On the Auction Block: NovaSom, Inc.

NovaSom, Inc. has filed a Chapter 11 case in Delaware in order to sell its business through a “363” bankruptcy auction. NovaSom joins other recent healthcare industry filings by companies such as True Health, Avadel Pharma, Argos Therapeutics,

NovaSom’s Business

NovaSom is a Maryland-based home sleep testing company. In 2010-2012, it developed a device, AccuSom, that sends sleep data wirelessly rather than requiring patients to return a device to a lab to download data. It is the only in-home sleep test available in the marketplace that provides patient support and next-day test results. Additional information is available at: https://www.novasom.com/

bed-bedroom-cute-545016.jpgBetween 2013 and 2017, orders for AccuSom grew 500%. The average sales price, however, dropped by nearly 30% due to market conditions and the general availability of home sleep testing providers. The company’s filings indicate that the significant cost of growing sales has thus far prevented NovaSom from reaching profitability.

The Auction Process

At present, one entity, VirtuOx, has expressed interested in buying NovaSom’s assets for an estimated $5.3 million. The bid deadline for competing bidders is September 19, 2019 at 4:00 p.m.  (Certain qualifications must be met to qualify as a bidder).  If the company receives qualified, competing bids, the auction will be held on September 23, 2019 in Philadelphia, PA.  The sale hearing will be held two days later.

The NovaSom Bankruptcy Docket

NovaSom’s claims agent is maintaining a public website with information about the case.

Additional Information

Fox Rothschild is monitoring the situation.  If you are interested in more information about the auction and the bid process, we are available to assist.

Mette H. Kurth

On the Auction Block: True Health Group

THG Holdings, better known as True Health Group and True Health Diagnostics, a Texas-based laboratory management and diagnostics services provider for the healthcare industry, has filed for bankruptcy protection in Delaware.

Concerns, Investigations & a Liquidity Crisis

The filing follows a severe liquidity crisis triggered when the Centers for Medicare and Medicaid Services instituted a 100% hold on all Medicare payments. The suspensions came amid concerns raised by CMS and multiple investigations by the U.S. Department of Justice.  True Health says that this is all old news.

Between June 23, 2017 and the end of May 2019, the Debtors took substantial steps to address the claims asserted and the concerns raised by CMS and the United States Department of Justice. . . . . [They] negotiated a comprehensive settlement with DOJ, including a new corporate integrity agreement [that] was on the verge of being consummated when CMS and DOJ advised the Debtors of a second investigation and CMS imposed a second 100 percent hold on all Medicare payments to THD. The Debtors believe that this most recent suspension is based on the very same conduct that [was addressed in the settlement and corporate integrity agreement].

–Clifford A. Zucker, Chief Restructuring Officer

A Naked Bankruptcy Auction

In the aftermath of the suspension, True Health has engaged SSG Advisors to run a “naked” bankruptcy auction process with no buyer in hand and a proposed sale closing by the end of September. If you are interested in making an offer, that means that “stalking horse” protections (e.g., breakup fees and expense reimbursements) are still up for grabs. The proposed bid deadline is September 13th.

True Health’s Operations

Founded in 2014, True Health is one of the largest independent providers of lab management and diagnostic services in the US.  The company operates full-service clinical laboratories offering, among others, comprehensive testing for biomarkers that can indicate risk for cardiovascular disease, diabetes, autoimmune disorders, cancer and other diseases. In total, True Health offers more than 400 tests and has handled more than 1.5 million patient samples.

Currently, True Health runs about 1,370 samples per day through two facilities – a 109,000 square foot facility in Richmond, Va., and a 7,000 square foot facility in Frisco, Texas. The company serves 1,250 physician offices spanning 46 states and Washington, D.C. It claims its advanced testing provides a “far broader and deeper picture of patient health than traditional testing.” True Health also offers an online patient portal that provides interactive reports, live coaching help, patient engagement videos and lifestyle tracking tools.

Long-Term & Trade Debt

True Health entered bankruptcy with over $174 million of debt obligations, including long-term debt of $150 million and $14 million in trade debt.

Mette K.

Avadel Pharma on the Bankruptcy Auction Block

Avadel Specialty Pharmaceuticals is one of three pharmaceutical companies to file for bankruptcy this week. The trio of healthcare companies included two pharmaceuticals companies – Novum Pharma and Avadel, both of which filed in pursuit of a sale process – and San Juan-based healthcare consulting firm, Navegar Network Alliance. Avadel’s filing comes as part of a broader restructuring of its publicly-traded, Dublin-based parent, which is currently undergoing an out-of-court restructuring to “right-size” its own headcount, reduce expenses, and improve profitability.

Avadel provides innovative medicines for chronic urological disorders. It has one commercial product, Noctiva™ , a prescription nasal spray used to prevent the kidneys from overproducing urine at night. Avadel claims this it is the first FDA-approved treatment proven to help adults with nocturia due to nocturnal polyuria. Here’s to a good night’s sleep!

A Quick Sale Process!

On Monday, Avadel filed a motion to approve procedures to sell its assets, allowing bids for any combination of assets (including just for its new drug application for Noctiva and its inventory or for only its Noctiva inventory).

Avadel hasn’t yet found a “stalking horse” buyer to make a first bid. But if it finds one, it may request approval of a breakup fee and bid protections. Bids, it proposes, will require a 10% deposit while overbids at auction must be at least $50,000. The sale process is likely to move forward at a rapid clip, with the following proposed deadlines:

  • Bid Procedures Hearing: March 13
  • Bid deadline: March 15
  • Selection of Qualified Bidders: March 18
  • Auction: March 19
  • Sale hearing: March 21

The company is working with Cassel Salpeter & Co. as investment banker.

How Did Avadel Get Here?

The company entered into an exclusive license and assignment agreement with Serenity Pharmaceuticals in September 2017. The agreement gave Avadel exclusive rights to develop, market and sell Noctiva in the U.S. and Canada. In exchange, Serenity walked away with two one-time payments totaling $70 million and royalties from product sales.

Despite significant time and investment, Avadel says that Noctiva has
underperformed since its launch due to resistance from healthcare professionals and concerns regarding potential risks for serious side effects. Due to these complications, among others, $80 million in additional investments since September 2017 have yielded less than $3 million in sales. Revised sales projections, it says, are “substantially below” the projections made in connection with its entry into the license and assignment agreement with Serenity.

Beginning in November of 2018, the company tried (and failed) to find a co-promotor for Noctiva, contacting 20 pharmaceutical companies and strategic buyers. It then tried to find a sublicensee, “discreetly” contacting potential parties. But none had completed diligence or discussed deal terms before the bankruptcy filing.

What Comes Next?

Avadel manages Noctiva’s production and distribution through third-party manufacturing, distribution, and supply agreements with such as its agreement with Renaissance Lakewood (f/k/a DPT Lakewood). Under Lakewood agreement, the company must purchase a minimum of 400,000 units of product each year regardless of need. If it falls short, Avadel has to make up the difference to Renaissance. Not expecting buyers to be interested in the contract, Avadel has filed a motion to reject it.

After the sale, Avadel intends to liquidate any remaining assets and wind down its remaining operations.

Mette K.

Argos Therapeutics Files Bankruptcy to Pursue a Sale

 Argos Therapeutics filed for chapter 11 protection in Delaware on Nov. 30th with a proposed buyer in hand. The bankruptcy follows the termination of an unsuccessful phase 3 clinical trial of its most advanced cancer-treatment product. Now, Argos seeks to run a going-concern sale process with Cellscript, LLC as a “stalking horse” buyer.  Argos values Cellscript’s opening bid at $3.8 million.

Who Is Argos Therapeutics?

Argos is an immunotherapy company based in North Carolina. It is publicly traded, with shares trading on the NASDAQ until April 23. After its common stock was de-listed as of April 25, Argos transferred its common stock to the OTCQB Venture Market.

Argos focuses on developing individualized immunotherapies to treat cancer and infectious diseases. The company derives its primary revenue from third-party license agreements and government grants. But the company has been far from profitable, with a net loss of $40.6 million for 2017.

The company built its immunotherapies on its Arcelis® technology platform.

Arcelis is a precision immunotherapy technology that captures the spectrum of mutated and variant antigens that are specific to each patient’s individual disease . . . to overcome immunosuppression by enabling specifically targeted, durable memory T-cells without adjuvants that may be associated with toxicity.

Confused?  Here’s a helpful diagram.

Argos-Arcelis-Platform_AGS-003_Activate-Neo-Immunity.png

Ummm…. Still confused? If you have 15 minutes, Jeff Abbey provides a thorough explanation here.

Practically speaking, a buyer might use the Arcelis platform to treat a range of different cancers and infectious diseases. And according to Argos (notwithstanding its bankruptcy), the platform is valuable because it may circumvent manufacturing and commercialization challenges that have impeded other personalized immunotherapies.

The Proposed Sale to Cellscript

Argos has engaged in an extensive marketing effort to capitalize on its intellectual property, its manufacturing capabilities, and its position as a publicly traded entity.  Ultimately, Cellscript – one of Argos’ largest unsecured creditors – presented a purchase offer. The bid includes $1.675 million in cash, cure costs and assumed liabilities valued at no less than $1.4 million, and the “release” of Cellscript’s $2 million unsecured claim against Argus, valued at a minimum of $700,000.

Argos has proposed a $75,000 breakup fee and a $75,000 expense reimbursement. Initial overbids must total at least $4,095,330, with subsequent overbid increments of at least $100,000.  And it proposes the following sale timeline:

  • Bid deadline: Jan. 16, 2019
  • Auction: Jan. 22, 2019

The court has scheduled the bid procedures motion for hearing on Dec. 20, 2018.

Case Information

Argos is represented by Landis Rath & Cobb as bankruptcy counsel, Wilmer Cutler Pickering Hale and Dorr as special corporate counsel, and SSG Advisors as investment banker. Judge Kevin Carey is presiding over the case (#18-12714).

Mette K.

Promise Healthcare Files For Bankruptcy, Promises Improved Financial Health

Promise Healthcare Group and numerous affiliates filed for Chapter 11 protection Sunday night in Delaware.

What Ails Promise Healthcare?

Promise Healthcare is a Florida-based specialty post-acute care healthcare provider operating several hospitals and skilled nursing facilities across nine states. It operates two short-term acute care hospitals, 14 long-term acute care hospitals and two skilled nursing facilities. According to the company, Promise Healthcare is one of the largest long-term acute care hospital operators in the U.S.

“While I believe that the Debtors’ overall business is fundamentally strong, [Promise Healthcare has] been operating with an unsustainable balance sheet due to current industry dynamics and certain underperforming facilities within [its] portfolio.”  – Andrew Hinkelman, FTI Consulting, Chief Financial Officer

Like many hospital operators that have filed chapter 11 recently, such as ManorCare Health Services, Promise Healthcare has suffered from significant reductions in reimbursement rates from The Centers for Medicare & Medicaid Services. Average reimbursement rates for non-qualifying patients have dropped roughly $41,000 per stay industry wide. Coupled with Promise’s inability to adjust operating cost structures, this has directly impacted profitability.

What Are the Next Steps on the Road to Recovery?

Step 1: Sell Non-Core Assets.

Promise Healthcare has already received  purchase offers for several non-core assets.  Offers in hand, it hopes to complete sales and use the proceeds to pay down secured loans over the next three months.

  • The Silver Lake Facility:  L.A. Downtown Medical Center has offered to purchase Promise Healthcare’s Silver Lake facility section for $84.15 million. The offer will be subjected to overbids in a bankruptcy auction.  A sale closing is planned for January or February of 2019.
  • The St. Alexius Facility: Promise Healthcare has been looking for a buyer for its facility in St. Louis for the past year-and-a-half to two years. However, it has been hindered by the termination of its Medicare program in November, the need for substantial capital improvements, and heavy operating losses.  Despite these challenges, Promise Healthcare is negotiating a stock sale which it hopes to conclude by year end.
  • San Diego Property: Promise Healthcare is also in final negotiations to sell its San Diego property.  It hopes to conclude this sale as well by year end.

Step 2: Obtain Postpetition Financing.

Promise Healthcare has requested $85 million in postpetition financing, including a rollup of its $65 million prepetition asset-based revolving loan facility and a new money commitment of $20 million, with prepetition revolving lender Wells Fargo Bank as agent.

Step 3: Come Up With an Exit Strategy.

Over the next 6 months, Promise Healthcare will search for an exit. That could be a buyer for the business. Or an equity sponsor who will support a reorganization.  Houlihan has already contacted 77 financial and strategic partners and received “several” indications of interest. Ultimately, Promise Healthcare hopes to file a bid procedures motion by the end of the year, with the intention of closing a sale around April 2019.

Prime Clerk is the claims agent. Additional information about the case is available here.

Mette K.