Reckitt Benckiser(LSE: RB) recently completed the much-anticipated spinoff of itspharmaceuticals division in to a new company namedIndivior(LSE: INDV).
Reckitts shareholders received one Indivior share for every Reckitt share they held and the market seemed to welcomeIndivior with open arms. The pharma companys 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
Indiviors main product isSuboxone, 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 butCity analysts believe that Indiviors 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 includinga treatment for schizophrenia and four othertreatments for opioid dependence, cocaine intoxication and alcohol abuse. Theschizophrenia 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.
Whats more, Indiviors management has noticed a global shift intreating drug addiction over the past few years. Addiction is now treated aschronic 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 companys valuation, profitability and outlook. That being said, its widely expected that Indiviors 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 companys sales are falling. For this reason, Indivior could be too risky for some investors.
Still, as always I strongly recommend that you do your own research before making any trading decision. To help you assess the company, our top analysts have put togetherthis new report.
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Rupert Hargreaves has no position in any shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
