On March 26, 2012, Contract Research Solutions, Inc., and certain affiliates (collectively “Cetero”), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. In a declaration prepared by Cetero’s Chief Financial Officer (the “Declaration” or “Decl.”), the company stated that prior to filing for bankruptcy it had already secured bankruptcy financing, reached an agreement with certain lenders regarding a sale process and reached a “comprehensive plan support agreement” that the company believes will satisfy its administrative and priority claimants. Decl. at *3. This post will look at Cetero’s business, why the company filed for bankruptcy and what the company’s objectives are while in bankruptcy.
Cetero’s Business Operations
Based in Cary, North Carolina, Cetero provides early phase clinical research through its labs in Florida, Missouri, North Dakota, Texas and Canada. Name-brand pharmaceutical and generic drug companies hire Cetero to provide testing services which are used in new drug applications submitted by the companies to the U.S. Food and Drug Administration. Decl. at *4. Part of the company’s services include recruiting individuals to participate in pharmaceutical testing to measure the effectiveness of a drug company’s product. In order to carry out the testing for Cetero’s 200+ customers, the company maintains over 1,400 patient beds in its five testing facilities. Decl. at *5.
Events Leading to Bankruptcy
In 2009, Cetero discovered that six of its research chemists in its Texas lab had recorded incorrect date and time data in order to receive compensation for hours the chemists never worked. After discovering the falsified records, the company began an internal investigation which ultimately resulted in Cetero self-reporting the incident to the FDA. Decl. at *9-10. In July of 2011, the FDA issued a letter to Cetero regarding the FDA’s concerns over Cetero’s studies between 2005 and 2010. In its letter, the FDA stated that Cetero’s investigations into the timekeeping practices of its chemists was inadequate and that the reliability of the company’s studies could be affected. Decl. at 10.
Due to the falsified records, the FDA required Cetero to repeat certain testing to assure the accuracy of prior test results. The required re-testing created substantial costs for Cetero and triggered a declaration of default by the company’s lenders. Decl. at *11-12. Cetero began a restructuring plan in 2010 which ultimately led the company to hiring an investment banker to explore a potential sale. Decl. at *12.
Objectives in Bankruptcy
Cetero’s investment bankers began marketing the company in October of last year. Thirty-six parties were contacted as part of the marketing process. Six parties expressed indications of interest and three submitted bids. During the bidding process, Cetero’s first lien lender conducted its own due diligence and submitted a credit bid that was higher than any other interested parties. After receiving the credit bid, Cetero negotiated post-bankruptcy financing with its lender. Through bankruptcy, the company will conduct a section 363 sale of assets with its lender serving as the stalking horse bidder.
The Cetero bankruptcy is before the Honorable Kevin J. Carey. Judge Carey recently completed his term as Chief Judge of the Delaware Bankruptcy Court. Cetero is represented by the law firms Young Conaway Stargatt & Taylor LLP and Paul Hastings LLP.