With a History of Political Corruption, Rock Creek Pharma Files for Bankruptcy

Astellas Pharma, Proteostasis Therapeutics Forge $1.2 Billion Genetic Disease Drug Development Pact

September 29, 2016
By Mark Terry, BioSpace.com Breaking News Staff

Rock Creek Pharmaceuticals, based in Sarasota, Florida, filed for bankruptcy this week. In addition, two of its subsidiaries, RCP Development and Star Tobacco, also filed voluntary petitions under Chapter 7 of the U.S. Bankruptcy Code, which allows them to liquidate assets instead of reorganize.

Rock Creek focused on developing drugs for various chronic inflammatory diseases and nicotine addiction. All of its pipeline is in preclinical development or discovery for osteoarthritis, ulcerative colitis, psoriasis, Hashimoto’s thyroiditis, or smoking cessation.

Rock Creek Pharma reported total assets of about $35,000 with total liabilities of $21.3 million. RCP Development has total liabilities of almost $52 million, with assets of more than $31,000. And Star Tobacco claims assets of more than $482,000, but its total liabilities are $12.2 million.

The company indicated in August that it was considering bankruptcy. In an August 29 SEC filing, the company reported that one of its note holders, Hudson Bay Master Fund, had sent a default redemption notice and withdrew $6.7 million from its account. It also stated that Rock Creek still owed $7 million.

In addition, Tenor Capital Management also sent a default notice on behalf of Alto Opportunity Master Fund. Tenor withdrew $3.5 million from its account and told Rock Creek that it had to pay another $3.8 million in cash by August 31.

Rock Creek’s second-quarter financial reporting on August 11 cited a net loss of $2.8 million for the second quarter, dramatically higher than the $843,000 from the same period the year before. General and administrative expenses for the three-month period were $1.9 million, an increase of 16.4 percent of $262,000 from the same period the year before. Research-and-development expenses were $113,000 in the same period.

It also indicated at that time that it was continuing preparations for its Phase Ib trial in psoriasis, but until more funding was found, it was likely to be postponed from this year’s fourth quarter to next year’s first.

Perhaps not surprisingly, the company stock is basically trading at $0. IsStories wrote this morning, “Rock Creek Pharmaceuticals dropped -53.3333% and ended at $0.0028. The stock’s market capitalization arrived at $477243.19 and total traded volume was 22.16 million shares. The stock has a 52-week highest price of $1.2600 and its 52-week lowest price was called at $0.0013.”

Michael Mullan is the company’s chief executive officer, formerly chief executive of the Roskamp Institute. Rock Creek was originally called Star Scientific and based in Virginia. The company’s founder and former chief executive officer, Jonnie Williams, stepped down in late 2013 after investigations of his relationship with Virginia Governor Bob McDonnell.

McDonnell and his wife Maureen were indicted in January 2014 for accepting gifts, vacations and loans exceeding $175,000 from Williams. The 14-count indictment charged that, in return for the gifts, McDonnell used his office to “legitimize, promote, and obtain research studies for Star Scientific’s products.”

The McDonnells were found guilty of public corruption in September 2014, and the governor was convicted on 11 counts and later sentenced to two years in prison. Maureen McDonnell was convicted on nine counts and received a sentence of a year and a day.

Governor McDonnell’s sentence was upheld by the Fourth Circuit Court of Appeals, which then was taken to the U.S. Supreme Court. The Supreme Court overturned the sentence and returned it to the lower court.

At the Supreme Court case, Justice John Roberts wrote in an opinion, “There is no doubt that this case is distasteful; it may be worse than that. But our concern is not with tawdry tales of Ferraris, Rolexes, and ball gowns, it is instead with the broader legal implications of the Government’s boundless interpretation of the federal bribery statute.”

The Justice Department declined to prosecute again and moved to dismiss the charges.