Earnings Call Transcript - INDV Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Indivior PLC Full Year Results 2020 Conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I must advise that this conference is being recorded today, Thursday 18, February 2021. I would now like to hand the conference over to first speaker today, Mark Crossley. Thank you. Please go ahead.

Mark Crossley, CEO

Good morning, and good afternoon, everyone. Thank you for joining us to discuss our 2020 results and outlook. I'm joined by Ryan Preblick, our Chief Financial Officer; Christian Heidbreder, our Chief Scientific Officer; and Jon Wasserman, our Interim External Chief Legal Officer. We'll take the forward-looking statements as read and move to the agenda for today's discussion. I'll start with an overview of the 2020 results and then detail our strategy for which our number one priority is realizing the full potential of SUBLOCADE on behalf of patients and stakeholders. Christian will then highlight R&D accomplishments and the progress we're making with our early-stage assets, Ryan will then review the results in detail and cover the drivers of our fiscal year 2021 guidance. Then of course we'll open it up for Q&A. Turning to Slide 5, I'm not going to spend a lot of time here since we preannounced our results in mid-January, but our overall fiscal year 2020 performance was very solid, especially considering the challenges the team had to confront with the COVID-19 pandemic. Some highlights from my perspective. We saw continued adoption of SUBLOCADE resulting in net revenue growth of over 80% in what continued to be a difficult promotional environment. Additionally, we generated positive adjusted net income and our ending cash balance was strong. The strategic alignment actions that we announced at the end of Q3 2020, and that we have since completed, have fully aligned our structure with our strategy and positioned the Group for sustained success. The major actions with this alignment have one, accelerated our SUBLOCADE growth strategy with increased investment behind organized health systems; two, pivoted our R&D organization from a traditional pharmaceutical R&D model to more of a connect and develop biotech-like model, focused on early stage assets and generating evidence for SUBLOCADE and PERSERIS. And lastly, it did have a byproduct of reducing our underlying operating expenses significantly, while ensuring we can fully support our growth initiatives. The net result is an organization structured to deliver on our strategic priorities and build long-term shareholder value. Turning to the outlook, Ryan will detail our fiscal year 2021 guidance in a moment, but the takeaway from me is that we again expect to drive meaningful net revenue progression of SUBLOCADE. COVID will continue to be a factor until lockdowns ease and national vaccination programs achieve significant coverage. However, our current view is that beginning in the second half, we should start to experience greater access and in-person engagement with organized health systems and healthcare providers, resulting in the strong year-over-year growth Ryan will share. Turning to our priorities, during the year we've taken clear proactive measures to focus the Group on these highest-value opportunities, which we think can best drive shareholder value. We believe all the building blocks are in place, strategy, capabilities, and resources for us to be successful. And crucially, we've delivered much greater certainty by resolving material legacy issues, most notably the Department of Justice and Reckitt Benckiser matters. Our focus is now 100% on executing the business. Moving on to SUBLOCADE, it's clearly our top strategic priority and we remain confident in its peak net revenue potential. Our U.S. commercial team is through their reorganization and are invigorated and excited to be in a position to fully focus on execution. We have a clear, compelling, and measurable strategy that I will now outline in more detail. But first, I want to start by reminding everyone why we do what we do at Indivior and why we are so passionate about our mission. Slide 7 shows the tremendous unmet need for treatment for substance use disorders in the U.S., particularly opioids. COVID has clearly placed additional burdens on patients; challenges to accessing treatment and stress associated with isolation have taken a further toll since the pandemic began a year ago. While measures have been put in place to try and ease the burden on patients, overdose deaths are again rising. The U.S. Government thankfully recognizes this trend and bipartisan efforts are ongoing to address the opioid epidemic. The new U.S. stimulus package currently being debated includes $4 billion for substance use disorder treatment and Congress continues to consider legislation that would make access to medication-assisted treatment easier to obtain. Most importantly, the overriding intent is to continue to break down the barriers that exist to treatment and work towards normalizing opioid use disorder as a chronic recurring disease. With an extremely low treatment penetration versus other diseases, such as diabetes or heart disease, combined with increased fatal overdoses, the need for treatment has never been more urgent. Delivering on this need and breaking down the barriers to addiction treatment is at the core of everything we do at Indivior. To step back for a moment on Slide 8, to remind everyone of our deep experience with what has become one of the cornerstones of medically assisted treatment, we launched the first buprenorphine-based product for the opioid dependence treatment market in France in 1996 and we continue to be the leader after 25 years. Buprenorphine was approved for the treatment of opioid use disorder in the U.S. in 2002 and is now recognized as the gold standard of evidence-based treatment for moderate to severe opioid use disorder because of its proven attributes outlined on this slide, of which I'd like to highlight just a few. Buprenorphine stabilizes the physical needs of addiction. This means, it is known to reduce cravings, withdrawals, and block the rewarding effects of illicit opioids. These characteristics are important when a patient is fighting opioid addiction. Buprenorphine is a relatively safe medication which has a ceiling effect. Importantly, in layman's terms, once reaching a moderate dose of the medication, its effects no longer increase, leading to blunting of the euphoric and rewarding effects. Lastly, a key item that ties this all together, is that buprenorphine has a higher affinity to the mu-opioid receptor. This means that when buprenorphine has 70% to 80% receptor occupancy, it prevents other opioids with lower affinities, such as heroin, from binding to the receptors and causing euphoria. Taken together, buprenorphine has very attractive characteristics in the opioid use disorder disease space. Led by Christian and his team, our leadership position at Indivior derives from the combination of our deep understanding of patients and healthcare providers, as well as our significant and specialized scientific expertise and knowledge of the brain disease model of behavioral disorders to deliver novel treatments for chronic and relapsing conditions and the comorbidities of addiction. Through these efforts, we develop successful treatments that continue to contribute meaningfully to helping patients in their journey. On Slide 9, with SUBLOCADE, we once again have moved the opioid use disorder treatment paradigm forward by leveraging the attractive characteristics of buprenorphine with a novel, long-acting injectable designed to maintain therapeutic dosages for the entire month. For those less familiar with the rationale underlying SUBLOCADE, by combining the profile of buprenorphine with the ATRIGEL prolonged release delivery mechanism, we're able to deliver therapeutic levels of buprenorphine of over 2 ng/mL over an entire month, resulting in a 70% receptor occupancy. While this sounds quite scientific, the result is that SUBLOCADE provides consistent and sustained therapeutic levels of medication. No daily ups and downs, and there's no supplemental booster or rescue dosage required. Simply put, one treatment decision, one time per month, while blocking the euphoric effects of opioids. When combined with appropriate psychosocial care, SUBLOCADE can help opioid use disorder patients regain their lives. This is a transformational shift in treatment and scientific understanding which Christian and his team continue to broaden every day as he will speak to you later. As with any paradigm shift in technology, it is not always an immediate path to new understanding and uptake. We are clear that SUBLOCADE requires continued new prescriber education and dissemination of the underlying science. Additionally, we've had to consider the new prescribing behaviors and drug handling requirements for this practice-changing treatment. Nevertheless, despite the early challenges and of course unforeseen ones brought about by the COVID pandemic, we successfully adapted our organization to deliver the message, so that we're now reaching the right target audience. The net result is we're generating meaningful quarter-over-quarter net revenue growth. On Slide 10, you'll see the strategic alignment we completed has fully focused the U.S. SUBLOCADE team on penetrating the organized health system channel. We believe our continued success in this channel will significantly accelerate net revenue growth moving forward. This alignment has included adding dedicated account managers to open up access across targeted organizational health systems and evolving our sales force platform with greater focus towards them as they have the necessary support network surrounding the physician to support their prescribing choice. To be clear, we're not ignoring our historic core prescriber base, but rather we're looking to accelerate strategic progress by targeting where the largest growth opportunities are. Continued healthcare consolidation has and is expected to continue to push more prescribers and patients into the organized care setting. We are targeting activation of the top 500 high-value organizations. In 2020, our teams more than doubled the number of organizations that we can access and sell to with over 200. So we're making good progress, but we still have work to do to capture the full potential, and this will be a fundamental driver in the achievement of our net revenue ambitions. It's important to know that these organizations often contain multiple facilities that our sales force can then start opening up to SUBLOCADE once access is in place at the parent level of the organization. The sales cycle is longer because we're dealing with larger organizations that need to ensure their processes are compliant with laws, regulations, and the Risk Evaluation and Mitigation Strategy supporting an injectable, Class III, controlled drug across their system. This work is worth it. Once we do become activated, our teams are able to marshal and quickly engage healthcare providers and initiate prescriptions. Turning to Slide 11, we've outlined the path and milestones for achieving our $1 billion net revenue goal. First, working with third-party and internal experts, we've updated our estimate of the number of diagnosed opioid use disorder patients to just over 3 million. Our estimate is based on the absolute number of claims in the U.S. and is only 33% of those suffering from misuse of opioids in the U.S. Second, today we have over 29,000 unique SUBLOCADE patients, or a market share at just under 1%. This compares to 17,000 a year ago. We are targeting 183,000 SUBLOCADE patients, which would put our steady-state market share goal at 6% of diagnosed patients to achieve our target net revenue. Currently, SUBLOCADE is experiencing patient treatment persistence of five to six months, and while we're continuing to generate evidence through the RECOVERY study, that longer treatment duration leads to better abstinence rates and quality of life. This length of treatment is consistent with our planning assumptions for achieving our goal. I'll now detail the additional building blocks that underpin our confidence in achieving our peak SUBLOCADE net revenue goal, which are centered on the continued solid underlying market growth we expect, our ability to access patients by continuing to penetrate the organized health system channel, and increasing the relevance and evidence for treatment with SUBLOCADE. Starting with the basic questions and our basic assumption that this is a high-growth market, with the horrific impact of the disease on patients, family members, and society, the unfortunate answer to this question is yes. And we're still only in the early stages of market development as the FDA approved buprenorphine for opioid use disorder in 2002. As treatment continues to normalize, and medication-assisted treatment penetration increases, we expect continued strong underlying market growth. Legislation and further funding efforts will also help drive treatment growth. Our assumption, which is supported by market experts, is that medication-assisted treatment growth will continue to grow on our volume bases in the high single-digit to low double-digit range moving forward. Second, we completed the alignment to focus our resources on the organized health system channel. This strategy is working and today is generating the vast majority of SUBLOCADE's growth, just over 70% exiting 2020. Here, you can see the growing percentage revenue from organized health systems as we gain penetration. We would expect that the majority of SUBLOCADE net revenue will come from this channel as we exit 2021. Included within the organized health system strategy is the opportunity we see within the criminal justice system. We believe SUBLOCADE's attributes of monthly, rather than daily treatment decisions, and its sustained efficacy are ideally suited to prisons. This opportunity is new for us. We had success with trials in Pennsylvania, New Jersey, and New Hampshire. COVID has had a disproportionate impact on accessing these institutions, but as and when the pandemic begins to fade, we see a significant new opportunity for SUBLOCADE. The other two elements of our SUBLOCADE strategy are outlined on Slide 14. These involve, first, increasing our ability to address the most urgent challenges in the opioid use disorder space; and second, building the evidence base for the sustained treatment persistence with SUBLOCADE. In the first instance, we filed a label extension describing buprenorphine's potential impact on fentanyl-induced respiratory depression. As you know, fentanyl is a synthetic opioid that's easy to manufacture and distribute. It is 50 to 100 times more potent than heroin and combined with its low cost, this has led to its entrance into the supply chain. Oftentimes, those abusing opioids don't even know that fentanyl is present in their drugs. According to the most recent data available, synthetic opioids are now the leading cause of accidental opioid-related drug overdoses, with almost 80% of the 59,000 involved deaths involving synthetic opioids, mainly fentanyl. Additionally, we're focused on generating evidence demonstrating that longer treatment can lead to better outcomes. Our proprietary long-term recovery study suggests higher levels of abstinence may be achieved with increased length of treatment. The average length of treatment today for medication-assisted treatment is five to six months. This study shows there's tremendous opportunity for an increase in abstinence rates if patients remain in treatment for 12 months, which is incredibly helpful to patients staying on their recovery journey. Now, turning to our progress in diversifying revenue. I'll cover off our progress with PERSERIS and plans for the opioid use disorder franchise outside the U.S. The key message with PERSERIS is that we still believe in its product profile, patient benefits, and growth opportunities. As a new launch in a competitive and well-established market, the in-person restrictions posed by COVID really had a detrimental impact on our ability to educate healthcare providers and to drive more meaningful growth in 2020. That said, I'm extremely proud of the resilience the commercial team continues to show through the pandemic. I think the critical point, which should provide you with some reassurance, is that once healthcare providers gain experience with PERSERIS, they tend to use it quite widely, driving double-digit share in their patient populations. As we get into a normalizing environment, we'll be looking to potentially increase investment in a growing differentiated product. Just to finish off on Slide 17, with our ex-U.S. plans, the opportunities we are pursuing are organic only and focused on launching our opioid use disorder products in new geographies, where we believe the new products will be seen as an advantage based on their differentiation compared to the legacy tablets. Recall that we have not historically launched a film in the European Union, and of course, SUBLOCADE represents this newer treatment paradigm in the rest of the world as it is in the U.S. In 2020, we saw some early success with SUBLOCADE or SUBUTEX prolonged release as it's called in the rest of the world, generating $4 million of net revenue under the pressures of COVID. We expect these new products will begin to reverse the mid-single-digit erosion the rest of the world business has experienced over the last five years. This will allow us to return to growth in our ex-U.S. business and contribute towards our revenue diversification. This will also help us in meeting our vision that patients around the world will have access to evidence-based treatment for the chronic conditions and co-occurring disorders of addiction. So with that, I'm going to go ahead and hand over to Christian for his scientific update.

Christian Heidbreder, Chief Scientific Officer

Thank you very much Mark, and good morning, good afternoon, everyone. We will now give you a high level update of some of our R&D activities in 2020. If you walk through Slide 19, you can see some of our peer-reviewed publications summarizing four main research teams that generated new evidence in support of SUBLOCADE. First, we confirmed the long-term safety and efficacy of SUBLOCADE after 12 months of treatment. Second, we showed that participants receiving SUBLOCADE over a 12-month period reported better health, higher medication satisfaction, increased employment, and decreased healthcare resource utilization compared to placebo. Remember, that placebo here was psychosocial counseling only. These findings also show that patient-centered outcomes that can be measured easily may help clinicians assess their patients' improvements. So again, a lot of focus on patient-reported outcomes, which as you probably know, are scrutinized by regulatory agencies around the world, the FDA in particular. Third, we released our one-year data points from our RECOVER study. You may remember that RECOVER is a two-year real-world observational study looking at long-term recovery in a cohort of people with moderate-to-severe opioid use disorder, who participated in two of our Phase III clinical trials of SUBLOCADE. In this study, we showed that 75% of participants who were previously treated with SUBLOCADE for 12 months self-reported sustained opioid abstinence for the first full year of the RECOVER study versus only 24% of participants who were treated for up to two months only. So this data clearly suggests that long-term treatment, including counseling, may positively assist patients in focusing on their recovery, including discontinuation of illicit opioid use, improvement in health and lifestyle, and reengagement with family, friends, and community. Fourth, we completed our fentanyl study. As you know, unfortunately, fatal respiratory depression is the main risk associated with opioid use and abuse. Opioid-induced respiratory depression is actually driven by molecules that bind to the mu-opioid receptors, and such binding induces very complex changes in respiratory regulation that result in breathing slowing down, becoming irregular, and potentially culminating in what's called fatal apnea, which is the major cause of death in opioid overdose. Because buprenorphine binds mu-opioid receptors with high affinity and slowly dissociates from the receptors, we hypothesized that high sustained buprenorphine plasma concentrations could actually reduce the frequency and magnitude of fentanyl-induced respiratory depression. In fact, in this study, we showed that sustained buprenorphine plasma concentrations of 2 ng/mL and 6 ng/mL were effective in reducing the frequency and magnitude of respiratory depression induced by fentanyl at doses that unfortunately caused apnea during the placebo study period. Some of these studies are now helping us to support potential SUBLOCADE label changes. I listed here a few of these projects. There is currently one remaining post-marketing requirement study that we are currently working on, that is looking at two things. First, a rapid induction, that is, how do you rapidly induce treatment with SUBLOCADE following a single exposure to transmucosal buprenorphine? And in the same study, we are also trying to characterize the patient subpopulation that may benefit from the highest maintenance dose of SUBLOCADE of 300 mg. Thirdly, we submitted a dossier to the FDA to provide guidance as to how to transition patients who have been clinically stable on transmucosal buprenorphine onto SUBLOCADE. We also submitted additional data on our foundation, safety, as well as the fentanyl study that I briefly described. If you move to Slide 20, here's a brief summary of some of the work that we have done in support of PERSERIS. As you know, the Positive and Negative Syndrome Scale, which we call the PANSS scale, is a widely used psychiatric instrument in assessing the core symptoms of schizophrenia. We have taken a deeper dive into the 30 items grouped into the three scales, the positive, the negative, and what we call the general psychopathology scales. Here we provided additional data analysis showing that the 120 mg of PERSERIS was actually effective against the negative symptoms of schizophrenia. We performed additional analysis there that we presented in different conferences last year, as well as the peer-reviewed publication that you see there that was published in the Journal of Clinical Psychopharmacology, where we basically characterize the long-term safety and efficacy of SUBLOCADE over a 12-month period. Again on the right-hand side, you can see that we are using some of this new data as well to potentially have some new label changes. For example, we completed a study that looked at how to transition patients who have been receiving 6 mg of oral Risperidone onto 180 mg of PERSERIS in the form of twice 90 mg. We also explored additional and alternate injection sites, moving away from the abdominal region and exploring back of the arm injection sites. Last but not least, PERSERIS was approved in Canada on November 19, 2020, and as you know, this is a partnership with HLS Therapeutics. If you move to Slide 21, this is a brief update as to where we are with our early-stage assets. First, our selective Orexin-1 receptor antagonist, INDV-2000, which as you know is a non-opioid strategy mechanism for the treatment of opioid use disorder. We received an NIH HEAL Grant back in 2019 to perform clinical, nonclinical, and pharmaceutical development activities. The FDA approved our IND in February 2020, and we initiated our Phase I Single Ascending Dose at the end of July 2020, and so far, 7 cohorts of subjects have been successfully dosed. We are currently working on 8 cohorts and hope that we will have preliminary results sometime in the third quarter this year. I'm also pleased to announce that the second year of the grant was awarded in September last year, which allows us to pursue the clinical and nonclinical, and pharmaceutical development activities. The second asset is INDV-1000. This is a selective, GABAb Positive Allosteric Modulator that we are developing in partnership with Addex Therapeutics for the treatment of alcohol use disorder. We made significant progress there on our lead optimization program with the identification of new chemical series leading now to optimized leads that will be ready by the end of this quarter for what we call the Late Lead Optimization program, hopefully leading to some molecules that will be ready for IND preparedness in 2022. Finally, if you move to the next slide, you can see an overview of our conferences in 2021; it's a pretty heavy program, and one novelty for 2021 is that, in addition to targeting the regular addiction medicine and neuroscience conferences, we are also going to expand the conference plan for audiences that are directly linked to organized health systems. You will see our presence in these conferences as well. And on that note, I will hand it over to Ryan, our Chief Financial Officer.

Ryan Preblick, Chief Financial Officer

Thank you, Christian. Good morning and good afternoon. We had a good quarter, which capped off a solid year. We entered 2021 in a position of strength to continue to execute our strategy. Turning to Slide 24, as Mark noted, we are pleased with our full year 2020 results, given the highly challenging backdrop the pandemic presented. We recognized the potential impact on our business early and took decisive actions, ensuring we could maintain supply of our treatments, invest to advance our leadership in U.S. addiction, and deliver on our compliance and governmental commitments. As a result of our successful execution in 2020, we have the financial flexibility, cost structure, and a focused strategy to drive long-term shareholder value. I'll briefly touch on our results for the quarter and year before providing our outlook for 2021 and outlining our capital allocation priorities. As expected, our results for the quarter and year were in line with the preliminary financial information we shared in mid-January. Starting with the top line, full year 2020 total net revenue was $647 million. The expected decline versus the prior year of 18% mainly reflects SUBOXONE share loss and the discontinuation of the AGx program in 2019. The decline was partially offset by strong net revenue progression of SUBLOCADE to $130 million, which represents an 81% increase versus full year 2019. We are pleased that in the face of COVID-19, SUBLOCADE continues to show solid sequential growth in the back half of 2020, capping off the year with net revenue of $39 million in Q4, representing an 18% increase versus Q3. You should note that Q4 net revenue benefited from some year-end trade stocking. However, if you look at baseline dispensed volumes, SUBLOCADE was still ahead 14% sequentially, which underscores the commercial organization's commitment to the patient and its ability to adapt to the new operating environment. Now looking at SUBOXONE film, the average share in full year 2020 was 21% versus 32% in full year 2019. Lower share was the principal driver of the decline in total net revenue year-over-year. However, compared to the full year 2019 exit share of 24%, SUBOXONE film was resilient during the year and exited 2020 at 21%. This performance remained above our expectations, both our expectations and industry analogs for a drug facing four generic competitors for a second year. For the avoidance of doubt, we have not promoted SUBOXONE film since 2018, and as part of our resolution with the government, we have agreed to continue as such. Rather, we believe external factors, including the addition of telemedicine with the start of OUD MAT during COVID, solid market growth, and continued access by payers in the face of the pandemic are contributing to SUBOXONE's performance. We continue to caution that we see no structural reason that SUBOXONE will not ultimately reach share levels that are consistent with observed industry analogs. For Q4, SUBOXONE film revenue increased versus both the prior year and sequential quarters. Comparison versus the prior year was aided by the adverse impact in Q4 2019 of a federal law change relating to our authorized generics, which dramatically increased the mandated rebate in government channels. Having addressed this matter last year, this had approximately a $47 million negative impact on Q4 2019 net revenue. Compared with Q3 2020, film increased 19% sequentially from stronger market growth, stocking, and accrual adjustments for state Medicaid channel mix. Now looking at PERSERIS, we saw net revenue of $14 million for the year, which was in line with our expectations. However, after a strong Q1, its growth post the onset of COVID lockdowns was relatively flat when excluding trade stocking in Q4. This dynamic is directly linked to the sharp reduction in face-to-face interactions with healthcare providers which are crucial during a new launch in an established disease space. Turning to the rest of the world business, which had a modest net revenue decline of 3%, our focus is on net revenue diversification as we introduced new products. SUBLOCADE net revenue from outside the U.S. was $4 million. Along with the approval and launch of SUBOXONE film in the European Union and UK, we are expecting these products to grow and become a more meaningful portion of net revenue as we look forward. Continuing down the P&L, gross margin of 86% for full year 2020 on an adjusted basis was within our expectation. The 400 basis point increase over 2019 on the same basis mainly reflects the discontinuation of the AGx which carried a lower gross profit. We expect the 2021 gross margin to be lower than 2020, which I will also discuss with guidance. Adjusted full year 2020 operating expenses, which we define as SG&A and R&D combined, were reported at $467 million, which was in line with expectations communicated in our mid-January performance update. The main drivers of the lower than expected OpEx were COVID-related impacts, chiefly transfer costs which had been planned for 2020 but will now occur in 2021, and lower travel and expenses. Q4 2020 also included a favorable non-recurring accrual adjustment for non-investing share awards. Q4 this year further benefited versus the prior year from lower SUBLOCADE marketing expenses, as 2019 included direct-to-consumer advertising development and media placement costs. As I will discuss in a moment, while we expect the completed strategic alignment to generate a further reduction in OpEx in the full year 2021, we will be looking at opportunities to further support the growth in the U.S. business, primarily SUBLOCADE. Finally, quickly turning to the bottom line, the combination of over-delivery on key top line and expense items generated solid operating income, as well as both pretax and net income for both the quarter and year. Now turning to cash on the balance sheet on Slide 25. As you see, we ended 2020 with a gross cash balance of $858 million and a net cash balance of $623 million. These amounts reflect the initial $103 million payment made in November as part of our settlement with the DOJ, and net working capital changes. As a reminder on the DOJ item, there is no payment due in 2021. Thereafter, we will make annual payments of $50 million through 2027 with a final $200 million payment due December of 2027. Cash performance continues to be driven by our solid operating performance, chiefly SUBLOCADE's strong growth along with the continued performance of SUBOXONE film. This last item in particular is helping us maintain relatively stable net working capital, while government payables are continuing to be replenished from stable SUBOXONE film share performance in the U.S. However, we continue to caution that any acceleration in erosion of branded SUBOXONE film will result in a material use of cash as the replenishment rate of government payables would slow. In terms of capital allocation, our near-term priorities remain investing behind our depot technologies in the U.S., supporting the launches of SUBLOCADE and SUBOXONE film and the rest of the world business, as well as maintaining our strong financial flexibility to meet our compliance and governmental commitments. Now turning to full year 2021 guidance on Slide 26. Our base case assumption is that healthcare systems will approach normality in the second half of the year, as COVID vaccine programs are successfully deployed and pandemic restrictions subside. This operating backdrop should allow us to progressively resume in-person interactions with healthcare providers, including those in organized health systems. As Mark indicated, this is critical for communicating the transformational benefits of SUBLOCADE and for growing our new patient enrollments. In this base case scenario, we expect total net revenue of up to $625 million, including SUBLOCADE net revenue of $185 million to $210 million and PERSERIS net revenue of $17 million to $20 million. We are also providing a downside scenario in which pandemic restrictions continue through the second half of the year, resulting in us maintaining our currently limited access to healthcare providers. On this basis, we could see total net revenue for the year up to $60 million lower at approximately $565 million with SUBLOCADE and PERSERIS net revenue as low as $170 million and $15 million respectively. To be clear, however, this cautious scenario is not our base case and it represents a tougher backdrop that you will see baked into other pharmaceutical companies' guidance. However, we felt it was important to give you an idea of the sensitivity should the pandemic impacts continue. The Group's total net revenue range is also informed by better than expected U.S. film share retention observed in Q4 2020, and which has carried through so far in 2021. On this basis, we expect film share to be relatively flat in Q1, with modest share losses anticipated in Q2, continuing throughout 2021. We remain mindful that greater formulary scrutiny by payors could accelerate share erosion despite the worsening opioid crisis. With regard to the rest of the world, we expect the erosion rate of recent years to ease in 2021 as we gain contributions from SUBLOCADE in Canada and Australia, as well as the film launch in Canada and Europe. We are looking forward to SUBLOCADE reimbursement approvals and launches in addition to new European markets including the Nordics, but expect the impact to be minimal in 2021. Looking at gross margin expectations, we expect a transitory mid-to-high single-digit decline in adjusted gross margin, primarily due to current products and regional mix. We expect gross margin to return to the mid-80s in 2022, as the more profitable SUBLOCADE is expected to become an even larger portion of total net revenue. With regard to operating expenses, we expect a meaningful decrease in the underlying level compared to the $466 million for 2020. As I noted, full year 2020 OpEx was lower than expected, due to some non-recurring impacts, partly related to COVID. The expected decline in underlying OpEx reflects the completion of the strategic alignment actions we took in Q3. However, based on a continued net revenue upside, we have realized some SUBOXONE film since we announced those actions. We intend to deploy a portion of this over-delivery back into the business as working dollars. We are looking past the COVID pandemic and committed to support the uplift in SUBLOCADE net revenue we are seeing from the organized health system channel, as we work towards delivering on our growth strategy. We are also considering expanding our commercial capabilities to accelerate the penetration of PERSERIS as we get into a more normalized environment in the second half of the year. Based on the foregoing factors and assumptions, we expect OpEx to be in the range of $420 million to $440 million, excluding possible exceptions. The net effect implies a reduction in OpEx of 6% to 10% versus 2020 OpEx. We will continue to monitor the film business and reserve the right, if appropriate, to invest further in the growth of our long-acting injectable technologies. Considering these factors, we expect to be profitable on an adjusted pre-tax basis for full year 2021. Finally, just quickly on Slide 27, in reference to Mark's discussion of our strategic priorities regarding operational excellence, you can see that we have analyzed and stayed ahead of trends to consistently adjust our cost base in line with our net revenue expectations. We have completed three cost programs over the last three years, generating real pre-tax savings of over $150 million while continuing to support the growth of our new depot technologies in the U.S. and the approvals and launches of new products and key geographies outside the U.S. With that, I will hand it over to Mark for closing comments.

Mark Crossley, CEO

Thank you, Ryan. I'd like to reiterate my excitement at being CEO and my commitment to lead Indivior to future success. We've de-risked the franchise. We look forward to focusing on strong execution in 2021. We have the right product, the right strategy, and a structure that is fully aligned. The team has now a clear opportunity to demonstrate success and value creation with its number one strategic priority SUBLOCADE. Execution is the sole focus for 2021. Now I'd like to open it up to Q&A please.

Operator, Operator

And your first question comes from Max Herrmann from Stifel. Your line is open. Please ask your question.

Max Herrmann, Analyst

Great. Thanks for taking my questions. Three if I may. Firstly, just in terms of the guidance, and what's implicit in terms of market share for SUBOXONE film in the U.S. at the end of 2021, and maybe you’ve talked about 21%, 22% share at the end of 2020. Where do you see that in that guidance, coming out at the end of 2021? Secondly, just in terms of the $1 billion target, I think you talk about half the market potentially moving or being available to buprenorphine used through the organized health systems, how does that impact the potential peak sales expectations? And then finally, just in terms of litigation, obviously, great to see the Reckitt Benckiser dispute cleared up, and obviously the DOJ; I wonder whether you could outline a bit more are there any other risks that you see in terms of litigations that are still ongoing, just an update perhaps with Dr. Reddy's, as well with the patent litigation? Thank you.

Mark Crossley, CEO

Good afternoon, Max. Good to get your questions. I'll start with the SUBLOCADE and the litigation, then hand over to Ryan with regards to the film. As it relates to the $1 billion and our confidence regarding that and the assumptions, I think the first thing is you can see the strategy working. We're continuing to expand the access to over 200 organized health systems. Enrollments are now broadly in line with pre-COVID levels, and organized health systems continue to account for the majority of our growth. We've seen strong quarter-over-quarter growth Q3 over Q2, Q4 over Q3 and expecting the easing of the headwinds on COVID. When you look at the share assumptions, the strong market growth that's occurring in the business, with low double-digit, high single-digit, and then with the support of the normalization of the disease space, and the support from Congress and the funding, we expect that to continue. As we continue to penetrate the organized health systems, the share expectations of getting to mid-single to high single-digit shares to get to the $1 billion seem quite attainable. So that's our views on that billion-dollar target. As it pertains to the litigation, I think you're right Max, we are excited to have the two major overhangs behind us with regards to the DOJ resolution, as well as the Reckitt Benckiser resolution. The balance of the litigation that's out there is a bit more normal, with respect to a pharma company our size, and we continue to focus on the resolution of those. We have strong defenses in them and we'll look to continue to progress on those. You specifically mentioned some of the ANDA work, and I know some of the procedural items on that continue to progress as we move forward. With that, I'll hand over to Ryan as it relates to guidance implications in film share.

Ryan Preblick, Chief Financial Officer

Good morning. So, as we said in the past, with four generics out there, there is nothing structurally in the market that would prevent the branded film from continuing to erode in line with the analogs. And just as a reminder, we have not promoted it since 2018 and we'll continue not to as part of the DOJ agreement we made last year. Regarding your question about the share phasing, we plan on relatively flat share in Q1, which at this point is about 20.5%, with modest share erosion in Q2 and starting in the second half is where our plan assumption aligns with analogs for the balance of 2021 into 2022. So that would be the color that I can give to you at this point on film share.

Max Herrmann, Analyst

Great. Thanks very much.

Mark Crossley, CEO

Thank you, Max.

Operator, Operator

And your next question comes from the line of Harry Sephton from Jefferies. Your line is open. Please ask your question.

Harry Sephton, Analyst

Brilliant, and thanks for taking my questions and thanks for the presentation. I'll start on SUBLOCADE. So thanks for the detail around the addressable organized health system market. And you said that you're currently in around 200 of those out of around 500 potential targets. Can you maybe give us an indication as to what you're anticipating for the quarterly growth in adding new organized health systems each quarter? And then also, could you give us a rough idea of you've shown the increased penetration within those channels, but do you have an idea of your relative share of opioid use disorder patients using SUBLOCADE within the organized health systems that you're currently in? That would be a great place to start. Thanks.

Mark Crossley, CEO

Thanks, Harry. Yes, and we are quite proud of the fact that over the first two years of our pivot to the organized health, that we're in those 200 and marching towards the 500. And importantly, those are the parent organizations, and which many what we call children organizations under those, that also get opened up and give us broader access to HCPs. With the COVID overlay in the year, we've increased investment and continue to try and open up incremental organized health systems moving forward, both the parents and the children. We've not communicated a goal on that externally, but expect similar growth in the year ahead to what we've experienced in the past. Regarding the penetration on a share basis, I think within organized health systems, you don't have the same level of granularity of data that you do when you utilize a specialty pharmacy to deliver to our heritage sort of doctors’ offices, and so the share becomes a bit murkier on that. And so, we think that the revenue is the best sort of indication and KPI with regards to our progress. You can see that continuing to grow exiting the year at 38% of the overall SUBLOCADE revenue.

Harry Sephton, Analyst

Okay, and maybe just to quickly touch on the specialty pharmacy distribution, since you mentioned it. Do you have any potential future models where you might look to roll out SUBLOCADE for example, through the regular pharmacy network, and maybe utilize some of the sites that those pharmacies have onsite to inject patients, or are there currently limitations within the SUBLOCADE REMS program that could potentially restrict that from being a future possibility?

Mark Crossley, CEO

Yes, that's a great question, Harry and I think it's one we hinted at in the Q3 results, that these alternate injection facilities, which is what you're kind of hinting at, whether it's a pharmacy network or potentially other clinic environments, where, for example, patients can get their injections if their primary provider doesn’t want to do injections. The tough part on that one right now is the way the laws are written is that sort of model is not allowed. We're working within the government to try and talk to them about that being a barrier to access to treatment, but we won't be able to really explore that unless there is a law or regulation change within the new administration.

Harry Sephton, Analyst

Do you have a rough estimate of when we could maybe hear any news on potentially looking or the current administration? I know that they stopped some plans coming through from the previous administration, but when they might announce the new regulations coming through that could potentially expand care? Is there any timing on that?

Mark Crossley, CEO

I don't have visibility of that Harry. I know those are actively being managed. I know, President Biden was one of the original authors of Data 2000, so you have strong administrative support. And we look forward to partnering with them to help continue to normalize the disease space, break down barriers and increase access to treatment moving forward.

Harry Sephton, Analyst

Brilliant, and that's very helpful. Maybe just touching on the financials, I saw in the fourth quarter, your underlying administration costs are around $60 million, which compared to about $40 million in the base quarter. I guess, that's quite a significant step up. Just curious what the bridge there is? And then maybe also tying into that, for your OpEx guidance going into this year, does that embed any potential digital marketing activities for SUBLOCADE going into the back half of the year? Or yes, that would be helpful if we can get some thoughts on that.

Mark Crossley, CEO

I'll start with the second and then hand it over to Ryan for the first. I mean, we have some base levels of digital marketing that we have search engine marketing awareness regarding SUBLOCADE, because we no longer promote the film that are always ongoing. If you are inferring DTC program, that's a bit more robust with television and things of that nature, that effort is still not considered in any of the guidance, as we continue to see the impacts of the pandemic, bringing that and resurfacing that when patients don't have quite the same access to their healthcare providers into the organized health systems. It’s not the time to think about that, but that's something we'll reassess as we move forward and assess the market. So, with that, I'll hand over to Ryan with regards to the admin expenses in Q4.

Ryan Preblick, Chief Financial Officer

In Q4, the increase from Q3 to Q4 was driven primarily by higher R&D expenses, as we did mention in Q3, unfortunately, tied to COVID we weren't able to scale up completely all of our R&D projects, the trials. So now in Q4, we're able to get some of those going again. That's one of the increases, as well as we took the opportunity to do some digital work in Q4 to set us up for a strong 2021 start. I would like to call out as I did in my script; there were some supply projects that we did have planned in 2020, that due to COVID we couldn't get some of the personnel out. Some of those expenses will move into 2021 and those are built into our guidance.

Harry Sephton, Analyst

Great, and that's very helpful. That's all from me. Thanks.

Mark Crossley, CEO

Thank you, Harry.

Operator, Operator

And your last question comes from the line of Paul Cuddon from Numis. Your line is open. Please ask your question.

Paul Cuddon, Analyst

Hi there guys, thank you very much for taking my call. So questions, the first question is on your SUBLOCADE dose assumption from your 180,000 patients. I mean, that would sort of imply around five or six doses per patient per year and I wonder how that compares to what you're seeing now from a number of doses and dose retention? Secondly, could you just help me with SUBOXONE film underlying Q3 to Q4 performance, stripping out the accruals in mind so the rebate impact in '19 and accruals in 2020? And I'll have a question after that as well, but perhaps those two first. Thank you.

Mark Crossley, CEO

Sure, Paul, I'll start with the SUBLOCADE response, then I'll hand it over to Ryan. I think when it comes to the retention and treatment, I think you're right, it kind of infers this five months or so of treatment; that's about what we're experiencing if you look at the average retention data that's out in the market. Now, I think Christian referred to, and Christian spoke to our RECOVER study, which shows that on SUBLOCADE, a patient's ability to maintain recovery and abstinence is greatly enhanced when they stay in treatment for 12 months. So we're continuing to share that sort of evidence base with doctors that should drive patient care forward. In our planning assumptions, we've kept with current experience. Ryan, could you talk to some of the underlying dynamics regarding the film in Q3 versus Q4?

Ryan Preblick, Chief Financial Officer

Yes, so, I'll break that down into two pieces. The sequential growth that we saw in film from Q3 to Q4 was primarily tied to trade stocking that occurred in Q4, as well as, as we mentioned in the scripts during the year, we made some accrual assumptions on channel mix; those are trued up in Q4 as well. Those are the two drivers of why Q4 of this year was higher versus Q3. When you look at the comparative of Q4 this year versus last year, we get the benefit, because last year when we still had the AGx, the federally mandated rebate at that point was almost 100%. Now that we have discontinued the AGx, the rebate went back to its normal level. Hence, you're seeing some favorability in Q4, but that's solely the reason; so it's not that it's higher volume in Q4 of this year versus last; it's simply tied to that.

Paul Cuddon, Analyst

Okay, so I mean, should I therefore assume that Q4 underlying excess stocking was flat on Q3, or I just need sort of to know, flat up slightly down slightly?

Ryan Preblick, Chief Financial Officer

I would say directionally yes, share didn’t change too much between Q3 and Q4. So on a normal basis, I would agree with that.

Paul Cuddon, Analyst

Okay, thank you. Lastly, just a question, I mean you're very specific on not promoting SUBOXONE film; the restriction on the promotion of SUBOXONE film, is that just for Indivior or is that on the brand?

Mark Crossley, CEO

It is specifically regarding our agreement with the Department of Justice, and it relates to clinical specialists and that activity within the U.S. So it's an Indivior and Department of Justice compliance agreement.

Paul Cuddon, Analyst

Okay. Thank you very much.

Mark Crossley, CEO

Thank you, Paul.

Operator, Operator

There are no further questions at this time, please continue.

Mark Crossley, CEO

With no more questions, I'd like to thank you for your continued support of Indivior and its team. We look forward to continued engagement in our one-to-one following this fiscal year and the earnings and then upcoming conferences, regarding our role as the leaders in addiction and the exciting growth thesis that we have ahead of us. Thanks very much, and have a great day.

Operator, Operator

And that does conclude our conference for today. Thank you for participating. You may all disconnect.