term. Again, we think that the competitive pressures with the number of generics that we have in the market with Mylan, Alvogen and Dr. Reddy's, we'll continue to drop that price. We see some payers that are instituting MAC pricing, putting further pressure on the pricing. So we think that in the short term, we're going to revert to the analogs which would have kind of 70% at this point in time with 90% by the end of the fiscal year.

[Operator]

[Operator Instructions] And your next question is from Max Herrmann of Stifel.

[Max Stephen Herrmann, Head of European Healthcare Equity Research & MD]

Just a couple, just on SUBLOCADE, obviously you've presented new data from the RECOVER study and I wondered what the sort of impact you're seeing in terms of -- from physicians to that. I think you've also presented now I think up to 8 months of sort of patient retention data in your presentation.I'm just trying to understand in terms of compliance, what you're seeing because obviously whilst the one -- the every month data that you're providing shows there is one element of compliance. You also have how many days-free patients are during the month. Is there any anecdotal data you can give that demonstrates compliance difference between SUBLOCADE and SUBOXONE Film? And then any more light you can share on discussions with the DOJ would be helpful.

[Christian Heidbreder, Chief Scientific Officer]

So this is Christian. We got some very positive feedback from the ASAM presentations. Just to let you know, also, the Lancet paper that we published earlier today was the center of a lot of attention during the ASAM meeting and was actually among some of the publications highly rated. Just for everyone, the ASAM, of course, is the American Society of Addiction Medicine, so all the key players in the addiction medicine typically attend the meeting.There was a lot of attention around 2 main presentations we did there. Altogether, we made 4 presentations, but 2 of them were high in demand. The first one was, of course, the RECOVER study. For the first time we present it beyond the baseline characteristics, the 12-month data, clearly indicating that the longer patients have an opportunity to be in treatment, the higher the probability of recovery as measured by numerous factors.Secondly, we presented for the first time the fentanyl blockade study. This is not a SUBLOCADE study per se. But what we did there was to basically expose opioid retardant patients to plasma concentrations of buprenorphine that's very similar to do, as that are delivered by SUBLOCADE and we basically managed to see that at these unique plasma concentrations that we deliver with SUBLOCADE, we, in fact, have an opportunity to block the respiratory depression triggered by fentanyl, so lot of attention there.Another presentation that gained a lot of attention was a post-hoc analysis that we did on the Phase III trials and that we are currently further analyzing in the context of post-marketing requirement study is to understand better the patients who actually may deserve higher SUBLOCADE maintenance dose, that is the 300 milligram. And we have gathered preliminary data suggesting that opioid injector users may actually benefit from the higher maintenance dose of SUBLOCADE. So these were the key highlights of the ASAM meeting, so a lot of very positive feedback from that meeting.

[Mark Crossley, CFO & Executive Director]

Max, in response to your question on the DOJ, as you know, we have ongoing litigation now with the DOJ and we're limited in what we can say and as Shaun mentioned in his opening. We tried to provide as much detail as possible in the press release. What I can say is that we're diligently preparing for trial. We're confident in our case based on the assessment of the law and the facts by our external counsel. That said, we have been willing and continue to explore all options for resolution short of trial in an attempt and that's our goal to achieve certainty for all of our stakeholders.

[Max Stephen Herrmann, Head of European Healthcare Equity Research & MD]

Is there any sort of feedback you have on, basically on SUBLOCADE on compliance, because obviously one of the key aspects of it is the compliance advantage over -- or potential advantage over other therapies. Is there anything, because just the month to month retention of patients doesn't seem to be significantly different to what we've seen or you've shown before for the film?

[Shaun Thaxter, CEO & Executive Director]

Yes, I mean we are getting very positive anecdotal feedback from physicians. One thing that seems to come up quite often is that patients like waking up in the morning and not having that need to reach for their medication because they've got the very stable plasma concentrations and they're not experiencing the up and down. So I think that with the retention rates that we're seeing are consistent with what we expected from the clinical trial. And it's early days. We'll continue to see how this plays out moving forward. I think one of the key things that's interesting that, as the new science is emerging, it's highly suggestive that you know staying in treatment longer, right, is providing more data. And if you ask most physicians, most physicians will say staying in treatment is a very good thing being retained in treatment. I know that that's why I asked the question, right.But the data, there is some new scientific data and the pattern that's emerging is providing the data to support what physicians believe. So we think that as that dialog starts to open up with the data that we are investing in and so that will provide the opportunity to -- for doctors to push patients harder in terms of keeping them retained in treatment because it's providing the evidence that says that this is therapeutically the right thing to do.

[Operator]

Your next question is from the line of Nick Nieland with Citi.

[Nick Peter Russell Nieland, Vice President and Analyst]

So firstly, can I ask how much of your SUBLOCADE revenues come from government programs currently. And then secondly, would any exclusion from federal programs that you talked about and DOJ indictment, would that apply to SUBLOCADE and other products? And then, can you talk to us about the realized pricing on SUBLOCADE and how that compares to 1 year ago.

[Shaun Thaxter, CEO & Executive Director]

Thanks, Nick, for the question. As we've said in the release, it is a material portion of our programs. I think historically, we've talked about, on the film business, while we don't [ break thing ] and we've talked about the government accounts being upwards of 50% of the business. So quite a -- quite a material amount moving forward, with regards to exclusion -- could exclusion be for everything? We'd have to leave that to the actual pronouncement from HHS but the belief is it could be, it could be for all products. And lastly on pricing with SUBLOCADE, as we look through that kind of in the current quarter versus last year, we're seeing relatively similar sort of net pricing dynamics versus our expectations.

[Operator]

[Operator Instructions] And currently, we have no further questions, please continue.

[Shaun Thaxter, CEO & Executive Director]

Okay, well, thank you, everybody, for joining us today. We appreciate your continued support and interest, as always, in our company. We look forward to seeing you at all the usual places, at the investor conferences as we move through the next quarter. And really look forward to being able to share our progress at the half year results. So thank you.

[Operator]

Thank you. That concludes the presentation. Thank you for participating. You may disconnect.