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Reckitt shares fall over concerns about Indivior fallout

Pharmaceuticals, drugs

Pharmaceuticals, drugs

This morning’s reports that the US department of Justice has brought 28 charges against the UK based pharmaceutical company Indivior has sent shivers through its management and shareholders, sending the shares to a record low, down over 70% on the day, and potentially putting the survival of the company at risk.

The charges relate to multiple allegations of fraud over the marketing of its Suboxone Film drug, which it marketed as a safer alternative to other opioid based pain killer treatments. The charges allege that the company deliberately misled regulators and doctors as to the addictive nature of the medication saying that it was less likely to be misused and was less addictive than its major peers.

The company’s main defence would appear to be that the Department of Justice’s analysis is inaccurate with Howard Pien’s Indivior’s chairman saying that the DOJ has misread the science as well as the company’s marketing efforts to promote the drug.

The company went on to say that the charges also related to the time when the company was part of Reckitt Benckiser, before it was spun off in 2014, which also helps explain why Reckitt shares have also slid back today.

While the focus is inevitably on Indivior it won’t have escaped investors notice that Reckitt has already been provisioning for just such an outcome, after setting aside $400m at the end of 2018 to cover off any legal liabilities related to Indivior, and its battles with US authorities.

With a fine of $3bn being touted by regulators it is hard to imagine how Reckitt won’t get drawn in given that the events happened under Reckitts watch, and that given today’s price action Indivior is no longer in a position to pay any sort of fine, given that its net cash position was a mere £500m at the end of last year, while its main sources of income are now facing competition from cheaper alternatives.

In February the company said that net revenues from its Sublocade injection were expected to come in between $50m and $70m in 2019, while it is struggling to fend off competition from more generic rivals. 

This could well have significant consequences for Reckitt given that its market cap and turnover is in the billions of US dollars, especially since most of the alleged misconduct happened on its watch.

The Department of Justice is likely to take a similar view if Indivior is unable to convince US authorities that their charges are wide of the mark, and can be disproven.    

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