Information for Creditors of Zosano Pharma Corporation
Case Number 22-10506 in the United States Bankruptcy Court for the District of Delaware
THE DEBTOR IS A PHARMACEUTICAL RESEARCHER
Among the first filings in many large Chapter 11 bankruptcy cases is a document known as the “First Day Declaration,” in which a principal of the company gives information about the business, its finances, and the bankruptcy filing. Steven Lo, the Debtor’s President and Chief Executive Officer (“CEO”) filed the First Day Declaration in the Zosano Pharma Corporation bankruptcy case. According to Mr. Lo, Zosano Pharma is a “clinical-stage biopharmaceutical company focused on providing rapid systemic administration of therapeutics . . . using its proprietary transdermal microneedle system (the “System”).”
The Debtor’s System was developed in an effort to find a therapeutic administration system that would facilitate rapid drug absorption in the system. The System was also beneficial because it was designed to administer treatment through micro needles, which would penetrate the skin just enough to administer treatment to the capillary bed, but without reaching the nerve system. Therefore, the System was designed to be painless.
The principal project that the Debtor has been working on for years is what the Debtor refers to as M207. This project was working to use the Debtor’s System to administer a proprietary formulation of zolmitripan, and it was planned to be used as a rapid migraine treatment. The Debtor also worked with other pharmaceutical companies to do feasibility studies, in which the Debtor would test whether its System could be used to deliver other treatments and therapies.
FAILED FDA APPROVAL DROVE THE DEBTOR’S FILING
The Debtor does not have any products or sales and only produces very small amounts of revenue from its feasibility studies. The revenues it brings in are not enough to support its research and development, which are extremely cost intensive. Historically, Zosano has relied on investments to fund its operations. It has used these investments – more than $60 million worth – to try to develop its M207 migraine treatment therapy.
In December 2019, Zosano submitted the M207 to the FDA for approval. However, the FDA determined that there had been deficiencies in the testing of the M207 and denied approval in October 2020. After significant additional time and expense was put into additional clinical trials, Zosano again submitted the M207 for FDA approval in January 2022. The following month, the FDA again denied approval, claiming deficiencies in the clinical data.
These denials both delayed the Debtor’s process and cost it millions of dollars in additional testing. The second denial also made it difficult or impossible for the Debtor to attract more investment funding. Without the funds to continue or the ability to raise additional investment, the Debtor made the hard choice to wind down its M207 program in March 2022. It has been working on a sale of its assets and filed for bankruptcy in order to run that sale process and arrange for an orderly liquidation of any proceeds the Debtor is able to get from asset sales.
UNSECURED CREDITORS WILL PREDOMINATE
In its bankruptcy papers, Zosano reports that it has no secured debts. So, the company unsecured creditors will be the primary interested parties in the case. Though Zosano does report owing some tax debts, which may be paid before unsecured creditors, the proceeds of asset sales will largely be distributed evenly among the creditors of the company. Since the Debtor does not have any secured debt, the $10.5 million or more in unsecured debt will take center stage in this bankruptcy case.
It is possible that the Debtor may also have some liability to former employees or others due to the shuttering of the M207 project on short notice in March 2022. The existence and extent of those liabilities is unclear at this point. In his First Day Declaration, CEO Steven Lo indicated that the bankruptcy was filed in part to forestall any potential litigation. It is possible that Mr. Lo was referring to potential employment litigation stemming from the bulk layoffs the company has undertaken in the beginning of 2022.
Creditors have a right to find out what litigation the Debtor anticipates, as well as significant additional details about its assets and liabilities. Unsecured creditors may do this by forming a committee of creditors that can work together in order to maximize the outcome for all unsecured creditors. Committees are permitted by the bankruptcy code and can allow creditors to get representation to be paid for by the Debtor. Committees are an important voice in bankruptcy cases and can often improve outcomes for unsecured creditors. If you have questions about this case, the bankruptcy process, or committees, please contact PRLT.
PRLT does not represent Zosano Pharma Corporation or any of its affiliates. The content on this page is provided for informational purposes only. Nothing on this page or this website creates an attorney/client relationship between you and PRLT. Nothing on this page is legal advice. If you have any questions about the Zosano Pharma bankruptcy case or anything discussed on this page, please contact us.