KaloBios Gets Loans Aimed at Reducing Shkreli Stake

KaloBios Pharmaceuticals, which has been trying to shake off the shadow of ex-CEO Martin Shkreli, has lined up bankruptcy financing that is premised on tamping down his stake in the company.

Mr. Shkreli, who prompted a public outcry last year for raising the price of a lifesaving medication by 5,000% while at Turing Pharmaceuticals, had been in the CEO seat at KaloBios for less than a month when he was arrested on fraud charges unrelated to KaloBios. Denying guilt, he posted his stock holdings in KaloBios to secure the bond that has kept him out of jail.

The criminal case against Mr. Shkreli has weighed on KaloBios's bankruptcy.

While Mr. Shkreli invoked his Fifth Amendment right last month against self-incrimination to avoid answering U.S. lawmakers' questions about pricing practices in the drug industry, KaloBios was trying to get back on its feet financially in bankruptcy court. Mr. Shkreli resigned from the company's board, and new directors took steps to safeguard against Mr. Shkreli having a say in the major decisions facing KaloBios.

Financing outlined in papers filed Thursday with the U.S. Bankruptcy Court in Wilmington, Del., would help fund a deal that Mr. Shkreli started, which KaloBios is now trying to close. KaloBios is seeking a priority review voucher, a ticket for a speedy trip through the federal regulatory process, for a drug it would like to produce.

Such vouchers have sold for hundreds of millions of dollars. It remains to be seen whether KaloBios can land a voucher if it gets the rights to benznidazole, an established treatment for Chagas disease.

Loans to help the deal along and get KaloBios out of bankruptcy are being offered by Black Horse Capital LP, an investment fund with an interest in the biotechnology sector. The financing is conditioned upon a requirement that Mr. Shkreli not have voting control of more than 20% of the common stock of KaloBios once it exits bankruptcy.

In November, when he bought control of KaloBios, Mr. Shkreli held more than 50% of the company's shares. That percentage may have been diluted by a private placement that raised $8.2 million in December. However, investors in that private placement have filed suit in bankruptcy court to reclaim the money on the basis they should have been clued in about the criminal problems headed in the direction of KaloBio's then-CEO.

Mr. Shkreli's notoriety aside, the priority review voucher program has drawn fire from groups like Doctors Without Borders and the Drugs for Neglected Diseases Initiative. There is no requirement that companies that get vouchers develop drugs or make them affordable, which critics say can lead to an unearned windfall to profiteering pharmaceutical companies.

Judge Laurie Selber Silverstein has cleared KaloBios to try to get to a deal with Savant Neglected Diseases LLC, which owns benznidazole.

Black Horse Capital's financing proposal is open to competition and subject to court approval. Terms of the financing allow Black Horse to get stock in the reorganized KaloBios, but other investors that want to make a better offer for the stock, or invest alongside Black Horse, will have an opportunity, court papers say.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Peg Brickley at [e-mail]

(END) Dow Jones Newswires

March 11, 2016 16:25 ET (21:25 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.