Page 20 - Martin Shkreli Case Study

Liquidation: KaloBios

arlier, in November (13th) the company
had said that "it would wind down
operations and liquidate assets”,
because it was running out of cash
while developing two potential cancer
drugs, adding that any expectation of
strategic alternatives were "highly
unlikely."

Share price at this time, just prior to the acquisition, was at a low of 44
cents per share. Two weeks after the acquisition the share price rose to
$45.82.

Some days after the acquisition Shkreli tweeted that he would no longer
make his shares available for short-sellers to bet against the stock,
writing:

"I spoke with my counsel & advisers and decided to stop lending my
$KBIO shares out until I better understand the advantages of doing so,"
Shkreli said. "I apologize for any inconvenience this may create in
lending markets and I will probably resume lending at some point.
Happy Thanksgiving!"

The result was that share price almost doubled as a stampede among
those who were short the stock tried to find shares to cover their
positions. Many of these investors called for SEC action in response to
this wild trading. It was a penny stock in the first half of the month, by the
end of the month investors were acting as traditional bulls and bears as
they fought it out.

KaloBios had recently acquired the license for benznidazole, a standard
treatment for Chagas, a deadly parasitic infection most common in
South and Central America. The firm announced plans to increase the
cost from a couple of hundred dollars for two months to a pricing
structure like that for hepatitis- C drugs, which can run to nearly
$100,000 for 12 weeks.

By mid-December, KaloBios’s stock was around $30. After Shkreli’s
arrest, however, the stock lost more than half its value.