KaloBios Wins Confirmation of Bankruptcy-Exit Plan
June 15 2016 - 1:30PM
Dow Jones News
KaloBios Pharmaceuticals Inc. is on the way out of bankruptcy
after winning approval of a restructuring that pushed former Chief
Executive Martin Shkreli to the sidelines.
Mr. Shkreli was arrested on securities fraud charges unrelated
to KaloBios in December, about a month after he bought a
controlling stake in the ailing pharmaceutical company. He was
fired as CEO, and the company filed for bankruptcy protection.
The chapter 11 exit plan that cleared court Wednesday sets up
the company to return to business and possibly to the Nasdaq Stock
Market, which delisted the shares because of the bankruptcy and Mr.
Shkreli's arrest.
Mr. Shkreli denies the fraud charges, which stem from his
activities at Retrophin, a public company he is accused of using to
cover losses in hedge funds he ran. Mr. Shkreli remains notorious
for his avowed support for high drug prices. While chief executive
of Turing Pharmaceuticals, he hiked the price of Daraprim, a
potentially lifesaving drug, from $13.50 to $750 per pill
overnight.
On Wednesday, Judge Laurie Selber Silverstein confirmed a plan
that relaunches KaloBios with $14 million in new investments to
pursue a potentially lucrative deal for benznidazole, a treatment
for a tropical disease that could qualify for a priority review
voucher from the Food and Drug Administration.
Mr. Shkreli won't play an active role in the company's future
under a settlement reached in connection with the turnaround plan.
At the hearing in the U.S. Bankruptcy Court in Wilmington, Del.,
Judge Silverstein granted interim approval to the pact, which puts
distance between KaloBios and Mr. Shkreli, who still owns 47% of
the company's shares.
While KaloBios was in bankruptcy, measures put in place by the
company's board barred Mr. Shkreli from flexing his power as a
major shareholder. That left open the question of what would happen
once KaloBios exited bankruptcy. Transactions that are part of the
chapter 11 plan mechanics will dilute his stake to less than 14% of
the equity in the reorganized company. That reduction isn't
sufficient to calm the concerns of, among others, hospitals that
KaloBios would like to enlist as part of clinical trials and
potential financing parties, said Peter Ivanick, a lawyer for
KaloBios.
Numerous potential parties to business arrangements with
KaloBios backed away due to Mr. Shkreli's continued stockholdings,
Mr. Ivanick said. The settlement renders him a passive investor,
unable to vote in opposition to the majority of shareholders and
ineligible to nominate candidates for the board of directors.
Within months, KaloBios has the option to buy out Mr. Shkreli's
stake at a discount to market price.
A lawyer for Mr. Shkreli said he wouldn't comment on KaloBios's
assertion that the former CEO's continued association with the
company jeopardizes its prospects. Mr. Shkreli supports KaloBio's
chapter 11 plan, the lawyer said.
KaloBios's turnaround is being financed by Black Horse Capital
LP and Nomis Bay Ltd., which will have a controlling stake in the
reorganized KaloBios. The new funding is part of a bankroll
KaloBios needs to wrap up a deal for benznidazole that could
generate big profits.
A remedy for Chagas disease, a dangerous parasitic infection,
benznidazole has been established as safe and effective during
decades of use in Latin America. With an estimated 300,000 Chagas
disease sufferers in the U.S. and no easy way to get benznidazole
in this country, the drug could be in line for expedited regulatory
handling through the issuance of a priority review voucher.
"This will allow people to get back to medicine," said Eric
Lopez Schnabel, a lawyer for Savant Neglected Diseases, commenting
on KaloBios's reorganization. Savant is the San Francisco Bay Area
company that controls the rights to benznidazole.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
June 15, 2016 13:15 ET (17:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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