REG - Indivior PLC - 3rd Quarter Results <Origin Href="QuoteRef">INDV.L</Origin> - Part 2
02/11/2016 12:05
- Part 2: For the preceding part double click ID:nRSB1432Oa
Buprenorphine for treatment of opioid dependence, the CEO reviews financial
information presented on a combined basis for evaluating financial performance
and allocating resources. Accordingly, the company reports as a single
reporting segment.
Revenues
Revenues are attributed to countries based on the country where the sale
originates. The following table represents revenue from continuing operations
attributed to countries based on the country where the sale originates and
non-current assets, net of accumulated depreciation and amortisation, by
country. Non-current assets for this purpose consist of property, plant and
equipment and intangible assets. Revenues for the three and nine months to
September 30, 2016 and 2015 were as follows:
Revenues from sale of goods:
Q32016$m Q32015$m 9 Months2016$m 9 Months2015$m
United States 219 201 651 613
ROW 49 48 148 153
Total 268 249 799 766
Non-current assets at September 30, 2016 and December 31, 2015 were:
September 30 2016$m December 31 2015$m
United States 91 80
ROW 10 14
Total 101 94
3. OPERATING COSTS AND EXPENSES
The table below sets out selected operating costs and expenses information:
Q32016$m Q32015$m 9 Months2016$m 9 Months2015$m
Research and development expenses (29) (36) (87) (91)
Marketing, selling and distribution expenses (39) (43) (102) (122)
Administrative expenses (294) (60) (439) (150)
Depreciation and amortisation (1) (6) (12) (18)
Operating lease rentals (1) (2) (3) (5)
Total (335) (111) (556) (295)
Exceptional Items
Q32016$m Q32015$m 9 Months2016$m 9 Months2015$m
Cost of Sales (1) - (11) -
Reconfiguration and separation costs - (2) - (7)
Consulting costs (2) - (6) -
Legal Provisions (220) - (220) -
Total Exceptional items (223) (2) (237) (7)
$237m (2015: $7m) of exceptional items include legal provisions, write offs of
manufacturing costs and legal and advisory costs related to the exploration of
strategic initiatives for the event of a potential negative ANDA ruling. The
Company has recorded a charge of $220m in the third quarter of 2016 for the
investigative and antitrust litigation matters set out in note 7 below.
Because these matters are in various stages, the Company cannot predict with
any certainty the ultimate resolution or cost of all of the matters, and may
in the future take additional charges. These have been included within
operating expenses and Costs of Sales.
4. TAXATION
In the nine months ended September 30, 2016, tax on total profits amounted to
$82m and represented a nine-month effective tax rate of 210% (9 Month 2015:
27%); $16m of these relate to the tax effect on the movement of assets within
the Group and additional provisions for unresolved tax matters and prior year
adjustments, and are considered to be exceptional. ($5m) relate to the tax
effect of exceptional items within SD&A and Cost of Sales. No deferred tax
has been recognized on the litigation charge in the period as it is uncertain
whether the charge will be available for tax relief. Adjustments will be made
once a final determination of the litigation charges has been made. Excluding
the impact of exceptional items the effective tax rate for the nine months
ended September 30, 2016 is 26% (2015: 27%).
The Group's balance sheet at September 30, 2016 included a tax payable
liability of $70m and deferred tax asset of $112m.
5. EARNINGS PER SHARE
Q32016cents Q32015cents 9 Months2016cents 9 Months2015cents
Basic (loss)/earnings per share (21) 7 (6) 27
Diluted (loss)/earnings per share (20) 7 (6) 26
Adjusted basic earnings per share 10 7 28 27
Adjusted diluted earnings per share 10 7 28 27
Basic
Basic earnings per share ("EPS") is calculated by dividing profit/(loss) for
the period attributable to owners of the Company by the weighted average
number of ordinary shares in issue during the period. 720,597,566 shares were
in issue at the reporting date.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. The Company has dilutive potential ordinary shares
in the form of awards. The weighted average number of shares is adjusted for
the number of shares granted assuming the vesting of the awards.
2016Average number of shares 2015Average number of shares
On a basic basis 720,597,566 718,577,618
Dilution for Long Term Incentive Plan (LTIP) 22,614,143 14,459,717
Adjusted diluted shares 743,211,709 733,037,335
Adjusted Earnings
The Directors believe that diluted earnings per share, adjusted for the impact
of exceptional items after the appropriate tax amount, provides additional
useful information on underlying trends to shareholders in respect of earnings
per ordinary share.
A reconciliation of net income to adjusted net income is as follows:
Q32016$m Q32015$m 9 Months2016$m 9 Months2015$m
Net (loss)/income (149) 48 (43) 191
Exceptional items 223 2 237 7
Tax effect of exceptional items - - (5) (2)
Exceptional items within taxation (3) - 16 -
Adjusted net income 71 50 205 196
6. FINANCIAL LIABILITIES - BORROWINGS
Current September 302016$m December 312015$m
Bank loans (55) (34)
(55) (34)
Non-current September 302016$m December 312015$m
Bank loans (491) (571)
(491) (571)
Analysis of net debt September 302016$m December 312015$m
Cash and cash equivalents 586 467
Borrowings* (575) (641)
11 (174)
*Borrowings reflects the outstanding principal amount drawn, before debt
issuance costs
Reconciliation of net debt September 302016$m December 312015$m
The movements in the period were as follows:
Net debt at beginning of period (174) (428)
Increase in cash and cash equivalents 119 136
Net repayment of borrowings and overdraft 69 121
Exchange adjustment (3) (3)
Net debt at end of period 11 (174)
The carrying value less impairment provision of current borrowings and cash at
bank, as well as trade receivables and trade payables, are assumed to
approximate their fair values.
On March 16, 2015, the Company completed syndication of its $750 million debt
facility. As a result of the syndication the new terms of the loan on March
16, 2015 were as follows:
Currency Nominal interest margin Maturity Scheduled repayments* Issuance cost$m Face value$m Carrying amount$m
Unsecured bank loan USD Libor (1%) + 6% 5 years 5% 40 644 644
Unsecured bank loan EUR Libor (1%) + 6% 5 years 5% 6 106 106
*For years 1 and 2 only; 10% thereafter
Also included within the terms of the loan were:
• A financial covenant to maintain a leverage covenant (Net debt to Adjusted
EBITDA ratio) of 3.25x with step down to 3.00x on June 30, 2016.
• An additional covenant requiring minimum liquidity of $150 million (defined
as cash on hand plus the undrawn amount available under the Company's $50
million revolving credit facility).
7. CONTINGENT LIABILITIES
The Indivior 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 Company, or to
quantify the ultimate cost of a resolution of these matters. The Board of
Indivior has recorded a charge of $220m in the third quarter of 2016 for the
investigative and antitrust litigation matters noted below. Because these
matters are in various stages, Indivior cannot predict with any certainty the
ultimate resolution or cost of all of the matters, and the final amount might
be materially different from this reserve.
The Indivior business (previously Reckitt Benckiser Pharmaceuticals (RBP)) was
demerged from Reckitt Benckiser Group plc (RB) on December 23rd 2014 and
Indivior PLC became the new ultimate holding company of the group.
Department of Justice Investigation
· A federal criminal grand jury investigation of Indivior initiated in
December 2013 is continuing, and includes marketing and promotion practices,
paediatric 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. We are
in the process of responding by producing documents and other information in
connection with this on-going investigation, and in preliminary discussion
about a possible resolution of the investigation. We are cooperating fully
with the relevant agencies and prosecutors and will continue to do so.
FTC Investigation Antitrust Litigation, Connecticut Subpoena
· The Judge overseeing the legal privilege dispute in the FTC
investigation has appointed a Special Master (an independent external lawyer)
to investigate the claims of legal privilege and provide a recommendation to
the Court on how the documents at issue should be treated. An initial report
and recommendation relating to the first tranche of privileged documents
reviewed by the Special Master was finalized in April 2016 and adopted by the
Court on August 1st, 2016. Pursuant to this report and the Court's order,
Indivior produced certain additional documents. A second tranche of documents
remains under review. Following that review, the Court's decision then may be
subject to appeal by either party.
· Fact discovery is continuing in the antitrust class action litigation
described on our Annual Report ("Class Action Litigation"). Plaintiffs
allege, among other things, that Indivior violated federal and state antitrust
laws by 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 generic products.
· Amneal Pharmaceuticals LLC, a manufacturer of generic buprenorphine /
naloxone tablets, filed a complaint against the Company in December 2015.
This case has been coordinated with the Class Action litigation. Amneal's
complaint contains antitrust allegations similar in nature to those set out in
the class action complaints, and Amneal has also alleged violations of the
Lanham Act.
· On September 22, 2016, 35 states and the District of Columbia filed a
complaint against the Company in the same district where the Class Action and
Amneal litigation is pending. The States' complaint is similar to the other
pending complaints, and alleges violations of state and federal antitrust and
consumer protection laws. On October 25, 2016, the Company was informed that
the States plan to amend their complaint to add six additional states as
plaintiffs. This lawsuit relates to the investigation conducted by various
states, as discussed in previous filings.
· On October 12, 2016, the Company 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 Company's marketing and promotion of SUBOXONE products and its
interactions with a non-profit third party organization. The Company is
cooperating in this investigation.
ANDA Litigation
· 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.
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 a more stringent claim construction in the Teva
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 (US Patent No. 8,900,497) scheduled for November 16th and
21st-23rd, 2016.
· Trial against Dr. Reddy's in the lawsuit involving the Orange Book-listed
patents for Suboxone Film scheduled for November 7th, 16th, and 21st--23rd,
2016, with Dr. Reddy's 30-month stay of FDA approval on ANDA No. 20-5806
expiring April 17th, 2017. Indivior believes Dr. Reddy's 30-month stay of FDA
approval on ANDA No. 20-5299 also expires on April 17th, 2017, however, Dr
Reddy's disputes the applicability of the stay to this ANDA.
· Trial against Alvogen in the lawsuit involving the Orange Book-listed
patents and the '497 process patent for Suboxone Film originally scheduled for
April 2017 is expected to be rescheduled to a date later in the year, with
Alvogen's 30-month stay of FDA approval expiring 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 Orange Book-listed
patents for Suboxone Film is scheduled for September 25th, 2017, with Mylan's
stay expiring March 24, 2018.
· Indivior received a Paragraph IV notification from Teva, dated February
8, 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
Indivior Group and Teva 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 its ANDA currently scheduled for trial in November 2016.
· The USPTO declined to institute Teva's petitions for inter partes
review of the three Orange Book-listed patents on procedural grounds.
· Dr. Reddy's has filed an inter partes review petition on each of the
three Orange Book Patents. These petitions are substantively similar to those
filed by Teva.
· Certain claims of the '832 patent were found invalid in an IPR
proceeding, a decision that has been affirmed by the Court of Appeals for the
Federal Circuit.
· In the event of a ruling in these matters that none of the claims of
the asserted patents are valid and infringed by the ANDA-filers, and should
there be FDA approval of one or more of the ANDAs 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 of the Company will 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.
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 Company
following its audit of 2011 and 2012 income tax years. During the 4th quarter
of 2015, the Company was notified by the IRS of their intention to audit 2013
and 2014 income tax years and have since been notified that the IRS intend to
disallow these claims in 2013 and 2014 audit cycle. The Company will appeal
the proposed disallowance. The Company has evaluated its positions with
respect to these claims and has provided $19m tax reserve for amounts claimed
on all open periods as its best estimate of its expected settlement position
for this issue.
8. TRADE AND OTHER PAYABLES
September 302016$m December 312015$m*
Sales returns and rebates (335) (287)
Trade payables (19) (27)
Accruals (212) (202)
Other tax and social security payables (27) (12)
Total (593) (528)
*The December 31 2015 balances have been adjusted to correct a prior period
classification between Trade payables and Accruals.
Customer return and rebate accruals, primarily in the US, are provided for by
the Group at the point of sale in respect of the estimated rebates, discounts
or allowances payable to customers. Accruals are made at the time of sale but
the actual amounts paid are based on claims made some time after the initial
recognition of the sale. As the amounts are estimated they may not fully
reflect the final outcome and are subject to change dependent upon, amongst
other things, the channel (e.g. Medicaid, Medicare, Managed Care, etc) and
product mix. The level of accrual is reviewed and adjusted quarterly in the
light of historical experience of actual rebates, discounts or allowances
given and returns made and any changes in arrangements. Future events could
cause the assumptions on which the accruals are based to change, which could
affect the future results of the Group.
9. SHARE CAPITAL
Equity Ordinary Shares Issue price Nominal value$m
Issued and fully paid
At January 1, 2016 718,577,618 $0.10 72
Allotments 2,019,948 $0.10 -
At September 30, 2016 720,597,566 $0.10 72
Equity Ordinary Shares Issue price Nominal value$m
Issued and fully paid
At January 1, 2015 718,577,618 $2.00 1,437
Nominal value reduction - ($1.90) (1,365)
At September 30, 2015 718,577,618 $0.10 72
The holders of ordinary shares (par value $0.10) are entitled to receive
dividends as declared from time to time and are entitled to one vote per share
at general meetings of Indivior PLC.
The initial shareholders resolved, by a special resolution, passed on October
30, 2015, to reduce Indivior PLC's share capital by decreasing the nominal
value of each Indivior Ordinary Share from $2.00 to $0.10. This created
distributable reserves on the balance sheet that will provide Indivior with,
among other things, capacity for the payment of future dividends.
As required under section 645 of the Companies Act 2006, the High Court of
Justice has confirmed the reduction of the Company's share capital. Following
the registration of the Order of the Court with the Companies House, the
Capital Reduction became effective on January 21, 2015.
Allotment of ordinary shares
During the year, 2,019,948 ordinary shares (2015: nil) were allotted to
satisfy vestings/exercises under the Group's Long Term Incentive Plan.
10. RELATED PARTIES
Subsequent to the demerger from former parent, RB, on December 23, 2014,
Indivior continues to receive certain services like office space rental and
other operational services on commercial terms and on an arm's length basis.
Adrian Hennah, the RB CFO, served on the Indivior PLC Board of Directors until
the AGM on May 11th, 2016. The amount included within SD&A in respect of these
services is $5m.
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 (DTR)
The Directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
Indivior's Directors are listed in the Annual Report and Accounts for 2015;
with the following exceptions:
Adrian Hennah, who stepped down as a Director on May 11, 2016
Rupert Bondy, who stepped down as a Director on September 30, 2016,
Lizabeth Zlatkus, who joined the Board as a Director on September 1, 2016
There have been no other changes in the period.
Details of all current Directors are available on our website at
www.indivior.com
By order of the Board
Shaun Thaxter
Cary J. Claiborne
Chef Executive Officer
Chief Financial Officer
November 1, 2016
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 quarterly financial
report of Indivior PLC for the 3 and 9 month period ended 30 September 2016.
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 Rules and Transparency Rules 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 $220m has been established as a
reserve for potential settlement for all of these matters . The amount
accepted in the final agreed settlement might be materially different from
this reserve. 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. As such, this indicates a material uncertainty
that may cast significant doubt on the Group's ability to continue as a going
concern. However, the Directors believe that they are able to carry out the
necessary measures and that 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 financial statements which do
not include any adjustments that might result from the outcome of this
uncertainty.
Emphasis of matter - outcome of litigation
Without modifying our conclusion on the interim financial statements, 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 30 September
2016;
· the condensed consolidated interim income statement and condensed
consolidated statement of comprehensive income for the three and nine month
periods then ended;
· the condensed consolidated interim statement of cash flows for the nine
month period then ended;
· the condensed consolidated interim statement of changes in equity for
the nine month period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the quarterly financial report
have been prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and the
Disclosure Rules and Transparency Rules 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 quarterly financial report, including the interim financial statements, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the quarterly financial report in accordance
with the Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the quarterly financial report 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 Rules and Transparency Rules 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 quarterly financial report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
1 November 2016
a) The maintenance and integrity of the Indivior PLC website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the interim
financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Condensed cons. interim income statement (Adjusted)
Unaudited Unaudited Unaudited Unaudited
Q3 Q3 9 Months 9 Months
2016 2015 2016 2015
ADJUSTED Notes $m $m $m $m
Net Revenues 2 268 249 799 766
Cost of Sales (24) (24) (67) (72)
Gross Profit 244 225 732 694
Selling, distribution and administrative expenses 3 (113) (109) (330) (288)
Research and development expenses 3 (29) (36) (87) (91)
Operating Profit 102 80 315 315
Finance expense (12) (16) (39) (47)
Net finance expense (12) (16) (39) (47)
Profit before taxation 90 64 276 268
Taxation 4 (19) (14) (71) (72)
Net income 71 50 205 196
This information is provided by RNS
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