New Chapter 11 Filing - Orexigen Therapeutics Inc.

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Orexigen Therapeutics Inc. 

3/12/18

Orexigen Therapeutics is a publicly-traded ($OREX) biopharmaceutical company with one FDA-approved product - "Contrave" - an adjunct to a reduced-calorie diet and exercise for chronic weight management in certain eligible adults. (Before we continue, please take a minute to appreciate the exquisite creativity these folks deployed with the name, "Contrave." Control + crave = Contrave. We hope they didn't shell out too much cash money to the brand consultants for that one). 

Anyway, the drug could theoretically service the 36.5% of adults the Center for Disease Control & Prevention has identified as obese, a potential market of 91-93 million people in the United States alone. And that number is predicted to rise to 120 million people in the next several years. Yikes: that's 33% of the U.S. population. Apropos, the drug is the number one prescribed weight-loss brand in the US with over 1.8 million prescriptions written to date, subsuming 700,000 patients. The drug is also approved in Europe, South Korea, Canada, Lebanon, and the UAE. 

All of that surface-level success notwithstanding, the company has lost approximately $730 million since its inception. This is primarily because it has been spending the last 16 years burning cash on R&D, clinical studies for FDA approval, recruitment, manufacturing, marketing, etc., both in and outside the U.S. And people wonder why drugs are so expensive. The company believes it could be profitable by 2019 under its existing operating model and revenue forecasts; it enjoys a patent until 2030. 

Obviously the patent is critical because the company, through its banker, attempted a sale prior to the bankruptcy filing but proved unsuccessful. The goal of the bankruptcy filing, therefore, is to effectuate a sale with the benefit of "free and clear" status. While no stalking horse bidder is lined up, The Baupost Group LLC, is leading a group of secured noteholders (including Ecori Capital, Highbridge Capital and UBS O'Connor) to provide a $35 million DIP credit facility and buy the company some time. Will they end up owning it? 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $165mm 0% '20 convertible notes (The Baupost Group LLC), $115mm 2.75% '20 convertible notes ($25 million outstanding, Wilmington Trust NA), $49.6mm 2.75% '20 convertible exchange senior notes ($38.9 million outstanding, US Bank NA) 
  • Company Professionals:
    • Legal: Hogan Lovells LLP (Christopher Donolo, Eric Einhorn, Christopher Bryant, Jon Beck, Sean Feener) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Andrew Remming, Jose Bibiloni)
    • Financial Advisor: E&Y
    • Investment Banker: Perella Weinberg Partners 
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition Collateral Agent & Prepetition Trustee: U.S. Bank NA
      • Legal: Kelley Drye & Warren LLP (James Carr, Benjamin Feder)
    • DIP Lenders
      • Legal: Quinn Emanuel Urquhart & Sullivan LLP (Eric Winston)
    • DIP Administrative Agent: Wilmington Trust Company
      • Legal: Arnold & Porter (Tyler Nurnberg)
    • DIP Lender: Highbridge Capital Management LLC
      • Legal: Brown Rudnick LLP (Robert Stark, Stephen Levine, Uchechi Egeonuigwe) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Aaron Stulman)
    • Official Committee of Unsecured Creditors
      • Legal: Elliott Greenleaf PC (Rafael Zahralddin-Aravena, Eric Sutty) & (local) Irell & Manella LLP (Jeffrey Reisner, Michael Strub Jr., Kerri Lyman)

Updated March 30, 2018

New Chapter 11 Bankruptcy - The Walking Company Holdings Inc.

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The Walking Company Holdings Inc.

3/8/18 Recap: Another retailer - this time a repeat offender - will be walking into bankruptcy court (see what we did there?). Here, the California-based once-publicly-traded ($WALK) manufacturer of footwear like Birkenstock and ASICS has filed for bankruptcy with a plan on file and an equity sponsor in tow to the tune of $10mm. 

This is a story of staggered disruption. In the first instance, the company expanded via acquisition and grew from 2005-2008 to over 200 stores. To fund the expansion, the company issued $18.5mm of convertible notes and transferred the proceeds of the liquidation of its Big Dog entity to The Walking Company, the use of proceeds including the buildout of omni-channel distribution and vertical integration. But,

As a result of many factors including- among them, challenging negotiations with landlords which did not provide the Debtors with the rent relief they believe they needed, and the state of the national economy, by late 2008 TWC found that nearly 100 of the newer stores it opened during this expansion period were not generating the sales and profits expected.

Moreover, 

...by 2008, Big Dogs' business had collapsed more rapidly than the Debtors had anticipated. Big Dogs was in the business of selling moderately priced, casual apparel through a chain of specialty retail stores (Big Dogs stores) located around the country. The rapid growth of big-box, mass-market retailers during this period put great pricing pressure on retailers of moderately priced, casual apparel, putting many of them out of business.

Walmart ($WMT). Target ($TGT). Just say it broheims. Never understand the reluctance in these filings. Anyway, the upshot of all of this? Once the Great Recession hit, mall traffic fell off a cliff, revenue declines accelerated, landlords proved obstinate, and the company filed for bankruptcy in December 2009. 

In bankruptcy, the company reached accommodations with certain landlords and received a $10mm capital infusion from Kayne Anderson Capital Advisors LP. 

Subsequent to the bankruptcy, the company apparently thrived from 2013 through 2017. It had a better rent structure, it ceased expansion, and it focused on successful brands (e.g., ABEO) and the wholesaling and international licensing thereof. But then the realities of e-commerce struck. Per the company,

During this period, however, the increasing power of Internet retailers made traditional business of retail stores selling products manufactured by others increasingly difficult, and it also had an increasingly negative impact on customer traffic in shopping malls. 

Indeed, Deckers Outdoor Corporation ($DECK)(the manufacturer of UGG footwear) terminated its relationship with the company. The company couldn't replace those lost sales fast enough - through third party or private label sales - and the dominos started to fall. The company sought rent concessions and landlords, for the most part, told it to pound sand. Holiday sales declined. Appraisers reduced the valuation of inventory and, in turn, the company had diminished access to its bank credit line. Cue the Scarlet 22.

The company intends to use the bankruptcy to obtain "substantial rent relief by conforming their lease portfolio to market rents." Notably, two of the initial 5 leases that the company seeks to reject in the first instance are Simon Property Group locations in Dallas and Oklahoma City and one Taubman location. Other creditors appear to be your standard retail slate: Chinese manufacturers, trade vendors (ECCO, Rockport) and other landlords (General Growth Properties is a prominent one with locations listed as 9 of the top 30 creditors). 

The company otherwise has agreement with its large shareholders (including another $10mm equity infusion) and Wells Fargo to provide DIP and exit credit. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $40.3mm RCF & $7.25mm TL (Wells Fargo Bank NA), $11.74mm 8.375% '19 convertible notes    
  • Company Professionals:
    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey N Pomerantz, Jeffrey W Dulberg, Victoria A Newmark, James E ONeill) 
    • Financial Advisor: Consensus Advisors LLC
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Agent, DIP Term Agent, Prepetition Senior Agent: Wells Fargo Bank NA
      • Legal: Choate Hall & Stewart LLP (Kevin Simard) & (local) Womble Bond Dickinston (Matthew Ward)
    • Prepetition Subordinated Noteholders (Simon Property Group, Galleria Mall Investors LP)
      • Legal: Irell & Manella LLP (Jeffrey Reisner)