Massachusetts' Biostage Slashes 71% of Staff, Evaluating Strategic Alternatives
Published: Oct 13, 2017
October 13, 2017
By Alex Keown, BioSpace.com Breaking News Staff
HOLLISTON, Mass. – An investor decision to renege on acquiring more than $3 million worth of stock has created a financial catastrophe for Biostage, Inc. To maintain operations, the company is terminating 17 employees, about 71 percent of its workforce.
On Thursday, Biostage, which developed engineered organ implants for patients, announced the drastic measure, pointing its finger at First Pecos, LLC. Biostage called the default a “breach and failure” to provide the agreed-upon funding. The company was forced to terminate its employees to slow the company’s cash-burn rate while it explored strategic alternatives to move forward.
In June, First Pecos agreed to acquire 9.7 million shares of Biostage stock at 31 cents per share. First Pecos was expected to own approximately 20 percent of Biostage when the shares from this acquisition were added to shares the investing company already owned. According to the deal announcement at the time, the acquisition was conditioned on “satisfaction of customary closing conditions and on the Company terminating its Shareholder Rights Plan.” That was to have been completed by Aug. 15.
In May, the Nasdaq Exchange threatened Biostage with a delisting due to its share prices remaining below $1 per share since December of 2016. In July, the Nasdaq Exchange granted the company a continued listing if share prices being above $1 by Nov. 13. Shares closed at 11 cents on Thursday.
"The recently announced failure to fund by First Pecos of a binding financing agreement leaves the Company in a weakened financial position. After months of good faith negotiations by Biostage, we sincerely believed we had a solid path forward for our technology and shareholders. We believe the fact pattern of constant funding delays and increasing demands demonstrates First Pecos had a different agenda,” Biostage Chief Executive Officer Jim McGorry said in a statement.
McGorry went on to say that Biostage was forced to face the financial realities of First Pecos’ move and the company had to make the drastic choice of terminating a large chunk of employees in order to extend the company’s “operational runway.” Although he lamented the job cuts, McGorry said Biostage is moving forward with “a core group of scientists and engineers that understand and developed our technology.” He said the goal will be to preserve and consolidate Biostage’s Cellframe technology as the company assess strategic and financial alternatives.
It seems though that the problems between First Pecos and Biostage are much deeper than merely reneging on an agreed-upon investment. In addition to announcing the job cuts, Biostage said that First Pecos delivered a notice to the Massachusetts-based company that said it owed the investing company $500,000 in a termination fee “as a result of alleged breaches by the company of its obligations pursuant to the Share Purchase Agreement.” Biostage denied that it was in violation. It accused First Pecos’ actions as “was unjustified and without any legal merit or factual basis.” Biostage said it was reviewing its “rights and remedies against” First Pecos. The job cuts are expected to cost Biostage approximately $153,000 in employee severance, benefits and related costs.
“As this dynamic situation continues to unfold, we will continue to act in the best interest of our shareholders and collaborators. There is no way around it; we are in a difficult situation. However, we are in the business of addressing life-threatening conditions and will continue to fight to keep our technology alive and get our data and know-how in the hands of clinicians…,” McGorry said.