Dive Brief:
- Massachusetts-based biotech Biostage, Inc. said it would lay off most of its workforce and consider strategic alternatives after a private placement for new funding collapsed amid counter accusations of breach of contract.
- In June, Biostage had announced an agreement for a private sale of common stock to investor First Pecos, LLC that would deliver $3.1 million in funding for continued operations. But Pecos never came through, eventually accusing Biostage of allegedly breaching the purchase agreement.
- Biostage denies Pecos' claims, but the collapse of funding has left the company in a vulnerable position and searching for options. Strategic alternatives could include "a merger, capital infusion, sale, reorganization of some combination thereof," Biostage said in a Oct. 12 statement.
Dive Insight:
Layoffs will reduce Biostage's headcount by 17 employees, or 71% — a move aimed at slowing the company's burn rate while it finds a new path forward. Charges for one-time termination benefits will amount to roughly $153,000 payable in the fourth quarter, Biostage said.
"The recently announced failure to fund by First Pecos of a binding financing agreement leaves the Company in a weakened financial position," said Biostage CEO Jim McGorry. "We are facing the realities of the situation and moving quickly to address our cash burn rate to extend our operational runway. Unfortunately, we needed to reduce our headcount substantially as part of this effort."
In June 2017, First Pecos entered into a binding memorandum of understanding with Biostage to buy 9,700,000 shares of common stock at $0.315 per share — a total consideration of $3.1 million. Pecos also agreed to act as a "backstopping party" for two potential pro rata rights offerings within two years of the private placement, worth up to $14 million.
The funding was supposed to give Biostage the resources to advance its Cellspan esophageal implant program into first-in-human studies and fund the company through the end of 2018.
However, on October 10, after a legal back-and-forth with Biostage, First Pecos ended the agreement over alleged breaches by Biostage, demanding a $500,000 termination fee. Biostage has denied any breach of the agreement and does not believe that First Pecos is entitled to the fee, saying it will review "all of its rights and remedies" against the investor.
Biostage's Cellspan implants are designed to reduce the need to use stomach or intestine tissues to create a 'mock' esophagus, potentially reducing complications and cutting treatment costs. The main focus is on esophageal atresia, a birth disorder where the esophagus does not develop properly, but the company also believes the technology could have potential for esophageal cancer patients.
A Cellspan esophageal implant has been used in a 75-year old man with a life-threatening cancer encroaching on his lung, heart and esophagus under an FDA-approved single-use expanded access application. The patient was still alive three months after surgery. Biostage is also developing bronchial and tracheal implants.