KaloBios Emerges from Bankruptcy, Buys Tropical Disease Drug

KaloBios Pharmaceuticals said Friday that it had emerged from chapter 11 bankruptcy and had acquired the rights to buy a tropical disease drug.

The company filed for bankruptcy protection not long after its ousted chief executive, Martin Shkreli, was arrested on securities fraud charges unrelated to KaloBios. At the time of his arrest, Mr. Shkreli was trying to land the rights to the drug, benznidazole.

Benznidazole is an established treatment for Chagas disease, which is a parasitic infection. It is designated as neglected and in need of attention as a public health matter by U.S. regulators, meaning it might qualify for an FDA voucher of the type that in the past has sold for as much as $350 million.

KaloBios bought the drug from Savant Neglected Diseases LLC for an upfront payment of $3 million and a warrant to purchase 200,000 shares of KaloBios stock. The agreement also includes potential milestone and royalty payments.

Mr. Shkreli paid $3.2 million in November 2015 for a controlling stake in KaloBios, and saw the value of that holding grow to more than $48 million before his arrest. The criminal charges, which he denies, involve allegations he hid losses in hedge funds he managed with the help of money from a public company.

Mr. Shkreli has been widely criticized for increasing the price of another vital drug, Daraprim, by fiftyfold. Before the criminal charges, which he denies, he alarmed advocates for rare-disease treatments when he told investors he intended to price benznidazole in line with hepatitis C treatments that can cost as much as $94,000 per course of treatment. In Latin America, where most cases of Chagas disease are found, benznidazole treatment costs $60 to $100, according to the Drugs for Neglected Diseases Initiative.

KaloBios's reorganization plan was confirmed by Delaware bankruptcy court on June 16 after it was "overwhelmingly" accepted by creditors.

The company obtained $11 million in exit equity financing, which comes on top of a $3 million debtor-in-possession loan, which has been converted into KaloBios shares. Both loans came from Black Horse Capital LP, Black Horse Capital Master Fund Ltd., Cheval Holdings Ltd. and Nomis Bay Ltd.

Black Horse Capital managing member Dale Chappell joined the Board along with two others, which are designees of the investors. Board member David Moradi has stepped down.

KaloBios's stock price took a beating after Mr. Shkreli's arrest and the company's bankruptcy filing. KaloBios shares, which reached a high of $39.50 a share in November, closed at $4.49 a share Thursday on the over-the-counter market.

Write to Austen Hufford at austen.hufford@wsj.com and Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

July 01, 2016 08:45 ET (12:45 GMT)

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