Barely two months after its rapid COVID-19 test got the green light from Health Canada, Ottawa’s Spartan Bioscience says it is filing for creditor protection and cutting two-thirds of its workforce in the wake of a “higher-than-expected level of inconclusive results” from the device.
In a statement to OBJ on Tuesday, the company said it is laying off 61 of its roughly 90 employees and restructuring its operations as it works to “refine the performance of its COVID-19 test in the field.”
Spartan said it has “made the difficult but necessary decision” to stop shipping the product, which had already received tens of millions of dollars’ worth of orders from various governments and private-sector customers across Canada.
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“This is not a patient safety issue and we are working hard to resolve it,” the statement added.
In an email to shareholders obtained by OBJ, Rochelle Stenzler, chair of Spartan’s board of directors, said the company has been in “frequent communication” with Health Canada since the issues were identified.
Stenzler said the bulk of the firm’s revenues currently come from a $160-million contract with the federal government. She said the company requested an advance from the feds to give the firm “the time and resources” to do more testing of the Spartan Cube “with the goal of bringing an improved product back to market as soon as possible,” but the government did not provide the upfront cash.
‘Severe liquidity issue’
“This pause in funding has created a severe liquidity issue for the company,” the email said, adding the firm “had no option but to seek creditor protection.”
Spartan owes $73 million to creditors, according to a court filing by monitor Ernst & Young. The sum includes $16.4 million to Health Canada, $9.8 million to the Ontario Agency for Health Protection and Promotion, $8.8 million to Business Development Canada and $8.7 million to CHU de Quebec-Universite Laval.
Spartan says it plans to make a proposal under the Bankruptcy and Insolvency Act. The company said Health Canada’s authorization remains in place while Spartan works with the agency to resolve the issue.
Health Canada didn’t immediately comment on the issues facing Spartan’s test.
Spartan spokesperson Jeffrey Fenton told OBJ that interim CEO Jennifer Ross-Carriere was “not available for discussions” on Tuesday afternoon, adding the company had no further comment on its restructuring plans.
It’s the latest chapter in what’s been a year-long rollercoaster ride for Spartan, which was launched nearly 15 years ago and has long been considered a potential biotech superstar in the making.
The company spent years developing a rapid DNA test for legionella bacteria, a deadly germ that can spread through heating, ventilation and air-conditioning systems. The technology was later adapted to determine whether heart patients will reject certain types of blood thinners due to a genetic mutation.
When COVID-19 emerged in Canada early last year, Spartan suddenly found itself in the spotlight after pivoting its coffee-cup-sized device to test for the novel coronavirus.
Health Canada initially green-lighted the Spartan Cube for emergency use as a COVID-19 test last April.
But just a few weeks later, the agency rescinded its approval, saying Spartan’s proprietary cheek swab wasn’t collecting sufficient amounts of the virus from infected individuals to ensure accurate readings. That led Spartan to put production on hold after the firm had landed millions of dollars’ worth of contracts.
Spartan’s R&D team then spent the rest of 2020 retooling the technology. The original plastic swabs were ditched in favour of the longer nasopharyngeal swabs commonly used at COVID-19 testing facilities across the country, which collect samples from the back of the nose and throat where the viral load is higher.
Meanwhile, the company also shuffled its executive ranks in a bid to attract new funding as it prepared to ramp up production of the Spartan Cube.
Co-founder Paul Lem, a medical researcher by profession, stepped down as chief executive last June to focus on product development in the role of chief medical officer.
Ex-Sobeys exec hired as CEO
The firm brought in scaleup guru Roger Eacock, a former executive at Dell, Hyundai, Levi Strauss and Sobeys, last fall to guide its next phase of growth. Lem left the company in November, according to his LinkedIn profile.
Health Canada eventually re-approved the Spartan Cube for emergency use in late January. At the time, Spartan co-founder Jamie Spiegelman called the device a “game-changer,” while Eacock predicted the company’s revenues would top $200 million before the year was out.
“I think this is going to be very important to reopen the economy in terms of companies and employees being confident that they’re safe at work,” Spiegelman told OBJ earlier this year. “COVID-19 was a disease that none of us want, but the technology that Spartan developed is almost the perfect way of diagnosing it.”
Eacock, who still lists himself as the firm’s CEO on his LinkedIn profile, told OBJ in January that money wasn’t a problem for Spartan. He said existing financial partners had recently injected a new round of capital into the operations and said talks with other potential investors were progressing.
“We’re literally having them line up right now wanting to help fund the business,” Eacock said.
– With additional reporting from the Canadian Press
