Describing Kalobios Pharmaceuticals Inc. as "the little engine that could," Cameron Durrant, chairman and CEO, said the company's emergence from bankruptcy opened a new chapter that repositioned newly acquired asset benznidazole as lead compound in its neglected and rare disease pipeline and provided exit equity financing of $11 million to restart its development engines.

"We have ideas that we think are completely different and actionable, and we'll roll some of those out in due course," Durrant told BioWorld Today. "To use another metaphor, we do see ourselves punching above our weight."

The Brisbane, Calif.-based company acquired the benznidazole rights from Savant Neglected Diseases LLC in return for $3 million up front and a warrant to purchase 200,000 Kalobios common shares (OTC Pink:KBIOQ), which closed Friday at $5.22 for a gain of 73 cents, or 16.3 percent. The agreement also included undisclosed milestone payments linked to development, approval and commercialization of benznidazole, plus product royalties. If approved in the U.S., where the company plans to seek orphan drug and fast track designations, Kalobios also may be in line for a neglected tropical disease priority review voucher.

The Savant deal, with an up-front payment of $2 million, initially was disclosed in December 2015 by Martin Shkreli, the company's former chairman and CEO. Three weeks later, Shkreli was terminated from his position and resigned from the Kalobios board following his arrest on multiple counts of securities fraud. On Dec. 29, 2015, Kalobios filed for Chapter 11 bankruptcy.

At the end of February, Kalobios and Savant inked a binding letter of intent for the sweetened deal, which included a nonrefundable deposit to Savant of $500,000 that was to be credited to the up-front payment, according to SEC documents. Consummation of the deal was predicated on Kalobios' exit from bankruptcy by June 30 with an unencumbered cash balance of at least $10 million, and the full initial payment was due to Savant by that time.

Kalobios said its reorganization plan was accepted by creditors and other stakeholders and confirmed on June 16 by the Delaware bankruptcy court.

The five-year warrant enables Savant to purchase the Kalobios shares at $2.25 apiece, according to the SEC filing. Twenty-five percent of shares in the warrant may be exercised immediately, and the remaining shares may be exercised in conjunction with undisclosed milestones related to regulatory approval of benznidazole.

The oral therapy is used to treat the parasitic infection that causes Chagas disease, which affects an estimated 300,000 people in the U.S., according to the CDC. Although the acute phase of the disease is usually asymptomatic – and remains so for many infected individuals – up to 30 percent of those infected with the protozoan organism, called Trypanosoma cruzi, can develop potentially life-threatening cardiovascular, gastrointestinal and neurological complications.

Although benznidazole is approved in Brazil and other countries in Latin and South America to treat Chagas, the drug is available in the U.S. only from the CDC under investigational protocols. In 2003, Roche Pharmaceuticals, which discovered and manufactured the drug under the trade names Rochagan and Radanil, transferred the technology to LAFEPE, a public laboratory in Brazil that worked under the mandate of that country's Ministry of Health, according to Thomson Reuters Cortellis.

Kalobios will seek to streamline the drug's development in the U.S. by seeking to file a new drug application using the 505(b)(2) pathway, although Durrant emphasized that the company will first seek guidance from the FDA during a still-unscheduled pre-investigational new drug application meeting. If the agency gives its blessing on the pathway, Kalobios will likely need to conduct only preclinical studies, he said.

The company's exit equity financing of $11 million came on the heels of a $3 million debtor-in-possession loan funded in May 2016. Both financings were provided by investors Black Horse Capital LP, Black Horse Capital Master Fund Ltd., Cheval Holdings Ltd. and Nomis Bay Ltd. In conjunction with Kalobios' bankruptcy exit, the debtor-in-possession loan converted into common shares.

Dale Chappell, managing member of Black Horse Capital, joined the Kalobios board. David Moradi – the only holdover from the brief Shkreli era and a guiding force during bankruptcy proceedings – stepped down. Durrant and attorney Ronald Barliant, who both joined the board in January, remain in place, joined by investor designees Ezra Friedberg, founder and general partner of Multiplier Capital, and Timothy Morris, chief financial officer and head of business development at Acelrx Pharmaceuticals Inc.

'WHEN GIVEN LEMONS, MAKE LEMONADE'

Durrant, an industry veteran who began his career in big pharma before taking the helm at several specialty biopharmas, was tapped on March 1 to lead Kalobios. He's been on the offense ever since.

In April, Durrant introduced a "transparent" and "responsible" product pricing model for Kalobios that he hopes will serve as a template for the industry. The doctrine defines responsible pricing as affordable for patients and payers and transparent for stakeholders while delivering a reasonable return for companies that take the risk of development. According to the language, posted prominently on the company's website, Kalobios plans to price its products "at overall cost, plus a reasonable and transparent profit margin, if and when we commercialize them."

For benznidazole, which the company is not bringing through early stage development, the final price will exclude an "R&D premium," according to the company.

In June, at the BIO International Convention, Durrant joined a panel of biopharma and payer executives at Allicense 2016, where he lamented the current drug pricing paradigm as artificially complex. (See BioWorld Today, June 9, 2016.)

"We think that responsible pricing is very important," he said last week, maintaining that workable solutions could be found within six months by tapping the brightest minds among each stakeholder group. In the meantime, "with our responsible pricing model, we've come out with a solution that works for us."

Ultimately, stakeholders define the standard of a "reasonable" return, Durrant said, but he suggested that responsible pricing also emerges, in large part, from common sense. Citing the theoretical example of a drug that costs $1 to produce, "we can't charge 90 cents for it," he pointed out. "Is a reasonable price $1.20? Is it $2? It's not $10. That's not reasonable. There are qualitative aspects to this, which is very different from what the industry does now, which is to price what the market will bear."

In addition to benznidazole, Kalobios plans to restart development of its monoclonal antibody, KB003 (lenzilumab), which was on the threshold of a phase I study in chronic myelomonocytic leukemia (CMML) patients last year before the program was derailed by the Shkreli ballyhoo and bankruptcy. The GM-CSF antagonist showed a favorable safety profile in previous studies, despite failing a phase II effort in severe asthma. (See BioWorld Today, Jan. 31, 2014.)

Kalobios settled on oncology indications, CMML in particular, after data generated by a company collaborator showed that GM-CSF hypersensitivity plays a role in inappropriate growth and survival of CMML cells – similar to juvenile myelomonocytic leukemia, in which such hypersensitivity is a hallmark of the disease.

Kalobios also has KB004, which targets the EphA3 receptor tyrosine kinase, and KB001, a PcrV protein type III inhibitor targeting Pseudomonas aeruginosa infection that was once licensed by Sanofi Pasteur. The company will seek to out-license or sell those noncore candidates. (See BioWorld Today, July 30, 2014.)

"We need to focus our platform down," Durrant said. "So while we're looking to do some out-licensing, we're also looking to do some in-licensing and, potentially, M&A. We're looking at a bunch of opportunities that would fit with our focus in neglected and rare diseases."

Despite the "bit of drama" that some industry observers still ascribe to Shkreli's tenure with Kalobios – "three weeks and five days," Durrant said – the company severed all ties with the former CEO and is in discussion with his counsel about acquiring his remaining Kaloios stock, which was diluted to less than 14 percent on the back of recent financing. An agreement to that end could be wrapped up as early as this week.

In addition to its pipeline, Kalobios emerges from bankruptcy with six "scarily good employees" who demonstrated a "prove it" mentality during the six-month siege, Durrant maintained.

"This allows us to have a fresh start," he said. "We've put aside all of the problems the company had in the recent past. We do believe we can become a change for good in the industry."

The new leadership also has discussed the prospect of rebranding, which Durrant called "a timing issue" – perhaps in conjunction with up-listing to a senior exchange.

"For now, we're trying to make the best of the situation," he admitted. "When given lemons, make lemonade."