KaloBios files for bankruptcy in the shadow of Shkreli's arrest

KaloBios ($KBIO) was days away from shutting its doors for good when controversial entrepreneur Martin Shkreli swooped in to keep the company afloat last month. Now, with its purported savior facing up to 20 years in prison on charges of fraud, the tiny biotech is roughly back where it started, filing for bankruptcy to settle its debts.

The company is applying for Chapter 11 restructuring in Delaware, listing $8.4 million in assets and about $2 million in debt, most of it owed to CROs and research institutions. If the appeal is granted, KaloBios would be able to pay off its creditors without liquidating the company or handing over control.

The filing comes a week after Nasdaq threatened to delist KaloBios' shares, which haven't traded since Shkreli was arrested Dec. 17. The company has said it plans to appeal that decision.

KaloBios has had a whirlwind month, beginning with its November move to completely liquidate the company after a string of clinical failures left it unable to press on. A week later, Shkreli and a group of amenable investors acquired a controlling stake in the company and began touting a once-failed KaloBios treatment that could have a future in a rare form of cancer. Within days, Shkreli had taken the CEO role and the company's shares had risen more than 15-fold.

But it all came to a halt this month, as federal prosecutors arrested and charged Shkreli with securities fraud related to dealings at a prior company.

The 32-year-old is accused of illegally disbursing shares of Retrophin ($RTRX), where he was once CEO, to settle debts related to his defunct hedge fund. Prosecutors say Shkreli ran the fund, MSMB Healthcare, into the ground with a series of disastrous trades, declining to inform investors that he had lost their money. When some MSMB backers started asking for that money back, he folded the firm and founded Retrophin, gradually doling out the new company's shares to appease angry investors and avoid lawsuits, according to the FBI.

KaloBios has since ousted Shkreli from its top ranks, and so has Turing Pharmaceuticals, a Shkreli-founded company that gained global notoriety for buying an old drug and significantly raising its list price.

- read the filing