K-V Pharmaceutical in bankruptcy to restructure financial obligations

By Caroline Salls

Pittsburgh, Aug. 6 - K-V Pharmaceutical Co. and some of its domestic subsidiaries filed Chapter 11 bankruptcy Saturday in the U.S. Bankruptcy Court for the Southern District of New York.

The company said it is seeking the protection of Chapter 11 while it looks to restructure its financial obligations.

K-V said it intends to continue to operate during the reorganization, subject to the supervision and orders of the bankruptcy court, as well as continuing to pay employees and vendors in the normal course of business and to provide its women's health care products without interruption.

"K-V came to this decision to seek the protection of Chapter 11 reluctantly, after exploring a full range of options," president and chief executive officer Greg Divis said in the release.

"Prior to filing our petitions, our company has worked tirelessly to address significant financial obligations, stemming from legacy regulatory and legal issues.

"The company has been unable to realize the full value of its most important product, Makena (hydroxyprogesterone caproate injection), because of a lack of enforcement of the orphan drug marketing exclusivity granted to K-V for Makena by the Food and Drug Administration (FDA).

"The lack of enforcement has also led certain state Medicaid agencies to impose barriers to access to Makena on low-income pregnant women at high risk for recurrent preterm birth, despite those states' legal obligation to cover FDA-approved drugs.

"The Chapter 11 filing is intended to provide K-V with the time needed to continue to conduct our business and restructure our financial obligations as we continue our efforts to ensure that all clinically-indicated patients have access to Makena.

"It is our intention to emerge from this restructuring as a stable and competitive company, able to continue to provide quality products to support the health of women across the stages of their lives."

Major revenue impact

The company reported in its filing papers that restrictions on reimbursement imposed by a number of state Medicaid agencies, as well as significant restrictions on manufacturing and marketing of other K-V products imposed by a previous FDA consent decree have also had a major negative impact on its revenues and ability to meet short and long-term obligations.

K-V said these obligations include a milestone payment under the terms of an agreement with Hologic Inc., under which the company purchased all rights to Makena.

The company said it was unsuccessful before the filing in obtaining a renegotiation of the milestone payments owed to Hologic on terms that were acceptable to K-V. As a result, the company said it was forced to file bankruptcy.

K-V has enough cash on hand to operate its business in the near term and intends to seek new financing and use of cash collateral to provide more time to enable the company to continue operations as it takes additional steps to restructure its financial obligations.

The company said it has also been actively managing a number of legacy liabilities, most notably the impact of the consent decree formed with the FDA in March 2009, the penalties associated with a December 2011 settlement with the U.S. Department of Justice related to the K-V's former ETHEX generic pharmaceutical subsidiary and other ongoing securities and other litigation matters.

Debt details

According to court documents, K-V had $236.61 million in total assets and $728.31 million of total debt as of June 30.

The company's largest unsecured creditor is indenture trustee Deutsche Bank Trust Co. Americas of New York, with a $201 million debt securities claim.

Subject to bankruptcy court approval, K-V has haired Willkie Farr & Gallagher LLP as bankruptcy counsel, Williams & Connolly LLP as special litigation counsel and SNR Denton as special litigation counsel.

In addition, the company has retained Jefferies & Co., Inc. as financial adviser and investment banker.

KV is a St. Louis specialty pharmaceutical company. The Chapter 11 case number is 12-13346.

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