Alvotech Faces Legal Probe Amidst Regulatory and Financial Challenges

What happened

Kirby McInerney LLP is investigating potential securities law violations by Alvotech, adding legal scrutiny to the company's already troubled regulatory and governance landscape. This investigation follows recurring FDA manufacturing deficiencies at Alvotech's single Icelandic facility, which led to a complete response letter for AVT05 in November 2025 and a sharp guidance cut. The company faces high leverage with approximately $1.1 billion in debt, negative equity, and material weaknesses in internal controls, as highlighted in recent filings. Market sentiment has shifted from optimism about biosimilar growth to concerns over execution risk and disclosure quality, exacerbated by this legal probe. Investors must now weigh the compounded risks of regulatory delays, financial instability, and potential legal liabilities as the company attempts to remediate its operations.

Implication

This investigation could lead to lawsuits, settlements, or fines, increasing financial strain on a company already burdened by high debt and negative cash flow. It underscores management's credibility issues, which may affect partner and investor confidence, crucial for Alvotech's commercialization model. Regulatory approval timelines for key assets like AVT05 might be further delayed if legal proceedings uncover additional compliance failures. The equity's margin of safety, already limited by leverage and operational risks, erodes further with heightened legal overhang. Investors should monitor updates on the investigation and AVT05 remediation closely, as any negative outcomes could trigger covenant pressures or dilution, pushing the stock towards lower valuation scenarios.

Thesis delta

The DeepValue report's 'WAIT' thesis, based on regulatory and financial risks, is now compounded by legal and governance concerns from the investigation. This shifts the risk-reward balance further to the downside, making the attractive entry point of $3.75 even more critical and emphasizing the need for evidence of resolution before considering investment. No fundamental change in the base case, but downside probability increases, warranting stricter monitoring of cash flow and regulatory progress.