Will this spin-off stock continue to slay FTSE 100 giants?

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AstraZeneca

FTSE 250 pharmaceutical group Indivior (LSE: INDV) has risen by 120% since it was spun off from Reckitt Benckiser at the end of 2014. It's been a top performer in the pharmaceutical sector and beat expectations again in 2016. Sales rose by 5% to $1058m, while adjusted profits were 11% higher, at $254m.

However, Indivior shares fell by 12% on Wednesday morning after the company admitted that $220m of last year's $254m profit has been set aside to cover potential legal costs.

What's gone wrong?

Indivior's main commercial offer is a product that's sold to treat opioid addiction, which is a major problem in the US. The firm was spun-off by its former parent Reckitt at a time when generic competitors were expected to enter the market, damaging Indivior's prospects.

That's still the story, but generic competitors have so far found it tougher than expected to take market share from the firm. This appears to be the focus of some of the litigation the firm is involved in. Plaintiffs are alleging that Indivior violated antitrust laws in order to delay the entry of generic competitors to the market.

Indivior is also the subject of a US Department of Justice investigation into its marketing and promotional practices.

Investors already knew about these cases, but Indivior's decision to set aside substantial funds is new and appears to be a signal that the company doesn't expect to escape without penalty.

There's no way of knowing how these cases -- and others the firm is involved in -- will eventually turn out. Indivior warned today that the final cost of resolving these matters "may be materially higher" than the $220m it's set aside.

A few months ago, I wrote that Indivior had the potential to become a much bigger player in the pharmaceutical sector, most obviously through a well-judged acquisition. The group ended last year with net cash and would have had no problem borrowing to fund such a deal.

However, while the shares look affordable on a 2017 forecast P/E of about 12, I believe today's news makes the stock a far riskier buy than it should be. I wouldn't want to buy at current prices, and would consider taking profits if I happened to be a shareholder.

Play safe and make money

I've previously criticised AstraZeneca (LSE: AZN) for delivering years of underperformance. But the firm's attractions become very obvious when you compare it to Indivior.

AstraZeneca's falling profits in recent years have been due to the loss of patent protection on key products. It's the same issue that has faced Indivior. But Astra's long-term future isn't at risk due to the loss of exclusivity on one product. Nor is it tangled up in expensive litigation which could wipe out the remainder of its profits.

Unlike Indivior, it has not suspended dividend payments indefinitely. The Anglo-Swedish group has continued to reward loyal shareholders with a regular payout that currently provides a yield of 4.8%. This dividend should be adequately covered by earnings this year, making a cut unlikely.

Broker forecasts suggest AstraZeneca should return to profit growth in 2018. In the meantime, the shares look low-risk to me and offer an attractive income. I'd be happy to buy at current levels.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca and Reckitt Benckiser. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.