Cetero eyes fast sale to private equity as FDA agreement nears

28-Mar-2012 - Last updated on 29-Mar-2012 at 08:06 GMT

Cetero says it could have new private equity owners in 90 days and an agreed path forward with the FDA in weeks.

On Monday a bankruptcy protection filing put Cetero in the headlines again eight months after the US Food and Drug Administration (FDA) rocked it with an untitled letter. The filing follows months of efforts to find a buyer but, Cetero says, is not a sign that attempts to secure a new owner have failed.

“It’s more of a strategic move to make sure the buyer is free of any ‘liens and claims’”, April Johnson, vice president, business relationship management at Cetero, told Outsourcing-Pharma. The plan is to sell under Section 363, a part of the law that frees the buyer from third-party claims on the assets.

Section 363 was in the news in 2009 when Chrysler sought a quick sale to Fiat using the law. Cetero is also hoping for a fast resolution, with Johnson saying it could have new owners in as little as 90 days.

There is a distinct possibility a private equity firm will buy Cetero. Although those marketing the sale contacted clinical service providers too, most interest came from financial firms and Johnson said acquisition by private equity or a 12-strong group of banks already lending to Cetero is most likely.

Johnson expects either outcome to result in investment in Cetero. “The parties that are interested in buying Cetero are willing to invest”, Johnson said. In the meantime Cetero continues to make small investments, with Johnson saying that all its facilities are currently hiring.

Whoever takes over will inherit an agreement for working with the FDA, according to Johnson who expects to finalise the plan in “weeks if not days”. Johnson said the number of tests the FDA wants re-doing is down to less than 100, from more than 1,000 before Cetero began arguing its case.

Work has begun on 20 of the 100 studies and, Johnson says, results match the findings from when the tests were first done. It is possible that the agreement with the FDA will approve a protocol for taking an “audit approach” to some of the remaining studies, Johnson said.

Financial factors

In the filings Cetero said the FDA letter caused its “liquidity position to become severely constrained”. Johnson expanded on the impact, telling us: “There has been some impact on our proposal activity [and] the amount of work that clients have given us.”

During the first two months of 2012 Cetero posted sales of $11m (€8m) while contending with costs related to the work wanted by the FDA. Any buyer will have to take on costs related to the re-doing of work but, Johnson says, will also gain a business with a nucleus of loyal customers.

According to Johnson, nine of the top 10 clients at Cetero have maintained their level of outsourcing since the FDA letter and interest in working with the CRO has continued since the Chapter 11 filing.