Graceway Pharmaceuticals Seeks Bankruptcy, Sale to Galderma

Graceway Pharmaceuticals LLC, a maker of skin treatments and asthma medication, sought bankruptcy protection with a plan to sell its assets to Galderma SA for $275 million.

The closely held company, based in Bristol, Tennessee, listed debt of as much as $1 billion and assets of as much as $500 million in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware.

Graceway cited the loss of patent protection on Aldara, a cream used to treat precancerous skin growths and genital warts that was once its biggest product. Net revenue from Aldara fell to about $52.2 million in 2010 from about $320.8 million a year earlier after generic-drug makers gained the right to produce cheaper copies, according to court documents.

“The loss of exclusivity with respect to Aldara, and the resulting decrease in net sales, is the primary factor that has led” to the bankruptcy, Gregory C. Jones, Graceway’s executive vice president of strategic development, said in court papers.

Galderma, based in Cham, Switzerland, agreed to buy virtually all of Graceway’s assets in the U.S. and Canada for about $275 million in cash, plus the assumption of certain liabilities, according to court papers. Graceway said it will ask to hold an auction to seek better offers. The company expects to complete the sale by the end of January, according to a statement issued yesterday.

3M Purchase

GTCR Golder Rauner LLC, a Chicago-based private-equity firm with more than $8 billion under management, formed Graceway in a 2006 partnership with Chief Executive Officer Jefferson J. Gregory, according to court filings. Graceway bought 3M Co. (MMM)’s pharmaceutical business in the Americas, including Aldara, for $875 million in 2007.

Graceway sued Nycomed U.S. Inc., based in Melville, New York, and Perrigo Co. (PRGO), based in Allegan, Michigan, in February 2010 for infringing its Aldara patents with generic versions, according to court documents.

A federal judge in New Jersey denied Graceway’s request to halt the sale of the drugs. Perrigo later settled with Graceway, authorizing it as a generic distributor of Aldara. The Nycomed lawsuit hasn’t been resolved, court papers show.

Aldara generated about 85 percent of Graceway’s sales in 2009, a share that plummeted to about 16 percent in the first two quarters of 2011, according to court papers. To make up for the lost sales, Graceway developed Zyclara, which is used to remedy the same skin conditions.

Zyclara Sales

The company can exclusively market Zyclara for treating certain skin diseases related to sun overexposure until 2013 and for treating genital warts until 2014, court papers show.

Zyclara accounted for more than a third of Graceway’s sales in the first two quarters of 2011. The Maxair Autohaler, a rescue inhaler used to treat asthma, generated about 16 percent of sales in the period.

Graceway owes about $430.7 million to lenders with a first priority of repayment, court papers show. The drugmaker owes about $330 million to second-lien lenders and about $81.4 million to unsecured mezzanine lenders represented by Goldman Sachs Credit Partners LP as agent. Trade and general unsecured creditors are owed about $30 million.

The company will seek court approval of a $6 million intercompany loan to help fund operations while in bankruptcy, according to court documents.

The case is In re Graceway Pharmaceuticals LLC, 11-13036, U.S. Bankruptcy Court, District of Delaware (Wilmington). The Lawsuit is in re Graceway Pharmaceuticals LLC v. Perrigo Co., 10-00937, District Court of New Jersey (Newark).

To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.