In Re Introgen Therapeutics Inc.

429 B.R. 570

In re INTROGEN THERAPEUTICS, INC., Introgen Technical Services, Inc., Debtors.

Nos. 08-12442-CAG, 08-12443-CAG.

United States Bankruptcy Court,

W.D. Texas,

Austin Division.

April 29, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Andrew S. Brown, Patricia Baron Tomasco, Vanessa E. Gonzalez, Munsch Hardt Kopf & Harr, P.C., Austin, TX, for Debtor.

MEMORANDUM OPINION CONFIRMING DEBTOR'S PLAN OF REORGANIZATION

CRAIG A. GARGOTTA, Bankruptcy Judge.

Introgen Therapeutics, Inc. and Introgen Technical Services, Inc. (together “Debtors”) submitted their Amended Disclosure Statement on July 24, 2009, and their Modified Plan of Reorganization on October 7, 2009. Classes 1, 2, and 4 voted to accept the Plan, while Class 3 rejected the Plan and joined the United States Trustee's motion to convert the case to Chapter 7. A hearing was held on October 8, 2009 to consider the Debtors' Modified Plan of Reorganization. At trial, representatives for Debtors appeared, as did representatives for several of Debtors' creditors-Wilson Sonsini Goodrich & Rosati, P.C. (“Wilson Sonsini”), David Nance, Wilson & Varner, Westat, Inc. (collectively referred to as “Creditors”), and the United States Trustee-to determine whether Debtors' Plan could be approved. All creditors present at the hearing, except for the United States Trustee, are members of Class 3-Allowed General Unsecured Claims. After the trial, several matters were taken under advisement and parties were given an opportunity to submit briefs in support of their position. Creditors' main contentions are that the Plan does not have an impaired accepting class, that substantive consolidation is improper for the Debtors, and that the Plan violates the absolute priority rule.

The Court has reviewed the briefs of Debtors and the various creditors and has considered the arguments and evidence of counsel. Based on the foregoing, the Court finds that the Plan as modified is confirmable and satisfies all confirmation requirements under 11 U.S.C. § 1129 for the reasons stated below.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L) and (O) on which this Court can enter a final judgment. This matter is referred to the Court under the District's Standing Order of Reference. Venue is proper under 28 U.S.C. §§ 1408 and 1409. The following represents the Court's findings of fact and conclusions of law made pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014.

Background of Debtor

Prior to filing for bankruptcy, Introgen Therapeutics, Inc. (“Introgen”) was a biopharmaceutical company focused on the discovery, development, and commercialization of targeted molecular therapies for the treatment of cancer and other diseases. Introgen developed product candidates to treat a wide range of cancers using various techniques. Introgen's development program included five clinical-stage product candidates in various phases of development. In June 2008, Introgen submitted a Biologics License Application to the U.S. Food and Drug Administration (“FDA”) requesting marketing approval for one of their product candidates. Also in June, a non-debtor European subsidiary of Introgen, Gendux Molecular Limited, submitted a Marketing Authorization Application to the European Medicines Evaluation Agency for the same indication. In addition to developing treatments, at the time of filing, Introgen controlled a broad intellectual property portfolio which included more than 400 patent applications and issued patents for a variety of molecular therapy technologies and adenovirus production, purification, and formulation.

In June 2008, Introgen, in an effort to create further revenue, spun off its manufacturing facilities and formed Introgen Technical Services, Inc. (“ITS”), a wholly-owned subsidiary of Introgen. According to Introgen's 2008 Third Quarter 10-K, at the inception of ITS, Introgen anticipated that ITS would (1) assume responsibility for producing investigative materials for Introgen's clinical trials; (2) produce and provide Introgen commercial supplies of products for which Introgen may receive marketing approval from the appropriate regulatory agencies; and (3) pursue contract production, process development, and manufacturing services for third parties. (Debtor's Ex. 7-D, 25.) ITS assumed responsibility for overseeing and managing the resources used in Introgen's manufacturing activities, and employed and managed the personnel required to continue those processes. ( Id.)

Circumstances Leading to Bankruptcy

According to the Debtor's Amended Disclosure Statement, a 2009 regulatory setback before the FDA harmed the prospects for a speedy approval of Introgen's cancer drug, Advexin, resulting in a liquidity crisis. As a result of this setback, Debtors were unable to move forward with plans of marketing and selling the drug. Continuing expenditures and significant operating losses precipitated the filing of the Debtors' bankruptcy cases. The Debtors experienced a cash drain related mostly to, in the words of Debtors' first Disclosure Statement, attorneys' fees and an inefficient operating style. (Doc. # 292, p. 14.)

Post-Petition Activity of the Debtors

After considering the various options available to Debtors, the Debtors concluded that the best course of action for both creditors and holders of equity interests would be to engage in an orderly disposition of the Debtors' assets and to wind down the remaining affairs through a liquidating trust. Throughout their bankruptcy cases, the Debtors continued to perform work in the ordinary course of business. The Debtors also produced biological materials for two key customers, Advantageme, Inc. and the H. Lee Moffitt Cancer Center.

Pursuant to Debtors' decision to liquidate the assets, the significant events in Debtors' Chapter 11 proceedings have been the disposition of their assets. On April 23, 2009, this Court approved the sale of certain contract manufacturing assets to Crucell Holland, B.V. (“Crucell”). Crucell purchased eight patent families from Introgen (the “Crucell Patents”) for $425,000. Additionally, Introgen retained a 35% share of all net license revenues, royalties, and proceeds received by Crucell and its affiliates, in connection with the licensing of the Crucell Patents to begin on May 15, 2009 and to last in perpetuity.

On April 27, 2009, this Court approved the sale of ITS' contract manufacturing business to Vivante GMP Solutions, Inc. (“Vivante”), an affiliate of Western General Holding Company. On June 1, 2009, the Debtors and Vivante executed an asset purchase agreement under which Vivante agreed to pay $50,000 to Debtors and in exchange Debtors would receive, on a quarterly basis, an amount equal to three percent (3%) of all gross revenues and proceeds received by Vivante derived from or arising from the purchased assets. Debtors will receive this 3% share until the earlier of June 1, 2014 or the day on which the Debtors' bankruptcy estates receive aggregate compensation in the amount of $5,000,000.

On October 8, 2009, this Court approved the asset purchase agreement between Debtors and Pope Investments II, LLC (“Pope”). The asset purchase agreement provided for Pope to purchase certain patents and related intellectual property rights, contracts, and remaining vials of Advexin and other personal property. As discussed below, the agreement provides for Pope to receive substantially all assets of Debtors left over after the sale to Vivante and Crucell. In exchange for these assets, Debtors are to receive $1,000,000 at closing and bonuses based on future net sales.¹

Debtor's Plan of Reorganization

The Debtors have proposed one plan for both entities, consolidating the assets and liabilities of both Introgen and ITS. The plan proposes the establishment of a Liquidating Trust at the time the Plan is confirmed, containing the assets of the Debtors from which the creditors will be paid pursuant to the Plan. The Trust will be overseen by a Liquidating Trustee as well as a Liquidating Trust Board consisting of one allowed priority claimant, one allowed unsecured claimant, and one allowed equity interest holder. The Board will have the right to advance reporting by the Liquidating Trustee, and to approve or disapprove proposed material transactions by the Liquidating Trust. The Plan itself proposes liquidating the Debtors' remaining assets and using the money from the sales of the assets and any retained interests in revenue streams to fund the Plan.

The Plan has four classes of creditors. Class 1 consists of all Allowed Secured Claims. The only Secured Claimant is General Electrical Capital Corporation (“GE”). The Debtors' Schedules reflect Secured Claims in the amount of $433,188, but Debtors and GE have agreed that GE's Secured Claim shall be reduced to $70,000 upon the sale of the Debtors' CMO business to Vivante. The Creditors in Class 1 will be paid in full by the Plan.

Class 2 consists of all Priority Claims, totaling $490,115.45. Class 2 will be paid the full amount of their claims.

Class 3 consists of all Allowed General Unsecured Claims. The Debtors' Schedules reflect Unsecured Claims in the amount of $4,434,914.21. Debtors anticipate paying the General Unsecured Creditors in full over time by giving claim holders a beneficial interest in the Liquidating Trust, entitling them to receive their pro rata share of any cash distribution from the Liquidating Trust, in full satisfaction of their claim.

Class 4 consists of all Equity Interests. If the Liquidating Trustee determines that there are sufficient funds available for a distribution to holders of Equity Interests after all Allowed General Unsecured Claims have been paid, the Liquidating Trustee shall file a motion asking the Bankruptcy Court to establish the Equity Interest Bar Date. The plan specifically provides that there shall be no...