CAMRF - Indivior: Opioid Use Disorder Market Growth Could Deliver 59% Upside

2023-12-20 00:16:06 ET

Summary

• With the significant treatment gap, Indivior is well positioned for growth as more patients receive treatment for Opioid Use Disorder.
• Sublocade, the first FDA-approved buprenorphine LAI for OUD, has seen impressive growth but faces competition from Brixadi, which offers more dosage options, a smaller needle, and a 17% lower price.
• Indivior shares could rerate 59% higher if analyst estimates materialise.

Introduction

Visualised below are the 3 waves of opioid overdose deaths in the past 2 decades. The high potency and wide availability of opioids in past decades led to severe addiction and dependency across the spectrum for both users of synthetic opioids and natural opioids. Most overdose deaths in recent years are mainly caused by illicit fentanyl which is 50x more potent than heroin.

Popular drugs like Naloxone (Narcan) are on the market to treat users in the case of an overdose. However, an adjacent growing market is the Opioid Use Disorder (OUD) treatment market - these treatments manage withdrawal symptoms which can be nearly impossible to muscle through day-to-day without medication.

Such drugs include opioid agonists like Buprenorphine, Methadone, and Naltrexone. These can be delivered orally in tablet and sublingual film form or via a long-acting injectable which has far higher bioavailability. Buprenorphine-based drugs have most market share due to their cost and effectiveness for patients. FMI forecasts Buprenorphine maintaining 80%+ market share in the long term in the OUD market. Buprenorphine binds to opioid receptors in the brain leading to opioid use being ineffective while under medication.

Indivior PLC ( INDV ) has a few drugs on market - SUBLOCADE (injectable), SUBOXONE (sublingual film), OPVEE a Narcan nasal spray competitor, and PERSERIS , an injectable to treat schizophrenia. Most sales (41%) come from Sublocade which came to market in 2017. The core benefit of Sublocade is that it only needs to be administered once monthly which improves patient compliance and doesn't come with the peaks and troughs experienced with daily oral medications.

Why Indivior Shares Sold Off

Up until recently, Sublocade was the only LAI (long-acting injectable) buprenorphine available in the US, now a second LAI is on the market after BRIXADI ( OTC:CAMRF ) was approved for the US in May 2023. Brixadi has similar effectiveness, however, it has the added benefit that it doesn't need to be refrigerated and can be given weekly or monthly with greater dosage variability. Additionally, Brixadi has a smaller needle and may be less painful, especially for lower body-fat patients, furthermore, Brixadi can be injected in several areas (upper arms, abdomen, thighs, etc.) unlike Sublocade which must be administered into the subcutaneous skin at the abdomen.

Sublocade can be given in the largest dose of 300 mg/1.5 mL vs Brixadi's largest monthly dose of 128mg/0.36mL - but like I said Brixadi is far more flexible in terms of adjusting dosage for patients.

The pricing pressure uncertainty from Braxdi (17% cheaper) coming to market and recent lawsuits against Indivior (mostly resolved) have pushed the dual-listed small cap downwards.

However the global OUD market is growing and expected to deliver 10%+ CAGR through the decade. Only roughly 20% of those who have OUD have gone through treatment perhaps this is due to accessibility, and the stigma surrounding OUD treatment, patients may also question treatment safety and/or effectiveness. But there is significant room for growth as more people join the pool of OUD patients and as society becomes more familiar with OUD treatment leading to 20%+ penetration.

LAI vs Sublingual or Tablet

For patients suffering from OUD, less than 5% are on an LAI as most of the market is dominated by sublinguals and tablets. However, arguments can be made for LAI treatment to increase due to the improved compliance and treatment success of LAI.

Sublocade only needs to be taken once monthly unlike daily medication. LAI takes away the peaks or troughs experienced with daily medication. LAI also has less compliance failure from patients who may change their dosage at home. Patients might feel self-conscious about taking medication at work or in front of family/friends etc. Furthermore, LAI has far greater bioavailability over oral delivery.

However even if LAI penetration in OUD remains flat, there remains a huge patient gap as 80% of the TAM don't get any type of treatment.

Indivior is undervalued based on management's goals

Based on management's targets and FCF estimates from the few analysts covering Indivior there seems to be mis-pricing. Management believes Sublocade alone can reach peak revenue of $1.5bn per year and expect Sublocade to hit $1bn sales run rate by the end of 2025 . Plus additional sales from Suboxone which might be at sub-$300m in 2025 and don't forget Opvee and Perseris ramp up which together could have peak annual sales between $350m - $550m in the long term.

The market is refusing to believe management's targets likely due to the second buprenorphine LAI market entrant causing Sublocade to lose its monopoly status in the US.

Below is a somewhat general 5yr group forecast without going into each drug.

I'm forecasting consensus estimates but with very harsh unlevered FCF numbers. Assuming 10% WACC, 1% PGR, and 10x EV/EBITDA, I get a 59% upside not considering the existing buyback authorisation or future buybacks. I've also lowered cash due to the expected $385 million payment for the MDL lawsuit paid in November.

I'm looking at the Nasdaq global listed share here so 59% upside from the current market price of $14.40. This depends heavily on Sublocade's performance alongside Brixadi.

To play devil's advocate here - we could argue having 2 LAI buprenorphine drugs on the market could result in increased awareness and accessibility, thereby increasing LAI penetration in buprenorphine medication-assisted treatments.

Jefferies Investor Event - Indivior Fireside Chat , CEO:

"here is such a huge opportunity for both players. Their launch is in such early stages. I think you need to really talk to Braeburn and to Camurus with regards to how they're doing. We're not seeing anything in the early stages of this. That is different than we expected that is impacting anything to do with our guidance this year. Our interim guidance of exiting 2025 at a like $1 billion run rate or our peak revenue guidance. There's nothing surprising with regards to the launch of any disproportionate impact in the early days."

Conclusion

Sublocade was the first FDA-approved buprenorphine LAI for OUD and has seen impressive YoY and QoQ growth.

With the commercialisation surrounding the drug, Sublocade has enjoyed 5 years of double-digit growth but ultimately Brixadi will take some market share due to benefits over Sublocade:

1. Smaller dosage will take market share from the patient population that requires a lower amount of buprenorphine because Brixadi comes in 7 dosage options whereas Sublocade only has 2. Also having the option of going from weekly doses to monthly and vice versa with more dosage options allows Doctors to better customise treatment for their patients.

2. Smaller needle (less painful) that can be injected across several areas of the body.

3. 17% cheaper price making it more accessible and friendly for payers.

Sublocade works great for the majority of patients, therefore Brixadi might only have an advantage in terms of price and for a small % of the OUD patient population that require careful dosage adjustments. Both drugs are great with minor pros and cons, but with such a large treatment gap having both drugs on the market might be mutually beneficial in raising awareness and LAI penetration in the US.

On a recent call management said they weren't seeing pricing pressure in the early stages of Brixadi's entrance however they also haven't given 2024 guidance. If management begins seeing pricing pressure and revises peak Sublocade NR downwards by 10-20%, the shares will see huge selling pressure. Investors are avoiding the company until some certainty is given in the Sublocade growth story.

My personal opinion is that the market seems to have overreacted to uncertainty. Now might be the best time to position in Indivior as EBITDA and FCF figures will still grow with the increasing patient population irrelevant of slight pricing pressure in Sublocade.

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