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Questor: this stock has been a disaster. We must admit to our mistake and sell
Questor share tip: we had high hopes for Indivior and its new treatment for opioid addiction but the US government wants to fine it $3bn and its survival is now in doubt
We knew, when we advised readers in November to hold on to Indivior, the drugs firm, that we were taking a gamble. But we never expected it to go wrong in quite such spectacular style.
Our case was that there remained plenty of promise in its newest treatment, a slow-acting opiate substitute injected under the skin, and that if it failed to market the drug effectively there was a chance that a deeper-pocketed rival would buy the entire business.
That thesis has now been overtaken by events.
Earlier this month the Department of Justice (DoJ) in America, where Indivior makes the bulk of its sales despite its London listing, filed charges against the company, accusing it of “engaging in an illicit nationwide scheme to increase prescriptions” of an earlier version of its opioid addiction drug, which is administered via a strip placed under the tongue.
The DoJ pulled no punches. “Indivior obtained billions of dollars in revenue from prescriptions by deceiving healthcare providers and healthcare benefit programmes into believing that [the drug] was safer, less divertible [easily handed on to someone else], and less abusable than other opioid-addiction treatment drugs,” its indictment said.
Should it win its case, the DoJ said it would require Indivior to forfeit $3bn (£2.3bn) and in effect all of its assets to the American government.
When we first tipped the shares as a buy, in March last year, we referred to the regulatory interest in the company’s past marketing practices and mentioned that it had set aside $438m to cover any fine. We added that, in view of Indivior’s profitability and cash reserves at the time, even a $1bn penalty should be affordable.
The scale of the forfeiture proposed now has therefore taken everyone by surprise. It would, in the words of Stifel, the stockbroker, “wipe out the viability of Indivior as a going concern”.
It’s possible, of course, that the eventual penalty could be less – or even that the DoJ fails to prove its case. Analysts at Numis, another broker, said: “Central to the indictment is a charge that the paediatric safety claims over [its] tablets were intended to accelerate the switch to [the film version].
"The fact that the Centre of Disease Control has subsequently found that paediatric exposure to [the drug] did in fact decrease after the launch of the film and child-resistant packaging is likely to be a key factor in Indivior’s defence.”
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But there must remain huge doubt about the outcome of the case. And Questor cannot help remembering, during the legal proceedings that followed the disaster at BP’s Deepwater Horizon oil rig in the Gulf of Mexico nine years ago, the sense that the company was treated more harshly because it was British.
Either way, Indivior’s survival is now in doubt and we feel the sensible course is to salvage some value while any remains.
The shares, which we originally tipped at 401.5p, stood at 105.05p before the DoJ’s bombshell and lost 71.6pc on the day to close at 30.05p. They have now recovered somewhat to 43p.
This column can only apologise to readers who followed our tip but it is time to get out.
Questor says: sell
Ticker: INDV
Share price at close: 43p
Update: Just
Another stock that has failed to shine for us is Just, the specialist insurer. We tipped the shares at 134.9p in July 2017 but they stand 48.1pc lower at 70p. Here, though, there is more hope of recovery.
Our original tip quoted James Thorne, manager of the Threadneedle UK Mid 250 fund, who said then that he was attracted by Just’s strict commitment to high-margin business in areas where it had a competitive advantage and by its vast banks of long-term data, vital to pricing annuities correctly.
He told Questor this month that the investment case was largely unchanged and he retained his stake. But he said there was a lot going on in the insurance market, particularly in terms of regulatory change, and that investors were confused as a result.
“The share price reaction has been severe,” he said. “But if the stock market doesn’t recognise the value of this business, a buyer will.”
Questor says: hold
Ticker: JUST
Share price at close: 70p
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