Melinta Therapeutics Inc., a New Jersey developer of antibiotics that was founded in New Haven by a Yale University scientist, has filed for bankruptcy, the third such company to do so in 2019, setting off alarms about the financial viability of developers of antibiotics critical in warding off increasingly resistant bacteria.
Melinta announced Dec. 27 it would be acquired by lenders for $140 million in exchange for 100% of equity when it’s reorganized as part of a Chapter 11 procedure. Cash from lenders will give Melinta the liquidity to continue, it said.
“The company intends to operate its business in the normal course while it works to complete the transaction through the Chapter 11 process,” it said.
Melinta, based in Morristown, N.J., is seeking court permission to continue operating, including paying salaries and benefits to workers, some vendors and honoring customer programs, it said. About 60 employees are to be laid off, the company said in a regulatory filing.
“While we have successfully conserved cash and enhanced revenue over the past several quarters, we nevertheless anticipate challenges in meeting the company’s obligations, including near-term compliance with certain covenants,” said Jennifer Sanfilippo, interim chief executive officer.
Melinta’s agreement with lenders positions it to emerge from Chapter 11 under new ownership and operate as a “going concern on sound financial footing,” it said. The lenders’ proposal to acquire Melinta is subject to a court-supervised competitive process that could yield better offers, the company said.
It joins antibiotic startups Achaogen and Aradigm that also sought bankruptcy protection last year.
The bankruptcy move was not a surprise. Melinta warned in a regulatory filing in November that it was evaluating “potential strategic and other alternatives, including a sale of all or substantially all” of its assets. But even if it reached agreement on an asset sale, “it is highly unlikely that such a transaction could be executed outside of a court-supervised process under Chapter 11 of the U.S. bankruptcy code.”
Melinta was once part of a community of bioscience companies in New Haven that included Alexion Pharmaceuticals Inc., which moved to Boston in 2017, and Achillion Pharmaceuticals, which was acquired by Alexion last year for $930 million.
Founded in New Haven In 2000 by Yale University scientist Thomas Steitz, a 2009 recipient of the Nobel Prize in chemistry, Melinta moved in early 2009 to New Jersey, home to investors, said Paul Pescatello, executive director of the Connecticut Bioscience Growth Council of the Connecticut Business & Industry Association.
“It’s not a story about New Haven,” Pescatello said. “It’s more about antibiotics. We’re coming up against a brick wall in antibiotic resistance.”
Research and development costs of as much as $2.5 billion from idea to the marketplace must be recouped, he said.
“If you know you’re going to lose money, you’re not going to go to into it,” Pescatello said.
Allan Coukell, senior director of health programs at the Pew Charitable Trusts, said bacteria are effective at developing resistance to antibiotics, prodding researchers to respond.
“With antibiotics, if we don’t get new drugs, we go backward as old drugs become ineffective,” he said.
Using antibiotics infrequently helps preserve their effectiveness and slow the emergence of resistance. The result is that pharmaceutical companies are hesitant to develop antibiotics and smaller companies, such as Melinta, are struggling.
“We have a long-term trend of the pharmaceutical industry getting out of antibiotic development,” Coukell said. “We’ve seen small companies develop some promising drugs but they’re not able to make a go of it. “
With insufficient revenue, investors are backing off, he said.
Stephen Singer can be reached at ssinger@courant.com.
