Alvotech Securities Probe Adds Legal Risk to Ongoing Regulatory Woes

What happened

Rosen Law Firm has initiated a securities class action investigation against Alvotech, alleging potentially misleading business disclosures to investors. This follows the FDA's November 2025 complete response letter for AVT05, which exposed manufacturing deficiencies at the single Reykjavik facility and triggered a sharp guidance cut. Alvotech's operations are already strained by high leverage, negative equity, and a history of regulatory setbacks that have undermined confidence. While recent European approvals for other biosimilars offer some offset, the legal scrutiny compounds governance risks and internal control weaknesses previously flagged in filings. Investors now face converging threats from operational instability and potential legal liabilities, further clouding the path to recovery.

Implication

This legal probe highlights deeper transparency issues, aligning with disclosed material weaknesses in internal controls and raising questions about management's prior assurances. It may divert resources from critical AVT05 remediation efforts, delaying U.S. approvals and straining partner relationships. Investors should expect increased volatility and potential dilution from legal costs or settlements, further pressuring the highly leveraged capital structure. The investigation could prompt tighter lender covenants or regulatory enforcement, limiting strategic flexibility amid ongoing operational risks. Ultimately, this development reinforces the need for extreme caution, as legal overhangs now add to the existing high barriers to equity value creation.

Thesis delta

The DeepValue report's WAIT rating already factored in high regulatory and financial risks, but the legal investigation introduces a new governance and litigation dimension that could accelerate negative outcomes. While the core thesis of waiting for evidence of cash flow generation and facility compliance remains unchanged, the probability of the bear scenario has increased due to potential legal distractions and credibility erosion. Investors should now incorporate legal overhangs into risk assessments, maintaining capital preservation until both regulatory remediation and legal uncertainties are resolved.