Written by Mani
KaloBios Pharmaceuticals announced late Thursday that former hedge fund manager Martin Shkreli has become its chief executive officer and chairman after he led a group of investors to buy 70% of the drug developer’s outstanding shares, or as DealBreaker so eloquently put it ” Desperate Pharmaceutical Company Hits Rock Bottom, Names Martin Shkreli CEO“- The South San Francisco-based company said Shkreli will work with KalioBios’ senior management team to ensure its continued operations.
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Chart via S&P Capital IQ
Shkreli’s majority stake in KaloBios
As outlined by ValueWalk, a regulatory filing with the Securities and Exchange Commission revealed that Shkreli acquired over 1.21 million shares of KaloBios Pharmaceuticals worth over $5.16 million on Nov. 16 and 17.
Shkreli, a Turing Pharmaceuticals executive, acquired 500,169 shares of KaloBios Pharmaceuticals for 61 cents per share and an additional 97,269 shares for $1.43 per share on Nov. 16. The following day, he acquired 606,677 shares for $1.93 per share and an additional 7,000 shares for $2.43 per share.
Following the buildup of Shkreli’s stake, the stock price of KaloBios Pharmaceuticals rocketed by over 700% from $1.97 per share to as much as $16 per share during extended trading on Wednesday. On Thursday, shares of the cancer drug developer closed at $10.40, up 402.42%. Thanks to the upsurge, Shkreli’s investment in KaloBios surged by over $130 million. At the time of writing, KaloBios’ shares had surged by another 75% to $18.25 during Friday’s trading hours. Shares are up another 37% to $25 a share at 10:30 AM EST in Monday’s trading session.
KaloBios names Shkreli as CEO
In its statement, KaloBios said the investor group led by Shkreli, has acquired 70% of its outstanding shares. The pharmaceutical company also received a commitment from Shkreli and other investors for an equity investment of at least $3 million. The drug developer said Shkreli and the group of investors have committed to a $10 million equity financing facility, subject to applicable shareholder approval. KalioBios further announced that following the latest developments, David Moradi,Tony Chase and Marek Biestek have been elected to the board of directors, while the former directors have resigned effective immediately.
Exuding confidence about the future performance of KalioBios, Shkreli said: “We believe that the KaloBios’ lenzilumab is a very promising candidate for the treatment of various rare and orphan diseases. This monoclonal antibody neutralizes soluble granulocyte-macrophage colony stimulating factor (GM-CSF), a central actor in leukocyte differentiation, autoimmunity and inflammation. Lenzilumab has particular promise in Chronic Myelomonocytic Leukemia (CMML), a disease with no FDA-approved treatment options and a 3-year overall survival rate of 20%.”
KaloBios has approximately $5 million in cash and expects to file its quarterly results on Form 10-Q as soon as possible.
KaloBios planned to wind down operations
KaloBios’ potential treatment for lung infections in cystic fibrosis patients failed in clinical testing. This month the cancer drug developer said it would eliminate most of its jobs, leaving it with just 11 employees as it looked for strategic options.
The company’s shares dropped from $64 a share since it went public in early 2013, touching a low of 90 cents a share on Nov. 12. KaloBios said last week that discussions about possible strategic transactions had ended and that it was unlikely a viable alternative would surface. Shkreli’s latest investment comes a week after KaloBios said it planned to wind down its operations. For the Turnig executive, it was the “right price, right time and right opportunity” to take a stake.
Shkreli told Bloomberg over the phone on Thursday: “I contacted the company probably about last week and I asked them to call me back. They didn’t call me back. I called again, very politely, and they didn’t call me back a second time, so I decided to buy 50% of the company in my personal account and they decided to call me back.”
Shkreli faces drug pricing criticism
In his 20s after he’d set up his own hedge fund, Shkreli developed a reputation for using a stock-gossip website to savage the shares of biotech companies he was shorting. Shkreli would recommend shorting a biotech stock, betting the company’s share price would drop, and sure enough, it did.
Shkreli is the head of privately-held Turing Pharmaceuticals, which was criticized in September for buying the rights to a parasitic infection treatment called Daraprim and then raising its price to $750 per pill from $13.50 a pill.Daraprim has been on the market for over 60 years and did not have any competition when Turing bought it. Turing has said it will lower the price, although that hasn’t happened yet. The company said it capped copayments for patients at $10. In October a San Diego company later said it would make a version of Daraprim available for about $1 a pill.
Interestingly, WallStreetPoint terms Shkreli’s trade on Nov. 3 in KaloBios as an “insider trade.” It says Shkreli, a 10% owner of KaloBios, acquired 613,677 shares at $1.94 per share to put his total holding at approximately 1.625 million shares. The shares currently owned by company management about toe a 0.1% stake, while institutional investors own about 28.8% of the company. On the other side, a 3.31% change in total institutional ownership has been reported for the three-month period.
iBankCoin highlighted Form 4 of the SEC documents revealing Marek Biestek, considered a long term friend and partner of Martin Shkreli acquiring 200,000 shares in KaloBios. On November 16, Biestek acquired 65,000 shares of KaloBios at $1.36 and another 135,000 shares on November 17 at $1.83.
A Twitter posting under the handle @MartinShkreli said: “even in a ‘best case scenario’, $KBIO holders won’t get more than $1.00 share. I will donate $50,000 to charity if I’m wrong”. In its blog, iBankCoin wonders whether the comments can be considered as ‘insider trading’ when one considers Shkreli was already aware that his SEC filing would be known very soon. Since, Shkreli was not an insider at the time of the “alleged talk it is possible that despite many considering it unethical, the conversation would not fit the legal definition of insider trading.
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