Judge rejects request for Bankruptcy Trustee to Oversee KaloBios
Friday, February 05, 2016
KaloBios Pharmaceuticals, the struggling drug company Martin Shkreli took over in November, may survive bankruptcy and its brush with Mr. Shkreli, who was ousted as chief executive after his arrest on securities fraud charges.
Judge Laurie Selber Silverstein rejected a request to have a trustee appointed to oversee KaloBios’s affairs, after warnings that displacing the leadership team that came on board after Mr. Shkreli left would upset the prospective deal.
Revived hope of a deal for a potentially lucrative drug, benznidazole, could pull KaloBios out of chapter 11 bankruptcy, the company’s lawyers told Judge Silverstein at a hearing Thursday.
KaloBios is lining up financing to move ahead on a restructuring built around benznidazole, a treatment for Chagas' disease.
The affliction is on an FDA list of ailments that could earn a ticket for fast-track regulatory treatment known as a priority review voucher. Priority review vouchers have sold for hundreds of millions of dollars, as Mr. Shkreli told investors in December, when he was trumpeting the commercial outlook for benznidazole.
The trustee request came from federal bankruptcy monitors, who said Thursday they are worried KaloBios is pursuing a chancy drug development deal, and depleting funds in the process.
“They seem to have a lot of ifs,” Hannah McCollum, trial lawyer for the Office of the U.S. Trustee said, noting “significant contingencies” on the deal that is under discussion. KaloBios wants to “bet” its remaining cash “on the promise, on the maybe” of a deal that may not pay off, she said.
“Exponentially, iffy is a terrible basis for continuing a case in chapter 11,” said Mark Kenney, another trial lawyer for the U.S. Trustee.
Jeffrey Prol, a lawyer for a major creditor of the pharmaceutical company, also argued against allowing KaloBios to risk its cash on a speculative deal.
Mr. Shkreli took control of KaloBios in November, with a $3.2 million investment in the ailing biotech, which was close to being shut down. Announcement of the benznidazole deal followed within weeks.
Mr. Shkreli’s acquisition of benznidazole never closed, but renewed talks that gave KaloBios a shot at recapturing the opportunity to cut a deal with Savant Neglected Diseases LLC, the Bay Area company that owns the rights to the drug.
In court Thursday, witnesses for KaloBios and Savant declined to provide estimates of how much time and money it will take to turn a profit from benznidazole, if a deal can be struck.
Benznidazole’s been used in Latin America for years to treat Chagas' disease, which can lead to serious, sometimes fatal, heart problems.
KaloBios laid out its prospects for a deal with Savant in the face of a bid by the U.S. Trustee to put the company into the hands of an independent trustee.
The fraud charges, which Mr. Shkreli denies, don’t relate to his brief tenure at KaloBios. They date back to his days as a hedge-fund manager.
Mr. Shkreli’s still a major shareholder, although his ownership stake is now below 50%. Those who took charge of KaloBios after his departure says safeguards are in place to prevent Mr. Shkreli from playing a role in the company’s affairs.
Mr. Shkreli was in Washington, D.C. Thursday, where he declined to testify before a House committee probing escalating drug costs. He didn’t respond to requests for comment on KaloBios.
KaloBios says it has potential buyers for other drug candidates, which are in the early preclinical stage, as well as a chance to get to a deal with Savant.
Advocates for people with neglected diseases, such as Chagas, have been watching the ups-and-downs of the benznidazole dealings closely. Mr. Shkreli gained notoriety for raising the price of a vital drug, Daraprim, from $13.50 per tablet to $750 per tablet, while at Turing Pharmaceuticals.
On a conference call about benznidazole in December, Mr. Shkreli indicated benznidazole was in for a similar price hike, once it cleared the FDA.
That set off alarm bells at groups like the Drugs for Neglected Diseases Initiative. Advocates for people with Chagas' disease have been “eagerly awaiting” action to get benznidazole to market, but wary of the profit motive driving the action, the agency’s regional executive director Rachel Cohen said In a recent interview. “We are still highly concerned that these companies are more interested in securing a lucrative priority review voucher than they are in making the drug available,” Ms. Cohen said.
The estimated 300,000 people in the U.S. who suffer from Chagas' disease can obtain benznidazole, but only from the Centers for Disease Control and Prevention, through a process that is bound up with red tape. Savant says it has had inquiries from multiple parties interested in moving benznidazole through the FDA process. KaloBios, however, has exclusive rights to attempt to get to a deal until Feb. 29, according to a KaloBios adviser.
Talks between Savant and Mr. Shkreli’s team about acquiring the benznidazole rights began before Mr. Shkreli invested in KaloBios, as a potential collaboration with Turing, Stephen Hurst of Savant testified Thursday.
Once Mr. Shkreli took charge at KaloBios, new money came in through an $8.2 million private placement, and Savant continued deal talks with Mr. Shkreli’s team at KaloBios.
In court papers, KaloBios director Cameron Durrant said that on Monday, Mr. Hurst emailed KaloBios with proposed terms for a binding letter of intent and a proposed project budget for getting benznidazole to market.
wsj.com
