(Bloomberg) — The Pill Club, a birth control and telehealth provider backed by an affiliate of venture financing firm TriplePoint Capital LLC, went bankrupt after California authorities accused the startup of fraudulently billing the state’s Medicaid program for contraceptives customers didn’t order and counseling sessions it never provided.
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The San Mateo, California-based business is trying to sell itself in Chapter 11 as it braces for the possibility that other states will launch additional investigations into its billing practices. The company, also known for a time as Favor, filed bankruptcy months after agreeing to pay a total of $18.275 million to settle California regulators’ claims without admitting wrongdoing.
The Pill Club is finalizing an agreement to sell the business in Chapter 11, a deal that would be subject to higher offers, company lawyer Timothy Walsh said Friday during a court hearing. Walsh didn’t disclose the name of the potential buyer. The startup is also discussing with TriplePoint and other parties the terms of proposed Chapter 11 financing, which could be finalized over the weekend, he said.
TriplePoint Venture Growth BDC Corp. is the collateral agent for a $30 million loan to The Pill Club and holds a senior lien on the company’s assets, court papers say. TriplePoint also owns shares in the startup, according to a securities filing.
Walsh said The Pill Club and TriplePoint are currently at an impasse over a request to continue using lenders’ cash, though he said the company is hopeful an agreement will be reached soon. TriplePoint did agree to The Pill Club’s use of as much as $850,000 to pay wages for its approximately 220 employees, said Dan McGuire, another lawyer for startup.
Revenue Drop
The Pill Club Chief Executive Officer Elizabeth Meyerdirk said in a sworn statement that news of the California settlements prompted key business partners to terminate contracts with the business, resulting in a 60% drop in revenue. The company also racked up a $13 million legal bill responding to the California investigation, an expense that could grow significantly if other states launch new probes, Meyerdirk said.
Like numerous startups, The Pill Club had accounts at Silicon Valley Bank that have been taken over by First Citizens Bank. The company closed a money market account and investment accounts at First Citizens at the request of a Justice Department unit that monitors bankruptcy court, a lawyer for The Pill Club said Friday. The closed accounts had relatively little cash in them, the lawyer said.
Founded in 2015, The Pill Club bills itself as the biggest online provider of contraceptives in the US. It offers more than 120 brands of birth control and has served more than 3 million patients so far, according to Meyerdirk.
Michigan Probe
Last month, Michigan Attorney General Dana Nessel sent The Pill Club a notice indicating her office is investigating billing in that state, potential new claims that appear identical to those settled in California, Meyerdirk said.
Meyerdirk, the former global head of business development at Uber Eats, joined The Pill Club in late 2020 “to professionalize” the business and said problems the company faces stem from decisions made by prior management. The California investigation was prompted by a 2019 whistleblower lawsuit, she said.
Despite the bankruptcy, Meyerdirk said The Pill Club is on track to break even in the fourth quarter of this year. Meyerdirk said The Pill Club’s board decided that a sale of the business “is the most appropriate remaining option and the path that will lead to the greatest recovery for stakeholders.”
Lawyers for The Pill Club and a TriplePoint spokesman didn’t return messages sent Thursday seeking comment.
The case is The Pill Club Pharmacy Holdings LLC et al., 23-41090, US Bankruptcy Court for Northern District of Texas (Ft. Worth).
(Adds information on potential sale, details from hearing beginning in paragraph three.)
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Source: https://finance.yahoo.com/news/california-birth-control-startup-goes-131659415.html