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

So we'll kick off the session. So good morning, everyone, and thank you for joining this session of the Morgan Stanley Global Healthcare Conference. I am Thibault Boutherin, I'm part of the European pharma equity research team based in London. Before we start, I need to refer to important disclosures. So please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. So for this session, I am delighted to have with me Mark Crossley, CEO of Indivior, and thank you very much for joining us today. We will shortly do a Q&A. But before that, Mark, would you like to start with some introductory comments on Indivior, the situation and the outlook?

Sure. Maybe just a short intro for those not as familiar with Indivior. We're a company that, for over 20 years, has been focused on helping people with substance use disorders, specifically opioid use disorder, where we've had commercial assets and have established buprenorphine medically assisted treatment. The intimacy of that knowledge and engagement and leading in that space led to being the first company to launch a once-monthly, long-acting injectable to treat this in an adherence-based space called SUBLOCADE, which has a paradigm sort of shifting approach to treatment, and is our primary revenue product in the portfolio now as well as some of the heritage products. In addition to SUBLOCADE, we also have a pipeline of other opioid use disorder assets, a potential 3-monthly, long-acting, which is in Phase II, an orexin 1 asset, which would be an oral non-opioid opioid-use disorder medication, so something that patients ask for all the time because they've been in this relationship with opioids and would like to be on a non-opioid medication that's effective. In addition, in the opioid franchise, as we get to the continuum of care, last year, we bought Opiant Pharma and their lead asset OPVEE, which is a now nalmefene-based rescue medication that we think is perfectly suited to help with these highly potent synthetic opioids. Nalmefene is very fast-acting and very strong on the mu receptors, so perfect for these synthetic opioids, where fentanyl is 40 to 100x more potent than morphine and some of the newer variants like nitazenes and things like that, they're 600x more powerful, and that's leading to the roughly 75,000 deaths a year that you see. So a good, robust opioid-use disorder platform. I think as we look towards that and think about what's happened recently, we've been busy since the half year results. We booked our first BARDA order for that OPVEE product, about $8 million in sales. For those not familiar with BARDA, they're the U.S. institution that's responsible for dealing with weaponization of chemicals like synthetic opioids, and they've picked nalmefene as their asset of choice there, which we think is a good signal for the market with regards to the uptick there. We've also been continuing to address legacy legal matters and have settled 2 of those recently through the half year and continue to move forward with a more normal profile for our company. So a very exciting lead up to the time here at Morgan Stanley.

Perfect. So I want to maybe start straight away with one of the big debates around SUBLOCADE today. You mentioned on maybe Q1, Q2, some headwinds coming from the Medicaid disenrollment situation. So if you can provide an update on what you are seeing at the moment on the Medicaid dynamics and how you expect this to impact SUBLOCADE on the remaining of the year.

Yes, good question, Thibault, and one we get from investors. And just a reminder to folks and for those less familiar, I mean, this is a headwind that has slowed our growth, but SUBLOCADE is still growing off of a large base of $620 million in Q2 at about 25% year-over-year. So still significant growth, just a bit slower than we expected due to these transitory issues associated with Medicaid renewal. I think the good news is we're starting to work through this headwind. We have about 11 remaining states that are going through this. 8 of those will be done by November. And we have the remaining 3, 2 of which are very small, Alaska, Washington, D.C., which will be 2025. And New York, which is larger that hasn't negotiated with CMS when it will be done. This is incredibly important to our therapy area, different than others because over 70% of our patients, due to the nature of the disease, where they eventually will lose their jobs and need support from the government on Medicaid, rely on that. So we're a little bit more concentrated than your typical therapy area in this space.

No, absolutely. And I was just on the looking at KFF data, which I think you're also following, which is kind of tracking how the Medicaid enrollment is progressing. And it looks like the disenrollment has decelerated because we are going from 24 million of patients disenrolled in April to 25 million in August, which is probably a bit more of a modest increase compared to recent months. So are these data kind of correlating with what you are seeing on the market? And should it -- is this hinting at the kind of end of the headwind already?

Yes. And I think that's what we're expecting in the second half of the year. Originally, this phenomenon was supposed to be done at the end of June. CMS had targeted that. But a number of folks had seen so much disruption with the 24 million lives then, 25 million now as of August 23, that Congress had made some increase to CMS to extend some of the remaining states. And so what we'll see is, as those remaining states are done and I think it's North Carolina that ends in November and we had a number in August, we expect those headwinds to ease off through the year and then to those remaining 3 states that I talked about a little earlier. So we would expect those headwinds to ease through the balance of the year.

And once we're fully through that process, is there a potential for this to reverse and actually becoming a tailwind if we start to see actually a number of new enrollments in Medicare kind of outpace disenrollment and then suddenly your kind of eligible population start to grow again? Is it a potential tailwind? Or should we just expect that it normalizes and stay there?

I think the hypothesis has been that, that has potential to be there. I think we haven't been seeing that in the market yet that those have been coming back. And it's interesting when you look at how many people have been adjudicated and fallen out of treatment prior to the emergency sort of declaration where they weren't renewing people, there were 72 million people on Medicaid. It went up to 94 million, and now you're down 25 million. So you're almost where you were prior to COVID and the emergency measures that went in place. So you're almost back to a normalized amount. So we're not counting on that becoming a major tailwind.

Right. And so SUBLOCADE launch has been very successful and it's provided a very valuable option for patients and a very different mode of administration. But then recently, you had competition coming in the market with Brixadi. And so investors have been very focused on the competitive dynamic here between you and Brixadi, in particular in the U.S. You indicated on your last communication that -- in July, that SUBLOCADE has around 77% share of patient starts. So has the numbers we have all seen, has it kind of stayed there? Yes.

And I think this is -- we spend a lot of time with investors on this. As you would in any therapy area, when you get new entrants, how is the competitive environment going to settle out? When will it settle out and when can we get a feel for what the ongoing dynamic will be? And I think I always like to start with, in this therapy area, there's such a huge unmet need. 9 million patients are abusing opioids, somewhere between 3 million to 5 million have been diagnosed with opioid-use disorder depending on which numbers you use. And at any point in time, there's only 1.2 million in treatment. So you've got about 20% of people in treatment for this. Long-actings are going to play a huge role in helping people get and stay in recovery. And we believe that, that market will establish. And so there's plenty of room for multiple competitors. And we see this in schizophrenia, where there are multiple players in that market, which is approaching $4 billion. And we have more people diagnosed than they do in schizophrenia. So plenty of room for both. With regards to Brixadi, we have tried to highlight because through Medicaid and the disenrollments, this is a high turn, it's about a 6-month length of treatment. So you lose and turn over patients quite quickly, and that was aggravated through the Medicaid renewal, which disproportionately impacted the established player. And so we tried to use that as a highlight of where doctors and patients are making their choice as of the half year. And you're right, it's about 70% -- 7% of new starts based on how we see the data are choosing SUBLOCADE. I think the key here is, as you move forward, how does the market continue to adjust. And the paradigm we believe in so much with SUBLOCADE, where it gets to its therapeutic levels in 4 to 8 hours, which is very unique for a long-acting and maintains them the whole month long. And for me, importantly, 2 different therapeutics, depend on dose, 2 to 3 nanograms per ml, 5 to 7 nanograms per ml, where we're seeing over 45% of our volume, due to the high potent synthetic opioids, we don't see the competitor getting that. So we think long term, SUBLOCADE will disproportionately benefit from that. But the market's settling, the doctors are getting experiences and patient feedback is coming back. So we're in this transition period for 12 to 18 months.

That's clear. You just mentioned the rise of injectables and how it's an option that definitely has a lot of advantages compared to the oral treatments. And one of the debates on the market right now is how high can the share of injectables go? Probably we are -- I think we are around 7% penetration today based on the data we have of buprenorphine treatments being injectables. So how high could we go? Could it be 30%? Could it be more?

Yes. And I think that's the piece that the market is going to help us understand. I think when we did our research on this early on, we said it would be about 30% competition, talked about 35% is where doctors saw the patient population. If you look at another area like schizophrenia, they're at about a 20% share of patients that are on long-actings. You look to Europe, and in schizophrenia, they're at 45%. So there's a lot of numbers there. I think the key here is when we give our guidance of greater than $1.5 billion for SUBLOCADE's net revenue, it takes about a 10% patient share to get to $1.5 billion. So if I think of that as a waypoint, the thought of having 10% of buprenorphine medically-assisted treatments on SUBLOCADE seems like a low threshold. And I think part of that market development will also be to share of voice. And obviously, with Brixadi in there, we should see market growth starting to pick up in a more competitive environment.

Can you touch a little bit about the obstacles or the frictions you need to address to reach this 30%, 35% or plus? Is it a problem of patient preference, physician preference? Is it a logistic bottleneck? What frictions do you need to address?

Yes. I think one of the things we're fighting against is a very good oral medication. And if you think about what the patients have gone through, typically, they abuse for about 6.5 years on average before they come into treatment. I mean 6.5 years of being in a cycle that starts out chasing a high, but then you become physically addicted and your entire life is consumed in pursuing more opioids. And so the thought of not taking a daily dose as a patient is an incredibly tough item, and it's something that they can't believe would happen. So the film and orals to them are a perfect sort of solution. And so you're fighting against that belief from a patient standpoint and a worry standpoint. The anxiety that they have when they first take a long-acting, that the next day they'll wake up in withdrawals is a major, major barrier for them mentally. And so what we need is we need to get the physicians to have belief in these long-actings, similar to in other spaces, have them talking through the benefits and educating these patients. I think there is a bit now on patient choice and allowing that. But I think as long-actings continue to get more experience, word of mouth and chat rooms and patient awareness through marketing, I think we can start to have patients asking for the medication and continue that growth and that uptick.

That's very clear. I want to touch on one kind of subsegment of the market where we have been very active, which is a criminal justice system. If you can remind us what proportion of SUBLOCADE U.S. sales are in the criminal justice system and how this channel has been performing in the last few months?

Yes. This is another nuance of an area -- a therapy area of opioid use disorder that 60% of our patients, because of that life cycle I talked about, 6.5 years abusing, eventually pursuing so much medication that it drives you into a life of crime, 60% of our patients come in contact with the justice system. I mean you don't get that in other therapy areas. And so it makes justice systems a channel to help people start their journey on recovery. And what we've seen is a real mindset change as injectables have become available with jail systems and justice systems that are trying to stop the revolving door of patients coming in, being in the jail system, going out, 75% start reusing within the first 3 months. And the next thing you know, they're in the revolving door and back in the prison system. So we've seen a huge intent to treat in this space. Over the 2 years that we've been actively pursuing this, we have 700 individual institutions that are ordering. It's about 25% of our revenue. And it's an area where we also see the competition starting to focus. And if I think through since our half year update, we've seen kind of an uptick in that pressure from competition. They won a jail system out on the West Coast and then focused a little bit on pricing. So the uptick in the pressure from competition has picked up a bit, too.

Okay. That's clear. And you mentioned a little bit longer sales lead time for new criminal justice system accounts in your last update. Can you just give us an update on this?

Sure. So obviously, in our first phase, we focused on the largest jail systems who had a lot of intent on prescribing and trying to stop this revolving door, got those activated. As we've moved on to the more medium-sized and smaller-sized sort of jail systems, what we're finding is as we activate them, and there's a lot of work that has to be done here. One, they have to secure funding. Two, there are state and federal laws. There's REMS to comply with. It's a controlled substance, and it takes months and quarters to activate each of these jail systems from the time they say, "I think this would be good for our patients." And what we saw in organized health systems, the medical centers, when we went from the large to the medium, we didn't see a change in duration in activation on those. It was still about the same time frame. But in the jail systems, where they have less back office in the smaller jails and stuff like that, it's taking longer to activate those. It's a shift, we believe, out rather than an intent. We have high engagement with activation. It's just taking them longer to do all of those administrative things and secure the funding to get there.

I want to come back on the trajectory of growth for SUBLOCADE for the rest of the year. So clearly, you have a guidance for the product. But when we think about the sequence of kind of Q3 versus Q4, should we expect Q3 to still be a bit milder due to maybe a bit -- conditions or headwind you mentioned and then an acceleration in Q4? So kind of how to think about this sequence?

Yes. We just gave the guidance a month ago. We don't typically guide on the quarter to it. But I think you're thinking about some of the headwinds and forces there. You have the Medicaid renewal, which will be done by November. A big chunk of it is August, September. You've got competition, which is heating up in some of their pace and intensity of competition in organized health systems in CJS. And then you've got some impacts of seasonality, which typically happen in Q3 and Q4 due to the seasonality of what's going on. You can imagine, I don't know about anyone in the room, but when I'm going to do a diet, I always wait until January 1. And you think about this, a lot of people will put off their entering recovery until that. So there's a bit of seasonality and all of those get offput by -- we increased our sales force that went into the market in February, their efficiency and effectiveness have increased through the years and should offset some of those headwinds in the back half.