StemCells CEO, CFO and Three Directors Stepped Down the Day of Microbot Merger That Boosted Stock Sevenfold

StemCells CEO, CFO and Three Directors Stepped Down the Day of Microbot Merger That Boosted Stock Sevenfold August 17, 2016
By Mark Terry, Breaking News Staff

Just yesterday, StemCells, Inc. , located in Newark, California, announced that it had entered into a definitive merger deal with Yokneam, Israel-based Microbot Medical. Simultaneously, although not mentioned in the press release, the company filed with the U.S. Securities and Exchange Commission (SEC) that StemCells’ chief executive officer, chief financial officer, and three members of the board of directors resigned effective immediately.

About two months ago, StemCells reported that it was out of money and planned to wrap up operations and close the company. StemCells, which has been around about 20 years, focuses on developing a HuCNS-SC (purified human neural stem cells) platform to treat diseases of the human central nervous system (CNS). The merger deal indicates that the two companies hope to develop robotics based on medical devices to treat cerebrospinal fluid and gastrointestinal disorders. Microbot and other investors indicated they would pony up $4 million in financing as an incentive for the merger.

“This transaction concludes an extensive search for strategic alternatives conducted by StemCells since we failed to see robust clinical results in our Phase II clinical study of human neural stem cells in chronic spinal cord injury,” said former Ian Massey, the chief executive officer of StemCells, in a statement. “We believe both our investors and the market at large will see the potential of Microbot’s robotics platform, specifically its catheter and shunt technologies, and will appreciate Microbot’s overall business opportunities and potential.”

Apparently the market did, because StemCells jumped from $0.37 per share on Aug. 10 to a current price of $2.60. The company’s previous high was Sept. 9, 2015, when it traded for $7.08. Shares traded on May 26, 2016 for $2.97, just before dropping dramatically to $0.58 on June 1.

As part of their termination agreement, Ian Massey will receive a one-time $216,667 payment. The company’s former chief financial officer, Gregory Schiffman, will receive a one-time payment of $187,500, along with a year of COBRA premiums.

The board has appointed Kenneth Stratton interim president, effective immediately. The SEC filing indicated that “None of the foregoing resignations were the result of any disagreement with the Company on any matter.”

The three board members to leave are R. Scott Greer, Alan Trounson and Irving Weissman. Eric Bjerkholt, Ricardo Levy and John Schwartz will continue as board members.

Alexander Maxwell, writing for Seeking Alpha, says, “The problem here is that Microdot does not seem to have any reason to want the company from a strategic perspective. StemCells does not have any currently marketed products and recently failed a major mid-stage clinical trial. … For Microbot, this was an opportunity to go dumpster diving for a way to get into the U.S. capital markets quickly.”

He notes that if so, it’s a good reason, but “this would seem to be a rather expensive way to get into the capital markets, and surely if Microbot wanted to get into the capital markets, it could have found a way to acquire a company that at least would have presented some sort of strategic fit, rather than StemCells, which did not have any sort of strategic fit for Microbot.”

Maxwell also expresses concern about Part E of the SEC 8k filing, that makes the merger conditional on StemCells ability to effectively negotiate with its creditors. “This is unlikely to hold up the deal as it is effectively going to tell the creditors that they can either take what is offered, or pursue it in bankruptcy. There is unlikely to be a holdout problem, but shareholders should monitor closely for any signs of a holdout problem that could potentially sink the deal.”

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