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KaloBios Pharmaceuticals (KBIO) made its public debut on Thursday, January 31th. Shares of the biopharmaceutical company ended their first day unchanged at $8.00 per share. From that point in time, shares have gradually lost ground, closing at $7.20 per share on Friday.

The Public Offering

KaloBios Pharmaceutical is a biopharmaceutical company which is focused on the development of monoclonal antibody therapeutics. The company has developed a proprietary Humaneered antibody technology focused on respiratory diseases and cancer.

KaloBios sold 8.8 million shares for $8 a piece. The company raised roughly $70 million in gross proceeds in the offering process, valuing the company at approximately $187 million.

The deal is quite a disappointment. The offer price was set far below the preliminary $12-$14 price range, roughly 38% below the midpoint of the offering range. At the same time, the company boosted the offer size up from an originally planned size of 3.85 million shares to 8.8 million shares, offering roughly 38% of the total shares outstanding.

The major banks that brought the company public were Leerink Swann, William Blair and Needham & Company.

Valuation

Antibodies produced by KaleBios' Humaneered technology offer important advantages over antibodies produced by other methods which makes them more suitable for chronic treatments.

KaloBios aims to secure developments partnerships with large pharmaceutical and biotechnology companies to further develop the products. The company has already partnered with Sanofi-Aventis (NYSE:SNY) to develop and commercialize KB001-A, a lead antibody for human diseases.

The company reported annual revenues of $20.3 million for the full year of 2011, on which it reported a net loss of $2.2 million. For the first nine months of 2012, KaloBios generated revenues of $6.1 million, down 58% compared to the first nine months of 2011. The company reported a large $11.8 million loss for the period.

KaloBios operates with approximately $24.7 million in cash before the public offering and it has $4.8 million in notes payable outstanding, for a net cash position of roughly $20 million. Including the $70 million in gross proceeds from the public offering, the company operates with $80-$85 million in net cash. The company will use the proceeds to further advance the product candidates through clinical trials. Based on Friday's valuation of $168 million, the market values operating assets at roughly $85 million.

Investment Thesis

As noted above, the offering of KaloBios has been quite a disappointment. Shares were offered 38% below the midpoint of the preliminary offering range and are currently trading 45% below these levels.

I think it is rather dubious that the company aims to raise more money than originally planned at lower price levels. The company and its bankers slashed the offer price by 38%, but more than doubled the amount of shares the company offered.

The prospects for the near to medium term remain highly volatile, which is highlighted by a 58% decline in revenues for the first nine months of 2012. The company is currently reporting losses and is likely to do so for the foreseeable future.

Key in the short term future is the 2010 agreement with Sanofi, in which KaloBios granted the French company the worldwide license to commercialize antibodies against the PcrV protein with KB001-A. KaloBios already received a total of $40 million in payments from Sanofi, with a potential for additional contingency payments of $250 million, depending upon achievement of sales of licensed products.

The company expects to report losses in the foreseeable future as it increases spending on Research & Development, approval with the FDA and potential commercial product launches preparations.

I remain on the sidelines. The valuation is entirely based on the successful launch of products, and the fact that the company raises more money at lower prices is a red flag to me as well.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.