REG - Indivior PLC - 1st Quarter Results <Origin Href="QuoteRef">INDV.L</Origin> - Part 2
03/05/2017 12:03
- Part 2: For the preceding part double click ID:nRSC0548Ea
11 7
Diluted earnings per share 11 7
Adjusted basic earnings per share 11 8
Adjusted diluted earnings per share 11 8
Basic
Basic earnings per share ("EPS") is calculated by dividing profit for the
period attributable to owners of the Company by the weighted average number of
ordinary shares in issue during the period.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. The Company has dilutive potential ordinary shares
in the form of stock options. The weighted average number of shares is
adjusted for the number of shares granted assuming the exercise of stock
options.
2017Average number of shares 2016Average number of shares
On a basic basis 720,064,760 718,577,618
Dilution for Long Term Incentive Plan 27,263,710 12,692,955
Employee Sharesave Scheme 1,050,182 -
On a diluted basis 748,378,653 731,270,573
Adjusted Earnings
The Directors believe that diluted earnings per share, adjusted for the impact
of exceptional items after the appropriate tax amount, provides additional
useful information on underlying trends to shareholders in respect of earnings
per ordinary share.
A reconciliation of net income to adjusted net income is as follows:
For the three months ended March 31 2017$m 2016$m
Net income 80 50
Exceptional items within taxation - 5
Adjusted net income 80 55
6. FINANCIAL LIABILITIES - BORROWINGS
Current Mar 312017$m Dec 312016$m
Bank loans (101) (101)
(101) (101)
Non-current Mar 312017$m Dec 312016$m
Bank loans (423) (434)
(423) (434)
Analysis of net debt Mar 312017$m Dec 31 2016$m
Cash and cash equivalents 729 692
Borrowings* (547) (561)
182 131
*Borrowings reflects the principal amount drawn, before debt issuance costs
Reconciliation of net debt Mar 312017$m Dec 312016$m
The movements in the period were as follows:
Net debt at beginning of period 131 (174)
Increase in cash and cash equivalents 37 225
Net repayment of borrowings and overdraft 16 78
Exchange adjustments (2) 2
Net debt at end of period 182 131
The carrying value less provision of current borrowings and cash at bank, as
well as trade receivables and trade payables are assumed to approximate their
fair values. The terms of the loan in effect at March 31, 2017 are as
follows:
Currency Nominal interest margin Maturity Required annual repayments Maximum leverage ratio Minimum liquidity$m
Term loan facility USD Libor (1%) + 6% 2019 10% 2.75 150
Term loan facility EUR Libor (1%) + 6% 2019 10% 2.75 150
• The maximum leverage ratio is a financial covenant to maintain net secured
leverage below a specified maximum (Adjusted net debt to Adjusted EBITDA
ratio) which will step down to 2.50x on June 30, 2017.
• The minimum liquidity covenant requires the Group to maintain cash on hand
plus the undrawn amount available under the Group's $50 million revolving
credit facility of at least $150 million.
7. CONTINGENT LIABILITIES
The Group is currently subject to other legal proceedings and investigations,
including through subpoenas and other information requests, by various
governmental authorities. It is not possible at this time to predict with any
certainty the potential impact of these matters on the Group, or to quantify
the ultimate cost of a resolution of these matters. The Group carries a
provision of $218m for the investigative and antitrust litigation matters
noted below. The Group continues in discussions with the Department of Justice
about a possible resolution to its investigation. The Group cannot predict
with any certainty whether we will be able to reach ultimate resolution with
the Department of Justice or any or all of the other parties, or the ultimate
cost of resolving all of the matters. The final cost may be materially higher
than this reserve.
Department of Justice Investigation
· A U.S. federal criminal grand jury investigation of Indivior initiated
in December 2013 is continuing, and includes marketing and promotion
practices, pediatric safety claims, and overprescribing of medication by
certain physicians. The U.S. Attorney's Office for the Western District of
Virginia has served a number of subpoenas relating to SUBOXONE Film, SUBOXONE
Tablet, SUBUTEX Tablet, buprenorphine and our competitors, among other issues.
The Group continues in discussions with the Department of Justice about a
possible resolution to its investigation. It is not possible at this time to
predict with any certainty the potential impact of this investigation on us or
to quantify the ultimate cost of a resolution. We are cooperating fully with
the relevant agencies and prosecutors and will continue to do so.
State Subpoenas
· On October 12th, 2016, Indivior was served with a subpoena for records
from the State of Connecticut Office of the Attorney General under its
Connecticut civil false claims act authority. The subpoena requests documents
related to the Group's marketing and promotion of SUBOXONE products and its
interactions with a non-profit third party organization. On November 16th,
2016, Indivior was served with a subpoena for records from the State of
California Department of Insurance under its California insurance code
authority. The subpoena requests documents related to SUBOXONE Film, SUBOXONE
Tablet, and SUBUTEX Tablet. The Group is fully cooperating in these
investigations.
FTC investigation and Antitrust Litigation
· The U.S. Federal Trade Commission's investigation remains pending.
Litigation regarding privilege claims has now been resolved. Indivior has
produced certain documents that it had previously withheld as privileged;
other such documents have not been produced.
· Fact discovery is continuing in the antitrust class action litigation.
Plaintiffs allege, among other things, that Indivior violated U.S. federal and
state antitrust laws in attempting to delay generic entry of alternatives to
SUBOXONE tablets, and plaintiffs further allege that Indivior unlawfully acted
to lower the market share of these products.
· Amneal Pharmaceuticals LLC (Amneal), a manufacturer of generic
buprenorphine / naloxone tablets, has alleged antitrust violations similar in
nature to those alleged in the class action complaints, and Amneal has also
alleged violations of the U.S. Lanham Act. This case has been coordinated with
the antitrust class action litigation.
· A group of states, now numbering 41, and the District of Columbia filed
suit against Indivior in the same district where the antitrust class action
litigation and Amneal cases are pending. The States' complaint is similar to
the other pending antitrust complaints, and alleges violations of U.S. state
and federal antitrust and consumer protection laws. This lawsuit relates to
the investigation conducted by various states, as discussed in previous
filings. Discovery has been coordinated with the antitrust class action
litigation and Amneal cases, subject to certain stays.
ANDA Litigation and Inter Partes Review
· The ruling after trial against Actavis and Par in the lawsuit involving
the Orange Book-listed patents for SUBOXONE Film issued on June 3rd, 2016. The
ruling found the asserted claims of the '514 patent valid and infringed; the
asserted claims of the '150 patent valid but not infringed; and the asserted
claims of the '832 patent invalid, but found that certain claims would be
infringed if they were valid.
· Based on the ruling as to the '514 patent, Actavis and Par are
currently enjoined from launching a generic product. Par has appealed and
Actavis is expected to appeal this ruling. The generics have also moved to
reopen the judgment based on the claim construction in the Dr. Reddy's case.
In light of the motions to reopen, Par's appeal has been deactivated until the
District Court rules on the motions, and the deadline for Actavis to file a
notice of appeal has been postponed.
· Trial against Dr. Reddy's, Actavis and Par in the lawsuits involving
the process patent (U.S. Patent No. 8,900,497) took place on November 16th and
21st-23rd, 2016.
· Trial against Dr. Reddy's in the lawsuit involving two of the Orange
Book-listed patents for SUBOXONE Film (U.S. Patent Nos. 8,017,150 and
8,603,514) took place on November 7th, 16th, and 21st-23rd, 2016. Dr. Reddy's
30-month stay of FDA approval expired on April 17th, 2017. So far as Indivior
is aware, FDA to date has not granted tentative or final marketing
authorization to Dr. Reddy's (or any other generic SUBOXONE Film alternative).
If FDA were to grant final approval to Dr. Reddy's this would enable them to
market a generic film alternative to SUBOXONE® Film in the U.S. However, any
market launch by Dr. Reddy's before the District Court renders its decision,
or before the court of appeals renders its decision even if Dr. Reddy's was to
prevail before the District Court, would be on an "at risk" basis because
Indivior would have a claim for damages against Dr. Reddy's if it ultimately
prevails after any appeal.
· A stipulation and proposed order was filed with the District Court on
April 28th, 2017, seeking to consolidate the trial against Alvogen in the
lawsuit involving the '150 and '514 Orange Book-listed patents and the '497
process patent for SUBOXONE Film with the trial against Mylan (discussed
below). The District Court approved the stipulation on May 1st, 2017.
Accordingly, the trial against Alvogen will be scheduled for September
25th-27th, 2017, and will be tried concurrently with the trial against Mylan.
The 30-month stay of FDA approval of Alvogen's Abbreviated New Drug
Application is presently set to expire October 29th, 2017.
· By a Court order dated August 22nd, 2016, Indivior's SUBOXONE Film
patent litigation against Sandoz has been dismissed without prejudice because
Sandoz is no longer pursuing Paragraph IV certifications for its proposed
generic formulations of SUBOXONE Film.
· Trial against Mylan in the lawsuit involving the '150 and '514 Orange
Book-listed patents and the '497 process patent for SUBOXONE Film is scheduled
for September 25th-27th, 2017, and will be tried concurrently with the trial
against Alvogen pursuant to a stipulation filed with and approved by the
District Court. The 30-month stay of FDA approval of Mylan's Abbreviated New
Drug Application is presently set to expire March 24th, 2018. On January 12th,
2017, the District Court issued a claim construction decision in the Mylan
action that clarified its earlier construction in the Dr. Reddy's case of
certain terms in the '514 patent.
· Indivior received a Paragraph IV notification from Teva, dated February
8th, 2016, indicating that Teva had filed a 505(b)(2) New Drug Application
(NDA) for a 16mg/4mg strength of buprenorphine/naloxone sublingual film. The
parties have agreed that infringement by Teva's 16 mg/4 mg dosage strength
will be governed by the infringement ruling on the accused 8 mg/2 mg dosage
strength in the ANDA now owned by Dr. Reddy's that was the subject of the
trial in November 2016.
· On May 31st, 2016, Dr. Reddy's filed petitions seeking inter parties
review (IPR) of the three Orange Book-listed patents covering SUBOXONE Film.
Indivior and Monsol Rx filed Patent Owner Preliminary Responses opposing
institution of the IPRs on September 6th, 2016, arguing that institution of
the IPRs should be denied. On December 2nd, 2016, the US Patent Trial and
Appeal Board (PTAB) denied institution of the IPR as to the '832 Patent, and
on December 5th, 2016, the PTAB denied institution of the IPRs as to the '514
and '150 Patents. On January 3rd, 2017, Dr. Reddy's filed Requests for
Rehearing of the three non-institution decisions. On March 22nd, 2017, the
PTAB denied Dr. Reddy's request for rehearing of its decisions not to
institute its petitions for IPRs of the '150 and '514 patents. This denial by
the PTAB resolves Dr. Reddy's attempts to seek to invalidate the '150 and '514
patents through IPR proceedings. A separate panel of the PTAB is handling the
proceeding on the '832 patent and has not yet issued its decision on Dr.
Reddy's Rehearing Request in that case.
· Mylan has filed a petition seeking an IPR of the '514 patent. A
decision by the US Patent & Trademark Office on whether to institute IPR
proceedings is expected in May 2017.
· In the event that one or more of the generic companies are successful
in their patent challenges, and should there be FDA approval of one or more of
the ANDAs and subsequent commercial launch of generic SUBOXONE Film, and the
Group's pipeline products fail to obtain regulatory approval, there is the
likelihood that revenues and operating profits of the Group will significantly
decline. In these circumstances the Directors believe they would be able to
take the required steps to reduce the cost base, however, this would result in
a significant change to the structure of the business.
Rhodes Pharmaceuticals
· On March 21st, 2017 Rhodes Pharmaceuticals filed a complaint against
Indivior in the District of Delaware, alleging that Indivior's sale of
SUBOXONE Film in the U.S. infringes one or more claims of a patent. The
asserted patent, which was issued in June 2016 traces back to an application
filed in August 2007. Indivior believes this claim is without merit and
intends to vigorously defend this action.
Estate of John Bradley Allen
· On December 27th, 2016, the Estate of John Bradley Allen filed a civil
complaint against Indivior, among other parties, in the Northern District of
New York seeking relief under Connecticut's products liability and unfair
trade practices statutes for damages allegedly caused by SUBOXONE. Indivior
believes this lawsuit is without merit and intends to vigorously defend this
action.
IRS Notice on Manufacturing Deductions
· In August 2015, the IRS issued notices of a proposed adjustment for the
disallowance of certain manufacturing deductions claimed by the Group
following its audit of 2011 and 2012 income tax years. During the 4th quarter
of 2015, the Group was notified by the IRS of their intention to disallow
these claims as part of the 2013 and 2014 audit cycle. The Group has appealed
the proposed disallowance. The Group has evaluated its positions with respect
to these claims and has provided $22m tax reserve for amounts claimed on all
open periods as its best estimate of its expected settlement position for this
issue.
8. TRADE AND OTHER PAYABLES
Mar 312017$m Dec 312016$m
Sales returns and rebates (401) (402)
Trade payables (23) (33)
Accruals (168) (212)
Other tax and social security payables (10) (11)
Total (602) (658)
Customer return and rebate accruals, primarily in the US, are provided for by
the Group at the point of sale in respect of the estimated rebates, discounts
or allowances payable to direct and indirect customers. Accruals are made at
the time of sale but the actual amounts to be paid are based on claims made
some time after the initial recognition of the sale. The estimated amounts may
not fully reflect the final outcome and are subject to change dependent upon,
amongst other things, the payor channel (e.g. Medicaid, Medicare, Managed
Care, etc) and product mix. Accrual balances are reviewed and adjusted
quarterly in the light of historical experience of actual rebates, discounts
or allowances given and returns made and any changes in arrangements. Future
events could cause the assumptions on which the accruals are based to change,
which could affect the future results of the Group.
9. SHARE CAPITAL
Equity Ordinary Shares Issue price Nominal value$m
Issued and fully paid
At January 1, 2017 720,597,566 $0.10 72
Allotments 180,198 $0.10 -
At March 31, 2017 720,777,764 $0.10 72
Equity Ordinary Shares Issue price Nominal value$m
Issued and fully paid
At January 1, 2016 718,577,618 $0.10 72
Nominal value reduction -
At March 31, 2016 718,577,618 $0.10 72
10. RELATED PARTIES
Indivior's former parent, Reckitt Benckiser Group PLC, was a related party
through 2016 as a result of certain transition management agreements. During
Q1 2016, Indivior purchased certain services such as office space rental and
other operational services on commercial terms and on an arm's length basis.
The amount included within administrative expenses in respect of these
services was $2m.
11. POST BALANCE SHEET EVENTS
There have been no material post balance sheet events.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors declare that, to the best of their knowledge:
· This condensed set of Interim Financial Statements, which have been
prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by
the European Union, gives a true and fair view of the assets, liabilities,
financial position, and profit or loss of Indivior; and
· The interim management report gives a fair review of the information
required pursuant to regulations 4.2.7 and 4.2.8 of the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority
The Directors are responsible for the maintenance and integrity of the Group's
website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Indivior PLC's Directors are listed in the Annual Report and Accounts for
2016.
Details of all current Directors are available on our website at
www.indivior.com
By order of the Board
Shaun Thaxter
Mark Crossley
Chef Executive Officer
Chief Financial Officer
May 2, 2017
Independent review report to Indivior PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Indivior PLC's condensed consolidated interim financial
statements (the "interim financial statements") in the Q1 Financial Results
Release of Indivior PLC for the 3 month period ended 31 March 2017. Based on
our review, nothing has come to our attention that causes us to believe that
the interim financial statements are not prepared, in all material respects,
in accordance with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Emphasis of matter - Going concern
In forming our conclusion on the interim financial statements, which is not
modified, we have considered the adequacy of the disclosure made in note 1 to
the interim financial statements concerning the Group's ability to continue as
a going concern. As more fully stated in note 7 the Group is involved in
investigations by the Department of Justice and the Federal Trade Commission
as well as antitrust litigation. An amount of $218 million has been
established as a provision for potential settlement for all of these matters.
The amount accepted in the final agreed settlement might be materially higher
from this provision. This could impact the Group's ability to operate, which
would be further adversely impacted should revenues decline and pipeline
products fail to obtain regulatory approval, all of which could mean the Group
cannot continue in business without taking necessary measures to reduce its
cost base and improve its cash flow. The directors believe that they are able
to carry out the necessary measures and that the Group can continue as a going
concern for the foreseeable future. Accordingly, the directors continue to
adopt the going concern basis for accounting in preparing these interim
financial statements. These conditions, along with the other matters explained
in note 1 to the interim financial statements, indicate the existence of a
material uncertainty which may cast significant doubt about the Group's
ability to continue as a going concern. The interim financial statements do
not include the adjustments that would result if the Group was unable to
continue as a going concern.
Emphasis of matter - Outcome of litigation
In forming our conclusion on the interim financial statements, which is not
modified, we draw your attention to note 1 that describes the uncertain
outcome of the ongoing ANDA patent litigation over Suboxone Film. In the event
of a negative ruling against the Group, and should there be a regulatory
approval and subsequent commercial launch of generic Suboxone Film, and
pipeline products fail to obtain regulatory approval there is the likelihood
that revenues and operating profits may decline. In these circumstances the
directors believe they would be able to take the required steps to reduce the
cost base, however this would result in a significant change to the structure
of the business. As a result of this decline and extent of its impact, the
directors would consider a change in the structure of the business and methods
to reduce its cost base, as also described in note 7.
What we have reviewed
The interim financial statements comprise:
· the Condensed consolidated interim balance sheet as at 31 March 2017;
· the Condensed consolidated interim income statement and Condensed
consolidated interim statement of comprehensive income for the period then
ended;
· the Condensed consolidated interim cash flow statement for the period
then ended;
· the Condensed consolidated interim statement of changes in equity for
the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Q1 Financial Results Release
have been prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial
reporting framework that has been applied in the preparation of the full
annual financial statements of the Group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Q1 Financial Results Release, including the interim financial statements,
is the responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the Q1 Financial Results Release in
accordance with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the Q1 Financial Results Release based on our review. This
report, including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority and for no other purpose. We do not, in giving this conclusion,
accept or assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and, consequently,
does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
We have read the other information contained in the Q1 Financial Results
Release and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim financial
statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
03 May 2017
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