Drugmaker Avadel Gets Boost From Parent In Del. Ch. 11
By Jeff Montgomery
Law360 (February 8, 2019, 7:00 PM EST) -- Bankrupt, one-product drug company Avadel Specialty Pharmaceuticals LLC cleared initial Chapter 11 hurdles Friday, helped along by what a Delaware judge said was a notably responsible nondebtor parent.
The company, forced into Chapter 11 on Wednesday by slow physician and insurer adoption of its Noctiva medication for excessive nighttime urination, received what Judge Christopher S. Sontchi described as a "strange," albeit supportive, debtor-in-possession loan from parent Avadel U.S. Holdings.
The $2.7 million maximum borrowing 13-week agreement calls for a 5 percent annual rate, rising to 7.5 percent in the event of a default, without fees or administrative expenses and having a status equivalent to other third-party, prepetition unsecured claims. DIP loans with significantly higher rates and repayment priorities and more punitive default terms have not been uncommon in recent years.
"My initial view of this entire bankruptcy is the parent is acting very responsibly as a corporate citizen," Judge Sontchi said before approving the loan and terms. "I hope you find a soft landing for the business."
Paul J. Keenan Jr. of Greenberg Traurig PA, counsel to the debtors, told Judge Sontchi "growth has been slower than anticipated" for the business, which contracts out production of the medication in order to focus on marketing, sales and distribution.
Current plans call for a sale of assets and wind-down of the business.
The company has operated at a deficit since its launch, with the U.S. parent sinking more than $152 million into the venture before a search for a buyer began, followed by the bankruptcy filing. Virtually all of Avadel Specialty's debt is held by the parent company, although third-party vendors and other unsecured creditors are owed $1.7 million
The drug was approved by the U.S. Food and Drug Administration in March 2017, but there has been "minimal market demand," with medications for other conditions, such as prostate or bladder problems, complicating efforts to drum up interest in Noctiva.
An additional monitoring consideration for users and past side effects with "older formulations of the same active ingredient" have caused some physician hesitation to adopt Noctiva, the company said in its initial declaration.
Restrictions for use by patients in managed care programs and other health benefits restricted use of the drug, with more than half of all prescriptions dispensed for free.
During the company's initial hearing Friday, Judge Sontchi approved routine motions to continue the company's payment of employees and product-handling contractors.
Avadel's payroll dropped significantly on Thursday, however, with the company's remaining workforce cut from 34 to 14 employees, according to a summary issued during the hearing.
The approvals in Delaware came the same day the debtor's indirect parent, Ireland-based Avadel Pharmaceuticals PLC, announced its own plan to restructure and refocus efforts on more promising specialty drugs.
"Noctiva's performance since launch has been highly disappointing despite a substantial investment of resources," the parent company said in a statement issued Friday. "It no longer warrants such a level of support, and Avadel will be better positioned for the future by exiting the business entirely."
The same statement said the global parent's workforce will be reduced by about half, with the remaining company focusing on a promising new drug for excessive daytime sleepiness and sudden muscle weakness or immobility in patients suffering from narcolepsy.
Keenan told Judge Sontchi that although the Irish parent company is restructuring, there are no current court proceedings scheduled in the United States or overseas.
Avadel is represented by Dennis A. Meloro, Paul J. Keenan Jr., John R. Dodd, Sara A. Hoffman and Reginald Sainvil of Greenberg Traurig LLP.
The case is In re: Avadel Specialty Pharmaceuticals LLC, case number 19-10248, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Rick Archer. Editing by Stephen Berg.
For a Reprint of this article, please contact reprints@law360.com.