Morris Nichols Partners with KaloBios Pharmaceuticals, Inc. to Overcome Challenges to Complete Successful Reorganization
Wilmington, DE (July 12, 2016) – Morris, Nichols, Arsht and Tunnell LLP (“Morris Nichols”) announced today that it, together with co-counsel Hogan Lovells US LLP, has served as chapter 11 bankruptcy counsel for KaloBios Pharmaceuticals, Inc., a Brisbane, California based development stage, biopharmaceutical company focused on advancing treatments for neglected diseases, in a highly successful reorganization and recapitalization of its business. Batuta Capital Advisors LLC acted as the company’s financial advisor and the Brenner Group LLC provided interim financial management support.
The Morris Nichols team representing KaloBios included partners Eric D. Schwartz and Gregory W. Werkheiser and associates Matthew B. Harvey and Marcy M. McLaughlin.
KaloBios’ improbably successful reorganization marks its triumph over several challenges that nearly resulted in the company’s liquidation. Initially, KaloBios found itself running out of funds in the fourth quarter of 2015 and unable to raise additional capital. Thereafter, an investor group, which included Martin Shkreli as its largest holder, acquired a controlling stake in the company and on November 19, 2015, Martin Shkreli was appointed Chief Executive Officer and elected as Chairman of the Board. Less than a month later, Mr. Shkreli was indicted on criminal charges unrelated to KaloBios, immediately following which Mr. Shkreli was terminated as CEO and resigned from the Board of Directors. Thereafter, several lawsuits alleging violations of securities laws were filed against KaloBios, Mr. Shkreli and others.
In the aftermath of these events, on December 29, 2015, KaloBios filed in the United States Bankruptcy Court for the District of Delaware a voluntary petition for relief under chapter 11 of the Bankruptcy Code. Less than ten days after the commencement of its bankruptcy case, however, KaloBios was sued by plaintiffs (the “PIPE Plaintiffs”) seeking to recover from KaloBios approximately $6.9 million that they had funded to KaloBios in December 2015 as part of a private placement stock purchase transaction.
Over the next several months, Morris Nichols, Hogan Lovells and KaloBios’ other professionals helped their client, among other things, (i) substantially reconstitute the company’s board of directors, (ii) obtain the services of Dr. Cameron Durrant, an experienced biopharmaceuticals industry executive to serve, as KaloBios’ Chairman and Chief Executive Officer, (iii) lock in commitments and Bankruptcy Court approval for $14 million of DIP and exit financing, and (iv) enter into and obtain Bankruptcy Court approval for a binding letter of intent with Savant Neglected Diseases, LLC, to allow KaloBios to acquire worldwide rights relating to benznizadole, one of two medications used to treat Chagas disease, a parasitic infection broadly afflicting persons in the Americas, Europe and Japan. KaloBios’ leadership, with the assistance of Morris Nichols, Hogan Lovells and KaloBios’ other professionals, also made use of KaloBios’ reorganization proceedings to resolve the securities litigation against KaloBios and certain related parties and to resolve disputes with the PIPE Plaintiffs, Mr. Shkreli and others. Moreover, Morris Nichols, Hogan Lovells and KaloBios’ other professionals helped its leadership develop and implement strategies to shore up its relationships with its most important vendors and drug development partners.
On June 16, 2016, the Bankruptcy Court entered an Order confirming the Debtor’s Second Amended Plan of Reorganization (the “Plan”). KaloBios’ Plan, which provides payment in full over time of KaloBios’ creditors and for KaloBios’ existing common stockholders to retain their interests, garnered overwhelming support from KaloBios’ creditors and other stakeholders. Shortly thereafter, on June 30, 2016, KaloBios closed the Savant acquisition and exit financing transactions, and its Plan became effective.
KaloBios’ common stock, which had an adjusted closing price of $0.90 per share on November 13, 2015, based on approximately 4,173,386 shares then issued and outstanding, had an adjusted closing price of $5.22 per share, based on approximately 14,903,022 shares issued and outstanding at the conclusion of the first trading day after KaloBios’ emergence from chapter 11. Accordingly, over this same period, KaloBios’ estimated market capitalization increased from approximately $3.76 million to approximately $77.8 million.
Morris Nichols is proud to have played a part in KaloBios’ successful turnaround. We wish our client all the best.
About Morris, Nichols, Arsht & Tunnell LLP
Morris Nichols combines a broad national practice of corporate, intellectual property, business reorganization and restructuring, commercial law and litigation with a general business, tax, estate planning and real estate practice within the State of Delaware. The firm is regularly involved as lead counsel or co-counsel in matters of national and international significance, as well as those affecting its immediate community. Follow us on LinkedIn or Twitter.