Gaining a deeper understanding of the factors that have led to past defaults for pharmaceutical companies can help us better understand default risk in this unique subsector. We reviewed the historical defaults of pharmaceutical companies that achieved profitability (among other criteria), and the key drivers that led to those defaults. We present our findings and insights, as well as a summary of the path to default for each of the 15 defaults we identified from the past 11 years (2011-2021).

Generally Favorable View Of Credit Risk In This Sector

S&P Global Ratings generally views the branded pharmaceutical industry favorably from a credit risk perspective, given the high barriers to entry thanks to intellectual property protections (patents), a difficult regulatory approval process, as well as limited sensitivity to the business cycle, and strong margins. This is reinforced by the relatively low rate of defaults among pharma companies that have achieved profitability (excluding the many R&D-based start-ups that fail).

Industry growth is supported by increased demand from an aging population and scientific advancements that support a steady stream of new products. However, this is partially offset by a moderate erosion in pricing power for drug makers, including more limited ability to regularly raise prices in recent years and the abrupt revenue declines that follow the expiration of patent protection on key products.

For more details on current industry dynamics please see "Pharma Outlook: Eighth Straight Year Of Credit Deterioration In 2021," published on Feb. 23, 2021.

Methodology

• We looked at defaults among branded or generic drug companies that met the following parameters: (1) based in the U.S., Canada, or Europe; (2) had more than $20 million in annual revenue before default; (3) generated positive EBITDA; and (4) had more than $50 million of assets. We excluded companies not meeting those financial thresholds because we rarely rate such companies and because it's more difficult to obtain information on those smaller companies. This eliminated many clinical-stage companies that failed without ever generating revenue or profits.
• We identified pharmaceutical company defaults extending over the past 11 years (2011-2021) using data from Standard & Poor's LossStats database and various reliable public sources, including public bankruptcy filings.
• Our study also used publicly available information to identify the cause of default, including rating reports published by S&P Global Ratings, SEC filings, bankruptcy documents, and various other sources that we believe to be reliable.
• Although we sought to identify the single most prominent driving factor behind each of the defaults, there is an element of subjectivity because multiple factors were frequently involved. To provide more background and context, we included details about the companies and the narrative about each one's path to default.
• We categorized the factors leading to default into three broad categories (revenue decline, identifiable operational issues, and unexpected shocks), with each category further divided into subcategories (see table).

What We Found

We identified 15 pharmaceutical company defaults since 2011, including 12 instances of Chapter 11 bankruptcy (see table).

Notable observations

• Defaults among pharmaceutical companies with decent scale (more than $500 million in revenue before default) are quite rare. We found only five such instances (Aceto Corp., Concordia International Corp., Purdue Pharma L.P., Mallinckrodt International Finance S.A., and Akorn Inc.). We also found no prior instances of companies with this scale defaulting in the prior 20 years in the LossStats database.
• We were surprised patent expiration was not a more prevalent cause of default, as this is well appreciated to be a key driver of revenue declines and risk to branded pharmaceutical businesses.
• Only one of the 15 companies identified defaulted due to acquisition or related integration issues. That said, acquisitions of products that failed to meet expectations likely contributed to the distress for some of the defaults in the study.
• Only one company (Graceway Pharmaceuticals LLC) experienced more than a 50% drop in revenue on the path to default. This suggests these companies were often relatively aggressive with debt leverage, had substantial fixed costs that exacerbated the impact of revenue pressures on the bottom line, and reflected some instances where financial covenants triggered a default before performance deteriorated further.
• Although we tried to identify a primary driver of the default, multiple factors often contributed to the financial distress (e.g., government regulation change, excessive debt, failure to integrate acquisition, patent expiration, competition, and litigation). Many of the drivers were interrelated or amplified others.
• A majority of the companies studied had high product concentration with the top drug represented 40% to almost 100% of total revenue. This exacerbated the impact from patent expiration, competition, or slow market acceptance.
• We observed substantial declines in asset value (including impairments) ahead of default. We believe this is the result of intangible asset impairment, and the use of cash for further R&D and selling, general, and administrative expenses that did not support a commensurate increase in profitability.
• A deep market for pharmaceutical intellectual property supports creditworthiness, which enables pharmaceutical companies to address liquidity in a stressed situation, such as by divesting assets. Commercial-stage companies were acquired during the bankruptcy process relatively quickly.
• Although litigation is common among pharmaceutical companies and rarely ends up being material, in some instances, such as opioid-related litigation, it has led to default of companies of scale.
• We did not find many instances of default stemming from acquisitions or fraud, whereas that was a more frequent driver of defaults in the adjacent medical devices subsector (see Mortality In Health Care: What Factors Lead To Default For Medical Device Companies, published March 7, 2016).

Cause of default

Competition (six instances)

Competition is the most common driver of defaults. This was often exacerbated by high reliance on a single product in a competitive market, poor initial sales launch, and failure to adequately predict competition when making acquisitions.

For instance, several defaults occurred when the company relied heavily on a single product (such was the case for Aegerion Pharmaceuticals Inc., Synergy Pharmaceuticals Inc., and VIVUS Inc.) and the product did not meet earlier expectations. These markets were competitive, with constant new product launches often backed by large pharmaceutical companies with greater financial resources.

Competition can be particularly intense in the market for generic drugs. This contributed to Concordia's default. The business relied on acquiring hard-to-manufacture generic drug assets and raising prices. The model started to fail because of intensifying price competition and the U.K. government limiting large price increases. A similar strategy of raising price failed to work for K-V Pharmaceutical Co. (branded), when its drug, Makena, was made available from compounding pharmacies.

Litigation (three instances)

In our case findings, two out of the three litigation cases were related to opioid issues (Purdue Pharma and Mallinckrodt). Although many of the opioid cases are being settled, other litigation (aggressive marketing tactics and product safety litigation) could also cause credit deterioration.

Patent expiration (two instances)

Not surprisingly, patent expiration was a contributor to several defaults. Many of the companies that defaulted following patent expirations had significant product concentration. Although drug products may have multiple patents, some patents are stronger than others. Often when regulatory exclusivity or the "composition of matter" patent expires, generic manufacturers will challenge the validity of weaker patents, to gain access to the market.

Pharmaceutical development is notoriously difficult, with a high failure rate. Thus, scaled players with multiple products expiring at different times are more likely to generate sufficient cash flow for debt repayment and investment in new drugs, even when one drug loses exclusivity.

Safety or efficacy concern (two instances)

Although companies usually need to prove safety and efficacy in clinical trials to gain marketing approval, occasionally subsequent information arises undermining the safety or efficacy of an approved product. This can lead to steep declines in revenue.

For instance, Angiotech Pharmaceuticals’ main source of revenue was a licensing agreement with Boston Scientific Corp. for the Taxus drug-eluting stent, from which Angiotech received royalty revenue. Taxus sales plunged as studies raised concerns about efficacy and possible increased risk of late-stent thrombosis (blood clotting).

Government intervention (one instance)

Government intervention could become a larger risk in the future, with increasing public outcry about manufacturing standards and high drug prices. For instance, when Teligent Inc. failed to meet product safety regulations, the Food and Drug Administration (FDA) deemed it to be in violation of certain manufacturing regulations for finished pharmaceuticals. The company had to halt some production and never cleared all the FDA's concerns, which eventually led to insolvency.

Integration issue or acquisition (one instance)

We only identified one case that we viewed as principally caused by acquisitions that did not turn out as anticipated. In our case set, Aceto Corp. alleged that Aurobindo, which was manufacturing drugs for both Citron and Lucid (two acquisitions made by Aceto) were purposely trying to damage Aceto's supply chain. The company announced a liquidation plan, which was approved by the U.S. Bankruptcy Court for the District of New Jersey in September 2019.

In the rated health care universe, debt-financed acquisitions often bring down creditworthiness, because the increase in debt leverage (especially on conservatively leveraged investment-grade companies) often outweighs the incremental benefits such deals provide to a company's business strength, in our view. Moreover, "winners curse" can lead companies to overpay for acquisitions.

Timing Of Defaults

Chart 2

Eight of the 15 defaults in the last 11 years took place in 2018-2019, which we attribute to intensified pricing pressure and opioid litigation. In addition, patent expirations and competition contributed to defaults in 2018-2019 as they have in the past.

It's notable that the defaults were not specifically correlated with economic recessions. This was consistent with our expectations and with other research demonstrating that the broader health care sector has a relatively low correlation with the business cycle.

Application Of These Findings In Our Ratings Analysis

These findings support various analytical considerations we already apply in our ratings of pharmaceutical companies, including:

• Our limited focus on cyclical weakness in our assessment of the business risk of pharmaceutical companies and our tolerance for lower financial covenant cushions than for other sectors.
• Our view that pricing pressure from pharmacy benefit managers and managed care payers will remain high.
• Our view that often, companies with high product concentration and expiring patents are more vulnerable to credit deterioration, particularly if their pipeline is weak.
• Our incorporation of the economic burden from litigation claims against pharmaceutical companies. Greater scale tends to be correlated with greater diversification and stronger market position, but also offers a stabilizing advantage in weathering intermittent shocks such as from litigation.

The Path Of Deterioration And Factors Leading To Defaults

We've examined the individual cases of default in the study period and summarized below. In select instances (Angiotech, Graceway, and Mallinckrodt) we highlight the rating actions S&P Global Ratings took as creditworthiness deteriorated.

Angiotech Pharmaceuticals, Inc.: Revenue decline; Safety or efficacy concern

Defaulted in 2011, approximately $100 million-$500 million of assets.   Angiotech, founded in 1989, is a global specialty pharmaceutical and medical device company. Its main source of revenue (royalty revenue) was a licensing agreement with Boston Scientific Corp. for the Taxus drug-eluting stent (DES, used in cardiac procedures). The DES market had contracted because of efficacy/safety concerns. Moreover, competition increased from the introduction of competitive products, such as Abbott Laboratories’ Xience V. Both of these factors led to a fall in sales for the Taxus stent.

Angiotech's royalties from sales of the Taxus stent declined over 50% during the third quarter in 2010, which led to the de-listing from the Nasdaq stock exchange in February 2011, and the company had to delay debt payments several times. In January 2011, the company filed for bankruptcy protection under Canada's Companies' Creditors Arrangement Act to cut $250 million of its debt.

On Aug. 10, 2010, S&P Global Ratings lowered the company's issuer credit rating to 'CC' from 'CCC' on weak liquidity and put the outlook on negative. On Oct. 4, 2010, S&P Global Ratings lowered the company's rating further to 'D' from 'CC' on nonpayment of its $250 million 7.75% senior unsecured notes, which was due Oct. 1, 2010.

Graceway Pharmaceuticals LLC: Revenue decline; Patent expiration

Defaulted in 2011, approximately $100 million-$500 million of assets.   Graceway Pharmaceuticals LLC was a U.S. pharma company focusing on making topical creams to treat multiple skin conditions. One of the main products was Aldara, a topical medicine for the face and scalp to treat a skin patch condition called actinic keratosis. Graceway did not develop Aldara itself but purchased it from 3M Co.’s North and South American pharmaceutical business in 2007. Aldara accounted for about 85% of total sales before its patent expiration in the second half of 2009.

While Aldara made several attempts to delay generic competition for Aldara, the company was unable to prevent generics from entering the market in 2010, causing sales to drop precipitously. By the first half of 2011, Aldara only represented about 16% of total sales. This sales drop was the main factor leading to default. Graceway filed Chapter 11 bankruptcy in October 2011, and agreed to sell its assets to Galderma S.A. under Section 363 of the U.S. Bankruptcy Code.

On Sept. 17, 2010, S&P Global Ratings lowered the company's rating to 'SD' from 'B-' as the company failed to make an interest payment on its $330 million second-lien term loan, which triggered a cross-default. On Oct. 4, 2011, we lowered the rating to 'D' from 'SD' following the company's filing for Chapter 11 bankruptcy protection.

K-V Pharmaceutical Co.: Revenue decline; Competition

Defaulted in 2012, approximately $100 million-$500 million of assets.   Bridgeton, Mo.-based K-V Pharmaceutical focuses on women's health care products. In 2011, the company paid Hologic almost $200 million to acquire Makena, aimed at preventing premature birth. The drug was considered to be an orphan drug and K-V had seven years of market exclusivity (for the rights to sell the branded drug) from the date the FDA originally granted the approval to Hologic. After the acquisition, K-V quickly raised the price for the drug, charging $1,500 per injection, 100x the average cost of about $15. The market responded negatively since there were already compounded versions of the drug available. The company complained and ultimately sued the FDA for not enforcing the orphan drug marketing exclusivity for the drug.

K-V filed for bankruptcy in August 2012. The company later emerged from Chapter 11 after reducing debt.

Concordia International Corp.: Revenue; Competition

Defaulted in 2017, approximately $400 million of assets.  Ontario, Canada-based specialty pharmaceutical company Concordia International Corp. consisted of its North American generic business (about 40% of revenues) and its international (mostly off-patent) segments (about 60% of revenues).

The company pursued a strategy of acquiring difficult-to-manufacture generic drug assets at high multiples with the expectation that it could increase prices and maintain high margins in products with low levels of competition. The business model started to fail when pricing pressure intensified across its portfolio, especially in the U.S. market. This was exacerbated by the U.K. government implementing procedures to intervene against companies' price increases on generic drugs. This led to substantial declines in revenue, margins, and free cash flow, undermining growth and increasing debt leverage.

The company failed to make its interest payment, due Oct. 16, 2017, on its $735 million senior unsecured notes. On Oct. 20, 2017, Concordia obtained a preliminary interim order from the Ontario Superior Court of Justice, providing a stay of proceedings and commencing the Canada Business Corporations Act (CBCA) proceedings. On Sept. 6, 2018, the conditions to implementation of the CBCA plan were satisfied (after getting support from lenders) and the company completed its CBCA balance sheet restructuring and emerged as a recapitalized going concern.

Orexigen Therapeutics: Revenue decline; Safety or efficacy concern

Defaulted in 2018, approximately $50 million-$100 million of assets.   California-based Orexigen Therapeutics Inc.'s only product, Contrave, was intended for weight loss by combining antidepressant buproprion and substance-abuse deterrent naltrexone. Orexigen worked for several years to get FDA approval for the drug, which was finally approved in 2014. However, the FDA required the company to continue testing for cardiovascular side effects over a long-term study. Additional research after the approval found evidence of increased risks (such as liver damage, seizures, and possible heart risks) and weakening benefits (e.g., minimal effect in body weight loss and often required proper diet and exercises in conjunction with the drug). Moreover, Orexigen had to develop its own commercial infrastructure to sell Contrave after Takeda had pulled out from the partnership in 2016.

Revenue fell short of earlier expectations as sales of the drug never reached expectations, bringing in less than $100 million a year at its peak. It ultimately led to a covenant violation as sales continued to fall (failing to meet the $100 million sales requirement). Orexigen filed for Chapter 11 bankruptcy protection in March 2018. The company's assets were sold at auction to an entity owned by Pernix Therapeutics Holdings, Highbridge Capital, and Whitebox Advisors.

Aralez Pharmaceuticals US Inc.: Revenue decline; Competition

Defaulted in 2018, approximately $100 million-$500 million of assets.   Aralez focused on acquiring, developing, and commercializing cardiovascular products in the U.S. The company had acquired U.S. rights to Toprol-XL (which was off patent since 2007, but generic companies had found difficult to manufacture) and the authorized generic equivalent from AstraZeneca PLC, for $175 million in 2016. The FDA subsequently introduced policies to encourage more competition from generic drug companies, which undermined the opportunity. Toprol-XL represented about 90% of total revenue in 2018, the year Aralez defaulted. Furthermore, the company had stopped promoting Zontivity in May 2018 after weak sales momentum. The drug failed to cover the costs of the its marketing expenses.

Despite making cost reductions, the company faced liquidity issues. The company also had a weak pipeline and could not come up with new drugs to offset declining sales. In August 2018, the company filed for Chapter 11 bankruptcy.

Synergy Pharmaceuticals Inc.: Revenue decline; Competition

Defaulted in 2018, approximately $100 million-$500 million of assets.  Synergy Pharmaceuticals Inc. was a New York-based biopharmaceutical company that developed drugs to treat gastrointestinal disorders and diseases.

Synergy's main drug Trulance (represented almost all of the company's revenue) never achieved initial sales projections due to a very competitive market access environment, slow market growth, and hurdles in securing payer coverage. The main competitors for the drug were Amitiza (from Sucampo Pharma) and Linzess (from Ironwood Pharma and Allergan). Both these competitors were backed by large pharma companies with significantly more resources and better market presence than those of Synergy.

Synergy tried to sell itself from 2015 to 2018 but did not find a buyer. With 2018 sales falling below projections, the company failed to meet the minimum revenue requirements from the loan agreement with its largest creditor (CRG Servicing). This led the company to file for Chapter 11 bankruptcy in December 2018.

Pernix Therapeutics/Pernix Sleep Inc.: Revenue decline; Patent expiration

Defaulted in 2019, approximately $100 million-$500 million of assets.   Pernix Therapeutics Holdings Inc. was a U.S. pharmaceutical company with a focus on manufacturing migraine treatment Treximet (generated close to 50% of revenues in 2017), painkiller Zohydro and other medications. On Feb. 14, 2018, four patents covering Treximet expired. By Sept. 30, 2018, three competitors entered the market. Although Pernix subsequently launched an authorized generic version of Treximet and continued to distribute branded Treximet, sales declined dramatically. In the second half of 2018, the company entered into an agreement with some lenders to exchange its senior secured notes for common and convertible preferred shares.

The company was also named in lawsuits involving some other patents; on Jan. 29, 2018, the company entered into a settlement agreement with Actavis Laboratories FL resolving patent litigation related to Zohydro ER. The outcome of the settlement dampened future growth.

On Feb. 19, 2019, the company filed for Chapter 11 bankruptcy protection and entered into an asset purchase agreement with debtholder Highbridge Capital Management, which acquired most of Pernix's assets.

Aceto Corp: Identifiable operational issues; Integration issues or acquisition

Defaulted in 2019, approximately $100 million-$500 million of assets.   Aceto was founded in 1947 and was involved in distribution of pharma products in multiple countries, supplying formulation and active pharma ingredients. Aceto mostly grew by acquisitions over the years. Aceto acquired generic products and related assets of Citron Pharma LLC and Lucid Pharma LLC in 2016. According to court documents, Aceto alleged that Aurobindo, which was manufacturing drugs for both Citron and Lucid, was purposely trying to damage Aceto's supply chain.

Aceto claimed that due to Aurobindo's failure to supply drug orders, Aceto's subsidiary Rising Pharmaceuticals had incurred significant failure-to-supply liabilities, including to its largest customer, Walgreens. Aceto was not able to resolve the matter and was also experiencing declines in its generic business from competitive pressures. It ultimately filed for bankruptcy in February 2019.

After multiple legal battles, Aceto announced a liquidation plan that was approved by the U.S. Bankruptcy Court for the District of New Jersey in September 2019.

Aegerion Pharmaceuticals Inc.: Revenue decline; Competition

Defaulted in 2019, approximately $100 million-$500 million of assets.  Aegerion Pharmaceuticals Inc., a subsidiary of Novelion Therapeutics, was a biopharmaceutical company focused on developing and delivering treatments for rare and orphan diseases. The primary product from the company was Lomitapide (about 88% of 2015 revenue; marketed as Juxtapid in the U.S. and Lojuxta in the EU), used to treat adults with the rare cholesterol disorder homozygous familial hypercholesterolaemia. Lomitapide's sales did not live up to expectations when PCKS9 inhibitors (a more powerful, less-expensive cholesterol drug) were introduced. Revenues from Lomitapide declined to about $60 million in 2018 from about $213 million in 2015.

The U.S. Justice Department also began an investigation into Juxtapid. The company pleaded guilty to two misdemeanor counts of violating the Federal Food, Drug, and Cosmetic Act involving the introduction of misbranded Juxtapid into interstate commerce. The FDA claimed the drug's labeling lacked adequate directions for all of its intended uses and that the company failed to live up to the requirements of the drug's approval.

The company filed for bankruptcy in September 2019 and was then sold to Amryt Pharma PLC. Novelion Therapeutics filed for Chapter 15 bankruptcy in the U.S. in February 2021. The company only had one operating subsidiary--Aegerion in 2019.

Purdue Pharma L.P.: Unexpected shocks; Litigation

Defaulted in 2019, approximately $100 million-$500 million of assets.   Purdue Pharma is a privately owned U.S. pharmaceutical company that relies on selling narcotic painkillers with the brand name OxyContin (launched in 1996 and accounted for over 95% of total revenue in 2019). This blockbuster drug was well received by the market due to its special controlled-release formula designed to deliver the active ingredient oxycodone over a longer time frame (multiple hours), making it more potent than heroin and morphine.

However, the company was accused of overpromoting the drug and for misleading doctors and the public on its addictiveness. In September 2019, the company filed for Chapter 11 bankruptcy in an effort to settle mounting lawsuits relating to the opioid epidemic. Purdue agreed to more than $8 billion to resolve all the lawsuits relating to the opioid claims.

Mallinckrodt International Finance SA: Unexpected shocks; Litigation

Defaulted in 2019, approximately $1.8 billion of assets.   U.K.-headquartered specialty pharmaceutical manufacturer Mallinckrodt was facing substantial exposure (over $1.6 billion) to the multidistrict opioid litigation in the U.S. The company also had a $600 million dispute with Centers for Medicare & Medicaid Services (CMS), which limited the company's access to capital markets. Expected revenue declines in its largest, most profitable products Acthar and INOmax raised concern over the company's ability to generate sufficient cash flow to meet its mounting liabilities.

On Dec. 6, 2019, the company completed a limited offer to exchange its unsecured notes maturing in 2020-2025 for a lesser principal of new 10% second-lien notes due in 2025, pushing out some maturities. S&P Global Ratings viewed the exchange as a default because lenders received less than the amount originally promised. In March 2020, the company announced an unfavorable ruling in its litigation with CMS and the Department of Health & Human Services. With mounting liabilities, on Oct. 13, 2020, the company filed for Chapter 11 bankruptcy protection.

S&P Global Ratings downgraded the company to 'D' on the same day following the announcement of voluntary Chapter 11 proceedings.

Akorn Inc.: Unexpected shocks; Litigation

Defaulted in 2020, approximately $10 billion of assets.   Akorn Inc. is a U.S. pharmaceutical company that develops, manufactures, and markets generic and branded prescription pharmaceuticals, over-the-counter (OTC) consumer health products, and animal health pharmaceuticals in the United States and internationally. The company filed a Chapter 11 petition in the Delaware bankruptcy court in May 2020.

Fresenius SE & Co KgaA had offered to buy Akorn in April 2017, but shortly thereafter Akorn's revenue began declining due to pricing pressure on generic drugs, increasing competition across the portfolio, but particularly on key products such as ephedrine sulfate injection, lidocaine ointment, progesterone, and clobetasol ointment. Generic drug prices began to deteriorate at a faster rate than usual because of several factors: (1) the FDA accelerated its review and approval process for generic drugs, leading to increased competition and price erosion. (2) Consolidation among drug-buying groups contributed to intensified price competition and accelerated price declines. (3) Emergence of smaller and lower-cost international manufacturers.

Fresenius tried to back out of the acquisition, citing concerns with data integrity. Ultimately, the court agreed with Fresenius and the acquisition was terminated. Then the company received an FDA warning letter related to findings at one of its manufacturing plants. Even though the generic price environment began to stabilize and business performance began to improve, the company faced lawsuits from shareholders. To prevent further credit deterioration, the company's creditors demanded the company file for bankruptcy protection.

VIVUS Inc.: Revenue decline; Competition

Defaulted in 2020, approximately $100 million-$500 million of assets.   VIVUS Inc., a biopharmaceutical company, develops and commercializes therapies to address obesity, sleep apnea, diabetes, and sexual health in the U.S. and the European Union. The company's largest product, Qsymia, which represented more than 50% of the company's revenue, was in decline. Qsymia was a weight loss drug, a highly competitive category. This drug had a slow start due to a new marketing strategy and the company did not have the resources to fully tap into the primary care physician market, typically requiring partnership with a large pharmaceutical company. Furthermore, in June 2019, the FDA wrote that it considered the company's marketing tactics to be misleading. The company's organic revenue failed to grow and never met the original expectation; meanwhile, free cash flow was negative for years. When its convertible notes came due in May 2020, the company did not have sufficient liquidity to repay the notes and filed for Chapter 11 bankruptcy in July 2020.

Teligent Inc.: Unexpected shocks, Government intervention

Defaulted in October 2021 with approximately $50 million-$100 million in assets.   New Jersey-based specialty generic drug company Teligent Inc. filed for Chapter 11 bankruptcy in the U.S. in October 2021. The company makes topical and injectable pharmaceutical products for cosmetics and for treating certain dermatological conditions. Teligent first received an FDA warning letter in November 2019 after an inspection of its Buena, N.J., manufacturing facility. The FDA issued an additional comment letter in August 2020, saying the company had not fully fixed some of the concerns in its original warning letter. In order to clear the warnings from the FDA, Teligent conducted a review of its practices, which resulted in recalls and halting the production of multiple products. The company was not able to resolve the FDA's concerns, which led to revenue declines to drag on. This was compounded by the COVID-19 pandemic, which reduced demand for its products.

The company filed for Chapter 11 bankruptcy in 2021 and is arranging $12 million in debtor-in-possession financing from its senior secured lenders so that it can continue its operations. Teligent's Canadian affiliate is not involved in the bankruptcy proceedings but is pursuing an out-of-court sale.

Related Criteria

• Mortality In Health Care: What Factors Lead To Default For Medical Device Companies, March 7, 2016
• Criteria - Corporates - Industrials: Key Credit Factors For The Pharmaceutical Industry, April 8, 2014