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KaloBios Files For Bankruptcy Following Martin Shkreli’s December Arrest

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KaloBios

Now that Shkreli is facing up to 20 years in prison for allegedly committing securities fraud, KaloBios’ revival was short-lived as they file for Chapter 11.

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January 5, 2016 | by Sarah Massey, M.Sc.

In mid-November, California-based KaloBios Pharmaceuticals announced they intended to begin the process of closing their doors and liquidating their assets. Just a week later, controversial entrepreneur Martin Shkreli, purchased a controlling stake in the company, thereby saving them from shutting down.

Now that Shkreli is facing up to 20 years in prison for allegedly committing securities fraud, KaloBios’ revival was short-lived as they file for Chapter 11. In its bankruptcy filing in Delaware, KaloBios has reported $8.4 million in assets along with nearly $2 million in debt owed to outside parties including research institutions and contract research organizations (CROs).

Should the court approve the pharmaceutical company’s appeal, KaloBios could pay off its debts – without liquidating the company entirely – and begin the long process of restructuring. In a comment about Shkreli’s arrest, the company said in court documents, “These events have been significantly disruptive to KaloBios’ efforts to address its liquidity concerns and implement an out-of-court restructuring.”

Shkreli’s charges of securities fraud date back to his time as CEO of another drugmaker, Retrophin Inc. The FBI says he was illegally distributing shares of Retrophin in an effort to quiet investors who had lost money after investing in Shkreli’s former hedge fund, MSMB Healthcare. The prosecutors maintain that Shkreli not only lost investor capital by performing a number of ill-fated trades, but failed to inform those investors that he had lost the money at all.



KaloBios has plans to continue development of its leukemia drug, lenzilumab, which was the asset that attracted Shkreli to invest in the pharmaceutical company in the first place. Two sites that were set to conduct clinical trials of the drug – the University of California at Davis and the Moffitt Cancer Center in Florida – have since halted their plans to participate, following the arrest of CEO, Martin Shkreli.

Stocks of KaloBios haven’t traded since Shkreli’s arrest on December 17th, however they did fall by 53 percent minutes after the news of the arrest became public. Representatives from KaloBios said they would be appealing the decision to halt trading of the company’s stocks in a hearing on February 25th.

Share prices for KaloBios stock have fluctuated immensely over the last few months, trading at less than $1 per share following the news that the company would be shutting its doors in November. After Shkreli bought a controlling stake and placed himself at the helm of the company, the stock surged as high as $39.50.

In response to the arrest charges, Shkreli has lost his post as both CEO of KaloBios and Turing Pharmaceuticals. The news is just the latest in a number of scandals involving Shkreli, which started when he raised the price of a decades-old pharmaceutical, reigniting the pharmaceutical pricing debate. Shkreli maintains his innocence and is currently out on a $5 million bail bond.

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Keywords: KaloBios, Drug Pricing, Shkreli


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