Back on November 19, we told the tragic tale of one Joe Campbell. It went as follows.
In early November, the company which we dubbed as "one of the countless fly-by-night biotech pennystocks", the now infamous drug developer KaloBios Pharmaceuticals said it would wind down its operations and that it had engaged restructuring firm Brenner Group to help liquidate its assets. The company said it was "highly unlikely that exploring strategic options could generate a viable transaction within the time frame, given its limited cash resources.
At that moment the stock was trading between $1-2/share, representing a market cap between $5 and $10 million, or liquidation value.
Then, on the night of November 18 America's "most hated person" and recently charged with stock fraud Martin Shkreli, whose price-gouging antics were the catalyst that unleashed the late summer biotech rout, got involved.
As KBIO announced after the close of November 18, the company "has been informed that an investor group comprised of Martin Shkreli and associates together have acquired more than 50% of the outstanding shares of KaloBios, and that the company is in discussions with Mr. Shkreli regarding possible direction for the company to continue in operation.
The stock exploded higher, and has since hit a whopping $16/share in the pre-market, an increase of over 650%.
Back then we asked if this is merely "Blatant manipulation? Perhaps - after all, this is not much different from what Oprah Winfrey did with Weight Watchers stock which jumped simply because the media diva had bought sizable stake in WTW stocks. Ultimately, it will be up to the SEC to decide."
It turned out it was the FBI who made the decision less than a month later, and the conclusion was less than favorable to Shkreli.
Where this story got entertaining, or woefully tragic, depending on one's perspective, is that one trader, Joe Campbell, was on the wrong side of KBIO massive surge. One E-trader, Joe Campbell, decided to go $35,000 short KBIO "and now owes $ETFC a wonderful $106K." Campbell provided the following snapshots of his tragedy:
But what brought fame (or perhaps infamy) to Campbell is what he did next: the "devastated" trader became the first, perhaps in history, to launch a GoFundMe campaign seeking to "crowdfund" his $106,445 margin call, in other words to beg online for sympathetic souls to fund his $106K margin call.
It is unknown if he got enough money for the entire margin call: a subsequent update noted that he had managed to collect over $5,000, at which point the grateful Campbell fell off the radar screen.
But while Joe's tale ended here (and some have suggested his entire story may also have been nothing but a fabrication), the story of KaloBios was only just getting started.
A few days later, after Martin Shrekli announced on Thanksgiving Day he had purchased 70% of the stock, leaving virtually no float available to cover shorts, the stock prices exploded even higher, hitting a whopping $45.82/share, or nearly $200 million in market cap.
Bear in mind this is a company that just a few weeks earlier was effectively broke.
At that point, the narrative switched over to Shrekli who as is widely known by now, was arrested and charged for conducting a Ponzi scheme involving his prior company. However, while KaloBios was left untouched, the fact that its CEO (for about a month) and largest shareholder may be going to prison, meant only bad news were in store for the recently broke, then reincarnated, and now about to be broke again biotech.
And this is where we go back to the the beginning, because moments ago, KaloBios released an 8-K in which it effectively admitted that it was game over for the little biotech that could not. In the filing, KBIO announced that not only would it most likely be delisted in a week, and that its outside auditor firm, Marcum, has resigned, but that its CFO, Christopher Thorn, has resigned.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
On December 18, 2015, KaloBios Pharmaceuticals, Inc. (the “Company”), received a letter from The NASDAQ Stock Market LLC (“Nasdaq”), which stated that the Nasdaq Listing Qualification Staff (the “Nasdaq Staff”) has determined to delist the Company’s securities pursuant to its discretionary authority under Listing Rule 5101. The Nasdaq Staff cited a number of reasons for their decision, including the recent criminal indictment and arrest of Martin Shkreli, the Company’s controlling shareholder, former Chairman and former Chief Executive Officer, based on allegations of securities fraud, among other things, as well as the arrest and indictment of Evan Greebel, the Company’s former outside counsel, based on similar allegations, and a civil complaint from the U.S. Securities and Exchange Commission filed against Mr. Shkreli and Mr. Greebel based on similar allegations. Additionally, as previously disclosed, on November 17, 2015, the Nasdaq Staff notified the Company that the Company is not in compliance with the filing requirements set forth in the Nasdaq’s Listing Rule 5250(c)(1) because it has not filed its Quarterly Report on Form 10-Q for the period ended September 30, 2015, which constitutes an additional basis for delisting.
The Company has not yet determined whether it will appeal the Nasdaq Staff’s decision to delist the Company’s securities. The deadline for the Company to request an appeal is December 28, 2015. If the Company does not appeal, the Company’s common stock will be suspended from trading on Nasdaq at the opening of business on December 30, 2015.
Item 4.01. Changes in Registrant’s Certifying Accountant.
On December 21, 2015, the Company was notified by its independent registered public accounting firm, Marcum LLP (“Marcum”), that Marcum has resigned as the Company’s independent registered public accounting firm. Marcum’s resignation was not due to any reason related to the Company’s reporting or accounting operations, policies or procedures. Marcum was engaged by the Company as the Company’s independent registered public accounting firm on December 8, 2015, and accordingly, Marcum has not provided a report or completed any review on any of the Company’s consolidated financial statements. There have been no “disagreements” (within the meaning of Item 304(a) of Regulation S-K) with Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures. There were no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
The Company provided Marcum with a copy of the disclosures it is making in this Form 8-K and requested that Marcum furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements. A copy of Marcum’s letter dated December 23, 2015 is filed as Exhibit 16.1 hereto.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On December 21, 2015, Christopher Thorn, the Company’s Interim Chief Financial Officer, submitted his resignation from the Company.
Bottom line: when (if) KBIO reopens, it will be on the pink sheets, and the company will have virtually no value, meaning that Joe Campbell's short would have been not only spot on, but profitable. Instead, due to Shrekli's now worthless intervention, Campbell is in the hole for an amount greater than his entire life's savings.
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One month ago, when observing this farce from as far away as possible, we wrote:
Which brings us back to Joe Campbell and his now famous margin call: did he liquidate enough other assets to cover the margin call? What about the hundreds of other shorts who piggybacked and shorted at the close yesterday only to wake up with comparable massive margin calls?
And what happens if Shkreli's plan is indeed to rerun the "Volkswagen" scenario and unleash an epic short squeeze that sends the price of the company into the stratosphere, unlinked from any fundamentals, but merely soaring ever higher as desperate shorts pay any price just to get out.
We hope to find out, as suddenly this until recently bankrupt company whose price has exploded in the past two days, has become not only a poster child for everything broken and manipulated with the market (think 2014's CYNK one year forward) but has the market following with morbid fascination to find out how the tragicomedy of "Shkreli vs the Shorters" concludes.
We now know how the story ends, the way it always does on a long-enough timeline...