Shares in FTSE 100 consumer giant Reckitt Benckiser (RB) rose after it agreed a $1.4 billion settlement with the US Department of Justice and Federal Trade Commission over the marketing of opioid treatment drug Suboxone.
The drug, which is used to treat opioid dependency as a substitute for methadone injections, was sold by former RB subsidiary Invidior. In April this year, the DoJ charged Invidior with making false claims that Suboxone was safer than rival drugs and less prone to abuse than cheaper generic rivals. Federal prosecutors accused Individior of overcharging Medicare, Medicaid and other US healthcare schemes.
"The indictment alleges that, rather than marketing its opioid-addiction drug responsibly, Indivior promoted it with a disregard for the truth about its safety and despite known risks of diversion and abuse," said US assistant attorney general Jody Hunt in a statement in April 2019.
Individior could have faced a fine of $3 billion from regulators. The precedent of Purdue Pharma, which paid more than $600 million in fines and charges in 2007 over the marketing of its Oxycontin drug, had unnerved Reckitt and Invidior investors. While Reckitt had allocated $400 million to settle the case, the fact that the $1.4 billion settles the case completely has reasured investors.
Morningstar analyst Philip Gorham said that the deal could have been worse and provides a "clean slate" for the company as it "allows the company to focus on the repositioning of the business into strong price/mix categories". He re-affirmed the £73 price target for the company. "After a pullback in the stock over the last 12 months, we see some upside from here," Gorham added.
Russ Mould, investment director at AJ Bell: “Given how aggressive US regulators can be, there must be some relief that a line has been drawn under the issue and incoming Reckitt chief executive, Pepsi man Laxman Narasimhan, can start with a clean slate.
Reckitt Benckiser said that the settlement with US regulators was made in the best interests of shareholders and the company and protects Reckitt’s involvement in future US drug programmes. But it said it acted lawfully at all times and “expressly denies any allegations that it engaged in any wrongful conduct” – the settlement involves “no admission of any violation of law or any wrongdoing by RB or any RB Group employee”.
Shares in London-listed Invidior (INDV) soared 25% after the specialist drugmaker raised profit and revenue forecasts after strong sales of Suboxone.
Reckitt’s shares were one of the biggest risers on the FTSE 100 on Thursday with a gain of 150p, or 2.5%, to £65.86. Morningstar analyst Philip Gorham says that Reckitt is trading below its fair value of £73 per share.
RB has a wide economic moat, or strong competitive advantage, after recent M&A activity that has strengthened its leading position in certain categories. Reckitt’s consumer brands have strong market positions in a number of countries: painkiller Nurofen has a 25% market share in the UK and 22% in Australia.
Reckitt makes up more than 4% of Gold-rated Fundsmith Equity, as well as a large range of passive and active funds. F00000LK2Q
