Reckitt Benckiser Falls on Suboxone Removal: London Mover

Reckitt Benckiser Plc fell the most in more than two years after CVS Caremark Corp. removed the film version of the company’s opiod-dependency drug Suboxone from its list of covered medications, jeopardizing sales and profit at a unit that makes up one-fifth of the company’s earnings.

The stock tumbled 5.1 percent to 4,677 pence in London, the biggest drop since April 2011. Spokespeople from both companies confirmed that Suboxone film was removed from CVS Caremark’s formulary, a list of medicines covered by insurance in the drug plans it manages for big companies.

The move, effective January 2014, led Credit Suisse to cut its earnings estimate by 5 percent for 2014 and by 10 percent for 2015. Credit Suisse also reduced its valuation of Suboxone by about two-thirds to 1.1 billion pounds ($1.7 billion).

Suboxone accounted for 21 percent of Slough, England-based Reckitt Benckiser’s profit last year, yet the business now faces threats from generic and branded competition after several years of dominating the $1.7 billion opiod-dependence treatment market. Analysts including Andrew Wood at Sanford Bernstein have said that Chief Executive Officer Rakesh Kapoor should look to sell the business.

Woonsocket, Rhode Island-based CVS Caremark “clearly appears to have decided that film and tablet are effectively the same product and so is steering its customers to the cheaper version,” Credit Suisse analyst Charles Mills said in a note today. “The fear is that others follow suit and Suboxone profits fall sharply.” Reckitt Benckiser stopped selling the tablet version of the drug in March.

Withdrawal Symptoms

Suboxone combines the medicines buprenorphine and naloxone to ease withdrawal symptoms and block the high of opioids. Reckitt Benckiser claims that its film version, introduced in 2010, is preferred by patients, who stick with their treatment longer on it. Two generic copies of the tablet version of Suboxone emerged in March, and have eroded the product’s U.S. prescription volume. The generics attract cash-paying Suboxone users, who account for about 15 percent of the market. CVS Caremark’s move could lure “a decent proportion” of those on insurance plans, who make up 70 percent of users, Mills said.

Reckitt Benckiser spokeswoman Andraea Dawson-Shepherd said Suboxone sales through CVS Caremark prescription-drug plans were “small,” comprising less than 10 percent of all Suboxone insurance-plan provider sales in the U.S. The company also does not have a contract with CVS Caremark, as it does with other pharmacy-benefit managers such as Express Scripts Holding Co. She declined to disclose Suboxone’s sales through CVS Caremark-managed drug plans.

Materially Worse

Credit Suisse estimates that CVS Caremark accounts for as much as 20 percent of the market, managing prescription drug plans for corporations and managed-care companies. Mills estimates Reckitt Benckiser will lose half of Caremark’s insured patients in 2014, which is “materially worse than we had before.” Credit Suisse maintained its recommendation to hold the stock, yet dropped its price target to 4,650 pence from 4,900.

“If they are 20 percent of the market, there could be a domino effect,” said Eamonn Ferry, an analyst at Exane BNP Paribas. “It’s not impossible that substantially all of the film business evaporates in a short space of time.”

CVS Caremark spokeswoman Christine Cramer confirmed that Suboxone film is off its “Preferred Drug List” for 2014, and said “a number of the drugs” removed are “high-cost, non-preferred drugs with very low utilization.”

Dawson-Shepherd, the Reckitt Benckiser spokeswoman, said the company is not concerned that other drug-plan managers, who do have contracts with Reckitt Benckiser, will follow CVS Caremark’s lead. “It’s a unique situation with CVS,” she said.

Potential Sale

CVS Caremark’s move should also not influence any decision by Reckitt Benckiser to sell Suboxone, according to Canaccord Genuity analyst Alicia Forry. “We think a sale is two or three years away” and is more likely to happen once more generics and alternative products come on the market, allowing prospective buyers to properly value Suboxone, she said.

Suboxone also faces competition from Orexo AB’s tablet Zubsolv, which won U.S. regulatory approval this month. Orexo, which specializes in reformulating drugs in sublingual form, estimates Zubsolv will hit drugstores by September and has a market potential of at least $500 million in annual sales.

The FDA rejected a buprenorphine implant called Probuphine in April from Titan Pharmaceuticals Inc. The regulator asked for more data on the effect of higher doses of the medication and training for doctors on insertion and removal of the implant.

Before it's here, it's on the Bloomberg Terminal.