Cetero Bankruptcy Good Business For Execs
April 12th, 2012 // 1:39 pm @ jmpickett
Last month, Cetero Research filed for bankruptcy protection after the FDA issued an alert last year to drugmakers to reevaluate clinical tests over concerns about falsified data and manipulated samples. The CRO blamed the problem on a handful of employees who allegedly corrupted data as part of a scheme to work longer hours and qualify for extra pay. But Cetero lenders viewed this as a breach of health laws and regulations that amounted to a default on loans (back story).
Now, the clinical research organization is trying to find a buyer while also maintaining operations, juggling bankruptcy demands and grooming the business for a sale. And so a dozen Cetero execs along with several project managers are seeking incentive bonuses totaling at least $1.3 million, a figure that is based on a ‘stalking horse’ bid set by creditors of at least $50 million, according to court documents (read here and here).
In making a case for the bonuses, attorneys for the CRO argue several points – it is not unusual to seek such incentives; a successful sale or restructuring is highly dependent on these employees, who have the necessary “experience and expertise†to motivate the rest of the company, and they are the only employees with the skill and knowledge needed to maximize the value of the company.
Such requests do occur, of course, but whether the court will approve all or some of the bonuses is unclear. As an aside, several former and current Cetero employees had once worked for MDS Pharma Services, another CRO that had rather similar problems with validity and accuracy of test results. MDS Pharma operations were subsequently sold. A hearing is scheduled for Friday and we have asked the attorneys for the creditors’ committee for a response. We will update you accordingly if we hear anything.
