A short analysis of Kalobios Pharmaceuticals $KBIO liquidation value

Disclosure: I am short KBIO and I intend to actively trade the stock after this post is published. See full disclaimer below.

Here is my back of the envelope calculation of the value of Kalobios Pharmaceuticals (KBIO). This was first posted in the TimAlerts chat, where I am and have been a moderator for years.

Nov 16, 2:37 PM MichaelGoode okay here is my analysis of KBIO — using very optimistic assumptions (as a short, to make the analysis more conservative for shorting): $10m in net quick assets as of June 30th. Assume cash [burn] until today equal to same rate as last quarter. […] They burned $5.8m in Q2. So that is $1.93m per month. Four full months since then and one half month so estimated cash burn of $8.7m. Even assuming no extra shutdown expenses that would leave them with $1.3m to distribute to shareholder

Nov 16, 2:37 PM MichaelGoode KBIO With 4.12m shares outstanding that equates to a liquidation value per share of $0.32 per share

Nov 16, 2:39 PM MichaelGoode KBIO caveats — this assumes no costs after today, no fees to the liquidator and no severance fees to employees. However, this also assumes the same compensation expense each month up until now and the company has laid off workers prior to today

Nov 16, 2:43 PM MichaelGoode KBIO and another caveat (this is negative for the stock) – the PR Friday mentions “As a part of its wind down and handing over management of the wind down to The Brenner Group, the company expects to phase out the remaining employees over the next thirty to sixty days.” — so there will be significant compensation expense over the next two months (no clue how large).

I looked up the company’s restructuring / termination expenses and at least for the first series of layoffs:

The Company expects to substantially complete the restructuring efforts in, and related charges will be incurred through, the fourth quarter of 2015. The Company estimates that it will incur total restructuring charges consisting of cash expenses for one-time termination benefits of between $400,000 and $500,000.

The above is from the November 9th 8-K filing. It would be reasonable to estimate another $300,000 in one-time payments to the remainder of the workforce.

I welcome feedback on my analysis. The relevant news can be found here:

Kalobios to wind down operations (November 13)
KaloBios to Reduce Workforce, Explore Strategic Alternatives (November 5)
10-Q for quarter ended June 30th

 

Disclaimer: I am short KBIO and I intend to trade this stock frequently after this is posted. I have a close business relationship with Tim Sykes (see Terms of Use for details). I have no relationship with any other parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

 

 

 

 

6 thoughts on “A short analysis of Kalobios Pharmaceuticals $KBIO liquidation value

  1. The one glaring weakness of my analysis above: it ascribes no value to the company’s drugs. If they can sell any of their early-stage drugs even for very small amounts then shareholders could come out okay. I do believe the likelihood of this is low because the company recently focused on lenzilumab (KB-003) which never even finished Phase 1 clinical trials.

  2. Where do we head from here? Obviously, the short thesis blew up. The shares are easily worth $3 or more per share. But now that Martin Shkreli has control he will likely reverse merge Turing Pharmaceuticals into KBIO. He can’t completely shaft current shareholders, but they will be massively diluted as he and his investors will end up with most of the shares. The current price is absurd and should drop, but the float is now under 1 million shares and plenty of people are still short. This could even spike more. Look at AQXP as the most similar situation where there was a heavily shorted stock and the float got bought up by a hedge fund.

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