Judge Rejects Vivus' Ch. 11 Plan, Wants Equity Panel Formed
Law360 (September 11, 2020, 11:54 AM EDT) -- Saying that a lack of management testimony on key plan issues was "fatal," a Delaware bankruptcy judge on Friday rejected a Chapter 11 plan offered by biopharmaceutical venture Vivus Inc. and ordered the addition of a stockholder committee to the company's future plan-drafting efforts.
A Delaware bankruptcy judge on Friday rejected Chapter 11 confirmation for biopharmaceutical venture Vivus Inc. (Photo by John Greim/LightRocket via Getty Images)
U.S. Bankruptcy Judge Laurie Selber Silverstein said during a video-conference ruling that the decision reflected in part unanswered questions regarding Vivus' value and that of a pulmonary hypertension drug prospect owned by the company.
The compound was given a $0 value in Vivus' plan despite having been touted to investors weeks before the bankruptcy as potentially worth more than $1.2 billion a year globally if proven safe and effective and if approved by regulators.
In her decision, the judge noted "first and foremost" that Vivus did not offer a management witness during confirmation to discuss the financial underpinnings of an estimate by Piper Sandler & Co., the company's investment banker, that put the company's value at between $210 million and $243 million.
"Vivus has not met its burden on confirmation, and in particular its burden to show under Section 1129(b) [of the Bankruptcy Code] that the plan is fair and equitable to stockholders," Judge Silverstein said. The judge added, "I cannot find on this record that Vivus is insolvent. Neither am I in a position to find that Vivus is solvent."
California-based Vivus sought Chapter 11 projection on July 7 with about $213.9 million in assets and $281.6 million in liabilities. It proposed a prepackaged plan that included a debt-for-equity term that will assign all of the reorganized company's new stock to IEH Biopharma LLC, holder of all of the company's secured debt, some $235.4 million.
Approval would have made Vivus a wholly owned affiliate of Icahn Enterprise Holdings LP, a Carl Icahn interest.
The judge said four stockholders who opposed the confirmation and who mounted an earlier, unsuccessful bid for the formation of an equity committee had proven "incredibly knowledgeable about Vivus, its products and its industry" and had raised significant questions about the company's plan, its estimated value and the value of its development drug holdings.
Those stockholders saw their request for an equity committee — which would have played a formal role in the case — shot down, despite arguments that Vivus inaccurately valued the pulmonary hypertension drug, VI-0106.
At the time, Judge Silverstein said that the court had no information to contest Piper Sandler's value estimates supporting Vivus' conclusion that current stockholders would be wiped out without any ordinary recovery.
On Friday, however, the judge observed that, notwithstanding the $0 value for VI-0106 in its plan, Vivus was not abandoning the drug, and is "planning to spend development dollars on it this year and next year."
The judge also cited questions about the value under Vivus' plan of net operating losses, which can be used as a tax offset for those who control them.
In other comments, the judge said that she was sensitive to the fact that the rejected plan would pay trade creditors in full. Stockholders had an opportunity to receive a $2.38 per share payout under the original plan, but only under alleged "Death Trap" conditions that included not objecting to the plan or advocating for or serving on an equity committee.
While the prohibitions were subsequently modified, Judge Silverstein said, "stockholders were actively discouraged from challenging in any way the value of the company or the plan."
Vivus and the stockholders who challenged the company's plan did not respond to requests for comment Friday.
Judge Silverstein said she would keep the record open on the case for subsequent proceedings.
Vivus is represented by Mark D. Collins, Brett M. Haywood and Zachary I. Shapiro of Richards Layton & Finger PA and Matthew S. Barr, Gabriel A. Morgan and Natasha S. Hwangpo of Weil Gotshal & Manges LLP.
The case is In Re: Vivus Inc. et al., case number 1:20-bk-11779, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Dorothy Atkins and Rose Krebs. Editing by Alyssa Miller.
Update: This story has been updated with more details from the ruling.
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