Martin Shkreli's Former Drugmaker KaloBios Files for Bankruptcy

Published: Jan 04, 2016

Martin Shkreli's Former Drugmaker KaloBios Files for Bankruptcy
December 30, 2015
By Alex Keown, BioSpace.com Breaking News Staff

SAN FRANCISCO – Only months after what appeared to be a turnaround for struggling KaloBios Pharmaceuticals , the cancer-making drug company has filed for Chapter 11 bankruptcy following the arrest of Martin Shkreli, its most recent chief executive officer and one of its largest shareholders.

On Tuesday, the company filed for bankruptcy protection in U.S. Bankruptcy Court in Delaware, estimating assets of $8.37 million and debts of $1.94 million, the San Francisco Business Times reported this morning. By filing Chapter 11 bankruptcy, KaloBios will have time to reorganize its now shaky leadership structure, restructure its debt, or possibly look at divesting itself of its assets—a move it was about to make earlier this year before Shkreli and his partners acquired hundreds of thousands of shares of common stock. It was only a month ago that KaloBios announced the company would shut down its operations and liquidate its assets.

But, only days later Shkreli, who was indicted earlier this month on seven counts of securities fraud, acquired 1.2 million shares of the company and brought it back to life. He was named CEO following his acquisition.

The bankruptcy filing comes on the heels of the company’s appeal to the Nasdaq Stock Exchange’s decision to delist its shares. A hearing for that appeal has been scheduled for Feb. 25.

If the company divests its assets, its newest Chagas Disease treatment could be attractive to some companies. In November, KaloBios acquired a benznidazole program for the treatment of Chagas Disease from Savant Neglected Diseases, LLC, for $2 million in upfront payments. The company intended to file for Orphan Drug Designation and Fast Track Designation for benznidazole in Chagas Disease. Currently, there are only two treatments for Chagas disease available—niffurtimox and benznidazole. Chagas disease is a parasitic disease transmitted to animals and people by insect bites. Chagas disease is common in South America, Central America and Mexico, but sometimes appears in the United States, according to the Mayo Clinic. Symptoms of Chagas disease include fever, fatigue, rash, aches, swelling of the eyelids, headache, nausea or diarrhea and an enlargement of the liver or spleen. An estimated 300,000 patients in the United States are afflicted with Chagas Disease.

The company also has a promising leukemia treatment in its pipeline. Lenzilumab, or KB003, a treatment of chronic monomyelocytic leukemia, is an anti-GM-CSF mAb originally tested for asthma, but was not effective in clinical trials. The company’s IND in CMML, an orphan oncology indication, has been cleared by the U.S. Food and Drug Administration, and had been initiating a Phase I trial and expects to start dosing patients before the end of the year.

Earlier this week, KaloBios announced executives Tom Fernandez and Marek Biestek who came to the company with Shkreli had resigned their positions. Both Fernandez and Biestek have long histories with Shkreli, dating back to the hedge fund Shkreli once controlled. That hedge fund, MSMB Capital, which is now defunct, is at the center of a federal case against Shkreli, who was arrested earlier this month on securities fraud charges.

Another Shkreli associate, Chris Thorn, KaloBios’ interim chief financial officer, resigned from KaloBios before Christmas. Shkreli, who became chief executive officer of KaloBios in November, was terminated on Dec. 21 following the federal indictment.

KaloBios also lost the accounting firm it had tapped for auditing. Marcum LLP was tapped by Shkreli just a few weeks ago. Marcum was also the firm that provided auditing services for Retrophin . The previous auditing firm, EY, which was formerly Ernst & Young, resigned from KaloBios services after Shkreli took over.

Shkreli was arrested by federal authorities on Dec. 17. The seven count indictment against Shkreli included multiple charges of securities fraud, securities fraud conspiracy and wire fraud conspiracy. U.S. Attorney Robert Capers accused Shkreli of running his former company Retrophin Pharmaceuticals and his former hedge fund MSMB Capital Management like a “Ponzi scheme.”

In August, Retrophin sued Shkreli for $65 million over his use of company funds while helming that company. In its lawsuit, Retrophin said Shkreli breached his duty of loyalty to the biopharmaceutical company and he engaged in self-dealing and also seeks disgorgement of money paid to him. Retrophin said Shkreli used company funds for personal use, enriched himself through false consulting contracts and referred to Shkreli as “the paradigm faithless servant” who “is not entitled to compensation or post-separation benefits.” Retrophin alleges Shkreli struck payoff agreement up to 10 MSMB investors who lost money when the hedge fund collapsed. Shkreli paid some investors through fake consulting agreements and others through unauthorized appropriations of stock and cash, the company alleged in its lawsuit.

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