By Noor Zainab Hussain and Pushkala Aripaka
(Reuters) - Reckitt Benckiser has agreed to pay up to $1.4 billion to end U.S. federal investigations into the marketing of an opioid addiction treatment by its former business Indivior, lifting a cloud that has been hanging over the British company for years.
While the settlement is significantly higher than the $400 million that the consumer goods group had set aside to cover the cost of the investigations, analysts said it could allow the company's new chief executive to focus on a turnaround plan.
Shares in Reckitt Benckiser (RB), whose products range from Mucinex cold medicine and Lysol cleaners, rose as much as 3.3% in early Thursday trading.
"As new CEO Laxman Narasimhan steps in (effective Sept. 1), this clarifies the legal environment for RB and should allow the new management to focus on the RB 2.0 transformation," JP Morgan analysts wrote in a note.
In an effort to regain investor confidence after setbacks including a safety scandal in South Korea, a failed product launch and a cyber attack, RB's outgoing boss Rakesh Kapoor launched a plan to split the group into two business units – one for health and one for hygiene and home products.
But investors feared the U.S. investigations could hinder the company's transformation.
"(The deal) gives the new CEO one less problem to worry about," Hargreaves Lansdown (LON:HRGV) senior analyst Laith Khalaf said.
However, the settlement marks the largest payout so far by any drug company involved in what U.S. President Donald Trump has called the country's epidemic of opioid addiction. The next largest one was for $600 million and was paid in 2007 by Purdue Pharma, the maker of the blockbuster opioid drug, OxyContin.
While welcoming the settlement, AJ Bell investment director Russ Mould said the cost could limit new CEO Narasimhan's ability to undertaken much-needed investment in RB's brands.
"The danger is that Narasimhan will be operating with one hand tied behind his back, he said.
(For a graphic on 'Reckitt gains in value after Indivior spin-off' click https://tmsnrt.rs/2NPlAJJ)
INDIVIOR SOARS
RB said its agreements with the U.S. Department of Justice and the Federal Trade Commission resolved investigations into a business that it demerged in 2014.
Indivior has been charged in the United States with illegally increasing prescriptions for opioid addiction treatment Suboxone by deceiving doctors and healthcare benefit programmes into believing its film version was safer and less susceptible to abuse than similar drugs.
Suboxone is itself a form of opioid.
The indictment said Indivior's wrongdoing began before it was spun out of RB, although RB was not charged.
"While RB has acted lawfully at all times and expressly denies all allegations that it engaged in any wrongful conduct, after careful consideration, the board of RB determined that the agreement is in the best interests of the company and its shareholders," RB said in a statement.
Separately on Thursday, Indivior said it had no new information to provide on its legal proceedings with the U.S. Department of Justice, which are separate from RB.
Indivior also raised its full-year profit and revenue guidance after Suboxone lost market share at a slower pace than expected, sending its shares 35% higher.
Every day, more than 130 people die in the United States after overdosing on opioids, according to the National Institute on Drug Abuse. Drug overdose deaths rose from 8,048 in 1999 to 47,600 in 2017.
RB said it would increase its provision related to the investigations to $1.5 billion to cover both the cost of the settlement and "any remaining litigation exposures."
The company said the settlement would be funded through existing borrowing facilities and cash generation.