Akorn lenders will declare it in default if a new loan agreement is not reached but progress is being made  

Akorn
Generic drugmaker Akorn is fashioning a new loan agreement with its lenders and has improved its finances in the last few months. (Akorn)

Akorn CEO Douglas Boothe was given the task of turning the generics company around after its $4.3 billion buyout deal with Fresenius was snatched off the table. But the clock is ticking for Boothe and the company which have been put on a short leash by lenders and given a deadline to sort out its extensive manufacturing and financial issues.

According to a “Standstill Agreement” filed today, Akorn’s lenders will not declare the company in default before Nov. 15, 2019, while the two sides negotiate an amendment to their loan agreement. In the meantime, Akorn must meet specific milestones and keep the lenders continuously and completely in the loop on every aspect of its business, including any new regulatory issues that surface.

A finalized loan amendment will not come cheap. It requires the Lake Forrest-Illinois company to pay its lenders a one-time fee of 0.625% of the principal amount of its outstanding loans. But failure to hammer out an agreement comes at a much steeper price. If a deal is not reached by the deadline, a month later the lenders will tag the company in default.

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RELATED: Third Akorn sterile drug plant hit by FDA as new CEO lays out blueprint for a better future

The standstill agreement, filed as an 8K, was mentioned in passing today in the company’s Q1 earnings release in which it reported that its net loss for the quarter was $82 million, much higher than the $29 million it lost in the same quarter last year but a vast improvement over the $215 million that it hemorrhaged in Q4 2018. Adjusted EBITDA was $10 million, compared to a negative $25 million in the prior year quarter.

Boothe also is working furiously to move the company past the manufacturing failings that doomed its deal with Fresenius and led to the departure of his predecessor. The German drugmaker deep-sixed its deal with Akorn after being tipped off to quality manufacturing issues at Akorn’s Decatur, Illinois sterile manufacturing plant. Those failings led the FDA to write up a  22-page Form 483, which preceded a warning letter this year. The FDA bashed the company for data integrity problems and other issues that could lead to sterile drug contamination. More minor issues surfaced this year at an Akorn plant in New York.

Akorn says it is making progress at getting all of those problems corralled. It reported that one reason its sales were up 8% and losses down compared to the preceding quarter was because of the “the resumption of full operations,” Boothe said. It reported that “failure to supply penalties” fell to about $5 million, nearly half of the year-ago quarter.

That was part of the reason the company felt confident enough to provide guidance for the year in which it expects revenue in the range of $690 to $710 million on a net loss of $166 million to $151 million. It said adjusted EBITDA should be in the range of $71 to $86 million after accounting for about $40 million in capital expenditures and $40 million for its FDA-ordered data integrity investigation. 

In a note to investors, RBC Capital Analyst Randall Stanicky declared the numbers better than expected. He did point out that the company has decided to trim its pending generic drug filings to 37 from 62, including 32 pending and five with tentative approvals. 

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