December 13, 2019 – As it had signalled at a December 9th sale hearing, the Debtor filed a motion seeking conversion of the Debtor's Chapter 11 case to a case under Chapter 7 [Docket No. 254]. For the Debtor, which was only able to generate $1.7mn in asset sale proceeds at a disappointing December 5th auction, this represents a dismal end for a biopharmaceutical and medical device start-up that raised $100's of millions to fund R&D efforts but failed to bring a single product to market. For the Debtor's pre-petition lender, who will now not be paid in full, the failed auction was the last straw; it has notified the Debtor that it would not permit continued access to cash collateral past Friday the 13th.
The motion states, “In accordance with the Bidding Procedures Order, the Debtor held an auction for the sale of certain of its assets on December 5, 2019. On the same day, following the conclusion of the auction, the Debtor filed the Notice of Successful Bidder [Docket No. 241], identifying Sebacia, Inc. as the Successful Bidder for the Topical Photoparticle Therapy™ assets, a/k/a/ SNA 001. The Debtor has not received any bids for the Topical by Design™ assets, a/k/a SNA 120 and SNA 125, or its other assets. The Debtor’s available cash and proceeds of the sale are not sufficient to repay the Prepetition Lender in full.
The Debtor engaged in negotiations with the Prepetition Lender to extend the Debtor’s use of cash collateral to facilitate a chapter 11 plan process; however, the Prepetition Lender has informed the Debtor that it will not consent to extend cash collateral use to fund a chapter 11 plan process. The Debtor has no further sources of financing, no sources of additional funds, and lacks the ability to fund ongoing administrative expenses that may be incurred after the closing of the sale. Therefore, the Debtor submits that converting the chapter 11 case to a case under chapter 7 at this time is warranted and necessary and in the best interests of its stakeholders at this time under the circumstances of this case. Pursuant to the Final Cash Collateral Order, upon the occurrence of a Termination Event and following 5 business days’ notice, the Prepetition Lender is permitted to exercise remedies under the Final Cash Collateral Order, unless otherwise directed by the Court prior to expiration of the notice period set forth in the Final Cash Collateral Order; accordingly, the Debtor seeks to have this Motion heard on shortened notice and seeks a hearing prior to expiration of such notice period.
Additionally, conversion of this chapter 11 case to a case under chapter 7 at this time is in the best interests of the Debtor’s estate, creditors and other interested parties. Simply put, without access to cash collateral, the Debtor no longer has funding to administer this chapter 11 case and, therefore, conversion is in the best interests of the Debtor’s estate and its stakeholders. Although there may be estate assets in the form of certain causes of action that may be liquidated in order to satisfy certain creditor claims, without an ability to fund ongoing administrative expenses, the Debtor cannot pursue the recovery of those assets or prosecute a chapter 11 plan. Accordingly, as it is unlikely that the Debtor could solicit, confirm, and consummate a chapter 11 plan (particularly absent support from its secured lender), the Debtor respectfully submits that a chapter 7 trustee will be able to efficiently and effectively bring this case to conclusion.”
On December 10th, 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, was not this modest $1.7mn sale but rather the overall disappointing results of the Debtor's December 5th auction; which failed to draw bids for any other assets, including the Debtor's "principal asset," SNA-120 (pegcantratinib), a 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’)
About 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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The post Sienna Biopharmaceuticals, Inc. – Further to Disappointing Auction and Pre-Petition Lender’s Refusal to Extend Access to Cash Collateral, Debtor Seeks Conversion to Chapter 7 appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.