Shares in FTSE 250 pharmaceutical firm Indivior (LSE: INDV) fell by more than 75% on Wednesday morning. The stock’s collapse was triggered by news that the company has been charged with fraud offences by the US Department of Justice.
The company warned that while it disputes the allegations, a verdict against it could have “a material adverse effect on the Company and its financial position”.
Here I’m taking a fresh look at this firm, which specialises in treatment for opioid addiction. Would I buy, sell or hold the stock after today’s news?
What are the charges?
The Department of Justice has charged Indivior with 28 felony counts, most of which are mail or wire fraud. These are broad charges, but according to the company, the DoJ is making two main claims.
The first claim is that Indivior encouraged doctors to prescribe Suboxone “to too many people or in too high doses” in order to boost sales.
The second claim is that the firm “misled doctors and patients” when it claimed its Suboxone Film product was safer than tablets and less likely to be abused or taken accidentally by children.
The US authorities are suggesting that the real motive for the introduction of Suboxone Film in 2007 was to use patent laws to prevent generic alternatives becoming available — something that has been a major focus for Indivior in recent years.
Will the company settle?
Indivior believes that “the allegations are unsupported by the facts and the law”. Most of the events involved are said to date from before the firm was spun out of Reckitt Benckiser in 2014.
However, the company says it has co-operated with the DoJ “for several years” and “made numerous attempts to reach a settlement”.
As the DoJ has now gone ahead and charged Indivior, I assume that a settlement is unlikely, if not impossible.
What should investors do now?
The firm has long looked speculative to me. For years, it’s been clear that profits were dependent on its ability to prevent generic rivals coming to market.
In February, management appeared ready to admit defeat, when the firm launched its own generic version of Suboxone Film. I covered this story here and suggested that revenue could fall by as much as 80% in 2019.
At that time, I didn’t know about the DoJ allegations. Even so, my verdict was that “buying the shares at current levels is little more than a gamble”.
Indivior shares have fallen even further since then, so is the stock worth a punt?
I wouldn’t touch it
Press reports I’ve seen today suggest the DoJ may be hoping for a fine of about $3bn. In my view, that would probably put Indivior out of business, leaving shareholders with nothing.
Even if the company manages to clear its name in court or secures a more affordable fine, the future looks highly uncertain to me.
I don’t see any way that outside investors can work out a meaningful valuation for this business. Nor can I see any way of predicting what’s likely to happen next.
In my view, this is a stock to avoid at all costs. If I was a shareholder, I’d accept defeat and sell, so that I could be sure of recovering some cash.