Total Artificial Heart: How Bankruptcy Provides a Valuable Service – And a Proactive Mediation Suggestion

By Donald L. Swanson

Bankruptcy often deals with failure, loss, and broken promises.  So it has a bad reputation.

But bankruptcy often provides a valuable service in time of need.  And we now have a new example of this:

–a company that supplies total artificial hearts to people at death’s door.

SynCardia Systems, Inc., filed bankruptcy on July 1, 2016, in Delaware.

SynCardia’s Total Artificial Heart

SynCardia produces a total artificial heart to serves as a bridge-to-transplant for people with advanced heart failure.  SynCardia reports that:

–over 1,568 of its artificial hearts “have been implanted globally”;

–79% of patients with these implants “survived long enough to receive a heart transplant,” and 70% had a “one-year survival rate”;

–SynCardia is “the world’s only supplier” of this artificial heart, so a failure of its business “leaves patients and hospitals with no backup provider”; and

–The continuation of SynCardia’s business is essential to people who have or will need one of its artificial hearts: “death can occur in minutes in the event of a material malfunction.”

SynCardia’s Financial Problems

Long-story-short: SynCardia started running out of money and couldn’t pay its debts.  It made numerous unsuccessful attempts to get new money and eliminate debt.

Then, it began looking for a buyer.  Over 120 potential buyers were contacted, but none would make a purchase offer.

SynCardia also looked at multiple alternatives, with this goal in mind:

–“to maintain operations to sustain over 50 patients whose lives currently depend” on this artificial heart.

After “nearly all paths were exhausted,” cash balances were nearly gone and death of the business seemed inevitable, Sindex stepped forward as a buyer.

The Proposed Bankruptcy Sale

On July 1, 2016, lots of things happen in the Delaware Bankruptcy Court, including these filings:

 –SynCardia’s voluntary Chapter 11 bankruptcy Petition;

–SynCardia’s Motion for authority to sell its business to Sindex, “free and clear of all liens, claims, encumbrances, and interests” under § 363 of the Bankruptcy Code; and

–SynCardia’s Motion for authority to obtain loans from Sindex, to continue operating until the proposed sale can be approved by the Bankruptcy Court and closed (the Bankruptcy Court gives its interim approval to this Motion on July 6).

These actions in bankruptcy will enable SynCardia to accomplish the proposed sale in a prompt and efficient manner – a result that would not be possible without the bankruptcy filing.

Maintaining the viability and availability of this life-sustaining device is, obviously, a very good thing!

A Special Need

This bankruptcy case has an unusual constituency: namely, existing and future patients who have, or will need, one of debtor’s artificial hearts.

–Chapter 11 debtors commonly have a group of customers with an interest in the outcome of the case.  Rarely, however, do such customer-interests rise to this life-and-death level of importance.

–Because of the quick sale process expected here, it will be difficult to assure that concerns of patients and their physicians are adequately addressed and protected.

 A Proactive Mediation Suggestion

So . . . here is a proactive mediation suggestion for cases like this with special need circumstances:

Appoint a mediator with proactive authority to:

(i)  identify the people with the special need (i.e., patients and their physicians in this case); and

(ii) order all pertinent parties, including representatives of those with the special need, into immediate mediation so that special need concerns can be identified and addressed in the sale approval process.

Note:  Information about the SynCardia bankruptcy case, including copies of documents filed in the case, can be found at this website.