Alvotech's Regulatory Crisis Deepens with Securities Fraud Probe Post-FDA Setback

What happened

Alvotech's stock crashed 34% after receiving an FDA Complete Response Letter for its lead biosimilar AVT05, exposing persistent manufacturing deficiencies at its single Reykjavik facility. Shareholder rights firm Hagens Berman is now investigating potential securities fraud, scrutinizing whether the company adequately disclosed these operational and regulatory risks ahead of the collapse. This probe amplifies the DeepValue report's findings of material weaknesses in internal controls, recurring FDA setbacks, and a 50% cut to 2025 EBITDA guidance due to the AVT05 delay. Despite recent European approvals for other biosimilars, the investigation layers legal and reputational threats onto Alvotech's already precarious balance sheet, characterized by $1.1 billion in debt and negative equity. Investors are thus confronted with a toxic mix of regulatory uncertainty, financial instability, and escalating governance concerns that jeopardize any near-term recovery.

Implication

The Hagens Berman probe could trigger costly litigation, draining already thin cash reserves and distracting management from critical FDA remediation efforts at the Reykjavik plant. It undermines management credibility and disclosure practices, potentially straining relationships with key partners like Teva and lenders, exacerbating covenant risks amid high leverage. Stock volatility will likely persist as legal outcomes and FDA resolutions remain unpredictable, making entry timing hazardous even at depressed prices. European launch contributions may be insufficient to offset U.S. regulatory and legal headwinds, capping upside and reinforcing reliance on a single故障 facility. Investors should strictly adhere to the 'WAIT' rating, demanding visible progress on AVT05 resubmission, positive free cash flow, and legal clarity before considering any position, with a revised attractive entry possibly below $3.75.

Thesis delta

The fraud investigation validates and intensifies the DeepValue report's warnings about governance and disclosure risks, shifting the thesis toward greater caution by adding a legal liability dimension to the bear case. It increases the probability of the bear scenario where persistent manufacturing issues and legal scrutiny delay approvals, strain finances, and potentially trigger covenant breaches. Therefore, the investment call remains 'WAIT,' but with heightened vigilance for downside catalysts, and the attractive entry point may need downward adjustment pending resolution of these compounded threats.