# Indivior PLC 2018 brought a series of market challenges which resulted in delivering lower net revenue

- Link: https://www.directorstalkinterviews.com/indivior-plc-2018-brought-a-series-of-market-challenges-which-resulted-in-delivering-lower-net-revenue/412767219
- Published: 2019-02-14T07:38:03+00:00
- Author: Charlotte Edwards

**Indivior PLC** (LON:INDV), today announced FY 2018 Adjusted Financial Results.

  |

Period to December 31st

 

  |

Q4

2018

$m

  |

Q4

2017

$m

  |

% ∆

Actual

FX

  |

% ∆

Constant

FX

  |

FY

2018

$m

  |

FY

2017

$m

  |

% ∆

Actual

FX

  |

% ∆

Constant

FX

  |  
 |

Net Revenue

  |

236

  |

265

  |

-11

  |

-10

  |

1,005

  |

1,093

  |

-8

  |

-9

  |  
 |

Operating Profit/(Loss)

  |

20

  |

(115)

  |

*

  |

*

  |

292

  |

193

  |

+51

  |

+48

  |  
 |

Net Income/(Loss)

  |

24

  |

(145)

  |

*

  |

*

  |

275

  |

58

  |

*

  |

*

  |  
 |

EPS/(Loss) (cents per share)

  |

3

  |

(20)

  |

*

  |

*

  |

38

  |

8

  |

*

  |

*

  |  
 |

 |

 |

 |

 |

 |

 |

 |

 |

 |  
 |

Adjusted Operating Profit^(1)

  |

78

  |

70

  |

+11

  |

+10

  |

332

  |

403

  |

-18

  |

-19

  |  
 |

Adjusted Net Income^(1)

  |

67

  |

54

  |

+24

  |

+22

  |

272

  |

270

  |

+1

  |

–

  |  
 |

Adjusted EPS^(1)

  |

9

  |

7

  |

+29

  |

+22

  |

37

  |

37

  |

–

  |

–

  |

1Adjusted basis excludes the impact of exceptional items as referenced in Notes 
3 and 4. * Not meaningful.

**Full Year 2018 Financial Highlights**

· Net revenue of $1,005m, a decrease of 8% versus prior year (-9% at constant exchange).
U.S. market growth was more than offset by U.S. SUBOXONE® Film share loss, targeted
rebating and mix impact from growth in government channels (Medicaid).

· Operating profit was $292m (FY 2017: $193m). On an adjusted basis, FY 2018 operating
profit was $332m, a decrease of 18% (Adj. FY 2017: $403m). Lower net revenue and
higher SUBLOCADE™ and PERSERIS™ launch investments were partially offset by impacts
from operating expense reductions.

· Net income was $275m (FY 2017: $58m). On an adjusted basis, FY 2018 net income
was $272m +1% (Adj. FY 2017: $270m). Lower adjusted operating profit was more than
offset by lower net financing costs and effective tax rate.

· Cash balance at FY 2018 of $924m (+$61m). Net cash of $681m (+$305m). Voluntary
repayments of $235m on the Term Loan were made in the period; $243m remains outstanding.

**Key Operating Developments**

· U.S. SUBOXONE® Film market share averaged and exited FY 2018 at 53%.

· The Court of Appeals for the Federal Circuit (CAFC) has denied Indivior’s motion
for rehearing and rehearing en banc following the CAFC’s ruling vacating the preliminary
injunction (PI) granted against Dr. Reddy’s Laboratories (DRL). The CAFC has also
denied Indivior’s emergency motions with the CAFC to stay issuance of the mandate
pending resolution of Indivior’s appeal of the District of Delaware’s decision finding
DRL does not infringe U.S. Patent No. 8,603,514 (“the ‘514 patent”), and pending
Indivior’s forthcoming petition for a writ of certiorari to the Supreme Court of
the United States in the PI matter. The CAFC has ordered issuance of the mandate
on February 19, 2019. In response, Indivior will file a petition with the Supreme
Court of the United States to stay the mandate pending the outcome of the forthcoming
petition for certiorari seeking to overturn the CAFC’s PI vacatur. If the mandate
issues, Indivior assumes that DRL and Alvogen Pine Brook LLC will launch their generic
buprenorphine/naloxone sublingual film products on an “at-risk” basis, leading to
rapid and material loss of market share for SUBOXONE® Film. It is possible that 
other companies may also subsequently launch generic buprenorphine/naloxone sublingual
film products on an “at-risk” basis. Indivior has been preparing for this eventuality
and has implemented certain key elements of its contingency plan in light of these
expected generic launches (see details on Page 2).

· SUBLOCADE™ net revenues were $12m, including $7m in Q4 2018. Key performance indicators(
KPIs) continue to improve (see page 4).

· PERSERIS™ was made available in the U.S. in late November 2018. Commercial launch
will take place the week of February 18, 2019 with a field force of 50 representatives.

· Reached a definitive agreement (February 4, 2019) to divest rights related to 
SUBOXONE® Sublingual Tablets (Sai Bo Song™) in the Peoples Republic of China to 
Zhejiang Pukang Biotechnology Co., Ltd. (Pukang) for total potential consideration
of up to $122.5m based on achieving certain milestones. The agreement is subject
to various closing conditions and is anticipated to close in Q4 2019.

· Termination of Arbaclofen Placarbil and ADDEX lead compound due to challenges 
in their Phase 1 and preclinical studies, respectively, reducing their probability
of success below hurdle rates for further investment. This decision does not change
our reason to believe in the molecular target (GABAb receptor) and plans are currently
being put in place to accelerate our backup program (new lead identification and
optimization) in partnership with ADDEX.

· The Group continues in advanced discussions with the U.S. Department of Justice(
DOJ) about a possible resolution to its investigations. Please see Notes 8, 9 and
10 beginning on page 22 for further details on provisions and legal proceeding.

**Contingency Plan**

Indivior has implemented key elements of its contingency plan to help offset the
substantial and material near-term impact to net revenue that is expected to result
from the “at-risk” launch of generic versions of SUBOXONE® film. The overriding 
objectives of the contingency plan are to provide for the commercial success of 
SUBLOCADE™ and PERSERIS™ while ensuring a minimum cash balance of $250m to remain
in compliance with the Group’s debt covenants. Key actions include:

· Reducing outstanding principal on the Term Loan by $235m in FY 2018 to $243m;

· Cash conservation measures resulting in FY 2018 ending cash balance of $924m;

· Initiatives to reduce structural operating expenses, including headcount reductions,
R&D reprioritization and other committed savings; and,

· Additionally, Indivior expects to launch an Authorized Generic of SUBOXONE® Film
upon confirmation of the launch of generic buprenorphine/naloxone sublingual film
products. The launch is expected to capture share of the generic segment and generate
an amount of net revenue in the range of tens of U.S.$ millions.

**FY 2019 Guidance**

Given uncertainties surrounding how the U.S. market for both SUBOXONE® Film and 
generic alternatives will ultimately develop, Indivior is unable to provide FY 2019
net revenue and net income guidance at this time.

However, Indivior is providing guidance on the following elements of its business
for FY 2019:

· SUBLOCADE net revenue of $50m to $70m; and,

· Operating expenses (SG&A and R&D combined) of approximately $440m to $460m, excluding
exceptional items.

As discussed above, Indivior has executed key elements of its contingency plan. 
Its overriding objectives are to ensure a minimum cash balance of $250m to remain
in compliance with its debt covenants and to help provide resources to cover the
transition period of expected material and rapid loss of SUBOXONE® film net revenue
in the U.S. until combined net revenue from SUBLOCADE™ and PERSERIS™, along with
continued net revenue from the rest of world (ROW), is able to return the Group 
to profitable growth.

Indivior intends to provide FY 2019 Group net revenue and net income guidance (before
exceptionals and currency) once the total U.S. buprenorphine/naloxone sublingual
film market dynamics are clearer, which is anticipated to be at its Q1 2019 results
release scheduled for May 2, 2019.

> **Shaun Thaxter, CEO of Indivior, Commented:**
> “FY 2018 brought a series of market challenges which resulted in Indivior delivering
> lower net revenue and only slightly higher adjusted net income compared to the
> prior year. As we enter FY 2019, we assume we face the imminent “at-risk” launch
> of generic rivals to SUBOXONE® Film in the U.S. We have prudently prepared for
> this event, planning and taking the required actions to help ensure we can deliver
> on our strategic priorities despite the near-term top-line pressures that generic
> competition to SUBOXONE® Film will bring. Specifically, we have:
> · Maintained our focus on cash generation and preserved our balance sheet;
> · Continued to assert our IP against the ANDA filers;
> · Completed steps that have appropriately adjusted our operating structure;
> · Repaid $235m of outstanding Term Loan balance to lower the outstanding balance
> to $243m; and,
> · Prepared the launch of an authorized generic of buprenorphine/naloxone sublingual
> film to participate in the rapidly forming generic market for buprenorphine/naloxone
> sublingual film.
> Together, these actions are designed to help us remain compliant with our borrowing
> covenants and help the Group to leverage the profitable long-term growth we expect
> from our new transformational depot technologies.
> · In SUBLOCADE™, we are making progress toward a truly new treatment paradigm 
> for OUD patients and the opioid crisis, and the coming year will see us further
> strengthen our execution in pursuit of our $1bn-plus net revenue target. With 
> PERSERIS™ we believe we have a differentiated long-acting injectable treatment
> for schizophrenia, a common co-occurrence of substance use disorders, and the 
> long-sought strategic opportunity we have created to diversify our revenue base.
> We are confident these products will be the future value drivers of Indivior and
> our focus in 2019 will be on their successful commercial execution.
> · Of course, we could not drive these new launches, together with our base film
> and tablet business, without our talented and committed global workforce. We are
> truly grateful that – despite the recent period of disruption and uncertainty –
> the new organization that has emerged this year is energized and optimistic.
> · Finally, in everything we do we think first and foremost about the patient. 
> Our inspiration is to improve the lives of the many patients across all walks 
> of society who suffer from the chronic relapsing conditions of addiction and its
> co-occurring disorders. This relentless patient-centricity, along with maintaining
> the highest regulatory and compliance standards, provides the foundational elements
> of Indivior’s long-term success.”

**FY Operating Review**

**U.S. Market Update**

In 2018, market volume for buprenorphine products continued to grow at low-teen 
percentage rates, in line with Indivior’s expectations. This volume growth was driven
by benefits from legislation and regulatory changes that have increased federal 
and state funding to expand OUD treatment, as well as from broader general awareness
of the opioid epidemic.

Indivior supports the swift actions the U.S. government has taken to combat the 
opioid epidemic, including the recent enactment of the SUPPORT for Patients and 
Communities Act of 2018, which expands access to buprenorphine medication-assisted
treatment (BMAT). These regulatory and legislative initiatives are supporting greater
treatment capacity for those in most need and are likely to be manifested in continued
growth in lower-priced government channels, such as Medicaid.

As the leader and innovator in the OUD category, Indivior has launched its new monthly
buprenorphine depot SUBLOCADE™. The Group is making good progress in the following
KPIs that it believes will drive accelerated net revenue growth for SUBLOCADE™ in
pursuit of its $1 billion-plus peak net revenue goal:

SUBLOCADE™ Prescription Journey Timeline KPIs (12/31/18 vs. 9/30/18):

· Formulary Access – reached targeted levels, exiting FY 2018 at 83%.

· The Prescription Journey – reached targeted levels, exiting FY 2018 at 15 to 22
days.

· The Dispensing Yield Rate – increased to 41% from 38%.

SUBLOCADE™ Demand KPIs (12/31/18 vs. 9/30/18):

· HCPs Initiating a Prescription Journey – increased to 2,430 versus 1,870.

· HCPs Administered SUBLOCADE™ – increased to 1,325 versus 824.

· HCPs Administered SUBLOCADE™ to 5-plus patients increased to 232 versus 108.

**FY 2018 & Q4 2018 Financial Performance**

Total net revenue in FY 2018 decreased 8% to $1,005m (FY 2017: $1,093m) at actual
exchange rates (-9% at constant exchange rates). In FY 2018, volume improvement 
from underlying market expansion in the U.S. and net revenue contribution from SUBLOCADE
™ (FY 2018: $12m) were more than offset by the combined impacts of unfavorable mix
from the increase in government channels (Medicaid) in the U.S., targeted rebating
to maintain formulary access and a decline in SUBOXONE® Film market share. In Q4
2018, total net revenue decreased 11% at actual and 10% at constant exchange rates
to $236m (Q4 2017: $265m). Along with higher SUBOXONE® Film stocking levels in the
U.S. versus Q4 2017, Q4 2018 total net revenue drivers were substantially the same
as those for FY 2018. Q4 2018 SUBLOCADE™ net revenue was $7m.

FY 2018 U.S. net revenue decreased 10% to $790m (FY 2017: $877m) and declined 12%
in Q4 2018 to $182m (Q4 2017: $207m). For both comparative periods, volume benefits
from underlying market growth were more than offset by the combined impacts of unfavorable
mix from the continued disproportionate growth in government channels (Medicaid),
targeted rebating to maintain formulary access and the decline in SUBOXONE® Film
market share as a result of competitive pricing pressure from generic buprenorphine/
naloxone tablet providers. Improved SUBOXONE® Film pricing was more than offset 
by tactical rebating activity in connection with formulary access. In Q4 2018, there
was higher SUBOXONE® Film stocking levels in the U.S. versus Q4 2017 due to increased
anticipation by distributor partners of an “at-risk” generic launch after the CAFC’s
decision on November 20, 2018, to vacate the preliminary injunction (PI) previously
granted Indivior against DRL. This increase was more than offset by unfavorable 
mix and higher rebate rates as discussed for the full year.

FY 2018 ROW net revenue decreased 1% at actual exchange rates (3% at constant exchange
rates) to $215m (FY 2017: $216m). In Q4 2018, ROW net revenue decreased 7% at actual
exchange rates (1% at constant exchange rates) to $54m (Q4 2017: $58m). For both
comparative periods, continued growth in Australasia and Canada were more than offset
by impacts in certain European markets from ongoing austerity measures.

FY 2018 gross margin was 87% (FY 2017: 90%) and the gross margin was also 85% in
Q4 2018 (Q4 2017: 88%). The decrease in both periods versus the prior year primarily
reflects lower net revenue driven by higher rebate rates and unfavorable mix and
the impact of contingency planning for an “at-risk” launch of a generic buprenorphine/
naloxone sublingual film product.

FY 2018 SG&A expenses as reported were $494m (FY 2017: $707m) and $140m in Q4 2018(
Q4 2017: $326m). FY 2018 SG&A included net exceptional costs of $16m. The exceptional
costs comprised $13m related to restructuring and $40m related primarily to potential
redress for ongoing intellectual property related litigation, partially offset by
a $37m gain from the out-licensing of the intranasal naloxone opioid overdose patents.
FY 2017 results included exceptional items of $210m for an increased legal provision
related to investigative and antitrust litigation matters and the legal settlement
of the Amneal antitrust matter, partially offset by the release of a legacy litigation
reserve.

Q4 2018 SG&A included net exceptional costs of $34m. The exceptional costs comprised
$13m related to restructuring and $40m related primarily to potential redress for
ongoing intellectual property related litigation, partially offset by an exceptional
gain of $19m related to a further payment for the intranasal naloxone opioid overdose
patents as discussed above. Q4 2017 SG&A included total exceptional costs of $185m
for the increased legal provision partially offset by the release of a legacy litigation
reserve as described above.

On an adjusted basis, FY 2018 SG&A expenses decreased 4% to $478m (Adj. FY 2017:
$497m) and in Q4 2018 SG&A expenses decreased by 25% to $106m (Adj. Q4 2017: $141m).
The decrease in both periods largely reflects benefits from cost savings actions
partially offset by the planned investments for launching SUBLOCADE™ and PERSERIS
™.

Reported FY 2018 and Q4 2018 R&D expenses were $91m and $41m, respectively (FY 2017:
$89m; Q4 2017: $22m). The increase was primarily driven by the Q4 2018 impairment
of the Arbaclofen Placarbil and ADDEX lead compounds in development, which have 
been classified as exceptional items. Excluding exceptionals, FY 2018 and Q4 2018
R&D expenses decreased by 25% to $67m and by 23% to $17m, respectively (Adj. FY 
2017: $89m; Adj. Q4 2017: $22m). The decreases in both periods primarily reflect
lower clinical activity and the reprioritization of R&D activities primarily to 
support SUBLOCADE™ Health Economics and Outcomes Research (HEOR) and post-marketing
study commitments.

FY 2018 operating profit was $292m (FY 2017: $193m) and Q4 2018 operating profit
was $20m (Q4 2017 operating loss: $115m). Exceptional costs of $40m and $210m are
included in the FY 2018 and FY 2017 results, respectively. Exceptional costs of 
$58m and $185m are included in Q4 2018 and Q4 2017, respectively.

On an adjusted basis, FY 2018 operating profit was $332m (33% margin), an 18% decrease
versus $403m (37% margin) in FY 2017. The decrease reflects lower net revenue, launch
investments for SUBLOCADE™ and PERSERIS™, partly offset by a reduction in operating
expenses (SG&A and R&D) from cost savings initiatives. On an adjusted basis, Q4 
2018 operating profit was $78m (33% margin), an 11% increase versus $70m (26% margin)
in Q4 2017. The increase reflects benefits from cost savings initiatives that more
than offset lower net revenue.

FY 2018 EBITDA (operating profit plus depreciation and amortization) was $308m (
FY 2017: $206m). Excluding $40m and $210m of exceptional items in the current and
year-ago results, respectively, FY 2018 adjusted EBITDA was $348m (Adj. FY 2017:
$416m).

FY 2018 net finance expense was $14m (FY 2017: $56m) and nil in Q4 2018 (Q4 2017:
$22m). The reduction in each period reflects lower interest and amortization of 
financing costs associated with the replacement of the Group’s Term Loan borrowing
facility in December 2017 and the voluntary repayments of $235m of the principal
balance in the year ($85m in Q4 2018), and higher interest income.

FY 2018 total tax expense was $3m, or a rate of 1% (FY 2017 tax charge: $79m; 58%
rate). FY 2018 tax charge included one-time items related to development credits
for SUBLOCADE™ of $34m, including $1m interest. FY 2017 full-year tax charge also
assumed non-deductibility for tax purposes of the exceptional legal provisions and
included $9m related to the release of provisions for unresolved tax matters, partially
offset by the impact of the remeasurement of certain deferred tax assets. Excluding
exceptional items in FY 2018 pre-tax income and taxation of $46m (FY 2017: $91m),
the adjusted rate was 15% (Adj. FY 2017: 25%). The decrease in the adjusted rate
was due to changes in the geographic mix of earnings, with increased earnings in
the UK under the reduced rate for Patent Box, along with a reduction in the U.S.
corporate income tax rate from 35% to 21%. Q4 2018 tax credit was $4m (Q4 2017 charge:
$8m), or a rate of -20% (Q4 2017: 6%). Q4 2018 included a $10m tax impact on exceptional
items and $5m of exceptional tax items; $2m relating to finalization of prior year
US rate change and $3m to the finalization of prior year development credits for
SUBLOCADE™ (Q4 2017: $6m release of provisions for unresolved tax matters fully 
offset by $6m of taxes on exceptional items). The adjusted tax rate for the quarter
was 14% (Q4 2017: 13%)

FY 2018 net income was $275m (FY 2017: $58m) as reported. Excluding exceptional 
costs, FY 2018 net income was broadly unchanged at $272m (Adj. FY 2017: $270m). 
The current and year-ago annual periods include a net amount of $3m and $212m of
exceptional items, respectively. In Q4 2018, net income was $24m (Q4 2017 net loss:
$145m). Excluding exceptional costs, net income for the Q4 was $67m (Adj. Q4 2017:
$54m). Q4 2018 and Q4 2017 include a net $43m and $199m of exceptional items, respectively.

FY 2018 basic EPS was 38 cents (FY 2017: 8 cents) and 37 cents on a diluted basis(
FY 2017: 8 cents). On an adjusted basis, excluding the effect of exceptional items,
FY 2017 basic EPS was 37 cents (FY 2017: 37 cents) and diluted EPS was 36 cents (
FY 2017: 36 cents).

**Balance Sheet & Cash Flow**
 Cash and cash equivalents at the end of FY 2018 were
$924m, an increase of $61m versus FY 2017 of $863m. Borrowings, net of issuance 
costs, were $241m at the end of the year (FY 2017: $482m), primarily reflecting 
the impact of the voluntary repayments of $235m of outstanding Term Loan principal
in H2 2018. As a result, net cash stood at $681m at year end (FY 2017: $376), a 
$305m improvement in the year.

Net working capital (inventory plus trade and other receivables, less trade and 
other payables) was negative $356m at year end, an increase of $21m from negative
$335m since the end of FY 2017 primarily driven by an increase in sales returns 
and rebates in the U.S. within payables, partially offset by increased inventories
due in part to the launch of SUBLOCADE™.

Cash generated from operations in FY 2018 was $327m (FY 2017: $369m), a decrease
of $42m. The reduction in cash generated versus the year-ago period was primarily
due to higher operating profit more than offset by a lower increase in legal provisions
versus the prior year, net of other working capital changes.

FY 2018 net cash inflow from operating activities was $303m (FY 2017: $295m), an
increase of $8m reflecting lower cash from operations more than offset by lower 
net interest payments of $8m vs. $36m in the prior year and reduced tax payments
of $16m vs. $33m in 2017.

FY 2018 cash outflow from investing activities was $4m (FY 2017: $43m), reflecting
upfront payments for licensing arrangements with ADDEX and C4X, capitalized development
costs, and ongoing investments in facilities, mostly offset by proceeds received
from the disposal of the nasal naloxone intangible asset.

FY 2018 cash outflow from financing activities increased to $237m vs. $84m in FY
2017, primarily reflecting the impact of the voluntary repayments of $235m of the
outstanding Term Loan balance in H2 2018.

**R&D / Pipeline Update**

Treatment of Opioid Use Disorder (OUD)

· SUBLOCADE™ (BUPRENORPHINE EXTENDED-RELEASE INJECTION) FOR SUBCUTANEOUS USE CIII:

o SUBLOCADE™ approval in Canada on November 21, 2018.

o In the US, all Post Marketing Requirement (PMR) and Commitment (PMC) studies are
on track.

o Lifecycle Evidence Generation & Optimization (LEGO) Studies: These studies are
dedicated to understand the use of diverted buprenorphine (see our publication list),
to demonstrate that craving can be used as an endpoint to predict illicit opioid
use, to study the effects of SUBLOCADE™ in the emergency room environment to prevent
repeated opioid overdoses and potentially change standards of care, and to investigate
how SUBLOCADE™ could potentially block the effects of respiratory depression produced
by fentanyl that has been increasingly and directly related to drug overdose deaths
in the United States. All studies are on track.

o RECOVER Study (REmission from Chronic Opioid use: studying enVironmental and socioEconomic
factors on Recovery): This is a study collecting up to 24-month longitudinal data
encompassing demographics, drug use, drug treatment, family relationships, quality
of life, mental and physical health, health-care utilization, crime, housing, employment,
and urine drug screening (see our publication list). The 12-month longitudinal analysis
top line findings were made available in December 2018; the 24-month last patient
out is currently scheduled for March 5, 2019.

o SUBLOCADE™ ex-US regulatory filings: Filings were made in Australia (May 2018),
Israel (July 2018), New Zealand (September 2018) and Europe (November 2018).

· SUBOXONE® Tablet:

o On September 11, 2018, the Chinese National Medical Products Administration (NMPA)
approved SUBOXONE® Sublingual Tablets for the treatment of opioid use disorder.

o Next Steps: (1) Scheduling: Chinese government will complete its narcotic scheduling
determination for SUBOXONE® Sublingual Tablets. (2) Import Permit: Indivior can 
apply for the import permit or transfer the Import Drug License (IDL) to a qualified
third party.

o On February 4, 2019, announced a definitive agreement to divest the rights related
to SUBOXONE® Sublingual Tablets (Sai Bo Song™) in China to Zhejiang Pukang Biotechnology
Co., Ltd. (Pukang) for total potential consideration of up to $122.5m based on achieving
certain development and commercial milestones. The agreement is subject to various
closing conditions and is anticipated to close in Q4 2019.

· SUBOXONE® Film:

o Israel: Submission on September 3, 2018.

o Canada: Activities ongoing to supply SUBOXONE® Film to the Canadian Federal Correction
Institutions in Q3 2018. Supplemental New Drug Submission (SNDS) anticipated in 
Q2 2019; Pre-Submission meeting held with Health Canada on October 17, 2018.

o Europe: Pre-Submission meeting held on October 18, 2018 with BfArM (rapporteur)
and HPRA (co-rapporteur); Planned MAA submission in the EU in March 2019.

Treatment of Schizophrenia

· PERSERIS™ (formerly RBP-7000), Monthly Long-Acting Risperidone Injection:

o FDA approval on July 27, 2018.

o Initiation of planning and execution of post-marketing and lifecycle management
strategies in support of PERSERIS™.

Treatment of Alcohol Use Disorder (AUD)

· Arbaclofen Placarbil (AP): Although the overall profile of AP was significantly
improved as a result of INDIVIOR’S clinical development and reformulation plans,
risks related to variability in absorption and enzyme polymorphism still remain 
and would have to be addressed unequivocally before committing to further development.

· Decision to stop any further development of AP and rather focus on the development
of the GABAb positive allosteric modulator family of molecules through our partnership
with ADDEX Therapeutics.

Early Stage Asset Development (ESAD)

· ADX71441 (GABAB positive allosteric modulator):

o Dog EEG study to finalize IND preparation revealed risks narrowing the potential
therapeutic window.

o Decision to stop the development of the lead molecule ADX71441. This decision 
does not change our reason to believe in the molecular target (GABAb receptor) and
plans are currently being put in place to accelerate our backup program (new lead
identification & optimization) in partnership with ADDEX Therapeutics.

o Continuing partnership covers $5.3m National Institute on Drug Abuse (NIDA) grant
to support Phase 1 studies upon IND approval.

· C4X3256 (Selective Orexin 1 (OX1) receptor antagonist):

o NIDA grant in the amount of $500,000 awarded on June 29, 2018 to assess the efficacy
of C4X3256 in reducing the positive reinforcing effect of cocaine in rats that exhibit
robust, stable levels of cocaine self-administration. Self-administration study 
started on August 15, 2018.

o Finalization of all preclinical study reports.

o Formulation development and stability work to support First Time In Human (FTIH)
studies.

o Finalization of FTIH protocol, Investigators Brochure, Investigational Medicinal
Product Dossier.

· APV202701A (Selective dopamine [DA] D3 receptor antagonist):

o Initiation of IND dossier preparation.

**Peer-Reviewed Publications**

o Ronquest NA, Willson TM, Montejano LB, Nadipelli VR, Wollschlaeger BA (2018) Relationship
between buprenorphine adherence and relapse, health care utilization and costs in
privately and publicly insured patients with opioid use disorder. Subst Abuse Rehabil.
9: 1-20. doi: https://dx.doi.org/10.2147%2FSAR.S150253

o Cicero TJ, Ellis MS, Chilcoat HD (2018) Understanding the use of diverted buprenorphine.
Drug and Alcohol Dependence 193: 117-123. doi: https://dx.doi.org/10.1016/j.drugalcdep.
2018.09.007

o Heidbreder C (2018) Fighting apathy and lack of awareness in the struggle against
substance use disorder. Nature Reviews Drug Discovery 17(11): B8-9. https://biopharmadealmakers.
nature.com/pages/npg-latest-edition-bpdm

o Wang XY, Jiang H, Zhao M, Li J, Gray F, Sheng L, Li Y, Li X, Ling W, Li W, Hao
W. Treatment of opioid dependence with buprenorphine/naloxone sublingual tablets:
A phase 3 randomized, double‐blind, placebo‐controlled trial. Asia‐Pacific Psychiatry.
2018; e12344. https://doi.org/10.1111/appy.12344

o Ling W, Nadipelli V, Ronquest N, Albright V, Aldridge A, Learned S, Mehra V, Heidbreder
C (2018) Remission from Chronic Opioid Use-Studying Environmental and Socio-economic
Factors on Recovery (RECOVER): study design and participant characteristics. Contemporary
Clinical Trials, 76: 93-103. https://doi.org/10.1016/j.cct.2018.11.015

o Haight BR, Learned SM, Laffont CM, Fudala PJ, Zhao Y, Garofalo AS, Greenwald MK,
Nadipelli VR, Ling W, Heidbreder C (2018) Efficacy and safety of a monthly buprenorphine
depot injection for opioid use disorder: a multicentre, randomised, double-blind,
placebo-controlled trial. The Lancet (submitted).

**Risk Factors**

The Board of Directors has carried out a robust assessment to ensure that the Principal
Risks, including those that would threaten the Group’s business model, future performance,
solvency or liquidity are effectively managed and/or mitigated to help ensure the
Group remains viable. While the Group aims to identify and manage such risks, no
risk management strategy can provide absolute assurance against loss.

Set out below are what the Group considers to be the principal risks that could 
cause the Group’s business model, future performance and solvency or liquidity to
differ materially from expected and historical results. Additional risks, not listed
here, that the Group cannot presently identify or does not believe to be equally
significant, may materially and adversely affect the business, results of operations
and financial position. The principal risk factors and uncertainties are not listed
in order of significance.

**Business operations**

· The Group’s operations rely on complex processes and systems, strategic partnerships,
as well as specially qualified and high performing personnel to develop, manufacture
and sell our products. Failure to continuously maintain operational processes and
systems as well as to recruit and/or retain qualified personnel could adversely 
impact products availability and patient health, and ultimately the Group’s performance
and financials. Additionally, an ever evolving regulatory, political and technological
landscape requires that we have the right priorities, capabilities and structures
in place to successfully execute on our business strategy and adapt to this changing
environment. An example of this evolving landscape is Brexit (decision for the UK
to leave the EU), which creates uncertainties and impacts various areas of the Group,
including Operations, Regulatory, Supply Chain, and Quality.

**Product pipeline, regulatory and safety**

· The development and approval of the Group’s products is an inherently risky and
lengthy process requiring significant financial, research and development resources,
and strategic partnerships. Complex regulations with strict and high safety standards
govern the development, manufacturing, and distribution of our products. In addition,
strong competition exists for strategic collaboration, licensing arrangements, and
acquisition targets. Patient safety depends on our ability to perform robust safety
assessment and interpretation to ensure that appropriate decisions are made regarding
to the benefit/risk profiles of our products. Deviations from these quality and 
safety practices can impact patient safety and market access, which can have a material
effect on our Group’s performance and prospects.

**Commercialization**

· Successful commercialization of our products is a critical factor for the Group’s
sustained growth and robust financial position. Launch of new product involves substantial
investment in marketing, market access and sales activities, product stocks, and
other investments. If commercialization of a new product is not as successful as
anticipated this could have a material impact on the Group’s performance and prospects.
Generic and brand competition, pricing pressures, private and government reimbursement
schemes and systems, negotiations with payors, erosion and/or infringement of intellectual
property (IP) rights, political and socioeconomic factors and HCP/Patient adoption
and adherence, if different than anticipated, also can significantly impact the 
Group’s performance and position.

**Economic & Financial**

· The nature of the pharmaceutical business is inherently risky and uncertain and
requires that we make significant financial investments to develop and support the
success of our product portfolio. External financing is a key factor in sustaining
our financial position and expanding our business growth. Our ability to realize
value on those investments is often dependent upon regulatory approvals, market 
acceptance, strategic partnerships, competition, and legal developments. As a global
business, we are also subject to political, economic, and capital markets changes.

**Supply Chain**

· The manufacturing and supply of our products are highly complex and rely on a 
combination of internal manufacturing capabilities and third parties for the timely
supply of our finished drug and combination drug products. The Group has a single
source of supply for buprenorphine, an active product ingredient (API) in the Group’s
products, and uses contract manufacturing organizations (CMOs) to manufacture, package
and distribute our products. The manufacturing of non-sterile pharmaceutical and
sterile filled, pharma/combination drug products is subject to stringent global 
regulatory quality and safety standards, including Good Manufacturing Practice (
GMP). Delays or interruptions in our supply chain, and/or product quality failures
could significantly disrupt patient access, adversely impact the Group’s financial
performance; lead to product recalls, and/or potential regulatory actions against
the company, along with reputational damages.

**Legal & Intellectual Property**

· Our pharmaceutical operations, which include controlled substances, are subject
to a wide range of laws and regulations from various governmental and non-governmental
bodies. Perceived noncompliance with these applicable laws and regulations may result
in investigations or proceedings leading the Group to become subject to civil or
criminal sanctions and/or pay fines and/or damages, as well as reputational damages.

· Intellectual Property (IP) rights protecting our products may be challenged by
external parties, including generic manufacturers. Although we have developed robust
patent protection for our products, we are exposed to the risk that courts may decide
that our IP rights are invalid and/or that third parties do not infringe our asserted
IP rights.

· Unfavorable outcome from government investigations and/or resolutions from legal
proceedings, expiry and/or loss of IP rights could have a material adverse impact
on the Group’s prospects, results of operations and financial condition.

· As previously disclosed in the Prospectus dated November 17, 2014, Indivior has
indemnification obligations in favor of Reckitt Benckiser (RB). See further information
on legal proceedings in note 10 on pages 23 to 25.

**Compliance Product Safety**

· Our Group operates on a global basis and the pharmaceutical industry is both highly
competitive and regulated. Complying with all applicable laws and regulations, including
engaging in commercial activities that are consistent with legal and, industry standards,
and our Group’s Code of Conduct are core to the Group’s mission, culture, and practices.
Failure to comply with applicable laws and regulations may subject the Group to 
civil, criminal and administrative liability, including the imposition of substantial
monetary penalties, fines, damages and restructuring the Group’s operations through
the imposition of compliance or integrity obligations and have a potential adverse
impact on the Group’s prospects, reputation, results of operations and financial
condition.

The Group’s annual report for the 2018 financial year will contain additional detail
on these principal business risks together with a report on risk appetite.

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