COURT GIVES COVID TEST DEVICE FIRM A LIFELINE
Spartan gets win in bid to restructure
This was bound to be a risky proceeding. When Spartan Bioscience filed for court protection last April, it had been racing on multiple fronts to chase a oncein-a-lifetime opportunity.
Its technology, a lab-in-a-box for detecting COVID-19, had been developed at great speed. In May 2020 and again last spring, the tests proved less than satisfactory, forcing a halt in sales.
Spartan's primary market, COVID -19 tests paid for by government, was a moving target. The number of tests performed from June to August this year across Canada was less than two million per month — down 44 per cent from the averages posted from January to May.
This meant that the entire time Spartan has been in court, trying to reorganize with the help of new investment, it has had to watch its potential sales shrink.
Casa-Dea Finance Ltd., a family trust and one of two major secured creditors along with
BDC Capital, failed in its initial effort to attract $20 million worth of outside capital.
A contested second effort, involving the purchase of Spartan's assets, was approved Friday by Ontario Superior Court Justice Stanley J. Kershman.
Under the terms of the deal, expected to close Friday, CasaDea will acquire BDC's $9-million claim against Spartan. A new entity — 2856031 Ontario Inc. — will assume most assets of Spartan, including its intellectual property, BDC's debt and a $7-million claim by Casa-Dea. Darrell Edgett, the director of Casa-Dea, is also director of 2856031 Ontario Inc.
If all goes well, the numbered company, presumably with a new name, will emerge from creditor protection sometime late this year.
In the meantime, this new entity, which will employ Spartan's engineering team, is expected to resolve the technical glitch that caused Spartan to halt sales last April. Health Canada's sale approval has remained in force all along, suggesting a relatively minor fix is required.
The big question is whether the market for COVID-19 testing is robust enough to support a new entrant at this late stage. Early during the pandemic, the federal government and several provinces placed nearly $200 million worth of orders for Spartan gear and test kits. Government buyers advanced more than $35 million to secure orders, a sum that constitutes the lion's share of the unsecured claims against Spartan.
The judge Friday noted that Spartan's unsecured creditors are unlikely to receive anything from bankruptcy proceedings, such has been the steepness of the decline in the value of Spartan's assets. As recently as early 2021, the company had completed a financing that valued Spartan at more than $140 million.
It's not clear that governments will be willing to resume orders for Spartan's test kits, especially since Health Canada has approved so many other COVID-19 testing technologies in the meantime.
Nevertheless, Casa-Dea has a few things working for it. First, it needs only to create a business worth less than $20 million to recoup its various investments.
Second, if it can show that Spartan's technology really works, there is a market for portable COVID-19 testing devices in regions that do not have ready access to large laboratories. Not only that, most office complexes have yet to reopen and could employ this sort of technology to reassure staff.
Longer-term, there's the home-testing market. Before it entered creditor protection, Spartan's engineers — there are a couple of dozen still on staff — had been redesigning the technology with the goal of making it affordable for ordinary people to buy.
Unknown is the extent of CasaDea's financial heft, and willingness to use it to rehabilitate what once seemed one of the country's more promising biotechnology companies.
On Friday, it won court approval at least to try.