Bankruptcy filings in the healthcare sector rose significantly over the last three years, rising from 25 in 2021 to 46 in 2022 and 79 in 2023, which was the highest level in five years, according to a Gibbins Advisors report.

For the first two months of the year, bankruptcies rose from about five filings in January to 12 more in February, according to data from S&P Global Market Intelligence. The most notable Chapter 11 filings in February were Cano Health, which filed on Feb. 4 with over $1 billion in assets and liabilities, and Invitae Corp., which filed on Feb. 13 with $500 million to $1 billion in assets and over $1 billion in liabilities.

Related: Troubled wireless technology pioneer files Chapter 11 bankruptcy

Chapter 11 filings are not slowing down yet, as a major biopharmaceutical company that sells essential drugs for serious life-threatening diseases has filed for bankruptcy in April.

Parkinson's, multiple sclerosis drug company files bankruptcy  

Pearl River, N.Y.-based Acorda Therapeutics  (ACOR) , maker of Parkinson's disease and multiple sclerosis therapies, on April 1 filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York with a restructuring support agreement backed by its ad hoc noteholder group that seeks a sale to stalking-horse bidder Merz Therapeutics for a $185 million bid and an eventual confirmation of a liquidation plan to wind down operations after a sale.

The drug company will also seek $60 million in debtor-in-possession financing to fund operations during bankruptcy from its ad hoc noteholders, consisting of  $10 million available on interim approval by the court, $10 million provided on final approval and a roll up of $40 million in debt.

The debtor listed $266.2 million in debt and $108.5 million in assets in its petition.

Acorda, founded in 1995, markets its Ampyra drug, which improves walking in adults with multiple sclerosis. The company manages the production and distribution of the drug through a third-party contract with Pantheon Inc. The drug is known as Fampyra outside the U.S. and produced and distributed by Biogen International GmbH, though the parties' contract is set to terminate on Jan. 1, 2025.

The biopharmaceutical company's other product is Inbrija, the first and only levodopa inhalation powder approved by the Food and Drug Administration for intermittent treatment of episodic motor fluctuations in adults with Parkinson's disease treated with carbidopa/levodopa regimen. Catalent Massachusetts manufactures the drug under contract through 2030.

Pharmaceutical company purchase failed to generate revenue

Several factors caused the company's financial distress, according to a declaration by CFO Michael Gesser, including the company's 2016 acquisition of Biotie Therapies for about $363 million, which did not generate any revenue for the company and instead had net operating losses of $120 million.

The company also suffered an adverse court ruling that invalidated several of its Ampyra patents, which allowed generic versions of the drug to enter the U.S. market in late 2018 and caused a rapid loss of substantial revenue, the declaration said.

Finally, slower than expected sales of its Inbrija drug, due to the Covid-19 pandemic and prescribing challenges had a material adverse effect of the company's business and the inability to invest in its pipeline of drugs and other development opportunities also harmed the company financially.

The debtor seeks to set a May 16 deadline for potential qualified bids for an auction to be held May 22. A sale hearing to approve a sale would be scheduled for May 31 if an auction is held and on May 24 if no auction is held.

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Back in October 2020, in the depths of the COVID-19 pandemic, in a blog titled “why cruise lines could be worth buying again,” we proffered an investment thesis that the sharp drops in the share prices of the major listed cruise line companies did not reflect the then fast-advancing technology that would facilitate a reopening of global activity even in the absence of a vaccine, and that pent-up demand (82 per cent of passengers are repeat cruisers) for travel would see a surge in cruising activity exceeding the expectations then implied in share prices. 

Figure 1., displays the share price charts we published in that blog post (the embedded chart references refer to the blog post of October 21, 2020). 

Figure 1. Cruising for a bruising? Share price charts as of 21 October 2020.

Today, just three and half years later, the performances of the major cruise lines’ shares haven’t fully shaken off the effects of the pandemic. While Royal Caribbean (NYSE:RCL) is up 116 per cent, Norwegian Cruise Line (NYSE:NCLH) is up only 14 per cent and the highly indebted Carnival Corporation (NYSE:CCL) is just six per cent higher. 

Given that Carnival has performed the least impressively, it’s worth examining its current circumstances to help determine whether a recovery is possible. 

It seems navigating the high seas of the stock market has been a voyage fraught with risk and relatively unimpressive returns. That is certainly the case for investors who cast their lot with Carnival, the cruise industry titan then known for its vast fleet and now known for its equally vast debt.  

Recent developments have seen the company’s shares generally register modest gains, and these follow a setback triggered by the company’s latest financial disclosures. 

Carnival’s fiscal first-quarter performance offered a beacon of hope, with strong figures and optimistic projections for the remainder of 2024. However, these forecasts hadn’t accounted for an unexpected challenge: the collapse of the Francis Scott Key Bridge in Baltimore, necessitating the rerouting of several cruises to alternative harbours along the East Coast of the United States.  

The anticipated financial impact of this event was capped at a seemingly minor “up to U.S.$10 million”, equivalent to one cent per share. The figure gains significance, however, when viewed against Carnival’s financial position, which includes the revelation that a mere one per cent fluctuation in net yields could sway its financial outlook by as much as U.S.$135 million. 

Despite the lingering shadow of the pandemic, which had once pushed Carnival’s finances to the brink and plunged its debt to sub-investment grade, the company has been charting a steady, albeit long, ‘cruise’ toward recovery. Noteworthy are the significant debt prepayments. The roadmap for 2024 and 2025 now includes manageable debt maturities, laying the groundwork for Carnival’s potential return to a more stable financial position. 

Over the horizon, Carnival’s prospects are reported to be brightening. Thanks to a resurgence in occupancy rates, helped along by compelling pricing strategies, customer deposits have surged to around U.S.$7 billion, a marked increase from the pre-pandemic figure of less than U.S.$5 billion.  

Meanwhile, travellers are booking voyages further in advance and are reported to be indulging in higher-margin onboard luxuries at a significantly higher rate than before the pandemic. This uptick in consumer spending behaviour, especially evident during the peak cruise booking season known as “wave season,” suggests a strong sales period for Carnival. 

Of course, the journey ahead remains uncertain, with Carnival’s debt levels still a critical factor. As Carnival charts a course through its financial currents, its voyage towards stability and growth continues, and as the debt continues to decline, it will inevitably capture the attention of investors. 

The timeline for Carnival to fully retire its extra debt remains uncertain. Investors currently expect it should be cleared before 2034. Carnival generated U.S.$4.3 billion in cash from operations and U.S.$2.1 billion in adjusted free cash flow in 2023, and it plans to use these cash flows to continue paying off the debt. 

With the company’s market capitalisation less than five times cash flow from operations and just ten times adjusted free cash flow, investors with a patient disposition should keep the company’s shares on their watchlist. When the market becomes confident the debt will imminently be paid down, the share price could surge. 

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