The Tribune

NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

PharmaChem Technologies is more than $68m insolvent with its major creditor having secured just 26.3 percent of the massive debt owed to it, Tribune Business can reveal.

Craig A. (Tony) Gomez, the Baker Tilly Gomez accountant and partner, signalled to the Grand Bahama-based drug manufacturer’s local and foreign unsecured creditors that the prospects for recovering the combined $11m due to them are - for many - bleak to non-existent in his first and sole report as the company’s voluntary liquidator.

That is because most, if not all, the proceeds generated by selling PharmaChem’s physical plant will likely go towards repaying the collective $475m debt owed to the company’s secured creditor and sole customer, Gilead Sciences, which financed and underwrote the Grand Bahama manufacturing facility’s expansion.

Of that $475m, Mr Gomez’s report reveals that $125m - just over one-quarter of what is due to Gilead - is secured by various liens and charges over PharmaChem’s plant. The other secured creditors are PharmaChem’s 120 terminated employees, who have already been paid the combined $115,136 severance pay and other benefits owed to them, and the Government which is due a paltry $1,675.

This means that, after the first $125m from the plant’s sale is used to satisfy Gilead’s secured debt and the small sum due to the Government, all the remaining creditors will have to fight over the leftover scraps. And any sales proceeds above $125m will again likely be applied to Gilead’s near-$350m unsecured debt first, which is almost certain to be given priority.

“There’s nothing there for them,” one source, speaking on condition of anonymity, said of the implications for Bahamian and foreign unsecured creditors, “unless somebody comes and buys the plant for more than Gilead’s secured and unsecured debt.

“Who would do that? Nobody will do that. They’ll likely build their own plant for $120m. Most of the land is leased, so you cannot buy the land. You can get a long-term lease.” Mr Gomez declined to comment when contacted by Tribune Business, but his report confirms this newspaper’s previous revelation that Gilead has appointed its own receiver for the Grand Bahama-based manufacturer.

Maria Ferere, the FT Consultants co-principal, was identified as the receiver who PharmaChem’s secured creditor is entitled to hire under the terms of the debenture and other security it took to protect its exposure in return for financing the plant’s expansion.

While Ms Ferere is charged solely with securing Gilead’s interest, Mr Gomez, who is now the Supreme Court’s official liquidator after the winding-up was subsequently placed under judicial supervision last month, has to look out for the interests of all PharmaChem creditors. However, it is understood that it will be Ms Ferere, rather than Mr Gomez, who will ultimately spearhead the plant’s sales process.

The report, dated end-February 2024 and produced before Mr Gomez and his attorneys applied for the liquidation to become Supreme Court-supervised, also confirms that PharmaChem’s closure was sparked by Gilead’s decision to pull the plug on providing further financial support for the pharmaceutical producer and its parent, PharmaChem Investment Holdings.

“Between 2014 and late 2023, the company [PharmaChem] entered into significant financial agreements... with Gilead Sciences to finance the construction of its plants and to assist with working capital for its operations,” Mr Gomez wrote.

“Gilead’s credit facilities contain customary covenants, including various financial covenants, with first priority fixed and floating charges over PharmaChem and PharmaChem Investment Holdings’ current and future assets. Additionally, it is secured by a pledge on PharmaChem and PharmaChem Investment Holdings’ issued and outstanding shares and PharmaChem Investment Holdings’ guarantee.

“During December 2023, PharmaChem was unable to reach an agreement for further funding from Gilead. With no clarity on a path forward, an announcement was made on January 8, 2024, that PharmaChem’s operations would cease and that the employees would be separated by January 12, 2024,” he added.

“PharmaChem’s financial difficulties appeared to have been caused by insufficient working capital and the lack of external sources of funding to maintain its operations.” Tribune Business previously reported that massive cost overruns were incurred on a plant expansion initially forecast to be just a $125m investment, while the failure to meet timelines for commercial drug production also drove Gilead’s decision.

Mr Gomez’s report drew on management accounts up until end-February 2024, and PharmaChem’s last audited financial statements for the year to end-December 2022, to assess the company’s financial position. He warned creditors that balance sheet valuations could change because he had not had sufficient time to perform independent assessments of multiple assets and liabilities.

However, based on accounting details supplied by PharmaChem’s former management, the Baker Tilly Gomez partner revealed that the drug manufacturer’s insolvency had more than tripled from $20.051m at year-end 2022 to $68.385m by end-February 2024 when his report was completed.

At the latter date, $425.793m in total assets was exceeded by $494.178m in liabilities, with the insolvency deficiency’s expansion indicating that PharmaChem’s financial plight had worsened over the year leading to its closure.

“In the absence of an appraisal report on PharmaChem’s fixed assets, and the lack of active market valuations for identical assets or liabilities, I am unable to determine the estimated realisation of certain assets for the secured and unsecured creditors at this time,” Mr Gomez wrote.

PharmaChem’s balance sheet as at February 26, 2024, signed-off by William Sweeting, its former director and chief financial officer, shows it possesses just $226,743 in cash and cash equivalents. The company was shown as having just $73 as “cash on hand”, with the bulk split between current accounts at Bank of The Bahamas and Scotiabank.

Those accounts, though, are described as “restricted” because PharmaChem is not allowed to access those funds without Gilead’s written permission. And, while the drug manufacturer’s raw material inventory and property, plant and equipment were shown as having carrying values of $45.972m and $372.698m, respectively, it is unclear whether these can be realised in any sale.

And, of the total $10.961m owed by PharmaChem to Bahamian and foreign unsecured creditors, more than 70 percent - some $7.773m - is owed to just two companies. Insurance Management is due $5.34m, understood to be the company’s annual all-perils insurance premium, while Grand Bahama Power Company is owed $2.433m.

However, the latter and Grand Bahama Utility Company, the water supplier, which is due some $73,278, have leverage to ensure that Gilead will pay any debts owed to them as maintaining electricity and water services to the PharmaChem plant is vital to ensuring the continued safe storage of any hazardous chemicals.

Other Bahamian creditors owed significant sums include Tropical Shipping, which is due $75,306; FOCOL Holdings, owed $52,220; Cable Bahamas, due $19,064; and Caribbean Elevator, which is owed a debt of $19,651. Numerous other firms, including retailers such as Bellevue Business Depot and Kelly’s (Freeport), are owed three and four-figure sums which can be significant given the tight margins they face.

Gilead, meanwhile, appears to have advanced $417.677m in credit facilities to PharmaChem including $319.5m based on a manufacturing and supply agreement and secured against “advance sales”. Another credit agreement involves the sum of $82.173m.

How much Gilead and the other creditors recover will be determined by the sale of PharmaChem’s plant to a new buyer. “The key is who is going to come to the table,” one source said. Given that the facility was designed for a specific industrial purpose, interest will likely be confined to pharmaceutical sector players, and this newspaper understands that expressions of interest have already been made.

Several sources have suggested that interested purchasers will likely emerge from pharmaceutical industries in countries such as Switzerland, Sweden, Belgium and, possibly, China. Freeport’s strategic location just off Florida makes the PharmaChem site attractive for drug manufacturers seeking to export their products to the US under the tariff-free and quota-free access afforded by the Caribbean Basin Initiative (CBI).

However, given the circumstances surrounding PharmaChem’s closure, potential buyers will likely make low-ball offers to acquire the plant in anticipation that they will be able to pick it up for a price far below what has been invested in it.

PharmaChem, which was founded by Italian entrepreneur, Pietro Stefanutti, supplied antiretroviral API drugs (tenofovir disoproxil fumarate) for Gilead, which employed them in the worldwide treatment of HIV/AIDS. This product helped treat one million persons worldwide, and the new plant was intended to give it the capability to produce an additional two to three drugs.