Indivior Pharmaceuticals, Inc. (INDV) Earnings Call Transcript & Summary

Everyone, and thank you for joining us for this session of the Morgan Stanley Healthcare Conference. My name is Thibault. I am part of the Pharmaceutical Equity Research team based in London. So before we start, I need to refer to important disclosures. Please see the Morgan Stanley research as website at www.morganstanley.com/research disclosures. If you have any questions, please reach out to your Morgan Services representative. So for this session, I'm delighted to have with me Mark Crossley, CEO of Indivior. Mark, thank you very much for joining us today. So we will shortly do a Q&A, and I will invest -- I will invite investors in the room to ask questions if you wish. But before that, Mark, would you start -- would you like to start with some informatory comments, maybe another view on the current situation and the outlook for Indivior.

Sure. Just a brief intro for those that aren't as familiar with Indivior. Indivior has been a company really leading in addiction for over 20 years, really focused on helping these patients who are marginalized and really losing their lives because of their relationship with opioids. We operate in 40 countries, but the largest country is obviously the U.S., which has been disproportionately impacted by the opioid epidemic. And as we know recently, we see it in the press every day with the various changes in the space from COVID to fentanyl, the instances of abuse have picked back up, the instances of overdoses have picked back up. And we're focused on helping patients through this journey. Now we have very clear strategic priorities that we're using to drive the business and communicate with investors to make sure there's no misalignment. Those -- the first one is taking SUBLOCADE, which is our premier paradigm-shifting treatment and getting that to $1 billion plus in revenue. The second is to diversify. We're primarily a buprenorphine molecule sort of business. And we're looking to diversify both with products, and that's with PERSERIS in the U.S. for schizophrenia as well as geographically, and that's taking SUBLOCADE and film outside the U.S. to provide that diversification side. Diversification also could be via business development in the future. We build and develop and progress our pipeline is another key element. We brought in a recent asset last year for cannabis use disorder. And then the last strategic pillar is about optimizing our model. And that's from our commercial go-to-market model to capital allocation to P&L discipline in the business. And I think you've seen that at work with bringing in cannabis use disorder assets investing behind SUBLOCADE across all of our strategic priorities, but also returning a bit of capital to shareholders to buybacks $100 million each and looking to diversify our listing by bringing a listing to the U.S. We've just announced that we're going to be going to our shareholder vote at the end of September for that, and we're excited to have the potential for both FTSE as well as a U.S. listing in the future to bring more exposure to Indivior, but also to this disease space. So excited about the future. I think from a management team, we'd love the momentum we're bringing into this year, but we're just as excited about the journey ahead and how we can help patients.

That's very clear. Maybe just before we start on the details of your business. Could you just give us maybe a bit of overview on the latest data and the latest trend on the U.S. opioid crisis because, obviously, your business is very intertwined with the evolution of the epidemic in the U.S. and to a lesser extent, outside of the U.S. So if you could give us a very high-level idea of how things are evolving at the moment.

No, it's actually really scary if you think about what's happening in the U.S., a very developed country with a very good health care system. And the other at epidemic is just disproportionately impacted us. It's why 80% of our revenue is here is because the U.S. has been impacted so much. There's 10 million people in the U.S. who abuse opioids. Only 3 million or so have been diagnosed with opioid use disorder and at any one point in time, only 1.2 million are in treatment. So you've got a major treatment gap of about 80%. At the same time, as you've had this epidemic going for over 20 years. And recently, you've had a couple of influences that have been what I consider to be almost like a match to gasoline in reaccelerating the epidemic. The first one is COVID. Our patients are really impacted through isolation, stress events, financial pressures, those sorts of things. So COVID really accelerated addiction rates and overdose rates as has the introduction of fentanyl into the supply chain for opioid use disorder. For those that don't know, fentanyl is like 30 to 50x more powerful than heroin or OxyContin pills. And it has become the drug of choice for those bringing in illicit drugs into the U.S. because it's cheaper to make. They can cut it in and it's very, very potent. And so we've seen an influx at what started with China. Now it's coming from South America into the U.S. And because of the potency, because if it's cut in wrong, it can drive you into respiratory depression. We've seen overdoses increase to where we had over 80,000 opioid overdose deaths last year. If you think about that, that's over 200 from a weekly standpoint, and over an hour -- I mean, excuse me, 200 a day and over 9 an hour, which is just absolutely crazy with regard to the U.S. So this fentanyl epidemic is really clear. And we'll talk a little bit probably, I imagine we'll have some discussion on SUBLOCADE later about how we've developed science and a medication that we think can be helpful in that recent development in the disease.

Absolutely. And just before we touched on SUBLOCADE. Could you just talk a little bit about the recent U.S. rates on the provision in the inflation Reduction Act. So if you could provide us with your thoughts on the U.S. prescription broad pricing provisions in this reform. Are there any major consequences for your business from the different elements of the results, such as the shrinking coverage gap, for example?

Certainly. So I think this was passed by the administration in the middle of August. It's primarily related to Medicare. And so for those not as familiar with the U.S. health care system, Medicare is for people over 65 and for those that are disabled or as Medicaid is for low income. As we project forward on this one that's impacting Medicare, you look to where there's about 60 medications that we expect to be impacted on this by 2029, of which we don't expect any of our products to be there, whether on the schizophrenia or the OUD side. Also, when you look at our patient profile, our patient profile because of the nature of the disease, tends to be more on the Medicaid side and the commercial side. And many of those already have one element of the act. So there's one that would have negotiated prices on certain usages. We don't think we'll apply. The other one is having CPI CAP on the medications. And we're used to that already operating in Medicaid and with many of our commercial contracts. So we see minimal impact.

[indiscernible] let's move on to SUBLOCADE, which is your monthly injectable formulation of buprenorphine with [indiscernible]. So you are currently rolling out this injectable treatment on disease order in the U.S. And I think a lot of investors have been surprised by the strength and the consistency of the growth over the past 2 years. So could you give us a little bit more insight into the key drivers behind this growth?

Sure. Thanks, Thibault. And listen, this is something I'm extremely proud of the team. We went through a reorganization in fall of 2020 behind the organized health systems and putting our go-to-market model and aligning it up there. And the organized health systems for those that are less familiar, are -- include IDNs, big regional health care centers that includes the Veterans Administration hospital and it includes justice systems. And we know that the majority of patients, the majority of doctors are in these systems. Yet the go-to-market model is unique because you have to first work with the parent, the administration of these folks to be able to get access to the systems before your CS is what we call clinical specialists or sales reps and get in and talk to the doctors. So we reorganized into this ecosystem model behind what we think is the perfect sort of area to bring our product to market because in these organized health systems, physicians aren't CEOs like they are in small practices. Physicians are able to have wraparound services, they've got back offices, they do scheduling. They've got folks that do prior off. They've got pharmacies and folks that manage the medication and they're able to just prescribe to their patients the most efficacious medication. So we focus there. You take the IDNs, which have been the majority of the growth. 70% of our revenue and 70% of our growth come from organized health systems. IDNs have been the main driver of that. And then strategically, you look at justice systems, which are the perfect time to intercept the patient because 65% of them come in contact with the justice system because of the nature of their disease. And we put 20 -- a dedicated 20-person sales force there at the beginning of the year and have been able to open up access at over 100 of the top 1,000 systems in the U.S. So we're excited about the momentum. I think the momentum we carry into the year is 8 quarters of double-digit growth, and the team is really excited about going forward, keeping that growth going in the short, the medium and in the long term.

That's very clear. And you had a target of activating top 500 organized SKF system, and you reach that target. So what are the next steps to continue driving this cost?

Yes. Now that's great because I think there are a lot of investors who say, we've targeted this top 500 organized health systems is your growth going to slow. And the answer is really, it's almost like an iceberg. You start with these parent organized health systems. And all it means is you've got one script through. Now in these big health systems, you typically have a central, what they we call a parent, which is the 500 and then you have children all geographically across. And so the way we look at growth is there's 4 sort of growth elements. The first one is we'll continue to expand the parent organized health systems. There will be more coming on. We'll open up the children, which is their satellite campuses, which then give us access to all the patients and all the physicians. And so then what it is about getting new physicians prescribing and depth of prescribing. So there's kind of 4 vectors of growth, and those 4 vectors are what enable our confidence in continuing to grow in the short, the medium and the long-term.

That's very clear. You had, as you mentioned, the $1 billion target for SUBLOCADE, for this year, you're already guiding for $400 million. So it looks like you are very well on track for this target. What does this target imply in terms of patient penetration? And what is the upside from there?

Yes. And listen, the momentum has been palatable as we come into this year. We have raised our guidance to $30 million to $40 million, up $25 million at the midpoint, based on the strength of the team's execution. And as we look forward, it's that execution and that strategy that has come together, aligning the structure and the strategy are going to drive us to the $1 billion plus. And we've always guided to over $1 billion of sales on SUBLOCADE because of the nature of the disease. And really the math is actually quite simple. In a huge unmet disease space with a huge growth continuing because of the treatment gap. All you need is about 180,000 patients to be on SUBLOCADE in 3 to 5 years to get to $1 billion. That's about a 6% to 7% patient share, which is quite small when you have a paradigm shift in medication that really protects that patient in their moment of weakness because they've got therapeutic levels all month long that occupy the receptors and block the illicit opioids if they were to use that. So it's a medication we're excited about. We think 6% to 7% is quite doable, and we've always guided to the $1 billion plus.

Billion plus. And if you think even longer term than this, I think, as I mentioned, investors are incredibly increasingly, sorry, comfortable with this 1 billion PCS target. And by that horizon, most likely SUBLOCADE will represent a very -- I mean, the vast majority of Indivior's revenues. So investors are now starting to ask question on how durable is this franchise, what could disrupt it? So if you could give us your view on the IP situation and the potential for generics down the road? And also maybe potential threat from branded competition to SUBLOCADE.

Yes. No, it's a great question. And I think we think of there being multiple vectors as you think through the space. I mean, we've built up a very unique sort of go-to-market model for a very unique disease space, the call platform, all that is different than so many disease spaces. And so this ecosystem model focused on organized health systems, we think of as a competitive advantage. And we'll continue to execute behind that and drive the growth. I think there's also a second side of this, which is IP, and we have IP that goes from 2032 to 2038 that we feel is quite strong. And we continue to assess ways to protect the novelty of our inventions that we have. And then you get to with long actings in general, there's a certain amount of manufacturing sort of protection that's out there because they're 28 days, it's quite hard to do PK modeling and match PK on these things. So there's kind of 3 different vectors there. There's a go-to-market model that's unique. There's the IP itself, and then there's -- it's tough to manufacture this stuff.

That's very clear. And in connection with all of that, could you maybe talk a little bit about your long-term margin profile. SUBLOCADE is a very profitable product. It drives most of your growth. And so as you get leverage on your OpEx base investors are sometimes asking how far could you drive profitability. So the question is how much more incremental SG&A do you need in order to maximize the growth of the business? And what could be a sustainable operating margin in the long run for Indivior? Is it 30%? Could it be 40% or more?