Vyera Pharmaceuticals Subchapter V: Key Insights

A Crossroads for Vyera: May 2023 Filing

In early May 2023, Vyera Pharmaceuticals, LLC found itself at a crossroads. Long known for marketing Daraprim, a toxoplasmosis drug thrust into public controversy under former CEO Martin Shkreli, the company faced steep legal and financial challenges. By May 10, Vyera and its affiliates formally petitioned for bankruptcy protection under Subchapter V of Chapter 11, a specialized process meant to streamline the reorganization of smaller commercial entities. The filing, lodged in the U.S. Bankruptcy Court for the District of Delaware, included a pivotal First Day Declaration by Chief Restructuring Officer ("CRO") Lawrence R. Perkins, identified in the docket as Docket No. 10. That Declaration, concise yet revealing, illustrated a story of once-solid revenue streams evaporating under mounting litigation, reputational harm, and the lasting aftermath of Daraprim's dramatic price hike. As documented in the Vyera Pharmaceuticals Bankruptcy Docket, the filing revealed a company seeking to reorganize amid extraordinarily challenging circumstances.

Daraprim's Price Hike and Legal Ramifications

From the outside, Vyera's decision might appear as a typical corporate restructuring, but the background reads like a modern parable of rising fortunes followed by steep declines. Founded on the idea of monetizing sole-source treatments for rare diseases, Vyera soared when Daraprim sales skyrocketed. The drug, used to treat toxoplasmosis—an infection especially dangerous for immunocompromised patients—historically generated millions of dollars in annual revenue. Yet after sensational headlines about its sudden price increase from $17.60 to $750 per tablet, Vyera's name became tied to litigation from federal agencies and state attorneys general. According to Stanford Law School, this price hike sparked significant controversy and became emblematic of broader pharmaceutical pricing debates. The Federal Trade Commission's enforcement action against both Vyera and Shkreli resulted in a judgment that severely impacted the company's financial viability.

Lingering Influence of Martin Shkreli

Even after Shkreli's resignation, his impact lingered like a shadow. According to the Declaration, Vyera's new leadership tried distancing itself from past controversies, even renaming and rebranding. They retooled certain operations, laid off staff, and attempted to maintain a steady revenue flow from Daraprim to fund research and operational overhead. Despite these efforts, a host of lawsuits—antitrust, derivative, and class actions—continued to generate heavy legal costs. As the Declaration recounts, the company's quarterly revenues dropped to unsustainable levels, cash reserves hovered just above $10 million, and no immediate solutions presented themselves outside of a formal, court-supervised restructuring. Reuters reported that the bankruptcy came shortly after Shkreli's release from prison, adding another layer of media scrutiny to the proceedings.

Subchapter V: A More Streamlined Approach

By selecting Subchapter V of Chapter 11, Vyera signaled its desire for a faster, less cumbersome bankruptcy process. Traditional Chapter 11 restructurings can take years and involve committees, endless hearings, and a higher threshold for plan confirmation. Subchapter V, in contrast, was designed under the Small Business Reorganization Act of 2019 to help smaller enterprises reorganize quickly, reduce administrative costs, and bypass certain creditor roadblocks, as noted by the United States Courts' Bankruptcy Basics resource. With Subchapter V, Vyera has a 90-day window to propose a confirmable plan unless the court grants an extension. The advantage is efficiency, but efficiency demands a carefully orchestrated plan. Ashuraey Law PLLC notes that Vyera's filing continues an emerging trend of using Subchapter V to address complex contingent liabilities.

Orpha Labs and the PRV Potential

Central to that plan, according to the Declaration, is Vyera's intention to sell core assets and possibly reorganize the Swiss-based Orpha Labs AG so it can continue developing ORL-101. Orpha Labs remains an essential piece of the puzzle. This research endeavor is dedicated to treating Leukocyte Adhesion Deficiency Type II ("LAD II"), an ultra-rare disease affecting a small cohort of patients worldwide. The stakes are high: if ORL-101 is approved for this indication, Vyera could be eligible for a Priority Review Voucher ("PRV") from the FDA, often valued at $95 to 120 million in recent industry transactions. These potential proceeds, placed into a liquidating trust under the proposed plan, would be shared among unsecured creditors, potentially restoring significant value to parties who might otherwise collect mere pennies on the dollar. The FDA's Rare Diseases Program confirms that PRVs remain valuable assets that can significantly influence bankruptcy outcomes for pharmaceutical companies with orphan drug programs.

Litigation, Generics, and a Fading Lifeline

The question, of course, is whether Vyera can navigate the short timeline and the legal complexities to achieve a successful plan confirmation. The Declaration acknowledges that the company has lost the "life raft" of substantial Daraprim revenue. In 2019, Daraprim's net sales totaled about $9.5 million, down from roughly $55 million or more in prior years. Generic competition arrived in 2020, causing an even steeper decline in profit margins. Meanwhile, the lawsuits linger. The Federal Trade Commission ("FTC") and a number of states have alleged Vyera (and, by extension, Shkreli) constrained competition through restrictive distribution agreements, impeding generic companies from obtaining Daraprim samples for bioequivalence testing. Although Vyera settled with the FTC, this did not fully absolve it of other litigation burdens. The American Bar Association's analysis of the FTC's claims offers important context for understanding the legal pressures facing the company.

An Exhausted Board Seeking Solutions

The Declaration paints a picture of a business leaning on its new board of directors, installed in August 2022, and on independent advice from financial and legal consultants. That board apparently exhausted out-of-court solutions—trying to market certain portfolio assets and searching for fresh capital—but concluded that Subchapter V's accelerated process was the best shot for preserving value. This approach also offers a more controlled platform for seeking an orderly asset sale, should the company receive compelling bids on Daraprim-related intellectual property or Phoenixus AG's equity in Regnum Corp. According to court filings, the board's decision came after exploring numerous alternatives that ultimately proved infeasible.

Plan Framework and Liquidating Trust

In a more traditional Chapter 11 setting, an unsecured creditors' committee might have demanded a thorough litigation strategy, prolonged due diligence, and contested the timeline. Subchapter V dispenses with many of those hurdles, provided Vyera can prove its plan is fair, equitable, and feasible under 11 U.S.C. § 1191. Additionally, the plan envisions establishing a Liquidating Trust that issues trust certificates to creditors, entitling them to a pro rata share of any future net proceeds—especially relevant if an FDA PRV materializes from ORL-101. If successful, that infusion could deliver full recoveries to unsecured creditors and perhaps even an upside for shareholders. If not, creditors may have to settle for modest sums obtained from any partial asset sales or leftover cash. The American Bankruptcy Institute notes that such trust mechanisms have shown promise in other Subchapter V cases.

Looking Ahead

At this juncture, the outcomes hinge on several elements: how the Court evaluates Vyera's plan, whether additional parties step in with serious offers for Vyera's portfolio, and how quickly Orpha Labs can advance its orphan drug. The Vyera tale will also serve as a bellwether, illustrating Subchapter V's utility for specialized pharma companies under siege from litigation and shrinking revenue streams. Delaware Bankruptcy Court has developed particular expertise in pharmaceutical cases, making it an ideal forum for this test case.

Stabilizing Through First Day Motions

In the meantime, the first day motions showcased below reflect a last-ditch effort to maintain daily operations—ensuring employee wages are paid, insurance remains in place, and necessary vendor relationships are preserved. The docket in the District of Delaware reveals just how many immediate relief motions Vyera filed to stabilize operations in the short run. The survival strategy is now laid bare in the plan: expedite everything, hold onto possible R&D wins, and hope that, by year's end, creditors see a future that justifies supporting the reorganized Debtors. As Cornell Law School's Legal Information Institute explains, first day motions are critical to preventing immediate business collapse during the initial phase of bankruptcy.