PRACS Institute closes; Chapter 7 imminent
Friday, March 22, 2013
By Suz Redfearn
At 4:30 p.m. central time on Wednesday, March 20, the approximately 480 employees at PRACS Institute’s Fargo, N.D., facility—one of the largest phase I units in the world with 544 beds—were told via conference call that PRACS was shutting its doors, effective immediately.
Soon after the shocking phone call, employees received an email reiterating what they’d just been told. “We were told that the investors decided on Tuesday to withdraw funding,” said one employee who asked not to be named.
Employees were asked to leave the building, and the doors were locked behind them, closing one of Fargo’s largest employers over the last 30 years.
PRACS, formerly Cetero Research, also had sizable locations in Toronto, St. Louis and Miami.
Michael Gries, founder of the restructuring consultancy CDG Group and the chief restructuring officer for PRACS at the time of the closing, told CenterWatch PRACS had between 20 and 30 studies ongoing in the U.S., and another 10 in Canada.
“As we wind down, we’re trying to transfer ongoing study materials back to the sponsors as best we can,” said Gries, called in by PRACS’ investors about five weeks ago.
If a study was almost complete, Gries added, sponsors should be able to salvage it. But for any studies not complete, said Todd Van Fleet, analyst with First Analysis, sponsors most likely will need to say goodbye to whatever data was already collected and restart those studies.
“The sponsors will need to start over from scratch and try to move the work that was done with Cetero to another provider,” said Van Fleet. “Regulatory agencies wouldn’t accept data from a facility that had such a disruption in its data stream.”
The next step for PRACS, said Gries, will be having a receiver assigned for its Canadian holdings—three buildings—so they can be sold and possibly reopened. The courts in Canada are likely to do that within 48 hours, he said Friday.
In the U.S., PRACS will file a petition with the U.S. District Bankruptcy Court to move the company into Chapter 7 bankruptcy. This should happen in a matter of days. At that point, a new trustee will be appointed to determine what happens to all of PRACS’ U.S. holdings, which includes the Fargo facility, an empty building in San Antonio, a lab in Miami and a facility in St. Louis, Gries said.
Gries said none of the employees laid off March 20 received severance packages, but all were paid up through their last day of work via wire transfers on Thursday. Participants in studies will not be paid their promised stipends, he said.
Last Thursday, local media outlets quoted PRACS CEO and co-founder James Carlson as saying he was striving to salvage PRACS. Gries said this remains a possibility. “If he can find new investors, he can go to the trustee and try to buy it. He’s certainly the most logical guy to do it.”
Though news of PRACS’ investors pulling out came on Wednesday, investors and the CDG Group were laboring for days over the decision of whether or not to close, Gries said. “We were looking for alternatives and we exhausted the alternatives. That was the problem.”
PRACS/Cetero has had a long—and recently storied—history.
PRACS was cofounded in 1983 by Carlson, a former pharmacy professor at North Dakota State University. It was headquartered in Fargo. Following a 2006 acquisition and complex merger, it became part of Cetero with new headquarters in Cary, N.C.
Following the FDA’s discovery of data falsifications at its Houston facility in 2011, Cetero agreed to re-conduct about 100 trials at its own expense. Its worth plummeted, and stockholders agreed to sell off the company after declaring Chapter 11 bankruptcy. A sale of Cetero to its secured investors, a group led by Freeport Financial, for $80 million was approved and finalized in June 2012.
The company reverted to its original name, PRACS, and cofounder Carlson rejoined as CEO. At the time, Carlson told CenterWatch, “I’m so excited, I can’t see straight. This is, quite frankly, a dream come true.”
He said he wanted to bring the company’s management back in touch with its staff, something he implied was lost over the previous few years when Cetero’s headquarters were in North Carolina, where few of the actual staff were located…
Get the whole story in this Monday’s CWWeekly.