The University of Louisville Foundation says it invested $1 million in a pharmacogenetics company that filed for bankruptcy this week, and has a maximum potential exposure of $4 million in the worst-case scenario.
The foundation — the nonprofit that manages the university’s $655 million endowment — entered into a partnership with PGXL Laboratories in 2011, giving it a 32 percent membership in the company. While PGXL was expanding a few years ago and the foundation expected to earn a return on that investment, the company filed for Chapter 11 relief in U.S. Bankruptcy Court on Tuesday.
PGXL stated in its motion that the primary reason for filing was a $26 million overpayment demand it received from the region’s Medicare contractor in October. An audit of the company’s patient records for claims led to a 100 percent denial rate on those claims over the last four years, which PGXL disagrees with and is now appealing. The filing also notes that Stock Yards Bank has a claim against PGXL for a line of credit issued last year, which today amounts to $3 million, though PGXL only has $800,000 worth of collateral. The UofL Foundation is one the guarantors of that promissory note.
Brucie Moore, chairwoman of the UofL Foundation’s board, sent IL a statement on Thursday responding to PGXL filing for bankruptcy and the foundation’s potential exposure.
“The Foundation invested $1 million, our exposure is a maximum of $4 million, and now there is a legal process underway with a series of unknown variables that will hopefully save some or all of the Foundation’s investment,” stated Moore. “The Foundation is not necessarily going to lose the investment or face the maximum exposure, but in the interest of transparency we wanted everyone to know worst case scenario as we work to get a better outcome.”
The audited financial statement of the foundation for the 2016 fiscal year noted that Stock Yards Bank sent PGXL a default notice in September, and the foundation recorded a $1.9 million loss related to its guarantee of PGXL’s loan at the end of that fiscal year.
The UofL Foundation reported a heavy 5.8 percent investment loss for the university’s endowment in the last fiscal year — one of the worst college endowment performances in the country — including a 50 percent loss on a controversial line of credit given to its affiliated holdings company UHI, which was supposed to be a “guaranteed return.” The affiliated UofL Real Estate Foundation later voted to assume responsibility for repaying UHI’s $29 million of debt owed to the endowment.
PGXL still has not responded to IL’s request for comment. CGS Administrators — the regional Medicare contractor levying the $26 million overpayment demand — did not immediately provide details on why 100 percent of PGXL’s claims were denied over the four-year period.