Is the bloom off the rose?
In a series about bankruptcy in biopharma, BiopharmaDive cites such factors as failed treatments, worried investors and increased legal threats over the opioid epidemic as possible factors in the downturn.
One story reveals that eleven biopharma companies have filed for bankruptcy this year, versus an average of four per year during the past decade, and a market index that tracks biotech stocks has dropped more than 15 percent in a year. Another story uses data to project which companies might be candidates for filing for bankruptcy as early as next year.
Biopharmas that have filed for bankruptcy so far this year include Purdue Pharma, Achaogen and Pernix Therapeutics. Although this situation is rare in biotech and pharma, more drug makers have encountered problems this year than in any year since 2011. Legal problems have taken their toll, especially in the wake of opioids lawsuits. Purdue Pharma and Insys Therapeutics have declared bankruptcy. Many other companies that make opioids could have the same issues.
Antibiotics makers Achaogen and Aradigm also declared bankruptcy this year. Although the FDA recently approved an Achaogen drug, the company encountered commercial roadblocks that made it insolvent. BioPharma Dive reporter Andrew Dunn calls it “further evidence of what some have termed a market failure for antimicrobial drugs.”
In a companion piece, BioPharma Dive analyzed proprietary data from a credit analysis firm to determine which companies might be at high risk of bankruptcy in 2020. The analysis determined that 31 troubled biopharma companies are at the highest risk of going bankrupt in the next 12 months.
Dunn believes that threats facing the industry could lead to more filings in the future. He cites business struggles, significant debt and legal liabilities as factors that “put some industry players at particularly high risk of declaring bankruptcy,” including big drug makers such as Teva Pharmaceutical and Bausch Health, as well as small biotechs including Clovis Oncology and Puma Biotechnology.
The publication used data from CreditRiskMonitor, a company that calculates the probability of a company going bankrupt in the next year by using a 10-point scale called a FRISK score. The firm rates thousands of companies, with a FRISK score of 1 indicating the most financially risky. CreditRiskMonitor uses risk indicators including bond agency ratings, stock volatility, financial ratios and crowdsourced subscriber data to predict potential bankruptcy in a short period of time.
According to CreditRiskMonitor, FRISK scores have proven to be 96 percent accurate in predicting bankruptcy. In terms of drug companies that declared bankruptcy in 2019, the firm had rated each one at a FRISK score of 1 or 2 before the bankruptcy.
Typically, a drug company will have a FRISK score of 7. BioPharma Dive came up with its list that includes biopharma companies traded on major U.S. exchanges with current share prices above $1 and market values above $50 million. The company concludes that the biopharmaceutical industry’s boom may be over, based on these findings.
