KaloBios emerges from bankruptcy, raises $14M in recap

Six months after filing for bankruptcy late last year, the long-troubled KaloBios Pharmaceuticals has emerged from bankruptcy. It’s gotten a recapitalization done, complete with an infusion of $14 million, and in-licensed a lead candidate that keeps it focused on neglected and rare diseases.

Going forward, the company expects to focus on lead candidates benznidazole to treat Chagas disease in the U.S. and its monoclonal antibody lenzilumab to treat chronic myelomonocytic leukemia and juvenile myelomonocytic leukemia.

The financing "revitalizes a good company that has suffered with incredible uncertainty--two corporate near-death experiences--over the past eight months. It positions us to start the real work of advancing medicines," KaloBios chairman and CEO Cameron Durrant told FierceBiotech. "This equity financing provides a firm base to support the company’s operations going forward, and it will fund our reorganization plan, advancing benznidazole development and advancing the rest of our rare and neglected disease therapy pipeline."

KaloBios went into Chapter 11 bankruptcy in December, just after ditching its former CEO and drug-pricing cautionary tale Martin Shkreli. He had worked to put together a bailout plan with a group of investors who bought up more than 70% of the company’s shares. But that was derailed as Shkreli himself was arrested on charges of securities fraud.

Since the Shkreli debacle, KaloBios has been at great pains to underscore that it values fairness in drug pricing, although it doesn’t have anything close to a marketed product.

Shkreli will still hold about 14% of the recapped company, but that’s down from a stake of 47%, according to a report from Bloomberg. The outlet noted that he may need to get permission from the federal government to sell the shares, since the trading account they are held under was used to secure his $5 million bail.

The recap was done by Black Horse Capital, Cheval Holdings and Nomis Bay. Black Horse Capital is an activist hedge fund focused on special situations. Its head, Dr. Dale Chappell, has joined the board as part of the financing--along with a larger reorganization of board.

Investors have kicked in $14 million: $11 million in equity on top of $3 million in debt that dates back to May. That’s an impressive sum given that the company has an OTC-traded market cap of less than $17 million.

The company paid that $3 million to Savant Neglected Diseases as an upfront payment for its benznidazole, also including a warrant to purchase 200,000 KaloBios shares. The deal also includes undisclosed milestones and royalties tied to the development, regulatory and commercialization of benznidazole. Shkreli had negotiated and announced the Savant deal in early December, but with a smaller upfront of $2 million.

KaloBios has said that it intends to file for Orphan Drug Designation and Fast Track Designation for benznidazole in Chagas disease. The company also said it hopes to receive a Neglected Tropical Disease Priority Review Voucher.

Benznidazole is approved in several Latin American countries to treat Chagas, but in the U.S. it’s only available through the Centers for Disease Control and Prevention (CDC) for investigational purposes. It was originally manufactured by Roche ($RHHBY) under the name Radanil, but the biopharma discontinued production in 2003 and transferred the manufacturing rights to the Brazilian Ministry of Health.

An estimated 300,000 people in the U.S. are infected with Chagas disease, which is potentially life-threatening and accompanied by cardiovascular, gastrointestinal and neurological complications. If approved by the FDA, benznidazole would be the first product marketed in the U.S. to treat Chagas disease.

"It’s a drug that’s proven to be very effective for many years. Thus the development time horizon is likely shorter than a full clinical trial progam," said Durrant. "Now that we’re out of bankruptcy we can focus on working with our regulatory team to start putting together our submission for US approval as soon as possible using the 505(b)(2) pathway."

- here is the release

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