Biotech companies most at risk of bankruptcy
- Insider gained exclusive access to bankruptcy risk ratings to identify vulnerable biotechs.
- The biotech market has fallen 42% this year, putting cash-strapped or debt-ridden companies at risk.
- The CreditRiskMonitor firm has highlighted 10 biotechs at high risk of bankruptcy.
2022 has been a terrible, horrible, not good, very bad year for biotechnology.
The industry has suffered from the broader market environment and some biotechnology-specific forces. Overall, investors turned away from riskier growth-stage companies as inflation and interest rates rose. This pivot stung biotechnology, an industry comprised mostly of money-losing companies with intensive cash needs.
Biotech hasn’t helped itself either, with a wave of failed clinical trials and a lack of mergers and acquisitions. The end result was the main biotech stock index down 42% in 2022 and around 60% from a peak in February 2021.
Biotech showing no signs of recovery yet, Insider gets exclusive data from the credit analysis firm CreditRiskMonitor identify the most vulnerable biotechs. By analyzing more than 600 biotech companies provided by Insider, CreditRiskMonitor has identified 10 biotech companies with the highest risk of bankruptcy with market capitalizations of at least $50 million.
The company uses FRISK scores to assess the risk of bankruptcy over the next 12 months. The 10-point scale is used by credit and supply chain professionals to assess the financial health of companies they may extend credit to or work with. CreditRiskMonitor says 35% of Fortune 1000 companies use the service and the FRISK score has an accuracy rating of 96%.
Bankruptcies are a rare phenomenon in biotechnology. More often than not, struggling biotechs can become shells in reverse merger deals or simply shut down their operations. Struggling microbiome company Kaleido Biosciences did just that earlier this year, decide to end all activities in April.
But bankruptcies still happen, especially during severe recessions. Since the beginning of the year, three biotechnology companies have filed for bankruptcy: the Canadian cannabis and psychedelic company BC Craft Supply Co., danish biotech Orphazyme, and Florida-based Generex Biotechnology. In the months leading up to their filings, the three companies had respective FRISK scores of 1, 2 and 1.