The Deal Martin Shkreli was Trying to Complete for KaloBios Before He was Arrested

The Deal Martin Shkreli was Trying to Complete for KaloBios Before He was Arrested
January 6, 2016
By Alex Keown, BioSpace.com Breaking News Staff

SAN FRANCISCO – A move that might have helped embattled KaloBios Pharmaceuticals Inc. turn around was never finalized before the company’s former top executive Martin Shkreli was arrested on seven counts of securities fraud, the San Francisco Business Times reported this morning.

KaloBios’ December acquisition of a benznidazole program for the treatment of Chagas Disease from Savant Neglected Diseases, LLC, for $2 million in upfront payments was never finalized before Shkreli’s arrest, a Savant spokesperson told the Times. Because the deal was never finalized, Savant remains free to enter into a new deal for the drug.

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.

In December KaloBios, then under the leadership of Shkreli, said it 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. KaloBios had also planned to seek a neglected tropical disease priority review voucher from the U.S. Food and Drug Administration, but some of Shkreli’s critics believed he would have not used the voucher for the drug, but would have sold it for tens of millions of dollars, the Times reported.

But now whatever happens to benznidazole will not be up to KaloBios, which filed for Chapter 11 bankruptcy before the end of 2015. On Dec. 29 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. 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 two months ago that KaloBios announced the company would shut down its operations and liquidate its assets.

The bankruptcy filing came 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. Company stock has not sold since Shkreli’s arrest.

With a level of uncertainty around KaloBios, the company could look to divest itself of some of its limited assets, including 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 FDA, and had been initiating a Phase I trial and expects to start dosing patients before the end of the year.

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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