At the end of last year,Reckitt Benckiser(LSE: RB) spun off its pharmaceutical division previously named RB Pharmaceuticals into a new company calledIndivior(LSE: INDV). Reckitts management has been trying to refocus the companys portfolio over the past year or so, and the Indivior spin-off was part of this plan.
Reckitt has been trying to dispose of Indivior for some time. The pharmaceutical companys sales havebeen on the slide after US regulatorsgave the green light to other manufacturers to produce rival generic versions of its heroin substitute drug, Suboxone.
And Indiviors declining revenues have impacted Reckitts growth. For example, during the third quarter Reckitts sales only expended by 2%, although growth would have been 3% excluding Indivior. Reckitt is expecting full-year revenue growth of 4% to 5% now Indivior has been spun off.
An interesting opportunity
On its first day of trading, Indivior jumped by 17% as demand for the companys shares was high. Its easy to see why. Indivior was spun off in a hurry and Reckitt, it seems, couldnt be bothered to wait around to get the best price.
Indivior is a global leader in the treatment of opioid dependence, with over two decades of history behind it. The groups core products, namely the drug Suboxone, are sold in up to 44 countries.
Sales of Suboxone tablets have recently come under attack from generic competitors. However, Indivior has fought back with Suboxone film, the sales of which are holding up relatively well.
Still, theres no denying the fact that Indivior is under pressure.Total revenues from the Indivior business are expected to fall by more than 12% this year and profits are likely to fall by 25%, due to lower net revenues but also higher R&D costs.
But heres the thing, at present levels, Indivior is cheap, really cheap. The company currently trades at an estimated 2014 P/E of 5 and a forward P/E of 9, both of which are significantly below the pharmaceutical sector averageP/E of 30. Full-year 2014 earnings per share are expected to be somewhere in the region of 31p per share.
Management has stated that it will payout 40% of earnings as a dividend. So, based on this, at current levels Indivior is set to support a yield of around 7% this year.
Additionally, the company is highly cash-generative and a gross margin of nearly 80% has been reported for the past five years.
Room for growth
Indivior is cheap but the company is cheap for a reason; sales are falling. However, now the company is independent it can focus on growth, and Indiviors potential market is huge.
Twelve million people abuse opioids annually in the US and 2.5m of them need treatment for addiction. At present Indivior only treats a quarter of these patients.
Whats more, the companyhas a pipeline of drugs under development that will hit the market over the next few years. These new treatments include drugs for cocaine overdose and alcohol dependency, as well as treatments for schizophrenia. One new product launch is planned every year from 2016 through to 2020. With over 250 sales reps in the US alone, Indivior already has the infrastructure in place to shift these new products.
So all in all, Indivior is cheap, cash-generative, is set to support a hefty dividend yield and has the foundations in place to grow rapidly from 2016 onwards. I believethe company offers long-term growth and income at an extremely attractive price.
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