Pharma's favorite villain, Turing Pharmaceuticals founder and CEO Martin Shkreli, has decided that one company isn’t enough and has led a group of investors in buying more than half of KaloBios, a public biotech on the edge of liquidating. Other buyers have poured in since his involvement was first revealed last week. Shares of what was very recently a penny stock were up nearly 5000 percent at one point this week and closed on Tuesday up 1900 percent. But anybody blindly following Shkreli into KaloBios is making a potentially expensive mistake.
Shares are closer to reality after falling more than 50 percent on Tuesday. But even at about $18, they are still amazingly high, considering they were approaching zero just a week ago. Shkreli effectively saved the firm from dissolution. And as its new CEO, he has made the company’s earnings calls appointment listening.
Shkreli told Bloomberg News that he didn't get involved in KaloBios to take Turing -- the company that infamously raised prices on anti-parasitic drug Daraprim -- public via reverse merger. He said he sees no reason not to keep Turing private indefinitely.
Instead, he said he wants to scale KaloBios as a large, independent company and develop a drug candidate called lenzilumab for chronic myelomonocytic leukemia (CMML), a rare and deadly form of the disease that doesn't have an effective treatment approved by the FDA. The company has a second drug for blood cancers in development, as well.
Investors might be betting that Shkreli will change his mind, merge with Turing and continue his previous m.o. of acquiring older drugs and raising prices. But the scrutiny such a path would attract could make it more difficult to follow. Even with privately held Turing, Shkreli has responded to public pressure by cutting the jacked-up price of Daraprim in half for hospitals.
Investors may be betting that Shkreli can turn KaloBios into a long-term successful developer of blood cancer drugs, including lenzulimab. But there's nothing in his history -- which includes controversial price increases; getting fired as CEO of a company he founded, Retrophin; being sued over accusations of shareholder fraud; alleged harassment of the wife and son of an ex-employee on social media; and aggressively shorting biotech stocks -- that suggests he can do it. He's never brought a drug all the way from the earliest stages of development to market.
Retrophin has fared somewhat better since ousting Shkreli as CEO in late September of 2014, though it has suffered of late from a broad pharma selloff sparked by furor over drug pricing -- a furor Shkreli helped kick off with his Daraprim price hike.
Shkreli has expressed high hopes for lenzulimab, saying that targeting CMML is a "home run" for the drug and that the success or failure of his investment depends on its success. The drug had a clinically significant effect on CMML in the the company's first attempt to get it to market, a trial for severe asthma that ultimately failed. The antibody on which the drug is based has been shown in academic research to inhibit growth of leukemia in animal models and in extremely small samples of people.
But there are more reasons to be skeptical than mere wariness of Shkreli. Academic research is frequently tough to replicate and doesn't always translate into drugs. KaloBios was "searching for strategic alternatives" before announcing on November 13th that it planned to fold -- in other words, it was desperately searching for a buyer. It could have been had for a song, but no one was interested. Bets predicated mostly on a single asset are extremely risky even when a human public relations time bomb isn't involved.
CMML is an acute and deadly form of cancer that is usually seen in older people, and patients often worsen pretty rapidly after diagnosis. It's also rare -- there are only about 1,100 new cases a year in America. It may be particularly tough to find people for trials, to further develop the drug and show that it's effective.
This drug is at the early stages of a long and difficult process, about which Shkreli seems to be wildly overoptimistic. He has to first prove that the drug is even safe to give to people with this disease. It may not be; there could be unforeseen side effects. There's a high potential for failure or setbacks that would likely send KaloBios shares plummeting as rapidly as they've risen.
Shkreli is by all accounts a brilliant autodidact, but an erratic CEO. If he could actually get this drug approved or solidly on the path to approval, then it would be highly profitable, and wonderful news for people suffering from the disease. But that's an enormous "if."
Anyone buying this stock at $18 is putting too much stock in claims from someone who's more likely to produce another PR disaster of one kind or another in the next few months than a successful cancer drug years from now.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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