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Lucira Health, Inc. – Developer of Medical Testing Kits Files for Bankruptcy; Cites Decline in COVID Test Kit Sales and Failure of FDA to Timely Approve 2022-2023 Flu Testing Kit, Will Pursue Going Concern Asset Sale


February 22, 2023 – Lucira Health, Inc. (Nasdaq: LHDX; “Lucira“ or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 23-10242 (Judge Mary F. Walrath). The Debtor, a developer of infectious disease test kits, is represented by Sean M. Beach of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include: (i) Cooley LLP as general bankruptcy counsel, (ii) Armanino LLP as financial advisors and investment banker and (iii) Donlin, Recano & Company, Inc. as claims agent. 

The Debtor's petition notes between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn (no funded debt); and estimated liabilities between $50.0mn and $100.0mn (the Debtor further notes assets of $145.9mn and liabilities of $84.8mn as at December 31, 2022). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Nypro DR, LLC Dominican Republic Branch ($16.0mn trade claim), (ii) International Point of Care, Inc.($2.7mn trade claim) and (iii) Pegatron Corporation ($2.6mn trade claim). In total, the Debtor has @$65.0mn of trade debt.

Filing Date Highlights

  • Developer of Medical Test Kits Files with $84.mn of Liabilities, No Funded Debt and $65.0mn of Trade Debt
  • Cites Decline in COVID Testing Kit Sales and FDA's Failure to Timely Approve Flu Testing Kit as Precipitating Filing
  • Will Pursue Going Concern Sale and then Liquidation with Cases to be Supported with Cash on Hand; No DIP Financing Anticipated

In a press release announcing the filing, the Debtor advised that it: “intends to pursue a sale of its business under Section 363 of the Bankruptcy Code, while continuing to support its customers during the Chapter 11 process….Lucira Health grew rapidly over the past several years as the COVID-19 pandemic spread throughout the world. Demand for the Company’s COVID-19 test kits surged and the Company posted positive net income in its 2022 first quarter for the first time since its inception. With its COVID-19 test kit available in the market and a new combination test kit for COVID-19 and Flu developed and awaiting U.S. Food & Drug Administration ('FDA') Emergency Use Authorization ('EUA'), the Company moved forward in manufacturing test kits to fulfill future customer demand. The Company anticipated an EUA for an OTC indication on the COVID-19 and Flu test in August 2022, though the FDA’s approval process became protracted, resulting in high expenditures without new revenue from the combined test kit during the 2022-2023 flu season. As such, the Company’s operations were significantly impacted, leading to the Chapter 11 filing and sale process.”

The Debtor's President and CEO Erik Engelson commented: “Unfortunately, as restrictions lessened in 2022, we saw lower demand for COVID-19 tests. This, combined with slower than anticipated regulatory approval for the new combined test kit developed for the 2022-2023 flu season led to insufficient revenue and capitalization to offset expenditures. Despite every effort to reduce capital outlays and restructure our business, we took this action to protect and maximize the value of our assets.”

Board Changes

The Debtor's February 22nd 8-K provides: "Between February 17 and 19, 2023, Tuff Yen, Alison McCauley, Sandra A. Gardiner, and Steve Tablak, each members of the Board of Directors of the Company (the 'Board'), provided notice of their resignation as members of the Board and all committees thereof, effective upon the Board acting to reduce the authorized number of directors to one, which took place on February 17, 2023. Each of Mr. Yen’s, Ms. McCauley’s, Ms. Gardiner’s and Mr. Tablak’s resignation was not the result of a disagreement with the Company or the Board on any matter relating to the Company’s operations, policies, or practices.  

On February 22, 2023, the Board increased the authorized number of directors constituting the Board from one to two and appointed Michael Wyse to fill the newly created vacancy and serve as lead independent director…"

Recent Financlal Performance

The Nadiro Declaration (defined below) provides: "The Debtor is an emerging growth company….Lucira has generated $244.4 million of net revenue from the sales of its test kits since their respective launch dates through September 30, 2022. The Debtor had net sales totaling $34.4 million for the third quarter of 2022, an increase of $19.4 million over the third quarter for the previous year.

Lucira had net income of $13.1 million for the three months ended March 31, 2022, which was the first period it achieved net income since its inception in 2013. Lucira has incurred recurring losses and negative cash flow from all other periods of its operating activities. For the nine months ended September 30, 2022 and September 30, 2021, Lucira had net losses of $135.5 million and $57.0 million, respectively."

Goals of the Chapter 11 Filings

The Nadiro Declaration provides: "The Debtor commenced this Chapter 11 Case to avail itself of the protections and 'breathing room' that chapter 11 is intended to provide, including preserving its going concern value while it conducts an orderly sale and liquidation process."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Nadiro Declaration”) [Docket No. 3], Richard Narido, the Debtor’s CFO provides: “Developing and commercializing medical and other healthcare products subject to FDA approval, including launching new products into the marketplace and conducting preclinical studies and clinical trials, is a capital-intensive and uncertain process that takes years to complete.

Prior to the Petition Date, the Debtor had made significant spending commitments to develop and commercialize its Combined Test Kit. However, that product did not receive expected EUAs {Emergency Use Authorizations] from the FDA in time for the 2022-2023 flu season. This delay materially reduced the revenues the Debtor had anticipated generating from sales of the Combined Test Kit and increased the financial pressure on the Debtor resulting from the decline in demand for its COVID-19 testing product described above. These factors contributed to the Debtor’s substantial operating losses and led to the inclusion of a going concern qualifier in the Debtor’s audited financial statements for the quarterly period ending September 30, 2022.

Prepetition Indebtedness

As of the Petition date, the Debtor had no funded debt obligations, including secured debt.  As such, its cash on hand is unencumbered and may be used to fund the administration of this Chapter 11 Case and its ongoing operations without the need for secured creditor consent. The Debtor also belives that it will not need DIP financing during the pendency of the cases. At filing, the Debtor has outstanding trade debt totaling approximately $65.0 million.

Prepetition Shareholders

The Debtor's lead Petition notes a single equity holder above the 10% mark, Eclipse Fund III LP with 10.2%.

On February 9, 2021, Lucira closed its initial public offering of 10,350,000 shares of common stock at a price to the public of $17.00 per share, which generated net proceeds of $159.9 million. Prior to the closing of the initial public offering, Lucira financed its operations principally from sales of preferred stock, issuances of convertible debt, and common stock issuances.

About the Debtors

According to the Debtor: “Lucira is a medical technology company focused on the development and commercialization of innovative infectious disease tests to make lab-quality diagnostics more accessible. Lucira designed its test platform to provide accurate, reliable, PCR-quality test results anywhere and at any time. Beyond its already commercialized COVID-19 and Point of Care COVID-19 & Flu Tests, Lucira is working on new diagnostic tests for respiratory infections and other categories including women’s health and sexually transmitted infections (STIs).”

The Nadiro Declaration adds: "The Debtor is a corporation organized under the laws of the State of Delaware, with its principal office located in Emeryville, California.
7. Founded in 2013, Lucira is a medical technology company focused on the development and commercialization of transformative and innovative infectious disease test kits.

Lucira has developed a proprietary testing platform that produces molecular testing for infectious diseases in a single-use and consumer-friendly test kit. That platform enables Lucira to develop a pipeline of infectious disease test kits, which, to date, has focused on respiratory diseases, including COVID-19 and influenza A and B virus indications. Lucira’s test kits are powered by two AA batteries and fit in the palm of a hand. The kits are designed to securely deliver a clinically relevant test result to users at home, to healthcare providers, and to required public health authorities, anywhere and at any time. In addition, the kits are coupled with a digital platform, Lucira Connect, which is able to connect users with virtual care providers that can prescribe treatment plans, including antiviral medications if necessary.

Lucira’s business model has been to pursue the commercialization of a broad menu of test kits for use within point-of-care ('POC') and prescription or over-the-counter ('OTC') athome settings through partnerships with customers, such as hospital networks, payors, corporate senior living facilities and large employers. All of Lucira’s net sales have been derived from sales of its test kits through its healthcare, business-to-business, international and direct-to-consumer channels."  

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The post Lucira Health, Inc. – Developer of Medical Testing Kits Files for Bankruptcy; Cites Decline in COVID Test Kit Sales and Failure of FDA to Timely Approve 2022-2023 Flu Testing Kit, Will Pursue Going Concern Asset Sale appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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