pgxl A local pharmacogenetics company that has a partnership with the University of Louisville Foundation filed Chapter 11 bankruptcy on Tuesday, citing a recent overpayment demand of $26.3 million from a Medicare contractor.

Pharmacogenetics Diagnostic Laboratory, LLC — also known as PGXL Laboratories — was founded in 2004 by Dr. Roland Valdes Jr. and Dr. Mark Linder, both professors in UofL’s Department of Pathology and Laboratory Medicine. PGXL is a commercial and research laboratory that works to bring genetic drug sensitivity testing into the medical mainstream, offering diagnostic services to physicians and hospitals.

In 2011, the UofL Foundation made a large investment in PGXL, entering into a partnership in which the foundation gained a 32 percent membership in the company. The partnership also gave a seat on the company’s board of directors to Jason Tomlinson, CFO of the UofL Foundation. In recent years, PGXL has been housed in The Nucleus Building at 201 E. Jefferson St., which also is owned by the foundation.

PGXL filed Chapter 11 on Tuesday in U.S. Bankruptcy Court of the Western District of Kentucky, estimating its assets between $501,000 and $1 million, liabilities between $10 million and $50 million, and number of creditors between 200 and 999. The PGXL board passed a resolution on Monday stating the bankruptcy filing was in the best interest of the company and authorized its attorneys to represent the company in the matter on a retainer of $25,000. The resolution passed 3-1, with the only dissent coming from Tomlinson of the UofL Foundation.

Among a number of emergency motions filed by PGXL on Wednesday morning, the company stated its primary reason for seeking Chapter 11 relief is the recent assessment against it by Medicare totaling over $26 million. It states that last month CGS Administrators — the Medicare contractor for the region — issued an overpayment demand to PGXL in that amount due to the results of a recent audit performed by AdvancedMed, the Zone Program Integrity Contractor for Medicare Part B in Kentucky.

AdvancedMed conducted a post-payment audit of 30 patient records for claims in the previous four years, then imposed a 100 percent denial rate for these claims and extrapolated these to the universe of claims submitted by PGXL in that time period, resulting in the large figure. PGXL noted in its motion that the company disagrees with those findings and began an administrative appeal process last week, stating it “believes that the ultimate liability, if any, will be significantly less than $26 million.

The motion filed by PGXL also states that Stock Yards Bank & Trust Company also has a claim against it arising from a revolving promissory note issued last year in the original principal amount of $3.5 million, which today amounts to just under $3 million. It states that “the note is guaranteed in its payment and performance by the three members of the Debtor,” who are Dr. Valdez, Dr. Linder and the UofL Foundation. Stock Yards Bank claims a pre-petition security interest in PGXL’s property, and the motion states that its “use of SYB’s Cash Collateral is essential for its continued operations, and SYB may be entitled to adequate protection against the deterioration, depreciation, conversion or loss and diminution in value of the Cash Collateral.”

PGXL’s emergency motions seek relief from the court regarding the authority to use the aforementioned cash collateral, an order authorizing it to pay wages, salaries and benefits to employees, and the ability to maintain a pre-petition bank account. A meeting of the creditors is scheduled for Dec. 15.

Among the list of creditors named in Tuesday’s filing with the largest unsecured claims who are not “insiders” of PGXL, the second largest to CGS Administrators is Essential Molecular Testing Corp., which also is based out of Louisville.

Though PGXL is rarely mentioned in university or UofL Foundation documents, the university’s 2015 fiscal year audit noted that the foundation is guaranteed a maximum of nearly $5 million from a line of credit issued to PGXL.

The UofL Foundation has conceded heavy investment losses over the past year, including a 50 percent loss on a massive loan or “line of credit” issued to UHI, its holdings company. Spokesmen from the university and foundation have not yet responded to IL’s questions about PGXL’s bankruptcy filing, how much money the foundation has invested in it, and how much the foundation stands to potentially lose.

PGXL representatives have not yet returned a message seeking their comment for this story.

Though PGXL has filed for bankruptcy this week, just three years ago the company was expanding rapidly and was named business of the year by local publication Business First in their small company category. In a 2013 Business First profile of the company, PGXL president Valdes touted their positive association with the UofL Foundation, saying it “represents a notable success story of a public-private partnership that is fostering the development of high-tech jobs and establishing Louisville as a leader in pharmacogenetic testing.”

Valdes also stated in the late-2013 article that PGXL’s revenue had more than tripled from 2011 to 2012 and was expected to grow by another 70 percent in the following year, and its 45 employees would grow by 20 by the end of 2014. Wednesday’s bankruptcy filings by PGXL stated that the company currently has 21 employees and anticipates gross revenues of approximately $8.8 million in 2016.

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Joe Sonka is a staff writer at Insider Louisville focusing on government, politics, education and public safety. He is a former news editor and staff writer at LEO Weekly and has also freelanced for The Nation and ThinkProgress. He has won first place awards from the Louisville Metro chapter of the Society of Professional Journalists in the categories of Health Reporting, Enterprise Reporting, Government/Politics, Minority/Women’s Affairs Reporting, Continuing Coverage and Best Blog. Email him at [email protected]


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