Diplomat Pharmacy plunges after warning of 'going concern' risk

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© Reuters. Diplomat Pharmacy plunges after warning of 'going concern' risk© Reuters. Diplomat Pharmacy plunges after warning of ‘going concern’ risk

(Reuters) – Diplomat Pharmacy Inc (N:) on Tuesday warned about its ability to continue as a going concern amid struggles with its pharmacy benefits management business, sending the company’s shares falling more than 50% to a record low.

Flint, Michigan-based Diplomat, facing customer losses in its PBM business in the face of intense competition, earlier this year said it was reviewing options including a sale of the whole company.

The company, which started out in 1975 as a neighborhood pharmacy and also provides specialty pharmacy services, forayed into the PBM business in 2017 with back-to-back purchases of LDI Integrated Pharmacy Services and National Pharmaceutical Services.

“Strategic alternatives process seems to have transitioned to distressed sale,” Baird analyst Eric Coldwell said in a client note.

“This is a very bad update as Diplomat seems to be nearing the end of its current incarnation.”

The company said it may not be able to meet certain covenants in its credit agreements, which would give lenders the right to terminate funding for the company’s line of credit and accelerate its debt.

Diplomat said it intends to work with its lenders to renegotiate the covenants but this uncertainty will lead to its quarterly filing with U.S. security regulators to include commentary expressing “substantial doubts” about its ability to function as a going concern.

Diplomat also said there had been interest in both the whole company and its businesses and that it was engaged in advanced discussions.

The company’s stock, down 54.5% at $2.82, was the second-biggest percentage loser across U.S. exchanges in early trading.

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