Vyera Pharmaceuticals, LLC:
From Pharma Bro to Pharma Woe
May 15, 2023
On May 9, 2023, Vyera Pharmaceuticals, LLC and its affiliates filed voluntary petitions for relief under subchapter V of chapter 11 of the Bankruptcy Code. Vyera Pharmaceuticals is primarily involved in developing, commercializing, and selling pharmaceutical products focused on orphan diseases, which are rare conditions affecting less than 200,000 people in the United States. Key products include Daraprim for toxoplasmosis and Vecamyl for severe hypertension. Despite the company’s efforts to treat neglected diseases, Vyera has faced significant controversy arising from the actions of its founder, Martin Shkreli, resulting in operational challenges and financial difficulties, and culminating in its recent bankruptcy filing.
Prepetition Corporate and Capital Structure
According to its First Day Declaration [Docket No. 10], Vyera’s capital structure is made up solely of unsecured debt and equity interests. As of the petition date, the company had less than $7.5 million in noncontingent liquidated unsecured claims. Outstanding unsecured claims include (1) payment obligations required under settlements with the Federal Trade Commission (FTC) and other litigations and (2) intercompany transfers pursuant to certain subordination agreements (described below).
To avoid triggering bankruptcy proceedings in Switzerland, where companies are required to report over-indebtedness, the company entered into various subordination agreements prior to the petition date. These arrangements include (1) Vyera Pharmaceuticals’ subordination of $14,096,577 in claims against Phoenixus AG, the direct parent of Vyera, and (2) Phoenixus AG’s subordination of $2,511,855.67 in claims against Orpha Labs, a subsidiary of Phoenixus and a debtor in Vyera’s chapter 11 cases.
A corporate structure chart cited in the First Day Declaration is included below for reference:
Reputational Damage
Vyera Pharmaceuticals and its founder, Martin Shkreli (a/k/a “Pharma Bro”) became the focus of intense public scrutiny in 2015 after the company dramatically increased the price of Daraprim—a critical medication for the treatment of toxoplasmosis, a devastating parasitic infection that can be life-threatening to patients with compromised immune systems—from $14 to $750 per pill. The price hike sparked widespread outrage among healthcare providers, patients, and members of Congress.
In response, the FTC and several states filed an antitrust lawsuit against Vyera, Shkreli, and other company executives, alleging that Vyera engaged in anti-competitive tactics designed to both impede generic competition and maintain artificially high drug prices. Vyera ultimately settled with the FTC, agreeing to pay $10 million into a settlement fund with potential additional payments up to $30 million.
Shkreli's legal troubles extended beyond antitrust litigation. In 2017, he was convicted of securities fraud and sentenced to seven years in prison. United States District Judge Kiyo A. Matsumoto also ordered Shkreli to forfeit $7.4 million in assets (including a one-of-a-kind “Once Upon a Time in Shoalin” Wu-Tang Clan album) and imposed a lifetime ban from the pharmaceutical industry, which was upheld by a federal appeals court in January 2024.
Even while he was incarcerated, Shkreli continued to exert influence over Vyera Pharmaceuticals. He used a contraband cell phone to communicate with company directors and officers and retained significant equity ownership and proxy rights, enabling him to influence corporate decisions from behind bars. Media outlets widely dubbed Shkreli "the Most Hated Man in America," a moniker that reflected the depth of public antipathy toward his business practices and personal conduct.
The fallout from Shkreli's conduct resulted in severe reputational damage to Vyera Pharmaceuticals, hindering the company’s ability to maintain business relationships, open bank accounts, and raise capital.
Operational Disruptions and Restructuring
In addition to the reputational damage caused by Shkreli, Vyera Pharmaceuticals faced operational disruptions arising from frequent turnover in leadership among the company’s board of directors and senior management. Ongoing investigations and class action lawsuits diverted substantial resources from day-to-day operations, impeding the company's ability to function effectively.
Market pressures also played a critical role in Vyera's decline. Despite efforts to maintain market exclusivity, generic alternatives to Daraprim were introduced in 2020, causing Vyera's annual revenue to fall from a range of $55 million to $74 million between 2016 and 2019 to $9.5 million in 2022.
In response to these challenges, Vyera undertook a comprehensive restructuring process. A new slate of directors—comprising Derek Pitts, Ivona Smith, and Thomas J. Allison—was selected to ensure independence from parties involved in Vyera's ongoing litigation. The new board engaged financial and legal advisors to evaluate restructuring options and maximize the value of the company's assets. To address liquidity constraints, the company implemented significant cost-cutting initiatives, including the termination of non-essential personnel and the restructuring of certain supplier relationships.
Subchapter V: A Fresh Start or Farewell?
After evaluating strategic alternatives amid ongoing financial and legal challenges, Vyera’s board ultimately determined that filing for bankruptcy under subchapter V of chapter 11 was the best path forward.
Subchapter V, introduced through the Small Business Reorganization Act of 2019 (the “SBRA”), offers a streamlined process for small business debtors seeking reorganization. The SBRA, along with temporary measures passed under the CARES Act, enables businesses with liabilities up to $7.5 million to file under subchapter V of chapter 11. By eliminating the absolute priority rule, the requirement for a creditors’ committee, and the need to file detailed disclosure statements, Subchapter V provides small business debtors with a less costly and more accessible alternative to the traditional chapter 11 process.
Through its bankruptcy filing, Vyera Pharmaceuticals aims to maximize stakeholder value by pursuing asset sales and advancing the development of projects like ORL-101, an investigational treatment for Leukocyte Adhesion Deficiency Type II (LAD-II). If approved, the company could secure exclusive rights to sell the drug for seven years. Still, whether Vyera can successfully take advantage of subchapter V in the wake of the havoc caused by Martin Shkreli remains an open question.
For more details, you can find Vyera's docket here. Below are the initial motions filed in Vyera’s chapter 11 case:
