See related RI article: The $270m Purdue settlement is just the beginning of the pain for opioid-linked Big Pharma
Robbins Geller Rudman & Dowd LLP, the US class action law firm, has filed a complaint on behalf of the City of Sterling Heights Police & Fire Retirement System against FTSE 100 firm Reckitt Benckiser Group alleging violations of US federal securities laws by its senior management.
The complaint follows the $1.4bn settlement with the US Department of Justice to resolve potential criminal and civil liabilities related to a federal investigation of the marketing of Suboxone, an opioid addiction treatment drug.
Reckitt, whose brands include Dettol, Gaviscon and Cillit Bang, also agreed to pay $50m to settle Federal Trade Commission charges over the same drug.
The complaint alleges that subsidiary Reckitt Benckiser Pharmaceuticals and its successor company Indivior plc (now no longer affiliated with the parent company) perpetrated a $3bn scheme to facilitate opioid abuse among US consumers and mislead investors and the public regarding the health and safety risks of Suboxone Film.
Suboxone Film (dispensed in thin films to place under the tongue) would replace Suboxone tablets, whose period of exclusivity during which no generic competitors could enter the market was ending in October 2009.
Darren Robbins, partner of Robbins Geller, told RI that according to the DOJ indictment, executives from Reckitt Group and Indivior devised a fraudulent scheme to profit by falsely pushing Suboxone Film as a safer and superior alternative to other similar drugs.
“The scheme was a success and Reckitt Group’s annual sales from Suboxone Film grew to over $840m by 2014, including over $500m in payments from Medicare and Medicaid. Reckitt Group spun off Indivior that same year, but managed to keep its fraud concealed until the DOJ’s investigation and indictment,” Robbins said.
He added: “The revelations of misconduct have caused the price of Reckitt Group American Depositary Receipts to decline sharply, causing hundreds of millions of dollars in damage to investors during the July 28, 2014 to April 9, 2019 class period.”Indivior stated that the DOJ is “fundamentally wrong” and that it will “contest charges vigorously”.
Chairman Howard Pien wrote in an open letter: “The Department of Justice has taken the unusual step of indicting Indivior for events that date almost exclusively to before the company was formed in 2014. The Indivior Board of Directors, through a special committee of the board that I have chaired, has investigated the department’s allegations for several years, and the board believes they are flat wrong. The board has full confidence in the management of the company, and we will fight these charges on the facts and on the law in court.”
The first defendant named in the complaint filed by Robbins Geller is departing CEO Rakesh Kapoor, one of the highest-paid FTSE bosses, who will be replaced in September by PepsiCo’s chief commercial officer Laxman Narasimhan.
Luke Hildyard, Director of the High Pay Centre think tank, told RI that Reckitt’s CEOs were consistently amongst the highest paid in the UK during the period described in the complaint and DOJ investigations.
Kapoor’s predecessor, Bart Becht, pocketed a record £90m remuneration package in 2010 — more than double the current average compensation of the top 10 highest earners in the FTSE.
Hildyard said: “It’s unlikely that this case will result in any repayment of the tens of millions lavished on the executives in post at the time of the alleged offences, which highlights how the much vaunted clawback provisions in very generous executive pay packages are normally extremely weak.”
Hildyard, who was formerly Policy Lead for Corporate Governance and Stewardship at the Pensions and Lifetime Savings Association (PLSA), added: “The controversy also raises much bigger questions about corporate purpose and responsible business practice. Economic and industrial policy is almost totally geared towards helping private businesses to thrive under the assumption that what’s good for business is good for society, but that is very often not the case.”
Legal & General Investment Management voted against Reckitt’s remuneration policy at this year’s AGM, observing: “A vote against is applied due to concerns with the potential total reward of £15m. We see a change of CEO as an opportunity to reset total remuneration at a more acceptable level.”
Reckitt Benckiser was approached for comment.