Scarred by a series of FDA warnings, a scorned buyer and the uncertainty of Covid-19, Akorn is finally throwing in the towel.
On Wednesday, the specialty generic drugmaker said it was filing for Chapter 11, weeks after it said it had given up on finding itself a buyer amidst the broader uncertainty of Covid-19.
Some of Akorn’s lenders have agreed to a stalking horse bid to purchase the Lake Forest, Illinois-based drugmaker’s assets, setting a basement price for the court-supervised sale of the business. On the docket are the company’s US business and subsidiaries — Akorn’s entities in India and Switzerland are exempt from the bankruptcy process. Akorn hopes to complete the sale process by the third quarter.
The move is hardly shocking, given Akorn’s calamitous past few years. Last year, the specialty generic drugmaker received two warning letters from the FDA. The latter letter, sent in June 2019, involved an inspection by the agency of its Somerset, New Jersey manufacturing facility in July and August of 2018.
Earlier in January 2019, Akorn received a warning letter related to another plant — one in Decatur, Illinois — following an inspection the previous April and May. The FDA detailed standard manufacturing violations, including poor aseptic and sanitization practices. Then in February, the company’s Amityville, New York facility was hit with another warning, in the form of a Form 483, which highlighted records were not kept for the maintenance, cleaning, sanitizing and inspection of equipment.
Apart from previously restating its financial statements, in April 2018 dialysis provider Fresenius walked away from a $4 billion takeover of Akorn, citing an investigation that found Akorn had materially breached the FDA’s data integrity requirements. In its January warning letter, the FDA said it had concerns that Akorn’s quality system does not “ensure the accuracy and integrity of data to support the safety, effectiveness, and quality of the drugs you manufacture.”
The company, which sells a range of branded and generic drugs including a lidocaine gel and a morphine sulfate oral solution, generated net sales of $682 million last year, down 2% from the $694 million it generated in 2018. As of March 2020, the company had net debt of $781,446.
“We look forward to separating legacy litigation and debt from the Company’s most valuable assets – our products, our people, our manufacturing facilities and our knowledge – so that we can move forward unencumbered by these liability exposures under new ownership that believes in our future,” Akorn chief Doug Boothe said in a statement.
The company’s investors did not quite see it that way, pushing Akorn’s shares $AKRX deeper into penny stock territory by falling more than 19% to 22 cents in early trading, and a market cap hovering at $36.6 million.
“We continue to believe that the commercial portfolio has the kind of product mix that is less likely to see significant commoditization/erosion, particularly the hospital injectable segment (this is bearing in mind that the significant pressure on the business in recent years was mainly a function of higher-margin assets such as injectable ephedrine that at one point had limited competition but that subsequently saw significant competition materialize),” Piper Sandler analysts wrote in a note last month.