(Bloomberg) -- Drugmaker Mallinckrodt Plc said it may seek Chapter 11 bankruptcy protection as it works to resolve a dispute with the government over its blockbuster drug and manage claims that it profited from the opioid addiction crisis.

The company is working with external advisers, creditors and litigation claimants and is considering “all options to address legal and financial challenges,” according to a statement Tuesday releasing second-quarter results. That could include bankruptcy for its main business and most subsidiaries.

“This is a challenging situation,” Chief Executive Officer Mark Trudeau said on a conference call with investors and analysts. He said the company will likely be under pressure for the rest of the year. Mallinckrodt’s shares plunged as much as 35% to $1.48 Tuesday morning in New York. The company’s stock had lost more than 35% this year through Monday.

Some of Mallinckrodt’s debt rallied following the announcement. Its 5.75% notes due 2022 rose more than a cent to 18.5 cents on the dollar, according to Trace bond trading data.

Mallinckrodt listed more than $5 billion of debt and $818.3 million of cash on its balance sheet as of June 26. It also fully drew down a revolver. Sales dropped to $166.5 million, hit by a one-time liability payment related to its Acthar Gel product. The company has been in a dispute with the Centers for Medicare & Medicaid Services over rebates for the drug.

Without the charge, sales would have come to about $700 million, a 15% drop compared to a year earlier, according to the statement. The company also said it risks falling out of compliance with terms it agreed to under its debt documents in the next 12 months.

Costly Disputes

Mallinckrodt, one of the largest opioid makers in the U.S., is looking to resolve lawsuits about the painkillers from thousands of plaintiffs. Attorneys general in almost every state have been involved in settlement talks. The firm has vowed to fight claims that it over-promoted the addictive drugs, but the company’s peers have lost legal fights or opted for expensive settlements.

It’s also entangled in a dispute with the U.S. Centers for Medicare and Medicaid Services over its Acthar Gel product. Mallinckrodt had sued CMS last year over the agency’s position regarding pricing of the drug, which is used to treat autoimmune disorders and rare diseases. A trial court ruled that Mallinckrodt has to repay more than $600 million in Medicaid rebates for the medication.

The company took a $639.7 million charge for the Acthar Gel Medicaid rebate liability, according to the statement.

The firm hadn’t previously set aside reserves to cover the claims, and it had to tap its entire revolving credit line in August to get more cash. It’s been grappling with the lawsuits as the Covid-19 pandemic crimped demand for certain medications and increased competition eroded sales and profits.

This isn’t the first time Mallinckrodt has discussed filing Chapter 11 for at least some of its business. In February, the company said it may seek bankruptcy protection for its generics unit to settle ongoing opioid-litigation costs. That plan would preserve revenues at its specialty drug units and let it pursue a broader corporate turnaround.

Read more: Mallinckrodt opioid plan: Sacrifice a part to save the whole

Should the drugmaker choose to file its entire business, it would follow the fate of peers like Purdue Pharma and Insys Therapeutics Inc. which filed for bankruptcy last year amid litigation claims.

Other companies including PG&E Corp., the California utility holding company, turned to bankruptcy to resolve massive litigation claims from a large number of disparate parties.

Mallinckrodt’s timing and decision over whether to file may be influenced by a looming trial in Tennessee next month. The firm’s generics units, along with Endo International Plc, face claims by a local prosecutor that the companies illegally marketed their opioid painkillers and swamped the state with the product. The company also faces similar claims in New York.

The case is Barry Staubus v. Purdue Pharma LP, No. C-41916, Division C, Circuit Court for Sullivan County (Kingsport).

(Updates with comments from call starting in third paragraph.)

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