More than 120 employees laid off by the Pointe-Claire pharmaceutical company Capcium are looking forward to the end of the month. It is on August 30 before the bankruptcy court that we will know if this insolvent company and its brand new factory will be relaunched by a buyer. Investissement Québec, which has nearly 17 million at stake, is also concerned, as is the federal government up to 5.5 million.
Capcium is a sterile encapsulation contractor that encapsulates drugs and other orally absorbable substances.
Faced with cumulative losses of 68 million (including 24 million in 2022) and a debt of 27 million, Capcium laid off almost all of its 132 employees at the beginning of the summer and the board of directors resigned, including its president, the co-founder and minority shareholder Mitch Greenspoon. In May, the company filed for protection under the Companies’ Creditors Arrangement Act.
The court gave the trustee Dominic Deslandes, of Raymond Chabot, the mandate to turn the company around and find a buyer. “In this kind of approach, you are looking for either a financier or a partner” who would inject capital (at the expense of considerable dilution of the current investors), “or a buyer who is going in a new direction” and whose money partly compensates the creditors.
The two secured creditors are ranked first by Scotiabank ($6.9 million), followed by the other lender, Investissement Quebec ($16.8 million).
If Capcium were liquidated, “its assets would be insufficient to pay a dividend to Investissement Québec” (IQ). Scotiabank doesn’t risk much; its loan is 80% guaranteed ($5.5 million) by the taxpayer, through Export Development Canada.
But we are not there, said trustee Dominic Deslandes, who writes in his report that he has solicited 71 potential buyers, 57 of whom are pharmaceutical or nutraceutical companies or investment funds active in these sectors. The others are vulture funds that specialize in buying out “distressed assets” at rock bottom prices.
He said he expects more bids to come in by August 22, when the bidding closes. A decision could be made at the next bankruptcy court hearing, scheduled for August 30.
Capcium’s main asset is its Health Canada and US FDA pharmaceutical standard manufacturing approvals. These Canadian and American approvals are expensive, difficult to obtain and time-consuming to obtain. Hence the value of the factory for a possible buyer in the pharmaceutical or nutraceutical sector, explains the trustee.
On the other hand, you need an investor with fairly deep pockets. The factory needs an investment of 11.5 million to add four encapsulation chains, otherwise Capsium is not profitable, explains the trustee’s report.
At the Ministry of Economy, Innovation and Energy, in Quebec, we say we are attentive and we note that “it is still too early in the sale process to confirm the height of the amounts that can be recovered “, indicated Jean-Pierre D’Auteuil, head of media relations. As for a possible role if a transaction takes place in the file, it is too early to talk about it, he adds.
The company was founded in 2012, as a subsidiary of a manufacturer of paintball balls, a process that has some similarities to capsule encapsulation. Quickly, she turned mainly to pharmaceutical and nutraceutical customers (food supplements, vitamins, etc.) and the cannabis industry.
Alberta-based Aurora Cannabis is also Capcium’s second largest shareholder, having invested $10 million in 2018 to take a 19.99% stake in the company. According to the Companies Registry, the largest shareholder is Fulcrum Capital Partners of Toronto. CEO Richard Italia is the third shareholder. Pharmascience, of Montreal, had a senior executive on the board.
The pandemic also changed priorities at Health Canada, which was already not known for its speed, and the certification of the processes and the plant itself took longer than expected.
The collapse of the cannabis market also hurt Aurora, which closed its facilities in Quebec.
While Capcium forecast revenues of 43 million in 2021-2022, they reached only 7.8 million at the end of 2022. Since 2020, investors have had to add nearly 15 million to keep the ship afloat.