U.S. charges pummel drugmaker Indivior, hurt Reckitt Justin George Varghese, Martinne Geller

(Reuters) - Indivior Plc lost nearly three-quarters of its stock market value on Wednesday and former parent Reckitt Benckiser also fell after the U.S. Justice Department accused the British drugmaker of illegally boosting prescriptions for its blockbuster opioid addiction treatment Suboxone.

An indictment here filed in federal court in Abingdon, Virginia, alleged Indivior made billions of dollars by deceiving doctors and healthcare benefit programs into believing the film version of Suboxone was safer and less susceptible to abuse than similar drugs.

The indictment charged Indivior and its subsidiary Indivior Inc with conspiracy, health care fraud, mail fraud and wire fraud. The U.S. government said it would seek to have it forfeit at least $3 billion.

The company has set aside a provision of $438 million related to the issue.

Indivior developed the film version of the treatment as a period of marketing exclusivity granted by the U.S. FDA for the tablet form of the drug - itself a kind of opioid - was coming to an end, opening it up to generic competition.

The indictment said Indivior, in addition to making false safety claims about Suboxone film, pushed addicts via its “Here to Help” program toward doctors known to overprescribe the drug.

Indivior said: “An adverse verdict may have a material adverse effect on the company and its financial position and outlook.”

Shares in the company crashed to an all-time low and wiped out over 550 million pounds ($720 million) in market value. They closed down 71.6 percent at 30.05 pence after falling as much as 80 percent. Close to 100 million shares changed hands, roughly 40 times the 30-day daily average volume.

Reckitt Benckiser wasn’t charged, but the indictment said the illegal behavior began before it spun off Indivior in 2014. It refers to Indivior’s owner until then as “Company A”.

Shares in Reckitt slumped 6.5 percent to the bottom of London’s blue chip FTSE 100 index, erasing many of the gains made in 2019 after three tough years.

The indictment alleges, for example, that executives of “Company A” made or approved false statements that the film version was safer to have around children than the discontinued tablet version, “even though they knew the primary reason for the discontinuance was to delay FDA approval of generic Suboxone”.

Reckitt, owner of Durex condoms and Lysol cleaners, responded in a brief statement on Wednesday, saying: “This indictment is not against RB Group Plc or any other group company and we currently have no additional or new information in respect of this matter, apart from what has been publicly issued by the Department of Justice and Indivior Plc.”

It referred investors back to a previous statement that it was recognizing a provision of $400 million relating to the issue but that its final cost could be substantially higher.

The provision is in case Reckitt should itself be indicted, as the company has indemnification against liabilities arising from charges against Indivior, a spokeswoman said.

Indivior had prospered as U.S. officials stepped up efforts to combat an opioid epidemic that President Donald Trump has declared a public health emergency. U.S. sales account for 80 percent of last year’s $1 billion in revenue.

Shares, however, had already been hurt by expectations of a slump in Suboxone sales with the arrival of new generic competition this year and the company has struggled to convince analysts and financial investors that it has an adequate replacement.

The company is scheduled to be arraigned in court on May 6 and plans to plead not guilty at that hearing, according to a spokesman.

This also comes at a bad time for Reckitt, which was just starting to regain investor confidence after a series of one-off problems including a safety scandal in South Korea, a failed product launch, a cyber attack and a manufacturing glitch.

Its chief executive Rakesh Kapoor, who oversaw several acquisitions and divestitures with the aim of turning Reckitt into a global consumer healthcare company, will retire this year, even though a major undertaking - splitting Reckitt into two business units - is unfinished.

Kapoor took the reins at Reckitt in September 2011. Many of the allegations in the indictment relate to activities before this period, when Reckitt’s CEO was Bart Becht, who took Benckiser public in 1997 and merged it with Reckitt & Coleman two years later.

Reuters could not immediately reach Becht for comment on Wednesday.

POTENTIAL PUNISHMENT

The potential penalty against Indivior is triple the annual revenue it made last year - or slightly more than the total revenue the company made from Suboxone film from 2010 to 2014. Indivior had net cash of $681 million at the end of the year.

The company said in a statement it was “extremely disappointed” by the department’s decision to charge it, and added it would vigorously contest it.

Jefferies analysts said in a note: “The headline potential penalties are severe but a settlement is also still possible.”

Indivior last year said it was in “advanced discussions” with the Department of Justice about a possible resolution but no such resolution has emerged.

The company has spent the last two years fighting multiple legal battles and patent disputes in the United States with companies including Dr.Reddy’s, Teva and Mylan to block them from launching generic versions of Suboxone film.

For a graphic on Reckitt erases most of 2019 gains after three tough years, see - tmsnrt.rs/2D8Hyj1

RECKITT FEARS

Reckitt spun off its pharmaceuticals business into Indivior in 2014, as the shrinking unit battled competition from cheaper generic rivals.

The spin-off, and the 2017 sale of Reckitt’s food unit, let Reckitt focus on expanding its consumer health business, which targets ageing populations and those interested in health and wellness in the West and rising incomes in developing markets.

In addition to concern about Reckitt’s liability, investors on Wednesday worried about a possible spillover effect on Reckitt’s infant formula business.

The company had previously flagged implications including “potential criminal indictment of the group or employees, with reputational impact, distraction and potential debarment which could theoretically extend” to its infant formula business.

The business, which sells Enfamil formula, derives a portion of its sales from government contracts in the U.S. supplying a program to support low-income parents.

However, Reckitt said on Wednesday any risk to the infant formula business was theoretical and seen as “highly unlikely and only a remote possibility”.

APRIL 10, 2019

https://www.reuters.com/