Should You Buy, Sell, Or Hold Reckitt Benckiser Group Plc’s Spinoff, Indivior PLC?

Reckitt Benckiser (LSE: RB) recently completed the much-anticipated spinoff of its pharmaceuticals division in to a new company named Indivior (LSE: INDV).

Reckitt’s shareholders received one Indivior share for every Reckitt share they held and the market seemed to welcome Indivior with open arms. The pharma company’s stock jumped as much as 17% in the first few hours of trading on 24 December. 

However, after a successful spinoff, investors now need to ask whether or not Indivior deserves a place within their portfolio? Is the company a good long-term investment, or should you steer clear?

Looking to grow

Indivior’s main product is Sub­oxone, a heroin addiction drug. The company lost its patent-provided exclusivity on the product in 2009 and since then sales have been sliding.

Between 2004 and 2011 sales of Suboxone climbed from £89 to £762m but City analysts believe that Indivior’s revenues will decline by about 12.5% this year to £680m, while operating profits are predicted to fall nearly a fifth to £345m. 

However, the company is working on the development of several other products including a treatment for schizophrenia and four other treatments for opioid dependence, cocaine intoxication and alcohol abuse. The schizophrenia treatment is in the final stages of development, while the other treatments are all in early stages of development. 

So over the next few years, if all goes to plan, Indivior will diversify into other markets and reduce its dependence upon Suboxone. 

Plenty of potential 

Additionally, as a long-term pharmaceutical play, Indivior certainly has plenty of potential. For example, according to management twelve million people abuse opioids annually in the US and 2.5m of them need treatment for addiction. At present, Indivior is only treating 450,000 patients for opioid abuse. About three-quarters of cases involve opioid-based painkillers, rather than heroin. 

What’s more, Indivior’s management has noticed a global shift in treating drug addiction over the past few years. Addiction is now treated as chronic disease, rather than as something to be punished. A shift that is pushing governments to change their stance and fund treatments instead of imprisonment.

Buy, sell, or hold?

All in all, Indivior has room to grow over the long-term as it benefits from the rising demand for addiction treatment and the launch of new products. But is the company a buy at present levels?

Well, as Indivior has only just become a public company City analysts have yet to publish any definitive figures on the company’s valuation, profitability and outlook. That being said, it’s widely expected that Indivior’s sales set to fall to £680m this year, which means the company is trading at a price to sales ratio of 1.5.

On average, the biotech sector trades at a P/S ratio of around 3.5, indicating that Indivior is undervalued at present levels. Nevertheless, Indivior is overly reliant upon one treatment and sales are falling. Although, with an operating margin of around 50%, a hefty dividend payout is likely to be on the cards. 

The bottom line

Overall, Indivior appears cheap but the company’s sales are falling. For this reason, Indivior could be too risky for some investors.