QEP Completes Sale of United Kingdom Business

Source: Q.E.P. Co., Inc.
October 10, 2023

BOCA RATON, Fla., Oct. 10, 2023 (GLOBE NEWSWIRE) — Q.E.P. CO., INC. (OTCQX: QEPC) (the “Company” or “QEP”) today announced that, on October 4, 2023, it completed the sale of its business in the United Kingdom (the “UK Business”) by selling all of the outstanding shares of Q.E.P. Co. U.K. Limited to QEP UK Holdings Limited led by Paul Boyce, in a transaction valued at approximately £12 million.

As a result of this transaction, the UK Business is now owned by the Boyce Family Group. Paul Boyce has been a member of QEP’s management team for the past 14 years, having most recently served as its CEO of International Operations and a member of its Board of Directors. As part of this transaction, Mr. Boyce has resigned from his Board of Directors position as of the closing date.

Executive Chairman of QEP, Lewis Gould, stated, “The completion of this sale marks another milestone for QEP as we re-align our global footprint to efficiently implement our strategic plan of focusing on our core brands and products to drive long-term stockholder value. We are grateful to Paul for his many contributions to QEP and will continue to work closely with him and his team in supporting our common goal of growing our core brands and products on a global basis in our respective territories.”

As part of its consideration in approving the transaction, QEP’s Board of Directors appointed a Special Committee of independent and disinterested directors, to consider and recommend the transaction for approval by the Board of Directors. In recommending the transaction to the Board of Directors for approval, the Special Committee considered the financial advice from its financial advisor, Cassel Salpeter & Co. LLC, a third party investment banking firm.

About QEP

Founded in 1979, Q.E.P. Co., Inc. is a leading designer, manufacturer and distributor of a broad range of best-in-class flooring installation solutions for commercial and home improvement projects worldwide. QEP offers a comprehensive line of specialty installation tools, adhesives, and underlayment. QEP sells its products throughout the world to home improvement retail centers and professional specialty distribution outlets under brand names including QEP®, LASH®, ROBERTS®, Capitol®, Premix-Marbletite® (PMM), Brutus®, Homelux®, PRCI®, and Tomecanic®.

QEP is headquartered in Boca Raton, Florida with offices in Canada, Europe, Asia, Australia and New Zealand. Please visit our website at www.qepcorporate.com.
Forward-Looking Statements All statements contained in this press release, other than statements of historical facts, may constitute forward-looking statements within the meaning of the federal securities laws. These statements can be identified by words such as “expects,” “plans,” “projects,” “will,” “may,” “anticipates,”
“believes,” “should,” “intends,” “estimates,” and other words of similar meaning. Forward-looking statements include, but are not limited to, statements regarding the Company’s business following the sale. Any forward-looking statements contained herein are based on current expectations and beliefs, and are subject to a number of risks and uncertainties, including those listed in the Company’s annual report, as such risk factors may be amended, supplemented or superseded from time to time by other reports and disclosures made by the Company. Forward-looking statements may also be adversely affected by general market factors, competitive product development, product availability, federal and state regulations and legislation, manufacturing issues that may arise, patent positions and litigation, among other factors. The forward-looking statements contained in this press release speak only as of the date the statements were made, and the Company does not undertake any obligation to update forward-looking statements, except as required by law.

CONTACT:
Q.E.P. Co., Inc.
Enos Brown
Executive Vice President and
Chief Financial Officer
561-994-5550

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Dry Powder Reserves Point to Insatiable Buyout Demand

While uninvested assets in private markets have reached record levels, the capital is waiting to be deployed in a more favorable market.

By Britt Erica Tunick
Fall 2023

Following paltry M&A deal volume in 2022, deal activity declined even further in the first quarter of 2023 as companies held out for a more attractive deal environment with higher valuations. Meanwhile, the increasing cost of capital, combined with rising interest rates, macro uncertainty, the geopolitical environment and inflationary concerns, has made PE firms more cautious. As a result, the global private capital industry was sitting on $3.7 trillion of dry powder as of June 2023, $1.1 trillion of which is allocated for buyouts, according to Bain & Co.

“When you’re in an environment like this, there’s a lot of volatility and people aren’t sure what’s going to happen next. So, a lot of PE firms are sitting on their hands right now,” says Brian McGee, a managing partner at Boca Raton, Florida-based PE firm New Water Capital.

Behind the Curtain

The high levels of dry powder and declining deal volume don’t mean that the market is entirely at a standstill. Investors are very selective about doing deals. “The environment we are seeing is ‘barbelled.’ We see really highquality, class A deals getting done, and we see the lower end of the market where deals need a lot more TLC. What we are not seeing is the middle tier,” says Marc Chase, a partner and private equity leader at Baker Tilly. “The good businesses are nervous about the market and if they don’t see a favorable multiple environment for their company, their just going to wait it out.”

Chris Wright, managing director and head of private markets at Crescent Capital Group, notes there are still opportunities in add-ons, too. “You have a lot of small transactions where companies are buying other companies. These are add-on acquisitions and platform investments that are held by private equity, and not all of those are getting recorded on league tables,” he says. One problem Wright thinks is keeping M&A at bay is the valuation mismatch. “Equity markets continue to be elevated at the same time that cost of capital has gone up, yet sellers expect good prices while buyers want discounts,” he says.

LP Perception

Nonetheless, LPs are not putting pressure on PE firms to deploy capital. “Many LPs deployed significantly into private markets, and the distribution in their own portfolios has dried up, given that lack of exits. … If the capital calls aren’t coming, that’s actually convenient for some LPs,” says Jared Barlow, a partner at Greenwich, Connecticut-based Kline Hill Partners, which focuses on investments in the secondary market. The mindset of both GPs and LPs is that if there is no rush, deploy with prudence.”

And with expenditures and investments outpacing fundraising, industry professionals say that the amount of dry powder has already begun contracting. Added to that is the fact that fundraising in the current environment is extremely difficult for PE firms. Between the downturn in equity over the past couple of years, unweighted portfolios and a lack of returns from PE investments, there is a general dearth of liquidity within the LP community at the moment. In fact, as investors are repositioning their portfolios, there has been a wave of secondary trades among LPs.

James Cassel, CEO and co-founder of Miami-based investment banking firm Cassel Salpeter & Co., agrees that most investors would be content to give PE firms another year or two to recognize the value of their investments. But he believes there are likely to be many cases where the current market conditions make that difficult or impossible for PE firms. “A lot of PE firms that did deals a few years ago stress-tested their companies for interest rates going up a 100 or 200 basis points. But I’m not sure they stress-tested for a 500-point increase,” says Cassel. “The concern comes in if they still own the portfolio company and are gong to continue to own it, but the debt comes due and they’re going to have to refinance at a higher price.”

The Private Credit Opportunity

One area where the PE community is seeing a pop in activity is private credit. As small and midsize banks have backed away from lending following the recent bank collapses, industry experts predict that direct lending will continue to pick up speed. According to Moody’s, private lending to PE-owned middle-market companies is one of the quickest growing areas, with roughly $1.3 trillion in assets under management, $350 billion of which is dry powder. “We’ve seen a lot of demand growing for junior debt in both new investment, as well as support for existing investments,” says Crescent Capital Group’s Wright. “Part of that big opportunity is the highly leveraged transactions that were put together in 2021 and 2022 that now need some help – including through the issuance of preferred equity and partial PIK securities,” he says. Adds Baker Tilly’s Chase: “The current interest rate environment and the turmoil in the banking sector have created an opportunity for alternative debt funds, and I imagine that will continue for the remainder of this year.”

Despite the market calamity, several well-known private debt managers have recently raised large funds. They include HPS, which closed its Core Senior Lending Fund II in May; and Neuberger Berman, which collected $8.1 billion for its Private Debt Fund VI last September.

Looking Ahead

Many PE firms are bracing for an uptick of M&A activity in the third and fourth quarters of this year. Regardless of whether economic conditions improve, the expectation is that PE firms will have to finally start exiting some positions in the coming months. “Even setting aside the capital markets and the LBO and loan markets, the hold time on everyone’s portfolio companies is increasing to a point where there’s going to have to be some more selling happening,” says Jennifer Smith, a partner at Bain & Co.’s PE practice. In the meantime, she says that PE firms need to focus on where they can add value to their portfolio companies to make them more appealing when those exit opportunities finally do arise. “As dry powder comes down and deal markets pick up, you’re going to see a little bit more of a buyer’s market where it’s going to be more competitive,” says Smith.

“A lot of PE firms that did deals a few years ago stress-tested their companies for interest rates going up a 100 or 200 basis points. But I’m not sure they stress-tested for a 500-point increase.”
JAMES CASSEL
CEO and Co-founder, Cassel Salpeter & Co.

Anthony Arnold, a partner at Barnes & Thornburg, says there has recently been a noticeable jump in activity levels. “We are seeing the beginning of a shift from a wait-and-see approach to an actual deployment of capital,” he says. “In just the last two weeks, our middle-market clients issued as many letters of intent as they did from January to the end of May.”

As PE firms begin to pick the sectors and companies they believe will present the most promising exit opportunities, industry experts say firms should be aware there could be a bit of traffic when people finally do step off the sidelines.

“Now is the time that firms should be evaluating and creating their teams in anticipation of when the market is going to turn,” says Baker Tilly’s Chase.

BRITT ERICA TUNICK is an award-winning journalist with extensive experience writing about the financial industry and alternative investing.

 

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Why Biopharma Companies Buy Stock in One Another

By Ana Mulero
Sept. 13, 2023

On June 27, Gilead Sciences purchased nearly 3 million shares of AlloVir stock, costing more than $10 million. The very next day, Gilead purchased just over 1 million shares of Arcus Biosciences for nearly $20 million.

This practice of biopharma companies buying stock from one another used to be rather typical, Ira Leiderman, a managing director of healthcare at Cassel Salpeter & Co., told BioSpace, but times have changed. So, Gilead’s move “is a good example [of the phenomenon], but I don’t think you’ll find many deals like this,” he said.

Commonly referred to as equity investments or cross-holdings, these transactions are made for various reasons. For example, they enable businesses to form strategic alliances, drawing on one another’s knowledge and resources to address challenging problems in drug development.

“Cross-ownership can allow companies to expand their product portfolios, gain access to new technologies and enter different markets more effectively,” Adam Garcia, CEO of the Stock Dork, told BioSpace. Stock purchases can also reinforce relationships that have already been forged.

Indeed, Gilead has been a longtime financial supporter of AlloVir, which went public in 2020, and AlloVir’s CEO, Diana Brainard, was head of the virology therapeutic area at Gilead for a decade. Similarly, Gilead was already working with Arcus on discovering and developing cancer immunotherapies and combination therapies. By purchasing stocks in these companies, Gilead is effectively funneling money into its existing partnerships.

Equity investments can also help diversify and mitigate risks. “By holding shares in multiple biopharma companies, a company can spread its investments across different therapeutic areas and business models,” Garcia added. “This diversification can help cushion the impact of failures in specific drug development programs and maintain a more stable financial position.”

In addition, stock purchases can lead to silent takeovers, where a company gradually accumulates a significant stake in another, often without publicly acknowledging that it has acquired a majority share. By doing so, a company can avoid a traditional public takeover bid, which often involves negotiations and regulatory approvals. Silent takeovers cut through the red tape of the public takeover bid but still effectively shift leadership, strategic direction and overall control of the acquired company, impacting the overall market.

Leiderman and his colleague Margery Fischbein, another managing director of healthcare at Cassel Salpeter, told BioSpace that silent takeovers aren’t happening in biopharma today, however, and that Gilead’s actions of buying stock in a partner are actually not at all common in the current economic environment. And there are several reasons for that, they said. For one, many companies in the biopharma industry are still trying to return to business as usual following the disruptions caused by the COVID-19 pandemic, making them less appealing to investors, including other biopharma firms, Fischbein said.

At the same time, companies that may have at one time considered buying biopharma stock are themselves short on funding. “The most precious resource to a biotech is cash, and it’s tough times out there,” Leiderman said. Rather than buying up stock in other companies, then, some biopharmas are looking to sell stocks to come up with much-needed capital.

“That’s why a lot of companies [biotechs] want to go public because they believe it would be easier for them to raise additional capital,” he said.

At this point, only financially secure firms such as Gilead are in a position to purchase stock in other companies, Leiderman added. “Gilead has a larger bank account than God.”

Fischbein said that the situation comes down to “haves and have-nots,” and in today’s environment, there are more “have-nots,” including in terms of balance sheets, cash and stock prices.

But for those biotechs able to secure financial backing from a pharma firm like Gilead, it could potentially give the company the leg up that it needs, Fischbein said. “It really adds credibility. If somebody like Gilead, GSK, or Novartis is backing the company by taking a significant stake, it’s a real mark of quality and possible likelihood of success.”

Ana Mulero is a freelance writer based in Puerto Rico. She can be reached at anacmulero@outlook.com and @anitamulero on Twitter.

 

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Dealflow Continues to Drop, But Some are Optimistic for a Bounceback This Fall

By Demitri Diakantonis
September 4,  2023

Middle market M&A continued to stall in August, as it has all year, according to data from Refinitiv. But experts say we may be hitting bottom and activity could pick up by the fourth quarter.

There were 42 middle-market deals worth about $14.2 billion in August. By comparison, there were 89 deals worth approximately $28.1 billion in August 2022. The Refinitiv data is based on North American deals valued between $100 million and $1 billion.

The technology and healthcare sectors continue to carry the load with 109 and 96 deals announced so far this year, respectively. Another sector that is picking up in deal activity is energy which has 50 deals announced so far this year. One notable energy deal in August was Earthstone Energy‘s $1 billion acquisition of Novo Oil & Gas Holdings.

While the dealmaking community has been crying in their beers for some time now, one banker sees a bright road ahead. “I believe that M&A will pick up for the last four months of the year as it has already started to,” says Cassel Salpeter & Co. Chairman and co-founder James Cassel. “With interest rates beginning to stabilize, and the sentiment that they are not going to go down quickly, companies that have been waiting to go to market are reconsidering their strategy and considering going to market presently and not waiting.”

With this new reality, Cassel says, high valuations will be reset, and private equity’s need to deploy capital will push deals forward.

In league table tallies, JP Morgan, Goldman Sachs and Bank of America hold the top three spots respectively in market share so far this year. Out of those three, Goldman has advised on the most deals with 28.

A notable performance in 2023 has been Evercore Partners which has jumped from 11th place last year to eighth place this year, while seeing its market share increase from 2.7 to 3.6 percent. The firm helped advise on Crestwood Equity Partners‘ $7.1 billion sale to Energy Transfer LP last month. With a stabilized economy, Cassel is optimistic. “There is still substantial money sitting on the sidelines, with strategic acquirers and PE firms looking to deploy capital and buy good companies,” he says.

See the full list of August’s biggest middle-market deals here.

DEAL FLOW

 

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IRA Creates Unintended Complications for Biologics

By Ana Mulero
Aug. 09, 2023

The Inflation Reduction Act might seem like good news for biological products, but when compared to how the market has historically been, it’s not,
experts told BioSpace.

The main goal of the August 2022 legislation was to lower the prices of prescription drugs. But it ended up being much more complicated than that, and how its components are rolled out through 2026 will have ramifications across research and development.

Biologics are spared from price controls under the IRA for 13 years following approval. The grace period for small molecules, by contrast, is only nine years. A shift toward more biologics is expected as a result.

Jayson Slotnik, a partner at Health Policy Strategies, told BioSpace that investment dollars are already disproportionately shifting to larger molecule biologics because of the four extra years of protection. But whether that’s good or bad, he said, depends on who you ask.

“To me, it’s bad because large molecule drugs like that have a hard time crossing the blood-brain barrier, and that makes it very complicated to treat mental health diseases,” Slotnik said. “So, that’s one unintended consequence” of the IRA.

Another is that ten years from now, there may be more large molecules, and “it will actually be more expensive for the healthcare system,” Slotnik added.

Biologics, particularly cell and gene therapies, are known to be very costly because of manufacturing issues that have yet to be addressed. On July 27, Roche announced it is discontinuing the development of the mid–stage gene therapy candidate RG6358, or SPK–8016, for hemophilia A treatment as the Swiss pharma is preparing for the potential effects of the IRA.

‘When I speak with leaders across our industry, there’s a common theme: Today’s government price–setting policies are going to have ramifications on
the medicines that are available decades down the line,” PhRMA CEO Stephen Ubl said, noting that Roche’s decision adds to the list.

In August 2022, the Congressional Budget Office reported that the IRA will lead to an increase in prices of new drugs to compensate for the inflation–rebate provisions following the exclusivity period, which would increase costs.

But while prices may go up for patients and healthcare providers, returns on the investments of the biopharma companies that developed the treatments may go down. A recent study conducted by consulting firm Vital Transformation found that biologics will see a reduction in revenue of $4.9 billion per therapy.

“This is going to have huge unintended impacts,” Duane Schulthess, the firm’s CEO, told BioSpace.

The Scale of the Problem

Schulthess said that when the firm was running those numbers and began seeing those impacts, “we were like, ‘Holy cow, this is way worse than we thought.’” He added that he and his colleagues have been invited to speak on behalf of clients in Congress regarding the IRA, and that lawmakers have had similar reactions to the data they’ve presented.

The biopharma industry is understandably not pleased with this potential drop in return on investment. Merck filed a lawsuit against the Biden Administration on the same day Vital Transformation released the IRA study, he noted, followed by Bristol Myers Squibb and the Pharmaceutical Research and Manufacturers of America (PhRMA). Even the U.S. Chamber of Commerce is suing over the IRA.

These lawsuits focus primarily on the price negotiation component of the IRA, and biologics’ larger retail price tags make them a larger target for cost containment under the IRA, Ira Leiderman, managing director of healthcare at Cassel Salpeter & Co., told BioSpace.

According to L.E.K. Consulting Managing Director Alex Guth, the reduction in revenue will be driven by the expectation that for leading biologics, the Centers for Medicare and Medicaid Services (CMS) is going to impose pricing restrictions before biosimilars would have otherwise driven costs down. The IRA “does have the potential to negatively affect pricing or to bring down biological pricing after 13 years if biosimilars have not entered yet,” he told BioSpace.

Leiderman noted that the drop in ROI will have knock-on effects for drug development. “With decreased revenue, there will be fewer dollars to spend on research and development, so research planning will need to be refocused,” he said. “Research budgets will be laser-focused on programs that have a higher likelihood of success. We will see fewer ‘blue-sky’ research projects that, in many cases, do not lead to products.”

In addition, corporate basic research that has added significant overall knowledge of diseases over the past several decades will decrease and mostly be relegated to academia, Leiderman said. “We will probably see less corporate-sponsored research in academic institutions, who will have to rely more on government and private foundation grants than ever before to sustain their research budgets.”

Guth identified some strategies for developers of biologics to brace for the potential impacts of the IRA. “First, they need to have a clear understanding of a timeline for potential negotiation of their own portfolio products and overall exposure risks to negotiation,” he said.

“The second is they need to be gathering the data to support negotiating with CMS at the time of negotiation.”

Ana Mulero is a freelance writer based in Puerto Rico. She can be reached at anacmulero@outlook.com and @anitamulero on Twitter.

 

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Humira Biosimilars and Others Face Uncertain Future Under IRA

By Ana Mulero
July 19, 2023

The recent flood of Humira biosimilars to enter the market highlights the uncertainty that surrounds generic competition for biologics following the introduction of the Inflation Reduction Act.

On July 1 and 3, seven biosimilars entered the U.S. market to challenge Humira, joining Amgen’s Amjevita (adalimumab–atto), which hit the market in January. This flood of generic competition adds insult to injury to AbbVie’s blockbuster arthritis drug, which was penalized under the Inflation Reduction Act (IRA) for its price hike, affecting price and hence competition.

L.E.K. Consulting Managing Director Alex Guth told BioSpace that the
competition from biosimilars “has a substantial negative impact on net pricing
potential for existing biologics, including Humira.” Penalties and price
negotiations imposed by the IRA burden biologics even further, he added.

The legislation was signed into law in August 2022, and the Centers for Medicare and Medicaid Services (CMS) has already penalized 70 drugs and biologics so far. In June, the federal government flagged 43 drugs, including Humira, whose prices have risen faster than the rate of inflation and are thus required to pay a penalty in the form of a rebate to Medicare under the Medicare Prescription Drug Inflation Rebate Program portion of the IRA.

The rebate will be the difference between what the price increase would have been if the manufacturer had stuck with the inflation rate for its increase andthe actual increase of the drug or biologic. For Humira, that amounts to a reduction of 19.72% from what its prices would have otherwise been.

The Biden administration said it intends to invoice these manufacturers by the fall of 2025. Meanwhile, beginning in April, the 20% coinsurance that consumers are charged began to be calculated based on a price increase commensurate with the inflation rate. Until September 30, 2023, Medicare patients may see coinsurance amounts for these drugs reduced by $1 to $449 versus what they would have received before the IRA.

The price penalty combined with the entry of biosimilars adds pressure to price competition.

Humira biosimilar developers have adopted different pricing strategies. Amgen and Biocon Biologics have said they would sell their products at two prices, with the first at a small discount relative to Humira’s new adjusted price of about $7,299 for two subcutaneous kits, or about $84,000 for a year’s supply and the second at an even steeper discount. Biocon said its second price would be 85% lower than Humira’s—about $12,500 each year.

Humira is likely a cautionary tale, experts say. CMS will issue a new list of drugs and biologics that will be subject to rebates based on the rate of inflation on a quarterly basis, and which ones are subjected to rebates could change each quarter as the rate of inflation changes. This volatility is expected to perpetuate uncertainty in the biosimilars market.

In addition, the drug price negotiation portion of the IRA further complicates the issue without a clear answer as to whether the legislation will encourage or discourage the development of biosimilar drugs.

Overview of Humira Biosimilars

The first Humira biosimilar to enter the market was Amgen’s Amjevita (adalimumab–atto) in January. Earlier this month, seven more joined the competition: Fresenius Kabi’s Idacio (adalimumab–aacf), Biocon Biologics Ltd’s Hulio (adalimumab–fkjp), Boehringer Ingelheim’s Cyltezo (adalimumab–adbm), Organon & Co. and Samsung Bioepis Co., Ltd.’s’ Hadlima (adalimumab–bwwd), Sandoz’s Hyrimoz (adalimumab–adaz), Celltrion USA’s Yuflyma (adalimumab–aaty) and Coherus BioSciences, Inc.’s Yusimry (adalimumab–aqvh).

The only Humira biosimilar that has received interchangeability designation, which allows pharmacists to substitute a biosimilar at the point of dispensing without prior authorization from the prescriber, Cyltezo.

How Will Price Negotiation Affect Biosimilars?

The industry trade lobbying group Pharmaceutical Research and Manufacturers of America (PhRMA) issued a report in June that examines these issues. PhRMA, along with Merck, BMS and others, has sued the U.S. government, challenging the constitutionality of the IRA’s drug price negotiation program.

“Under the IRA, biosimilar manufacturers are not able to predict, with any accuracy, which biologics will be subject to price setting, creating significant uncertainty regarding whether there will be an opportunity to recoup the investments required to develop a biosimilar competitor,” according to PhRMA’s report.

Guth said that this component of the IRA could have positive implications for biologics developers. That’s because biologics, which will be subject to price negotiation after 13 years of market exclusivity, are excluded from pricing negotiation if they already face biosimilar competition or will in the next two years.

This “may create an environment in which originators are more amenable to biosimilar entry than previously because it provides some level of protection from near–term negotiation,” Guth said. But, the IRA can also disincentivize biosimilar development, he added—if negotiation brings down pricing prior to biosimilar entry. This would limit the potential incentive to develop biosimilars, Guth said.

Margery Fischbein, managing director of healthcare at Cassel Salpeter & Co., agreed that this could happen. “An unintended consequence of the IRA is that generic and biosimilar manufacturers may be disincentivized to enter the market given their pricing advantages relative to Medicare negotiated brand name drugs may no longer be attractive,” Fischbein told BioSpace.

Guth said what the industry should be watching is the specific products CMS will identify for negotiation and the beginning of the price negotiation meetings between CMS and the manufacturers of those products. CMS will announce the first ten drugs selected for negotiation under Medicare Part B by September 1.

“The uncertainty for biosimilars generated by the IRA—both in terms of rebates and price negotiation—has not been fully anticipated by the lawmakers,” Guth said.

Ana Mulero is a freelance writer based in Puerto Rico. She can be reached at anacmulero@outlook.com and @anitamulero on Twitter.

 

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Blue Water Biotech makes the case for better mpox vaccines, even at ‘hyperlow endemicity’

By Helen Floersh
July 18, 2023

In some ways, mpox is the story of an epidemic that wasn’t. For a few brief (and scary) weeks in the early summer of 2022, when mpox cases around the world jumped from zero to hundreds in less than a month, it seemed that the disease was poised to go from being rarely found outside of Africa to a global threat—a dismal prospect to a pandemic-weary world.

Thanks largely to the mitigation efforts of the gay community and its uptake of Bavarian Nordic’s Jyennos vaccine—a smallpox vaccine repurposed for use against mpox—the disease is no longer considered a public health emergency in the U.S. Still, it seems it’s here to stay, as evidenced by case clusters in Chicago and New York this summer.

“What’s different now is that mpox now is at what I call ‘hyperlow endemicity’—it has established itself at a very low level and hasn’t gone away,” Andrew Noymer, Ph.D., an epidemiologist at University of California Irvine, told Fierce Biotech Research in an interview. “We really do have a disease that has persisted.”

But is that enough to justify investing in new vaccine technology, given that cases are circulating at low latency and that the current approach seems to work reasonably well? For Blue Water Biotech, which announced June 28 that its new mpox vaccine generated an immune response in mice, the answer is clear.

“What we’re offering is a tool that we think has efficacy and performs better than the current options,” Joseph Hernandez, founder and CEO of Blue Water, said in an interview. “We feel we have an obligation to move forward.”

RELATED: Evotec’s latest DOD contract provides $74M to tackle mpox

Old virus, new infections

A quick refresher on mpox: The disease is caused by the mpox virus, which causes a rash with lesions similar to smallpox. It’s spread via skin-to-skin contact with an infected person or animal. While most people who contract mpox will have mild illness, it can be severe or deadly in individuals who are immunocompromised. There is no vaccine developed exclusively for mpox.

Mpox was initially identified in Denmark in 1958, when an outbreak occurred in a colony of research primates. The first human case was recorded in 1970 in a 9-month-old boy in the Democratic Republic of Congo, where it has remained endemic for the past 40 years. It’s also considered endemic in several other regions of central and west Africa.

Though the disease started out relatively rare, incidence had crept up both in and out of Africa well before the 2022 outbreak. Cases increased 20-fold in the DRC between the 1980s and 2010. The U.S. saw an outbreak across the Midwest in 2003, likely started by prairie dogs that were infected by imported Gambian rats. The disease has been sporadically reported in the U.K. since 2018.

Besides increased international travel, the rise in mpox cases could also be linked to waning population-level protection from the smallpox vaccine, which offers some cross protection against mpox. Smallpox vaccines were routine throughout most of the world until the disease was declared eradicated in 1980. While no one has gotten smallpox since then, mpox cases have crept up—notably in people younger than 60, for whom smallpox vaccination wouldn’t have been commonplace.

“The people who were vaccinated against smallpox in the 60s and 70s aren’t at high risk of getting mpox,” Noymer said. “Mpox is more—not less—likely to emerge now because starting in the early 1980s no one was vaccinated against smallpox.”

RELATED: Bavarian Nordic quashes talk of interest in a Big Pharma buyout

Repurposing a vaccine—and a need for a new one

While the smallpox vaccine may no longer be in active use, officials in the U.S. have kept stores of it in case of a bioterrorism attack or some other spontaneous outbreak in what’s called the Strategic National Stockpile, or SNS. Until the late 2010s, the supply primarily consisted of two different vaccines: ACAM2000, an older vaccine with a less-than-ideal side effect profile in people with eczema or weakened immune systems, and Jyennos.

A large portion of the Jyennos vaccines expired in 2017, leaving the U.S. with far fewer vaccines than it needed in the case of a smallpox outbreak. The mpox outbreak erupted as officials were working with Bavarian Nordic to replenish the supply. While the vaccines had been approved by the FDA in 2019 for individuals at high risk of mpox, there weren’t enough to meet demand.

To stretch the supply, officials changed the way the vaccines were administered. The original Jyennos vaccine was meant to be given subcutaneously in two separate 0.5 mL doses, spaced four weeks apart. Instead, it would now be administered between layers of the skin, or intradermally, which gave the same effect at a fifth of the dose.

The approach was “a bit of a hail Mary,” as Noymer put it. Thankfully, the data since have shown that it works in the real world: Two intradermal doses had an effectiveness of between 66% and 89%, CDC-funded studies show. (The figures for one dose varied more widely, from 36% to 75%.) “The data are in and it seems to be effective,” Noymer said. “I’m not worried about that.”

“The data are in and it seems to be effective,” Noymer said. “I’m not worried about that.”

RELATED: Moderna tunes vaccine platform to next potential viral threat: monkeypox

But intradermal administration isn’t without its drawbacks. For one, it can lead to scarring in people with darker skin, which may add another obstacle to vaccination. On top of that, it’s simply not in line with how the vaccines were built to work, Noymer pointed out.

“Personally, in my opinion, I’d like to see them go back to subcutaneous [administration], because that’s how the vaccine was designed and that avoids the scarring problem,” he explained. “But that requires more vaccines.”

Scaling up and building better

While efficacy is always something to be enhanced, vaccines that can be produced cheaper and more quickly are a priority too. At the height of the mpox outbreak last year, Bavarian Nordic’s problems with manufacturing fresh supplies of the Jyennos vaccine compounded the shortage caused by expired vaccines, as the company struggled to get new ones out quickly enough to meet demand.

“The manufacturing [for live attenuated virus vaccines] is a nightmare, to be honest,” Shyamala Ganesan, Ph.D., senior director of vaccine research and development at Blue Water, told Fierce Biotech Research. “That’s why [Bavarian Nordic] is trying to refine it now as much as possible.”

While Blue Water is not yet at the point that it can estimate a price per dose of its mpox vaccine, it thinks it will be able to manufacture it at a lower cost than existing ones. That’s because the company’s proprietary delivery technology—which it developed in partnership with Cincinnati Children’s Hospital Medical Center—doesn’t require live virus production, unlike the Jyennos vaccine. Instead, it uses a norovirus-like particle platform that’s designed to target specific antigens rather than the whole virus, and can thus be produced using simpler machinery.

RELATED: 2 biotechs swoop into monkeypox scene with new R&D licensing pact

“You can make this in very inexpensive manufacturing systems,” Hernandez said. “We think we can compete at all levels, specifically on the economics and the cost of goods, with any of the other technologies out there.”

Blue Water is still preparing its data for publication, so aside from saying that the vaccine had sparked an immune response, the company couldn’t comment on its efficacy. However, Ganesan did note that they were looking at intramuscular injection rather than subcutaneous or intradermal, another improvement made possible by using targeted antigens rather than whole virus.

“When you go with the targeted approach, you carefully select the antigens against which you need the immune response,” she explained. Trying to deliver whole virus intramuscularly would instead mount a “mixed” immune response that’s less specific.

“It makes delivery much easier. We’re working towards a very cost-effective approach,” she said. “All of these things make this whole technology platform very feasible and very attractive.”

Less mpox, fewer vaccines

Blue Water is one of only a few companies working on mpox vaccines, Ira Leiderman, managing director of the healthcare practice at Miami investment firm Cassel Salpeter and Co., noted in an interview. While the lead contender, Moderna, is planning on testing its vaccine in humans this summer, per the company’s interview with Fierce Biotech at BIO back in June, there’s little other progress on the horizon.

RELATED: Qiagen joins monkeypox test-making efforts with 6-in-one assay

“You don’t see a lot of companies putting forth an mpox vaccine program,” Leiderman said. “Not a huge number of companies working on vaccines to start with—even among the big ones there aren’t many programs.”

That could be explained in part by the dynamics of the disease, which make developing a vaccine for mpox less likely to offer a high ROI. While the flu requires new vaccines each season, the mpox vaccine provides long-lasting protection with just a single two-dose regimen.

“If you make an influenza vaccine, tens of millions of people will line up to get it, and you might get a new one every year,” Leiderman explained. “There’s a real business to selling flu vaccines, thus the number of companies selling them.”

On top of that, the most likely customer for new mpox vaccines is the government, which could use them to stock up the SNS, he added. The intricacies of working with the government on vaccine production comes with added costs, such as the need to keep a manufacturing line “warm,” or ready to produce vaccines, even when active production isn’t taking place.

“You may or may not be reimbursed by the government, so it’s not overly attractive,” Leiderman said.

RELATED: Labcorp launches monkeypox PCR tests through CDC initiative

Demand beyond borders

Finally, there’s the question of demand. In the U.S., mpox is regarded by many as a sexually transmitted disease, Noymer said. Though it is true that it has been passed on during sex in the 2022 outbreak, it can be transmitted through casual contact too, such as a hug. “Mpox is not a gay disease, and it’s not a sexually transmitted disease in the strict sense,” he said. “It has been spread through sexual networks, that’s noncontroversial at this point.”

To that end, he expects that demand for an mpox vaccine will continue among people who have sex with many other people, especially those who are also at risk for contracting HIV. Anyone who is taking prophylactic HIV medications should be getting the mpox vaccine, Noymer noted.

“Most of the deaths have been in persons with poorly managed HIV infection,” he said. “It’s just a fact.”

While he sees a need for mpox vaccination in the U.S. for years to come, and for new vaccines that can also work against smallpox to be added to the SNS, perhaps the greater opportunity lies in African countries where mpox is endemic. While it’s not clear how cheap vaccines would need to be before routine vaccination became the norm, for now there is a bigger market, Noymer noted.

“I don’t think all 133 million Americans need an mpox vaccine, but worldwide—clearly in parts of West Africa where we have persistent reemergence of mpox from animal reservoirs—there’s a good case that we could vaccinate a lot of people,” he said.

RELATED: Moderna CEO says mpox vaccine is ‘fantastic.’ It may never see the market

Moderna appears to be thinking along the same lines. In Fierce Biotech’s BIO interview with Hamilton Bennett, the company’s senior director of vaccine access and partnerships, she noted that Moderna was coordinating with developing nations to facilitate the expansion of vaccine-related economic infrastructure and to ensure the availability of its products in those nations.

“Our portfolio in global health is designed to allow those associations to happen because they’re not something where we can pick up the phone when the clock starts,” she said at the time. “We need to build those relationships now.”

Blue Water Biotech shares a similar philosophy. Though mpox cases have waned for now and appear to be relatively isolated in terms of the demographics most affected, past pandemics have shown that it’s in everyone’s best interest to be prepared.

“Any vaccine that you develop isn’t for one particular community—it’s for protecting the whole general population,” Ganesan said. “We want to provide the next generation of mpox vaccine that will help the whole human community to be protected.”

 

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‘We Don’t Have Enough of an Infrastructure’: Psychiatric Hospitals Buckling Under Historic Pressure

By Chris Larson
July 5, 2023

Psychiatric hospitals are buckling under decades of financial pressure that increased following the onset of the pandemic.

Discriminatory regulations, challenging payer relations and inflation have placed several psychiatric hospitals in untenable positions. A spate of facility closures in 2023 demonstrates that the pressure is proving too much. Industry insiders say that systemic changes can’t come soon enough to protect these facilities and position them to meet ballooning patient demand.

“It’s been a host of issues that over time have really made providing this level of care one of the most challenging things I think I’ve done in my career,” said Stuart Archer, CEO of Oceans Healthcare.

Plano, Texas-based Oceans Healthcare is a behavioral care system that specializes in caring for seniors. It operates outpatient, day treatment and inpatient services at 48 locations in Louisiana, Mississippi, Oklahoma and Texas, according to its website.

Collectively, the psychiatric hospital segment is working well beyond its capacity. On average, U.S. mental health facilities have utilization rates of 144%, while combined substance use/mental health facilities have a 137% rate, according to the latest federal National Substance Use and Mental Health Services Survey (N-SUMHSS).

The same survey finds that substance use facilities collectively have a utilization rate of 96%.

Recently, Nashville, Tennessee-based HCA Healthcare Inc. (NYSE: HCA) shuttered an 18-bed psychiatric unit at Mission Oaks Hospital in Los Gatos, California. HCA Healthcare pointed to workforce challenges as the primary reason for the closure.

“Unfortunately, in the post-pandemic healthcare ecosystem, we can’t find qualified staffing for this unit,” an HCA Healthcare representative told The Mercury News.

HCA Healthcare has not responded to BHB’s request for comment.

That closure reduces the psychiatric bed count in Santa Clara County, California, by 8.5%, the report states.

HCA operates five psychiatric hospitals. As of the end of 2022, it had 44 psychiatric units in other facilities, according to public filings.

In Tukwila, Washington, Cascade Behavioral Health Hospital LLC told local officials it would shutter at the end of July, eliminating 288 jobs and 137
psychiatric beds.

“We were a solution to a community that needed access to acute behavioral healthcare,” Shaun Fenton, Cascade Behavioral Health Hospital CEO, told officials in a WARN notice. “Through COVID and other complexities, Cascade remained steadfast in our commitment to our patients and community. However, the breadth of challenges created a situation where the long-term viability of the hospital was no longer sustainable.”

Cascade Behavioral Health Hospital was owned and operated by Franklin, Tennessee-based behavioral health giant Acadia Healthcare Co. Inc. (Nasdaq: ACHC).

The relative impact of one factor or another depends on the community surrounding that hospital.

The burden of history and regulations

Psychiatric hospitals today are not what they used to be. Before the deinstitutionalization movement of the Kennedy era and beyond, there was relatively easy access to facilities that took a long-term, residential approach to treatment for severe mental illness (SMIs) or other acute behavioral health needs.

Cultural pressures to end the warehousing of people with disabilities and advancements in medical treatments inspired regulatory changes meant to bring treatment to outpatient clinics and other community settings. However, regulations didn’t go nearly far enough to replicate the access of the historic approach.

“The two challenges are that we swung really far in the way of avoiding longer-termed care facilities — which really do help people, but people don’t want to get to the point of needing them — and we don’t have enough of an infrastructure to support people not getting to that point,” Lindsay Oberleitner, a clinical psychologist and education director of SimplePractice, told BHB.

SimplePractice, part of EngageSmart, is a health and wellness platform for patients and providers.

Further, the financial pressures from uneven reimbursement and a lack of enforcement of federal reimbursement parity laws has made it difficult for providers to keep up with the high demands. Low payment reimbursements often lead to lower wages for staffers. And as the pressure increases for more services, so does the pressure to keep and retain staff. This is often an impossible effort as workers seek comparable or better wages in much less demanding work environments.

If a facility doesn’t have the staff to keep all of a psychiatric facility’s beds open, it’s not going to generate the income needed to go on, Oberleitner said.

“Through COVID and other complexities, Cascade remained steadfast in our commitment to our patients and community. However, the breadth of challenges created a situation where the long-term viability of the hospital was no longer sustainable.”

Shaun Fenton, CEO of Cascade Behavioral Health Hospital

Even if a health system is able to fully staff its psychiatric facility, behavioral health services are at higher risk of being cut at struggling hospitals compared to physical health services.

Behavioral health, on average, ranks 5.2 among the top 11 issues hospital executives face, according to survey data from the American College of Healthcare Executives. However, workforce issues were the No. 1 issue in the latest version of the survey.

For example, St. Dominic Hospital announced the closure of Jackson, Mississippi-based St. Dominic Behavioral Health Services. The move came “after a thorough assessment of our staffing and services and following losses of several million dollars in the last 3-5 years,” according to a statement from the system. St. Dominic Hospital is part of the Catholic health care system, Franciscan Missionaries of Our Lady Health System (FMOLHS).

The move impacts 157 employees, or 5.5% of St. Dominic’s workforce. The losses St. Dominic incurred didn’t necessarily come from the psychiatric unit. Rather, cumulative losses led to the closure, Meredith Bailess, senior director of marketing and communications for St. Dominic Hospital, told BHB.

St. Dominic Hospital has been in operation for the past 77 years.

Oberleitner said psychiatric hospitals also face the task of caring for even sicker patients today than in the past. Regulatory and payer trends have compressed the length of time a patient can remain in the hospital. This limits a facility’s ability to provide care and generate revenue. Further, the collective behavioral health system has not invested enough in outpatient or preventative health care efforts to lift the burden on psychiatric hospitals.

“You’re taking full responsibility for [the patient’s wellbeing] at a point of crisis and taking on risk,” Oberleitner said. “But many times reimbursement might not fully cover the costs that a hospital is needing to even maintain those beds.”

Still, there is a movement to address the shortage of psychiatric beds. Several operators point to increased demand and decades of prolonged pressures as
opportunities for expansion and investment.

In some ways, the historical challenges for psychiatric hospitals and their partners open the door to fundamentally changing dynamics through lobbying and other dealmaking.

Making deals for psychiatric hospitals

Since Medicaid and Medicare are leading payers — both in reimbursement and health plan policy — behavioral health organizations and their partners can lobby the public and elected officials for better rates and other policy changes.

While this isn’t easy, it’s often necessary. And the stakes at play with psychiatric hospitals can make reform a compelling case to argue.

“It’s very difficult for an individual hospital to be able to negotiate appropriate reimbursement rates from an insurance company or any payer,” James Cassel, chairman and co-founder of the investment bank Cassel Salpeter & Co., told BHB. “But it’s a significant national problem that requires the government’s and the appropriate agencies’ help to work through those problems. Because when a hospital closes and there’s no available care, the community suffers.”

At the federal level, many legal and regulatory frameworks popped up in the 1960s and exist today in similar forms to their original introductions. Some of the toughest regulations are the exclusion of institutions for mental disease from the Medicaid program (IMD exclusion) and the 190-day limit on psychiatric care for Medicare beneficiaries.

The federal government oversees and administers Medicaid in partnership with state governments, which covers disadvantaged populations. Medicare is the federal health plan for American elders and those with end-stage renal disease (ESRD).

The American Hospital Association (AHA) calls these and other behavioral health-related policies “arbitrary,” “discriminatory,” and “outdated”.

“This is one of the only levels of care where the federal government, in many ways, discriminates,” Archer said.

He also pointed to the meager increase that psychiatric hospitals will get from Medicare as part of the prospective payment rules. The Centers for Medicare & Medicaid Services announced a 1.9% net increase for inpatient psychiatric payments for the federal fiscal year 2024.

Many facilities have faced “10%, 15% cost increases by any measure” in recent years.

He also pushes for behavioral health providers to take a seat at the regulatory table.

[It’s] a significant national problem that requires the government’s and
the appropriate agencies’ help to work through those problems. Because
when a hospital closes and there’s no available care, the community
suffers.

James Cassel, chairman and co-founder of Cassel Salpeter & Co.

In Louisiana, Oceans Healthcare found a legislator to sponsor and had a hand in passing a bill that allows patients to choose where they can go to get psychiatric facility services, barring hospitals and providers from dictating which facility patients go to for care. In Mississippi, Oceans Healthcare similarly advocated for and saw a bill that allowed IMD facilities to fully participate in the Medicaid program become law. Oceans Healthcare has also lobbied officials on issues in Texas.

“These are issues that many times we find elected officials care deeply about; they just haven’t had as much exposure to the issues at hand,” Archer said. “Nothing happens legislatively unless there’s a champion for an issue.”

Oceans Healthcare hopes to bring similar advocacy work done at the federal level by the industry trade group, the National Association for Behavioral Healthcare (NABH), to the state level. Archer holds an at-large seat on the organization’s board.

Short of changing regulations, health systems can do what they’ve done at other times to make psychiatric hospitals or units work, Cassel said. This can include merging with other systems or establishing partnerships with larger psychiatric facility operators, he added.

Oceans Healthcare’s growth includes establishing joint ventures with other health systems.

In November, Lafayette, Louisiana-based Ochsner Lafayette General and Oceans Healthcare announced a joint venture to build a $30 million behavioral health hospital. It is slated to open in late 2024, will be called Ochsner Behavioral Health Acadiana and will house 120 beds for adolescents, adults and geriatric patients.

“Many of these health systems have been in communities for generations. They’re the trusted brand in the area,” Archer said. “So we enter into the joint ventures with a tremendous amount of respect. Core to that partnership is a shared vision of the role that behavioral health plays in a community and a shared vision to improve it.”

Companies featured in this article:

Cascade Behavioral Health Hospital, Cassel Salpeter & Co., Franciscan Missionaries of Our Lady Health System, HCA Healthcare, Mission Oaks Hospital, Oceans Healthcare, SimplePractice, St. Dominic Hospital is part of the Catholic healthcare system

Chris Larson
Chris Larson is a reporter for Behavioral Health Business. He holds a bachelor’s degree in communications from Brigham Young University and has been covering the healthcare sector since December 2016. He is based in the Louisville metro area. When not at work, he enjoys spending time with his wife and two kids, cooking/baking, and reading sci-fi and fantasy novels.

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‘If There Is a Chilling Effect, It’ll Be Very Temporary’: What CARD’s Bankruptcy Means for the Autism Industry

By Chris Larson
June 21, 2023

The Center for Autism and Related Disorders’ (CARD) bankruptcy doesn’t foreshadow a new level of doom and gloom for the industry as a whole.

Although CARD is one of the largest companies operating in the space, it shouldn’t be used as a bellwether for autism therapy’s future outlook, several insiders told Behavioral Health Business.

“I’d say the CARD transaction is more indicative of where we are in the market than it is of where the market is going,” Robert Aprill, managing director at the M&A firm Physician Growth Partners, told BHB.

Headwinds common to autism therapy were the driving force behind CARD’s Chapter 11 bankruptcy, court documents state. But CARD is an isolated example of a behavioral health company needing a court-ordered restructuring due to “razor-thin liquidity.”

If anything, CARD filing for Chapter 11 solidifies several industry trends already underway. Stagnant fee-for-service reimbursement rates, along with rising inflation and interest rates, have strained the autism sector.

In turn, some operators have made painful business adjustments, including job cuts. Others that were once in hyper-growth mode and active on the M&A front pivoted to more slow-and-steady approaches to expansion and focusing on organic growth.

That has translated to deal volumes being down during 2023’s first quarter.

Kevin Taggart, managing partner and co-founder at M&A advisory firm Mertz Taggart, told BHB he expects this trend to continue in the second quarter, with transaction levels picking up next year.

“There’s always a market for good companies here and there,” he said.

Autism therapy demand outweighs challenges

As part of the CARD’s bankruptcy, majority shareholder Blackstone Inc. (NYSE: BX) agreed to sell its stake to Doreen Granpeesheh, the company’s founder and former CEO, for $25 million. Sangam Pant is also involved with the bid.

CARD was valued at $700 million in 2018 when Blackstone acquired a 70% stake in the company.

Despite the current headwinds that CARD and its peers are navigating, interest in meeting the staggering demand for autism services overrides concerns about the segment.

As many as 1 in 36 children in the U.S. have autism, up from the previous estimate of 1 in 44. In comparison, the estimated autism rate in the U.S. was one in 150 in 2000.

The growing rate of autism has also come with commensurate increases in expectations for people with autism to succeed in life. Understanding of the condition and related therapies has improved, with more accessibility as well.

All of this means continued, near-unrelenting demand for services, Matt Bogenschutz, associate professor at the School of Social Work at Virginia Commonwealth University, told BHB.

“If there is a chilling effect [to CARD], it’ll be very temporary, and hopefully then people will take a more sober view and realize that there is a great need in the space,” Bogenschutz said. “While I think the provision of any human service is never going to be a huge moneymaker, I do think there’s still space for investments.”

An isolated impact

CARD was among a cohort of autism therapy providers that took advantage of a frothy investment and M&A market. In hindsight, it did so at a time when investors and operators lacked the degree of savvy now recognized as needed when considering the proposition of growing and operating national autism therapy companies.

Critics of CARD, or of the involvement of private equity investment in the space more broadly, point to the influence of large investors as a negative. Some will possibly make the case that CARD’s fate is indicative of where other companies may be heading.

“I would respectfully disagree that this is the writing on the wall for anyone that’s sought out private equity backing,” Mike Moran, co-founder and executive advisor of M&A Healthcare Advisors, told BHB. “I don’t think this is a bigger indication of what’s to come at all.”

CARD is something of a one-of-one case, Moran said, noting that bankruptcy is indicative of what happens when any company runs into trouble with overhead and generating cash flow.

As of April 2023, the company’s annual earnings before interest, taxes, depreciation and amortization (EBITDA) were a $22 million loss. Its net loss totaled $82 million, while revenue totaled about $160 million for the same period, according to court documents.

James Cassel, chairman and co-founder of the investment bank Cassel Salpeter & Co., also doesn’t expect a wider negative impact from the CARD bankruptcy sale. It does reflect a change in the state of the market for buying and selling autism therapy companies, he told BHB.

“What this is doing is resetting values,” Cassel said, pointing to elevated multiples around the time CARD sold. “I don’t think the old valuations are going to stand. … The market’s just a little quieter.”

Data from M&A firm The Braff Group shows that multiples for autism therapy companies have compressed in recent years. Multiples ranged from 5.75 times earnings to 14 times earnings from the middle of 2016 to the middle of 2019.

Between 2020 and 2023, high-end multiples tumbled while low-end multiples only ticked down slightly compared to the previous period. Those multiples stand at 5 to 10 times earnings, according to The Braff Group.

Peaks, valleys and centers

The Blackstone investment in CARD generated a great deal of excitement. It also lent a significant amount of legitimacy to the autism therapy space, Adam Abramowitz, managing director and head of health care at M&A and strategic advisory firm Intrepid Investment Bankers, told BHB.

“From an investment standpoint, there are clearly some peaks and valleys,” Abramowitz said.

Echoing several other sources, Abramowitz expects investors to continue to strengthen their standards for what autism therapy companies will invest in. He called it a “heightening of discipline.”

CARD’s struggles have also opened up the conversation about what care setting is best for autism providers. Court documents point to the company’s leases for its treatment center as a major concern.

The industry has gravitated more towards center-based programs, Abramowitz said. There is a wide mix of home-based and center-based care in the autism therapy space.

The real estate needs for center-based care inherently added to an autism therapy provider’s overhead. While home-based care is less efficient, it has become more accepted in the market after COVID, at least temporarily, closed centers.

Debt and market concentration

Like many other businesses, CARD’s private equity backing came with a notable amount of debt. This likely became problematic since interest rates have skyrocketed since 2018.

The increased cost of debt slowed investment overall. Taggart suspects this also has the effect of inspiring greater scrutiny in dealmaking across behavioral health.

Over the last six months, he said, investors have lodged many more questions before submitting their offers.

“I don’t know if that’s being driven by lenders requiring more information, but that’s my suspicion,” Taggart said. “They’re asking a lot more questions than they used to, say, a year ago — or certainly more than five years ago.”

The CARD bankruptcy also demonstrates the inherent risk of leveraged buyouts like the one CARD underwent.

Court documents show CARD took on $235 million in debt on Nov. 21, 2018, as part of the deal with Blackstone. Its primary lender is New York-based Ares Capital Corp. That debt funded the company’s expansion and development of its own electronic health record (EHR) system.

About $159.5 million of that debt remains.

One investment banking executive who spoke with BHB on background pointed out that while other autism therapy providers grew quickly across the country, CARD had a larger and more diffuse footprint.

As of February 2022, CARD offered services at 221 locations in 24 states. According to court documents, it had about 100 clinics in 2018. Today it lists 130 locations.

Rates from state Medicaid and state-focused private health plans make up 90% of the company’s revenue, court documents show. Medicaid rates for autism services are low compared to other services. Also, rates for such therapies have remained flat on average in the U.S., acting effectively as cuts during inflation.

“I would assume that the average, blended rate per hour is substantially different [than other organizations],” the executive said. “CARD did not have as much cushion to absorb these impacts, maybe relative to other competitors that were more in lucrative markets or markets that have had higher reimbursements.”

Companies featured in this article:

Blackstone, Center for Autism and Related Disorders, Intrepid Investment Bankers, M&A Healthcare Advisors, Mertz Taggart, Physician Growth Partners, Virginia Commonwealth University

 

Chris Larson
Chris Larson is a reporter for Behavioral Health Business. He holds a bachelor’s degree in communications from Brigham Young University and has been covering the healthcare sector since December 2016. He is based in the Louisville metro area. When not at work, he enjoys spending time with his wife and two kids, cooking/baking and reading sci-fi and fantasy novels.

 

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Athenex, Inc. Reaches Agreement With Lenders to Pursue Expedited Sales Process

May 14, 2023 11:15 ET | Source: Athenex, Inc.

Follow To Best Facilitate, Company Voluntarily Files Chapter 11 Proceedings

Company Has Sufficient Resources to Support Athenex Pharma Solutions Operations and Fulfill APD Customer Orders During Process

BUFFALO, N.Y., May 14, 2023 (GLOBE NEWSWIRE) — Athenex, Inc., (NASDAQ: ATNX) (“Athenex” or the “Company”), a global biopharmaceutical company dedicated to the discovery, development, and commercialization of novel therapies for the treatment of cancer and related conditions, today announced that, following an ongoing strategic review, it has reached agreement with its lenders to move forward with an expedited sales process of the Company’s assets across its primary businesses: Athenex Pharmaceutical Division (“APD”), Orascovery, and Cell Therapy.

To best facilitate this process, Athenex and certain of its subsidiaries filed voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. This will enable the Company to divest its assets and wind down the Athenex platform in an orderly fashion, while seeking to maximize value for its stakeholders. The Company anticipates concluding the expedited sales process by July 1, 2023, with the Chapter 11 cases continuing thereafter to resolve claims.

Athenex has also reached an agreement with its secured lenders, subject to court approval, for the consensual use of cash collateral, which will enable the Company to, among other things, satisfy certain obligations to its vendors for authorized goods received and services rendered after the filing. Athenex Pharma Solutions (“APS”), which includes the Company’s manufacturing facility in Clarence, New York, is expected to continue its operations for at least the next 90 days, to provide commercial supply of tirbanibulin ointment. In addition, APD is continuing to operate in the ordinary course and fill customer orders with the ample inventory it has on hand.

Dr. Johnson Lau, Chief Executive Officer of Athenex, on behalf of the management team and the Athenex Board of Directors, said, “Throughout our history, we have sought to become a leader in bringing innovative cancer treatments to the market and improving patient health outcomes. Our team was successful in bringing tirbanibulin, through regulatory approvals, to the U.S. market and a number of EU countries, as well as Taiwan. Unfortunately, our oral paclitaxel product candidate received a complete response letter from the U.S. Food and Drug Administration, and this significant regulatory setback, coupled with challenging biotech markets and the difficult economic environment, put tremendous pressure on our ability to continue to fund our businesses.

“Over the past two years, we made considerable progress in refocusing our business around our promising NKT cell therapy platform, monetizing noncore assets to improve our balance sheet and extending our cash runway, paying down $108 million of debt, and undertaking a comprehensive review of strategic alternatives to create value for our stakeholders. While we explored every viable avenue to avoid this outcome, an orderly sales process represents the best path forward at this time.

“Our goal remains to identify purchasers who will continue development of the important drug candidates for which we have established a good foundation, and to bring them to market on behalf of medical practitioners and, most importantly, for patients. We are incredibly thankful to our team for their dedication to Athenex and will look to support our colleagues through this transition period.”

Additional information regarding Athenex’s Chapter 11 filing is available at https://dm.epiq11.com/athenex; by calling the Company’s claims agent, Epiq, at 888-601-3094 (toll-free) or +1 503-433-8501 (international); or by sending an email to Athenex@epiqglobal.com.

Pachulski Stang Ziehl & Jones LLP is acting as Athenex’s legal counsel. MERU is serving as its financial advisor and Cassel Salpeter & Co., LLC as its investment banker.

About Athenex, Inc.

Founded in 2003, Athenex, Inc. is a clinical-stage biopharmaceutical company dedicated to becoming a leader in the discovery, development, and commercialization of next-generation cell therapy products for the treatment of cancer. The Company’s mission is to become a leader in bringing innovative cancer treatments to the market and to improve patient health outcomes. In pursuit of this mission, Athenex leverages years of experience in research and development, clinical trials, regulatory standards, and manufacturing. The Company is focused on its innovative Cell Therapy platform, based on natural killer T (“NKT”) cells. For more information, please visit www.athenex.com.

Forward-Looking Statements

Except for historical information, information in this press release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and assumptions that are difficult to predict. Words such as “anticipate,” “could,” “expect,” “may,” “seek,” “will,” and similar expressions, or the use of future tense, identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Actual results might differ materially from those explicit or implicit in the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions including: risks inherent in the bankruptcy process, including the Company’s ability to obtain approval from the Bankruptcy Court for motions or other requests made throughout the course of the Chapter 11 proceedings; the Company’s liquidity and financial position; the effects of the Chapter 11 proceedings on the Company’s operations; the Company’s ability to continue to operate its business during the pendency of the Chapter 11 proceedings, and the availability of operating capital during the Chapter 11 proceedings; the Company’s ability to maintain relationships with partners, suppliers, customers, employees, regulatory authorities and other third parties; the length of time that the Company will operate under Chapter 11 protection; objections to the Company’s restructuring or liquidation process, third-party motions, or other pleadings filed that could protract the Chapter 11 proceedings; and Bankruptcy Court rulings in the Chapter 11 proceedings and the outcome of the Chapter 11 proceedings, in general. You should not rely upon forward-looking statements as predictions of future events. The Company undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this press release to conform these statements to actual results or to changes in its expectations, except as required by law.

Investor Contacts

IR@athenex.com
716.427.2952

Media Contacts

Daniel Yunger / Wendi Kopsick
Kekst CNC
AthenexMediaInquiries@kekstcnc.com

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