Wednesday, February 24, 2016

[U] Kalobios' Exclusive Dealings Period With Savant Affiliate Lapses On February 29, 2016: Bankruptcy Analysis

[UPDATED: 02.26.2016 @ Noon EST -- KaloBios has been given bankruptcy court permission to pursue the deal. Now, the game is afoot. . .] While much of yesterday afternoon's bankruptcy court motion and related exhibit-sets remain heavily redacted, and/or filed under seal entirely, the portions that the public may view offer some interesting implications to our analysis -- and some measure of vindication, here. [What ultimately happens with the potential FDA priority review voucher in bankruptcy should be of concern to all US life science companies -- so it is cross posted here, on the Merck review site, as well.]

First, it seems that the "down payment" -- to Savant -- has increased (from what Mr. Shkreli said in December 2015 was $2 million), to $3 million. [No doubt, this reflects the increased risk of doing such a deal with a party in bankruptcy -- and one soon to be facing multiple securities fraud lawsuits -- which make the disclosures, and non-disclosures, about this potential deal a central cause of action. UPDATED (02.25.2016): There are now moving papers on file to make this Friday (February 26, 2016) the hearing date on the motions described above. No signed order yet, though.]

Second, it appears that the letter was always not-fully-binding. The only binding portion, as I guessed, was an exclusive obligation to negotiate in good faith toward a definitive transaction until the end of February 2016.

Then presumably, Savant may accept some other pharmaceutical company party (perhaps one with less bankruptcy induced baggage) as its counter-party, in bringing a Chagas drug candidate to the US commercial markets (and securing for that other pharmaceutical company the coveted fully-transferable FDA priority review voucher).

Third, let's remember here that Mr. Shkreli (at least arguably, and repeatedly) mis-stated the nature of his "deal" with Savant, while conducting a private securities offering. Those investors may well want this deal done (to recoup some part of the investment). I'd suggest that a condition of that occurring (per a subsequent bankruptcy court order) ought to be that none of Mr. Shkreli's controlling group (i.e., the initial 70 per cent stake-holders) should benefit monetarily from any future sale of any FDA priority review voucher.

The bankruptcy court has just that sort of inherent equitable power, and it ought to invoke it, in this case. In fact, I can scarcely recall a recent case that more properly cried out for some equitable shaping -- than this one.

So be prepared -- those company insiders and earlier investors who knew what Mr. Shkreli was up to in early to mid December 2015 -- and was (allegedly) "gilding the lilly" about, in press releases and conference calls (especially on December 3, 2015) -- ought not be permitted to benefit from this transaction, should it go through by the February 29, 2016 deadline date.

Let's see how this one turns out. I'll report on whatever order gets entered here -- but the redacted 18 page motion may be accessed here, as a PDF file. Now you know. Onward, on a potentially deep and fluffy snowy winter's walk-a-bout -- leading into the gloaming. . . smile.

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