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Law360 (February 10, 2020, 6:31 PM EST) -- Diabetes drug technology company Valeritas Holdings Inc. has filed for Chapter 11 in Delaware bankruptcy court, saying the impact of the coronavirus outbreak on its Chinese factories had tipped it into default, prompting a proposed $23 million sale to a Danish drugmaker.
In its Sunday court filings, Valeritas said years of losses and a one-two punch of late-year manufacturing problems and coronavirus-related production disruptions had sent it into default and left it no way to preserve the company other than a Chapter 11 sale with a stalking horse bid from Denmark-based Zealand Pharma AS.
New Jersey-based Valeritas manufactures V-Go, a patchlike insulin delivery device for Type 2 diabetics. The device is manufactured in China and has been on the market since 2012, the company said in its filings.
The company said it currently owes just over $16.1 million in principal on a prepetition term loan and $1.6 million on a prepetition subordinated note. It has been publicly traded since March 2017.
In the Chapter 11 declaration, CEO John Timberlake said that while V-Go has been commercially successful it has yet to turn a profit, and by December the company was facing diminishing liquidity and a lack of additional capital.
Timberlake said the company had been engaged in a yearlong marketing process, but that the two potential buyers were scared off in December when manufacturing issues led to the writeoff of $3.5 million in inventory.
This left the company with lower than usual inventory going into the Lunar New Year holiday, a situation made even worse when the coronavirus outbreak led the Chinese government to extend the holiday by a week and caused uncertainty about when the rural employees at its manufacturing plants would be allowed to return to work, he said.
The term lenders declared a default on Feb. 7, Timberlake said. The company has also been concerned about losing its workforce due to the financial uncertainty, saying they have been "aggressively pursued by competitors."
"The petition date was chosen, in part, to signal to the debtors' employees a clear and rapid path to a going concern sale, including likely employment if the stalking horse bidder is the successful bidder," he said.
Timberlake said the company has received a $23 million stalking horse bid from Zealand that will include employment offers for most current workers.
In addition, he said the term lender has agreed to a deal under which it will provide debtor in possession financing and be allowed a secured claim of $20 million, which will include the amount owed on the term loan and a portion of the settlement of "certain claims and causes of action," as well as an additional $18.8 million unsecured claim on that same settlement.
Representatives of Valeritas did not immediately respond to requests for comment Monday.
The company said it has retained PwC as financial adviser and Lincoln International as investment banker.
Valeritas is represented by Maris J. Kandestin and Rachel Ehrlich Albanese of DLA Piper LLP.
The case is In re: Valeritas Holdings Inc., case number 20-10290, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Jay Jackson Jr.
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