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[Just filed. Developing story.] April 18, 2023 – The Pill Club Pharmacy Holdings, LLC and seven affiliated debtors (together “Pill Club*” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case No. 23-41090 (Judge Edward L. Morris). The San Mateo, CA-based Debtors, "a wellness coalition on a mission to support women and people who menstruate’s entire wellbeing," are represented by Katherine A. Preston of Winston & Strawn LLP. Further Board authorized appointments include: (i) Accordion Partners, LLCas financial advisors and (ii) BMC as claims agent.
There is no reference to an investment banker in Board minutes filed with the Debtors' lead Petition and no reference to either an intended sale effort or efforts to procure DIP financing.
* The Debtors have been through several name changes in recent years, most recently reverting to "Pill Club" from "Favor" after an adverse Texas Court ruling as to the Debtors' ability to use the "Favor" trademark. The Debtors were founded by Nicholas Chang (a doctor from Duke University) and Kevin Chung in 2014 (see further below on subsequent funding from, inter alia, ACME, Base10, GV, Shasta Ventures, VMG, Uber’s Dara Khosrowshahi and Honey’s George Ruan and iGlobe).
The Debtors’ lead petition notes betwwen 1 and 50 creditors; estimated assets of under $50k; and estimated liabilities between $10.0mn and $50.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Veru, Inc. ($3.9mn trade debt claim), (ii) Latham & Watkins LLP ($1.6mn professional services claim) and (iii) Google LLC ($900k trade debt claim). Law firms Morrison & Foerster LLP; Ropes & Gray; and Quarles & Brady are also listed on the Debtors' top 30 unsecured creditors list. Arnold & Porter which represented the California FCA relators in the recently settled False Claims Act lawsuit was paid from the proceeds of the settlement ("The whistleblowers and their attorneys will receive over $4.59 million from the funds collected by DOJ and CDI")…and not on the list.
California False Claims Act Settlement
In mid-February, the Debtors reached an $18.3 million settlement with the State of California ($15.0mn to the state's Department of Justice and $3.3mn to insurance authorities) over claims it defrauded the state's Medicaid program by prescribing contraception without adequate consultation and for over-billing in respect of prescribed contraception, including by alleged shipping 1,000s of female condoms to individuals who did not want them. The female condoms provided much higher margins for the Debtors than their other products (eg birth control pills) and would be sent to customers as "gifts" (including promised chocolates) before allegedly finding their way onto the Debtors' (@37,000) Medi Cal invoices ("Not only do they bring a high reimbursement rate, but the company also billed Medi-Cal more than 250% of the retail price on average, investigators found"). Good background here and here.
The Debtors' CEO, Liz Meyerdirk (who came to the Debtors from Uber Eats) commented at the time that Pill Club was "glad to have the opportunity to resolve these issues and to bring our full focus back to expanding access to contraceptive care for all who need it" and also noted that it was taking steps to make sure customers receive only products they request; presumably including a reduction in sales/shipments of the high margin female contraceptives…and an accompanying reduction in revenue.
About the Debtors
According to the Debtors: “We believe everyone has the right to easy, affordable birth control and have helped over 3 million patients across the U.S. get access.“
In June 2021 Tech Crunch reported: "The Pill Club announced today that it has raised a $41.9 million Series B extension round led by Base 10. Existing investors, including ACME, Base10, GV, Shasta Ventures and VMG, participated in the round, as well as new investors, including Uber’s Dara Khosrowshahi and Honey’s George Ruan and iGlobe.
The extension round comes over two years after the company announced its initial Series B investment, a $51 million financing led by VMG Partners. After reportedly being valued at $250 million, the company declined to provide its latest valuation, other than saying that the extension was an up-round."
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