Indivior downgraded by Citi but upgraded by Deutsche
Shares in Indivior were given a downgraded 'neutral' rating from Citi after their strong performance in the year to date, while Deutsche Bank argued the company's drug pipeline was not fully reflected in valuation and upgraded to 'buy'.
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A day after the company's interim results, Citi raised its target price to 270p from 240p but said an 80% run in the stock since the beginning of 2015 had changed the balance of risk and reward.
Read more: Indivior hikes guidance as it holds off generic attack in solid first half
The bank mulled the potential loss of intellectual property on Indivior's heroin addiction treatment, Suboxone film, which is currently being contested by litigation lawyers.
"Our estimates and valuation framework is unchanged, but we believe the share price now reflects a significant delay to Suboxone film generics from the worst case scenario of February 2016."
The litigation outcome is expected to have a significant impact, with the loss of IP on Suboxone film likely to lead to around 70p of downside to the current share price, whereas a settlement or delay to generics beyond 2019 would provide upside.
News on the company's drug pipeline is expected to flow freely in the second half 2015, with Citi eyeing positive results for the monthly buprenorphine depot as key to Indivior's valuation, while an important PK study for a swallowable capsule also on track to begin soon and intranasal naloxone approval expected around the end of 2015.
At current levels, the stock trades on 17 times 2016 earnings with an estimated 2016-2021 EPS growth of 11%, in line with the sector, which Citi said offered a balanced risk/reward payoff.
However, Deutsche's upgrade was based on a discounted cash flow target price hiked hugely to 300p from 220p as analyst Sarah Potter takes over coverage.
"Our base case model now conservatively assumes a negative scenario of launch of generic Suboxone film from 2018. Despite this, our DCF valuation still offers 12% upside," she wrote.
Potter also said she saw the potential for multiple pipeline catalysts through 2015, which offers a further 34p or 11% upside and "should increase investor confidence in Indivior’s pipeline", plus the "high likelihood" that Indivior engages in M&A to diversify away from buprenorphine which should offer yet more upside.
Deutsche took confidence from management's bullish results presentation and noted that business development is the next priority with a focus on addiction, central nervous system and addiction co-morbidities.
Indivior also reiterated its prior comments that settlement remained an option with the Suboxone film ANDA filers given it would provide visibility on a significant overhang to both investors and ratings agencies.