Joel Greenblatt believes that ‘you can make a pile of money investing in spinoffs.’ In his bestselling book, You can be a Stock Market Genius, Greenblatt explains that during the twenty-five years ending 1988, spinoff companies outperformed their industry peers by about 10% per year in the first three years of independence.
A spinoff is of course formed when a corporation takes part of its business and separates it from the parent company, thereby creating a new company. Indivior is a good example of a recent spinoff. It is the former pharmaceutical division of Reckitt Benckiser, and was spun-off as an independent company towards the end of 2014. Indivior is particularly interesting because it is also has a QV Rank of 98/100, suggesting that the company could be a good quality company trading at a cheap price. Let’s take a closer look....
Risk of generic competition
Indivior has a very low PE ratio (7) and an overall ValueRank of 92, making it one of the cheapest stocks in the market. The cheapness of Indivior may reflect risks from generic competition. The company's lead product, Suboxone Film - which is used to treat opioid dependence - represents around 77% of sales. However, the patent for Suboxone expired in 2010. Earnings per share have since fallen from 84 cents (2011) to 60 cents (2014) as Indivior faced increased generic-drug competition. Brokers expect earnings to fall by another 54% in 2015, and then 21% in 2016.
Strong Product pipeline
The risk of generic competition may already be reflected in the price. However, Indivior’s pipeline could be undervalued by investors. The company plans to launch a series of new products to treat opioid addiction and other illnesses over the next five years.
Opioids are prescribed to treat acute pain (for example, pain following surgery). However, there is currently a worldwide epidemic of opioid overdoses. This is especially apparent in the United States, where prescription opioid overdoses were responsible for more deaths between 1999 and 2008 than heroin and cocaine overdose combined.
Indivior has several products in its pipeline that could treat opioid addiction and overdoses:
- Monthly Buprenorphine Injection: This injection would be used to treat opioid addiction. Phase III trials were due to commence in 2015 and the product could be launched in 2017. The product may also…