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Funds hit as fraud charges smash Indivior and fallout knocks Reckitt

Funds hit as fraud charges smash Indivior and fallout knocks Reckitt

Shares in Indivior have crashed after the US Department of Justice (DoJ) charged the 'mid-cap' drug maker with fraud, knocking the small band of value-focused fund managers who have bought the shares in recent months on recovery hopes.

The stock cratered 79% to 22p after the DoJ filed an indictment in federal court alleging the company deceived doctors its opioid addiction treatment Suboxone Film was safer than similar drugs.

'Beginning in or about 2010, Indivior executed an illicit nationwide scheme to increase prescriptions of Suboxone Film,' the indictment reads.

'In particular, Indivior illegally obtained billions of dollars in revenue from Suboxone Film prescriptions by deceiving health care providers and health care benefit programs into believing that Suboxone Film is safer and less susceptible to diversion and abuse than other similar drugs.'

The indictment charged Indivior with conspiracy, health care, mail and wire fraud. If convicted on one or more of the offences,  the US government will seek a minimum of $3 billion (£2.3 billion).

The DoJ claimed the scheme began before Indivior was spun out of consumer staples giant Reckitt Beckiser in 2014. Reckitt has not been charged, but its shares fell to the bottom of the FTSE 100, down 4.8% at £60.98 on the news.

Indivior said it would 'contest this case vigorously' in a lengthy statement to the stock market.

'We are extremely disappointed in this action by the Justice Department, which is wholly unsupported by either the facts or the law,' it said.

'The department has apparently decided it would rather pursue self-serving headlines on a matter of national significance than achieve an appropriate resolution,' it added. 'We look forward to the full facts coming out in court'.

Reckitt Benckiser said in a short statement that the indictment was 'not against RB Group Plc or any other group company and we currently have no additional or new information in respect of this matter'.

The group pointed to the $400 million provision in its 2018 annual report related to 'ongoing investigations by the DoJ'.

Jefferies analyst James Vane-Tempest said were Indivior to be hit with a $3 billion fine, the company would likely either file for bankruptcy or be forced into a major rights issue, given net cash of just $600 million last year.

'However, in our view the $3 billion could be a headline number and a starting point for any further negotiations,' he added.

Numis analyst Paul Cusson suspended coverage of the stock, which he had previously rated a 'buy' with a 180p target price, on the news.

'In light of this update we suspend coverage and await further information,' he said. 'With the DoJ pursuing an indictment over a settlement, the mid-term outlook for Indivior has become even more uncertain.'

Value fund managers count cost 

Andrew Hunt, who runs the £168 million Standard Life Investments UK Equity Recovery fund, is likely to be the fund manager worst hit by Indivior's share price crash.

The value-focused fund manager bought into the stock in the last seven months, with the shares having fallen 80% from last summer's peak even before today's plunge.

Indivior was a top 10 position in his fund at the end of last month, accounting for 4.5% of the portfolio.

Shares in the drug maker were battered by the launch of a cheaper copycat rival to its Suboxone treatment and delays to another opioid treatment, Sublocade.

Another value manager lured by Indivior's fall was Julie Dean, who bought the shares for her £41 million Sanditon UK fund in the second half of last year. Refinitiv data shows a 1.6% position in her fund, although the stock does not trouble the top 10 holdings on the factsheet.

Longer standing investors who have continued to hold on to the stock include William Littlewood and Kartik Kumar, according to Refintiv data, with 1.3% of their £618 million Artemis Strategic Assets fund in the shares.

Adrian Frost, Nick Shenton and Andy Marsh's Artemis Income fund is the stock's largest fund shareholder, with just under 3% of the shares according to Refintiv data, although that accounts for less than 0.5% of the £5.6 billion portfolio.

The trio of Merian fund managers who had been heavy backers meanwhile largely sold out towards the end of last year.

Indivior was a top 10 position for Richard Watts, Luke Kerr and Tim Service in their Merian UK Mid Cap, UK Dynamic and UK Specialist Equity funds last summer, but the fund group had disposed of the bulk of its stake by the end of last October.

Today's news could also spark some concerns among the much larger band of investors in Reckitt Benckiser.

Among the company's biggest backers are Citywire AA-rated Terry Smith, who holds the shares in his £18.6 billion Fundsmith Equity fund.

Fellow AA-rated managers Anthony Cross and Julian Fosh are also sizeable investors, with a 3.7% position in their £4.4 billion Liontrust Special Situations fund.

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