Compilation: newborn
Commercial struggles, huge debts, and legal liability have forced some pharmaceutical industry players to face huge risks that may go bankrupt in the near future, including large pharmaceutical manufacturers such as Teva Pharmaceutical and Bausch Health, as well as small biotech companies including Clovis Oncology and Puma Biotechnology.
Analysis released by BioPharma Dive, a biopharmaceutical industry website, found that 31 troubled biopharmaceutical companies have the highest risk of bankruptcy in the next 12 months. Although bankruptcy is rare in the pharmaceutical industry, the number of companies filing for bankruptcy in 2019 has increased, and more companies may be zeroed out, driven by increasing legal, political and market pressures.
BioPharma Dive's analysis uses data from a credit risk monitoring company (CreditRiskMonitor), which uses a ten-cost system (FRISK rating) to calculate the likelihood of a company going bankrupt in the next year.
FRISK rating incorporates a variety of risk indicators, such as creditor ratings, stock volatility, financial ratios, and crowdsourcing user data. CreditRiskMonitor rated thousands of companies using FRISK, a FRISK score of 1 represents the most vulnerable financial situation. According to it, the FRISK score has an accuracy rate of 96% when predicting bankruptcy. Among pharmaceutical companies that went bankrupt this year, CreditRiskMonitor gave each company a FRISK score of 1 or 2 in advance.
BioPharma Dive tailored the following list based on FRISK ratings, sorting out the current biopharmaceutical companies with a stock price of more than US$1, a market value of more than US$50 million, and trading on major U.S. exchanges, and finally formed the following list of 31 companies:
Teva Pharmaceuticals
Teva is the largest company on this list. Considering the continuous increase in legal responsibilities and the continuous decrease in revenue, the company has been working hard to find a convincing way forward. At present, the company is at the center of several of the most prominent controversial issues in the industry.
Legally, Teva faces allegations of helping to stimulate the opioid epidemic crisis and conspiring with other generic drugmakers to price. In December 2017, the Ohio District Court merged hundreds of opioid-related court cases into a litigation process, and Teva was one of many industry players facing allegations. This led to the latest round of early reconciliation with the two Ohio counties. Other companies on the high-risk list include Mallinckrodt, Amneal and Endo, who are also involved in the trouble of the opioid epidemic crisis.
In May 2019, 44 state attorneys general named Teva in a lawsuit, claiming that the company, together with other generic drugmakers, artificially raised drug prices.
Although Teva's legal troubles frequently make it to the headlines, Wall Street analysts also expressed concerns about the company's high debt levels, which were close to $27 billion as of the end of September.
Currently, Teva continues to regress in the drug market, and its share price has plummeted from about $70 per share in 2015 to less than $10 recently. Due to the slump in the US generic drug market and its own blockbuster drug Copaxone is also facing competition from many generic drugs, Teva has been working hard to increase revenue in recent years.
Of course, Teva may get a breather in reasonable debt refinancing while continuing to pay off its debt with free cash flow. For example, in the third quarter, the company paid off about $1.6 billion in debt. However, Teva also needs to resolve opioid litigation, one of the most significant legal threats the industry faces.
Dec.com
Dec.com was formerly Valeant Pharmaceutical International, a Canadian pharmaceutical giant that followed what some people call 3B strategy throughout the 20th century, namely buying medicine, borrowing money, and raising prices.
In the first few years, Valeant flourished with mergers and acquisitions, including the acquisition of Bausch Lomb in 2013 and the acquisition of Salix Pharmaceuticals in 2015. This rapid expansion peaked in 2015, when Valeant was the most valuable publicly-owned company in Canada.
But at the end of 2015 and 2016, the company was caught in a controversy over price increase strategies and the use of professional pharmacies to distribute drugs, and the company's business was shaken. Regulators and the U.S. Congress quickly launched an investigation, resulting in the removal of CEO J. Michael Pearson in late 2016.
At that time, the company had already assumed debts totaling more than $30 billion. For most of 2017, the company was "slimming down", selling non-core businesses including skin care brands to L’Oreal for $1.3 billion, Dendreon for $845 million, and iNova for $938 million.
During this period, revenue also gradually dropped from US$9.7 billion in 2016 to US$8.4 billion in 2018. It was renamed Bausch Health Company in July 2018 by Valeant.
This year, BDCon executives proposed plans to investors to increase revenue again and start paying off huge debts. By the end of September, Boscon's total debt was approximately US$24 billion.
In addition to huge debts, B.C. also faces widespread legal threats, including multiple states investigating its patient assistance programs, pricing strategies and relationships with a mail-order pharmacy, which is currently on the cusp of Wall Street. The SEC is investigating the company's accounting practices and policies.
International rating agencies Moody's and Fitch both rated Dr. Consort as non-investment-grade and speculative companies. "I am not an empire creator and don't want to wear Clovis' hat until old," Moody's analyst wrote earlier this year. "I'm not an empire creator and don't want to wear Clovis' hat until I get old," he said publicly at the JPMorgan Medical Conference that he hopes the company will be acquired.
The dream seems unlikely to be realized on Clovis' current development track, because a commercial cancer drug from the biopharmaceutical company is already very inconspicuous.
At the end of 2016, the company's PARP inhibitor Rubraca was approved, and initial sales expectations helped Clovis stock reach $100 per share in the following summer. Since then, the stock price plummeted due to disappointing sales of Rubraca. When Patrick Mahaffy publicly sought a sale, the stock price had fallen to around $20.
Clovis shares have been falling since then and are expected to end this year's trading at less than $6 per share. Its market capitalization is currently around $320 million, down from the company's cash and equivalent at the end of September, indicating that investors continue to lack confidence in Patrick Mahaffy and the team they lead.
Novavax
Novavax is a biotechnology company that has been engaged in vaccine research and development for a long time. Its stock price fell sharply after the failure of its phase III clinical trial of its respiratory syncytial virus vaccine ResVax in February this year.
This research vaccine is the company's leading clinical candidate. Although the trial failed to reach its primary endpoint, company executives stressed that other data showed that the vaccine helps prevent certain outcomes of the respiratory syncytial virus vaccine.
However, even if it fails, Novavax vows to move forward bravely. Its head of R&D Greg Glenn said at the time that "the vaccine did not die", and he expected the vaccine to continue moving forward in some way.
Novavax is one of many so-called "zombie" biotech companies that have been able to survive for years or decades despite lack of commercialized drugs and undergo repeated clinical failures.
Since its establishment in 1987, Novavax has accumulated a deficit of US$1.4 billion. Over the past three years, the company has averaged more than $200 million in net losses per year.
Since the disclosure of Phase III clinical trial data in February, the company's stock price has fallen by about 90%. In May this year, the biotech company conducted a 1:20 reverse stock split to boost stock prices.
As of the end of September, the company had $76 million in cash and equivalents; a net loss of $101 million in the first nine months of 2019.(Sina Pharmaceutical Compilation/newborn)
Reference source: 31 biopharmas at high risk of bankruptcy in 2020
