December 10, 2019 – Further to its November 13th bidding procedures order [Docket No. 205] and a December 5th auction, the Court hearing the Sienna Biopharmaceuticals cases approved [Docket No. 247] the $1.7mn sale of Debtor’s Topical Photoparticle Therapy assets to Sebacia, Inc. (the “Buyer”). The asset purchase agreement (the “APA”) governing the terms of the sale is attached to the order.
The story here, however, is much less about the single modest asset that the Debtor managed to sell than the overall disappointing results from the December 5th auction; an effort which failed to draw bids for any other assets including the Debtor's "principal asset," SNA-120 (pegcantratinib), the Debtors' Phase 3 topical, non-steroidal Tropomyosin receptor kinase A (TrkA) inhibitor under investigation for the treatment of psoriasis.
At a December 10th hearing, counsel for the Debtor (Latham & Watkins) noted that the Debtor's access to cash collateral ceases on December 13th and that the Debtor's secured lender, who will not be paid in full, was unlikely to agree to support a continued Chapter 11 process beyond that date. As a result, "Friday will be the employees last day."
In an ensuing discussion on the conversion of the Debtor's Chapter 11 case to Chapter 7, the U.S. Trustee assigned to the Debtor's case noted that a Chapter 7 Trustee might be able to sell some of the Debtor's unsold assets and requested that a conversion occur prior to the Court's holiday recess so that a Chapter 7 Trustee could begin exploring possible asset sale as soon as possible.
The Debtor, which used multiple rounds of financing to access $100's of millions used to fund R&D, never managed to bring a product to market or to generate any revenue; and as a result had an accumulated deficit of approximately $184.1 million and approximately $159.4 million as of June 30, 2019 and December 31, 2018, respectively. The Debtor also (i) had net losses of approximately $8.3 million and approximately $24.6 million for the three and six months ended June 30, 2019 and (ii) had net cash used in operating activities of approximately $21.2 million and approximately $30.2 million for the six months ended June 30, 2019 and 2018, respectively.
The Sebacia Sale
- Acquired Assets: "Acquired Program Assets” means all assets related to the Topical Photoparticle TherapyTM (TPT) platform, including the product candidate identified as SNA-001 and the development, advancement, or exploitation thereof.
- Purchase Price: In consideration for the Purchased Assets, and subject to the terms and conditions of this Agreement, at the Closing, the Buyer shall pay in accordance with Section 3.1(b) an aggregate amount equal to the $1,700,000.00 (the ‘Cash Purchase Price’), and the Buyer shall assume the Assumed Liabilities by executing the Assumption Agreement(s) (together with the Cash Purchase Price, the ‘Purchase Price’)
Bidding Procedures Motion
The Debtor's requesting motion [Docket No. 142] stated, “The Debtor seeks to maximize the value of its estate for the benefit of all stakeholders by conducting an Auction for the sale of its Assets. The Debtor intends to solicit bids for the Auction from parties interested in acquiring either substantially all of its Assets or certain specified Assets on an individual basis. This includes a sale of the stock of the Debtor’s non-debtor subsidiary Creabilis Holdings Limited, which in turn owns Sienna Biopharmaceuticals S.A. (which, as discussed in greater detail in the First Day Declaration, holds certain intellectual property of the Debtor related to SNA-120), or the assets of the nondebtor subsidiaries, which, for the avoidance of doubt, will not be sold subject to section 363 of the Bankruptcy Code, but are available to be sold. The Debtor will continue to work with its investment banker, Cowen and Company, LLC ('Cowen'), to identify potential sponsors interested in facilitating a plan process, to ensure the highest and best recovery for all stakeholders.
Based on communications between Cowen and interested parties, the Debtor is optimistic that it will receive competitive bids for certain Assets at the Auction. The Debtor is seeking the relief requested in this Motion to ensure that it has the necessary flexibility to run a value-maximizing sale process for the benefit of all stakeholders, while also complying with the conditions and milestones governing its continued use of cash collateral.”
Further Background
Chapter 11 Objectives
As we previously reported: "The Debtor's objectives are not entirely clear. What is clear is that the capital markets are closed to the Debtor which has never generated any revenue or managed to bring a product to market. The Debtor seems to maintain its belief that there is some intellectual property of value in the business, so ultimately there must be some hope of selling that; for now, however, the Debtor wants to 'maintain a business-as-usual atmosphere.'
The Beddingfield Declaration (defined below) states: 'The Debtor’s ultimate goal in this chapter 11 case is to maximize value for the benefit of all stakeholders. In the near term, however, the Debtor’s immediate objective is to maintain a business-as-usual atmosphere during the early stage of this chapter 11 case, with as little interruption or disruption to the Debtor’s operations as possible;' this notwithstanding the $40.0mn (plus) annual costs of operations and an accumulated deficit approaching $200.0mn.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Beddingfield Declaration”), Frederick C. Beddingfield III, the Debtor's President and CEO detailed the events leading to Sienna's Chapter 11 filing. A good portion of the Beddingfield Declaration's "tale of woe" is couched in language pulled directly from the Debtor's 10-K (this is, in turn, incorporated by reference into the Debtor's shelf registration statement, the latter probably never seen by what is, judging by the lengthy list of day trading platforms included in a list of shareholders appended to the Chapter 11, a rather unsophisticated shareholder base who have now lost everything [Note to SEC: Why do you allow incorporation by reference of risk factors into a 33 Act selling document from a 34 Act filing?]). In any event, the Beddingfield Declaration tells a simple story: High risk biopharmaceutical and medical device company borrows $100's of millions to fund R&D without ever having a single product approved for market or ever generating any revenue…eventually capital markets evaporate, cash evaporates and Debtor trips minimum cash covenant threshold in senior credit facility and senior lenders pulls the life support plug.
The Beddingfield Declaration states: "Biopharmaceutical and medical device development are highly speculative undertakings and involve a substantial degree of risk. The biopharmaceutical and medical device industries generally, and the dermatology and aesthetics markets specifically, are acutely competitive, subject to rapid change, and significantly affected by new product introductions, results of clinical research, corporate combinations, actions by regulatory bodies, changes by public and private payers, and other factors. While the Debtor is presently advancing several promising product candidates…these have not yet been approved for sale, and the Debtor has not generated any revenue to date.
Since its inception, the Debtor has incurred significant operating losses and has an accumulated deficit as a result of ongoing efforts to develop its product candidates, including conducting nonclinical and clinical trials and providing general and administrative support for these operations. The Debtor had an accumulated deficit of approximately $184.1 million and approximately $159.4 million as of June 30, 2019 and December 31, 2018, respectively. The Debtor had net losses of approximately $8.3 million and approximately $24.6 million for the three and six months ended June 30, 2019… The Debtor had net cash used in operating activities of approximately $21.2 million and approximately $30.2 million for the six months ended June 30, 2019 and 2018, respectively.
About the Debtor
According to the Debtor: "The Debtor is a clinical-stage biopharmaceutical and medical device company focused on bringing unconventional scientific innovations to patients whose lives are burdened by disease. The Debtor, through its accomplished management team and skilled employees, leverages deep knowledge and experience in drug and medical device development across multiple therapeutic areas with a view towards building a unique, diversified, multi-asset portfolio of therapies in inflammation and immunology that target select pathways in specific tissues, with an initial focus on one of the most important “immune” tissues, the skin."
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