Orexigen Therapeutics, Inc., a biopharmaceutical operator, filed for Chapter 11 bankruptcy restructuring on Mar. 12, 2018. Its poor financial condition was highlighted by it's FRISK® score that landed firmly in the "red zone" for more than a year. Statistically, 96% of American public companies that go bankrupt pass through this high-risk category before filing.
This Bankruptcy Case Study will illustrate key factors that contributed to the collapse of the company. CreditRiskMonitor addresses concerns mentioned within the MD&A as well as relevant financial metrics. Fundamentally, its ability to generate sales was dependant on the commercial success of its only product, Contrave®. Simultaneously, it's unrestrained spending and high financial leverage ultimately led to debt covenant compliance risk.
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Our FRISK® score model incorporates four powerful risk inputs:
- “Merton”-type model of stock market capitalization and volatility
- Financial ratios, including those used in the Altman Z”-Score Model
- Bond agency ratings from Fitch, Moody's, and DBRS Morningstar
- Website click pattern data from CreditRiskMonitor® subscribers, representing key credit decision-makers at nearly 40% of current Fortune 1000 companies plus thousands of other large companies worldwide
Since the start of 2017, the FRISK® score’s rate of success in capturing public company bankruptcy is 96%. In any given year, you can count on one hand the times we miss – and in those outlier cases, the circumstances deal with unusual, unforeseen events such as natural disasters and CEO fraud.
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About Bankruptcy Case Studies
CreditRiskMonitor® Bankruptcy Case Studies provide post-filing analyses of public company bankruptcies. Our case studies educate subscribers about methods they can apply to assess bankruptcy risk using our proprietary FRISK® score, robust financial database, and timely news alerts.
In nearly every case, a low FRISK® score gave our subscribers early warning of financial distress within a one-year time horizon. Our proprietary FRISK® score predicts bankruptcy risk at public companies with 96% accuracy. The score is formulated by a number of indicators including stock market capitalization and volatility, financial ratios, bond agency ratings from Moody’s, Fitch and DBRS, and crowdsourced behavioral data from a subscriber group that includes nearly 40% of the Fortune 1000 and thousands more worldwide.
Whether you are new to credit analysis or have decades of experience under your belt, CreditRiskMonitor® Bankruptcy Case Studies offer unique insights into the business and financial decline that precedes bankruptcy.