What's going on?
Indivior’s stock fell 70% on Wednesday after the US Department of Justice accused the British pharma company of fraud.
What does this mean?
On Tuesday, a federal jury indicted Indivior on charges related to the marketing of its opioid addiction treatments as far back as 2010, when the company was still part of consumer goods giant Reckitt Benckiser. Indivior allegedly misled customers by claiming that its treatments were safer than rivals’ and encouraged overprescription, boosting sales and stifling competition. Ironically, the company’s shares had already plunged 80% in recent months after it lost exclusive control over the top-selling drug in question.
The Justice Department is now seeking $3 billion in fines – which, if imposed, could wipe out Indivior altogether. The company rejected the charges and plans to fight against them – arguing not only that they’re false, but that they “almost exclusively” relate to the period before it was an independent firm.
Why should I care?
For markets: Now the drugs don’t work.
Indivior has just shy of $1 billion in the bank. If it does end up having to pay up, it may either have to sell more shares to raise money, making its existing stock worth even less – or else rack up more debt. Given the company’s precarious position, any borrowing would likely come with a hefty interest rate. Shares of former Indivior owner Reckitt, meanwhile, fell 5% on Wednesday. Despite its solid financial footing, investors may be worried about the company getting tangled up in a potentially expensive and lengthy appeal process.
The bigger picture: The opioid fallout is spreading.
The owners of Purdue Pharma agreed last month to pay $270 million in a settlement related to its role in the widespread US opioid addiction crisis, after its marketing of painkiller OxyContin was ruled illegal. Related cases involving rivals Johnson & Johnson and Teva Pharmaceutical may have similar outcomes – and J&J’s already facing large fines related to its allegedly carcinogenic talcum powder.