Inside Calibrate’s $20 Million Deal With Madryn to Avoid Bankruptcy

Facing the threat of bankruptcy, weight-loss startup Calibrate was forced to make a tough deal with private equity firm Madryn Asset Management, according to company documents reviewed by Insider.

Under the terms of the deal, Madryn took a 70% stake in Calibrate in exchange for just $20 million, the documents show. Madryn had already lent the troubled weight-loss startup more than $60 million, giving it leverage to dictate the terms of the transaction.

Insider first reported on October 20 that Calibrate, which prescribes popular drugs such as Ozempic and Wegovy, was selling itself to Madryn and undergoing a restructuring, after struggling with patient complaints and refunds.

Calibrate’s founder, Isabelle Kenyon, stepped down as CEO in the restructuring. She’s left with a 2.5% stake, per the documents. The documents, which are dated October 17, include the merger agreement and a list of Calibrate investors, and were sent to shareholders as part of the deal.

The deal terms are especially bleak for a startup that raised about $170 million from investors including Tiger Global, Founders Fund, and Optum Ventures, according to Pitchbook. The figure also includes some previous lending by Madryn. 

Calibrate, Madryn, Kenyon, and the company’s VC backers didn’t immediately return messages seeking comment for this story. A Calibrate spokesperson previously said that the deal “strengthens the company’s financial position as the leading metabolic health business and allows the business to achieve profitability.”

Madryn’s takeover caps a tumultuous year for Calibrate. While it was one of the first companies built to prescribe new weight-loss drugs, the startup ran into problems getting patients their medications on time and responding to their messages, and paid out millions of dollars in refunds in the first half of the year, Insider reported previously. Some longtime patients have regained much of the weight they lost after Calibrate failed to get them medications, Insider reported on Thursday.

Calibrate founder and former CEO Isabelle Kenyon.

Calibrate

Inside Madryn’s takeover 

Calibrate, launched in 2020, had raised roughly $127 million by the end of 2021, including a $100 million Series B round co-led by Founders Fund and Tiger Global. It wanted to raise an additional round of equity funding in 2022, but it wasn’t able to secure more cash because of “difficulties in the equity markets and increases to the company’s operating costs,” according to the document.

Calibrate’s board then looked for other means of financing and reached a deal in November 2022 to borrow money from Madryn. The private equity firm had lent Calibrate $64 million by this October.

As Calibrate faced operational challenges in 2023, the company defaulted on the terms of its loans at least once, according to the document. The document doesn’t identify those challenges or say why Calibrate defaulted. But Insider has reported that Calibrate has faced a mountain of complaints this year from members as it struggled to respond to their messages on time and get them access to buzzy weight-loss drugs.

Those struggles had financial consequences, as the startup was forced to issue copious refunds to its members. Calibrate paid out nearly $2.6 million in refunds in March alone, Insider reported. Those refunds ate up almost 60% of Calibrate’s direct-to-consumer sales that month, according to a company presentation.

Still, Madryn provided additional financing and agreed to hold off on taking action against the startup as Calibrate tried to correct its course, including by pursuing a sale to another company, per the document. Fortune reported in October that Calibrate was in acquisition talks with a “large healthcare leader” this summer, but that the deal never went through.

Wegovy injection pens

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Restructuring or bankruptcy

Finally, in September, Madryn gave Calibrate two options: The startup could restructure, giving Madryn majority ownership of Calibrate; or Calibrate could file for Chapter 11 bankruptcy.

On September 12, Calibrate agreed to restructure, and the deal was executed on October 16. 

Under the deal, Madryn exchanged $20 million of its loans for senior equity in Calibrate. The company’s existing equityholders will see their stakes converted into Class C shares, which amount to 15% of the company in all.

Founders Fund and Tiger Global now each own around 1% of the company.

Owners of some convertible investments will see their stakes become Class B shares. They’re not identified in the document, and will own 15% of the company as well.

The document states that these ownership percentages are preliminary and could change.

Madryn can still force Calibrate to declare bankruptcy “in the event of certain circumstances,” according to the documents.

If Calibrate folds or gets bought by another company, Madryn gets paid back first, per the deal. The private-equity firm will get twice the amount of money it put in — $40 million in returns from the initial $20 million in equity funding, before other investors get any money back.

The company’s prospects are hazy at best. Numerous other startups have raced to prescribe weight-loss drugs online. And Calibrate appears to be cutting staff: In the past week, more than a dozen Calibrate health coaches have posted on LinkedIn that they’re looking for a new role or updated their profiles to show that they left the company in October.

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