From one practice in Brisbane Genesis Care became an oncology empire across four countries
GenesisCare was meant to be the next CSL. It even had the biotech giant’s former chief executive - now chairman - Brian McNamee on its board.
But its founder Dan Collins - who built GenesisCare from one practice in Brisbane to an oncology empire spanning four countries - left the company last week as it buckles under a near $2bn debt.
In its latest accounts, directors warn there is a “material uncertainty” that the group - which lost $US229.3m last year - can continue as a going concern. They say without an improvement in operating cash flows, particularly in its US business, it will need additional funding.
The uncertain outlook has added stress to GenesisCare’s thousands of patients who are at their most vulnerable receiving treatment for cancer, and sounded an alarm to doctors when corporations approach them about joint ownership models.
Already, its shareholders - which include Wall Street private equity behemoth Kohlberg Kravis Roberts & Co, China Resources and a group of doctors - have loaned the company more than $US80m in the past year and have waived early repayment on that debt.
It also sold its cardiology business for $US78.7m but is still short of cash. This is despite its radiotherapy clinics in Australia, the UK and Spain remaining profitable.
Ratings agency S&P Global has warned GenesisCare’s capital structure is unsustainable, and high debt and rising borrowing costs would worsen the liquidity pressure on the company.
“We believe the Australia-based cancer-care service provider may undertake a distressed exchange or other form of debt restructuring that we would consider a default over the next six months,” S&P said last month.
The American dream
So what went wrong and how does the company plan to fix it?
GenesisCare troubles can be traced to its dream of making it big in the US. It is not the first Australian company to struggle in America. Treasury Wine Estates launched a strategic review in early 2020 as aggressive discounting and the rise of private label brands in the US, weighed its company’s earnings.
For GenesisCare, it entered the US market three years ago when it acquired 21st Century Oncology, which had previously entered Chapter 11 bankruptcy.
Such was the scale of GenesisCare’s plans for the US, that Mr Collins sold his waterfront home on Sydney’s Bronte Beach for $16m and spent $15.4m a brand new mansion in Los Angeles Bel Air enclave to establish an American base.
In July 2021, it switched its reporting currency to US dollars.
But a year later, Dr McNamee, left the company citing their workload from CSL’s $16.4bn takeover of Swiss renal treatments company Vifor and other duties relating to his role as chair. Two other directors also resigned from GenesisCare.
A spokesman for GenesisCare attributed the poor performance from the company’s US division to the Covid-19 pandemic rather than the quality of the assets in the business.
The onset of the pandemic also increased the difficulty of GenesisCare turning around 21st Century Oncology following its Chapter 11 bankruptcy.
“Like most global healthcare providers Covid impacted care pathways and treatment volumes as referring health networks were under pressure due to large numbers of Covid admissions and high levels of sick leave among healthcare workers,” the spokesman said.
“These challenges were felt very acutely in our US business almost immediately following completion of the acquisition of 21st Century Oncology in May 2020. And the integration of the 21st Century Oncology business has therefore been more challenging and taken longer than anticipated.”
But the spokesman said GenesisCare’s board expects a turnaround of the American division to gain traction next financial year. Although the company has provided no forecasts for when its US operations will break even or become profitable.
The spokesman said GenesisCare’s directors were “actively engaged in evaluating options to significantly improve the performance of the business in the US”.
“This includes examining ways to improve operating performance and liquidity, along with determining whether our current capital structure is best suited for the future.”
“Our new US leadership team - USA President Shaden Marzouk and US CFO Chad Gober – has a strong mandate to drive change.
“They have a comprehensive improvement plan across five key areas: revenue cycle management, cost control, IT modernisation, addressing the ageing fleet replacement and doctor recruitment. We have attracted new talent to the business and progress is being made. We expect to see improvements in financial performance by FY24. In the meantime, GenesisCare is continuing to focus on delivering excellent outcomes for all of our patients.”
Recovery plans
KKR believes GenesisCare’s board can turn the company around.
In its latest accounts filed last November, GenesisCare’s directors said the group has a net asset deficiency of $US144.6m, compared with $US104.1m the previous year. It’s net assets
“Additionally, capital commitments contracted for are $30.2m at June 30, 2022 and due within 12 months,” the directors said, highlighting the need for more funding.
“Without an improvement in operating cash flows, particularly in the USA, there will be a
need for additional funding. As a result of the above, the directors have assessed that there is a material uncertainty that may cast significant doubt over the Group’s ability to continue as a going concern, and therefore, the group may be unable to realise its assets and discharge its liabilities in the normal course of business.”
But the directors said they believe the group can continue to source equity or alternative funding.
One scenario on the table has been KKR buying out the debt positions of the other lenders. Current lenders include Blackstone, Investcorp, Baring Private Equity, Bain Capital and The Carlyle Group.
In the meantime, the company says it is investing more than $40m each year in new technology, sites and services in Australia. It plans to open five new sites within the next eight months.
“The Australian and the UK businesses are showing material year-on-year growth in treatment volumes. In Australia, nearly 4 out of 10 of all radiotherapy patients are treated by GenesisCare, which equates to more than 30,000 patients each year across 41 sites in five states,” the GenesisCare spokesman said.
“We innovate and reinvest into Australia – we have 150 active clinical trials across the world and bring world leading treatments to Australia for breast cancer, prostate cancer and including advanced radiotherapy treatment techniques, such as MR Linac - technology combines high-resolution magnetic resonance imaging (MRI) techniques with extremely precise radiation therapy.”
GenesisCare expects to announce a successor to Mr Collins within the next eight weeks.
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