Weighed Down by Opioid Litigation, Endo International Files for Bankruptcy

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The generic drugmaker

Endo International
which faces thousands of lawsuits related to its alleged role in the opioid crisis, filed for bankruptcy late Tuesday morning, while announcing a plan to sell itself through a process administered by the bankruptcy court.

As part of its plan, Endo (ticker: ENDP) secured an agreement from creditors to acquire the firm through a $6 billion credit bid. Other potential buyers could make higher offers through a process the company will ask the bankruptcy court to administer.

The agreement with the creditors would include a fund to pay off opioid claims that would be funded up to $550 million over 10 years. In a statement Tuesday, Massachusetts Attorney General Maura Healey said that Endo had reached a nationwide deal to pay $450 million over 10 years.

Endo has faced claims over its marketing and sale of opioids, and its alleged failure to report suspicious orders. The company has denied liability.

Two generic drugmakers that also faced opioid lawsuits—

Teva Pharmaceutical Industries

(TEVA) and


(ABBV) subsidiary Allergan—both reached nationwide settlements in recent weeks without resorting to bankruptcy. Endo, however, has struggled more substantially than its peers. The company’s market value has been decimated over the course of the litigation, dropping from a mid-2015 high of $18 billion to just $88 million as of Tuesday.

Endo shares surged in premarket trading on Wednesday, but fell 9.4% after the open. As of the close of trading on Tuesday, the stock was down 90% so far this year.

Earlier this month, the company reported revenue of $1.2 billion for the first six months of the year, and adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, of $471.1 million for the same period.

More significantly for the company’s immediate future, however, was its debt load: Endo had $8.1 billion in debt as of June 30; a debt load that was 5.6 times its adjusted Ebitda. Endo warned on Aug. 9 that a bankruptcy filing would likely come “imminently.”

Like other specialty pharma firms, Endo loaded up on debt in the middle of the last decade, acquiring the generic drugmaker Par Pharmaceuticals for $8 billion in 2015, after buying Auxilum Pharmaceuticals in 2014 for $2.6 billion. The Par acquisition, in particular, turned out badly for Endo: In addition to the debt, Par brought opioid liabilities that have hobbled the company.

Endo’s bankruptcy filings arrived late Tuesday, in the federal bankruptcy court in New York’s Southern District. In a declaration filed with the court on Wednesday, the company’s chief financial officer, Mark Bradley, wrote that “a confluence of factors has put downward pressure on the Company’s financial performance and necessitated a comprehensive solution that may be achieved only through a chapter 11 process.”

The company’s “existing capital structure has become unsustainable,” Bradley wrote. Endo, he wrote, spends over $550 million a year on interest payments alone.

As part of the filing, Endo announced an agreement with certain of its debtholders under which the debtholders agreed to effectively wipe out $6 billion of the company’s debt to acquire the firm. That offer will serve as a so-called stalking horse bid; the group of debtors could be outbid by future offers. Endo said in a filing with the Securities and Exchange Commission on Wednesday that the agreement assumed there would be an auction for the company run by the bankruptcy court.

“The Stalking Horse Bid, if consummated, would ensure that [Endo’s] business continues as a going concern, save over a thousand jobs, and enable the Purchaser to fund over time hundreds of millions of dollars of consideration to be placed in trusts for Opioid Plaintiffs who elect to voluntarily participate in such trusts,” Bradley wrote in his declaration.

Endo currently has 1,560 employees. It makes some branded pharmaceuticals, plus 130 different generic drugs.

Among other issues precipitating the bankruptcy filing, Bradley cited earlier-than-expected loss of patent protection for a branded pharmaceutical the company sells called Vasostrict, plus the opioid litigation. He wrote that Endo spends $21 million a month on litigation fees and expenses, and that on an annual basis, the company’s legal fees amount to twice its spending on research and development.

Endo said it has paid out $242 million in opioid settlements and spent $344 million defending itself against opioid lawsuits. Despite that outlay, 3,100 opioid lawsuits against it remain.

Bradley wrote in the court filing that the lack of progress in a broad settlement with the remaining opioid litigants had led the company to start negotiating a sale out of bankruptcy.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

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