Indivior crashes after indictment by US federal grand jury, drags Reckitt lower

News of the federal grand jury's decision to formally bring charges against the specialty pharmaceuticals outfit saw the company's shares crash by 44% and prompted a quick response from the company.

The allegations against it referred to actions that took part "almost exclusively" prior to Indivior being spun-off from Reckitt Benckiser, at the end of 2014, the company said in a statement.

Indivior defended itself further, saying the allegations were unsupported by both the facts and the law, including those from the main US regulator, the Food and Drug Administration and the Centers for Disease Control in Atlanta.

Nonetheless, management conceded that a negative verdict might have a "material adverse" effect on its financial position and outlook and lamented the DoJ's decision not to accept their offer for a settlement.

The grand jury in the Western District of Virginia indicted the company on 28 counts of felony, including one count of healthcare fraud and another of conspiracy to commit mail, wire and healthcare fraud, together 22 counts of wire fraud.

According to the indictment, Indivior reaped billions of dollars-worth of revenues from prescribing Suboxone Film and, via its "Here to Help" programme, put patients suffering from addiction in contact with doctors that were "prescribing opioids at high rates and in a clinically unwarranted manner."

"This is a surprising development that had been progressing toward a settlement that has previously been provided for," said analysts at Numis.

"It was our belief that Indivior had the financial resources to manage the various cash drains on the business over the next 12-24 months, and that Sublocade was beginning to secure more favourable insurance coverage. However, with the DOJ pursuing an indictment over a settlement, the midterm outlook for Indivior has become even more uncertain, and for that reason we suspend coverage."

And regarding the cost of the fall out for Reckitt, CMC Markets UK's Michael Hewson said: "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."

For their part, analysts at RBC were of the view that: "It is difficult to know the most likely outcome. Indivior will continue to seek settlement with DOJ in the first place if demands by DOJ are such that will allow Indivior to continue sell its products. In the event of no settlement Indivior’s might decide to go into court and let the jury decide the verdict.

"We are not legal experts and whilst Indivior has a lot of evidence that supports its work to fight opioid addiction it’s uncertain how the jury will view and decide on the old events before de-merger.

"In addition we have no visibility on the de-merger clauses and whether one or both companies (Indivior and Reckitt Benckiser) will be held liable and to what amount the final changes could come up to. In summary, this is a very material uncertainty that will remain an overhang for the foreseeable future."