Digital therapeutics company Proteus Digital Health files for Chapter 11 bankruptcy

PILLS MONEY cost opioid
The onset of the COVID-19 pandemic created significant uncertainty in the capital markets and frustrated Proteus' efforts to secure additional funding or bids for potential buyers, Proteus said in court documents. (Pixabay)

Proteus Digital Health, maker of a "smart pill," filed for Chapter 11 bankruptcy protection Monday.

The Silicon Valley company, which was founded in 2001, was valued at one point at $1.5 billion, according to Forbes.

The company was considered one of the first digital health "unicorns," or global VC-backed digital health startup companies valued at $1 billion or more. That list also includes companies Oscar Health, ZocDoc, Clover Health, One Medical, Calm, Tempus, 23andMe and Hims, CB Insights reported.

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Proteus develops ingestible sensors and a wearable sensor patch to track medication-taking behavior.

The company commercialized a service offering called Proteus Discover, a digital medicine solution that connects drug ingestions to outcomes and is designed to enable patients to engage in their own healthcare, be rapidly assessed and treated to goal.

In May, Proteus announced a multiyear, outcomes-based initiative with Tennessee’s Medicaid program, TennCare.

The company also had a partnership with Xealth and Froedtert & the Medical College of Wisconsin to integrate digital medicine data directly into patients’ electronic health records. Through this partnership, Froedtert planned to prescribe Proteus digital medicines to patients with hepatitis C, Type 2 diabetes or hypertension.

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The company's bankruptcy filing was first reported by CNBC's health technology reporter Christina Farr on Monday. In recent months, the company has struggled to raise additional financing and furloughed the majority of its employees for two weeks in November 2019, CNBC also reported.

According to the case documents filed in the U.S. Bankruptcy Court for the District of Delaware., the company has $100 million to $500 million in assets and $50 million to $100 million in liabilities. Proteus has an estimated 200 to 999 creditors.

In a statement emailed to Fierce Healthcare, the company said, "Filing for bankruptcy protection allows Proteus to continue its sales process in a more concerted and efficient manner while continuing to run the business as usual."

According to bankruptcy court documents filed Tuesday, the company currently holds approximately 400 patents and has a panel of more than 20 digital medicines to treat cardiovascular and metabolic diseases including hypertension and diabetes that have been prescribed to patients in the U.S.

RELATED: Proteus' digital pill tracker shows success in TB drug adherence

The company's business remains almost entirely in the "pre-revenue" stage of development, according to the motion filed Tuesday. Since inception, Proteus relied primarily on equity capital and advances under its agreements with Otsuka Pharmaceutical, a Japanese company, to finance its operations. Otsuka is the primary licensee of a significant portion of the company's intellectual property, the company said in the court documents.

In 2018, Otsuka and Proteus Digital Health signed a five-year digital pill partnership, aiming to develop a new generation of ingestible sensors.

Otsuka handed Proteus $88 million in a mix of equity and other payments to help fund a portfolio of new digital medicines focused on mental health, including continuing commercial work for the sensor-laden Abilify MyCite pill approved by the FDA in 2016, Fierce Biotech reported.

The digital medicine startup lost that development deal late in 2019, according to Stat.

Facing mounting liquidity constraints, the company tried to secure additional funding or bids for potential buyers.

"Despite having several promising opportunities, the onset of the COVID-19 pandemic created significant uncertainty in the capital markets and frustrated" Proteus' efforts, the court documents said.

The company had "fruitful discussions with Otsuka and other interested parties regarding a potential sale," the court documents state.

Proteus said it has commenced the Chapter 11 case to preserve its assets and conduct a sale process or other transaction, "all in an effort to maintain continuity of business operations and maximize value for the benefit" of the company's creditors and equity stakeholders.

Monday's filing identifies Lawrence Perkins as interim CEO. Andrew Thompson, the former president and CEO, and now listed as co-founder on the company's website.

In a declaration he filed Tuesday, Perkins said he has served as interim CEO since February 6 after joining Proteus in November as chief restructuring officer. He also is the founder and CEO of Sierra Constellation Partners, where he leads a team of turnaround professionals.

RELATED: Otsuka and Proteus sign 5-year, $88M digital pill partnership

Perkins has 20 years of management consulting and advisory experience with distressed companies or companies undergoing transition, he stated in the declaration.

Leading up to the fourth quarter of 2019, Proteus experienced a "severe liquidity crisis" while attempting to resolve certain issues with Otsuka in connection with the development deal.

In May, the company brought in an investment bank to help Proteus secure funds or get acquired.

Just in the past week, Otsuka and Proteus have discussed a potential transaction that could serve as a "stalking horse bid" in a Chapter 11 sale process, Perkins said in the court documents.

At one point, Proteus had more than 300 employees, according to Pitchbook. The company now has 93 employees, according to the declaration filed Tuesday.

 Stat reported that a spokesperson for Otsuka confirmed that the drugmaker “is currently assessing the purchase of Proteus’ assets.”

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