Biostage(BSTG) Engineers New Financing At Desperate Terms

The good news for Biostage(BSTG) shareholders is that the company is not quite dead yet. With cash set to run out in the second quarter and several quarters away from early stage clinical trials for its esophageal implant , Biostage stock has been swiftly moving downward. From over $2 per share last May, to over $0.70 at Wednesday’s open, to a $0.50 close yesterday. After this morning’s announcement of a stock offering, Biostage stock is down another 38% to $0.31 in the premarket.

And no wonder, the terms are brutal. The new Biostage shares to be sold at $0.40 exceed current shares outstanding. Although the stock has never traded as low as $0.40, the company is forced to induce buyers by offering a warrant to buy a second share at $0.40 anytime in the next five years. Even after that, the $8 million raised from the initial offering is not even enough to fund a year of operations at Biostage’s current burn rate. The company hopes to file an Investigational New Drug(IND) application for the esophageal implant in the third quarter and hopes this would allow it to begin Phase 1 human trials in the fourth quarter. Naturally, clinical trials will require increased spending and the company will likely need to raise additional funds towards the end of the year.  Existing shareholders will own a smaller and smaller piece of an increasingly tenuous pie.

Things looked much brighter when Biostage, then called Harvard Apparatus Regenerative Technologies, was spun out of Harvard Bioscience(HBIO) in late 2013. At that time, HART had successfully tested its tracheal implant in a number of patients, with positive results. HART stock soared out of the gate. This continued until, suddenly, the company was forced to reengineer its product and start over.  Paolo Macchiarini, a noted surgeon upon whose licensed technology the company had been established, was accused of falsifying results and of manslaughter in the death of a patient. Macchiarini, it turned out, had lied about all kinds of things, including that he was the Pope’s personal doctor, that he was no longer married, and that the Pope would officiate over his wedding to a twice-divorced NBC news producer. That Biostage survived all of this at all is astounding, but a second miracle may be too much to hope for.

The company’s leadership was changed, its name was changed, and its technology was changed, but the road back to the clinic has been slow and rough.  Biostage’s promise of engineered organ replacements is exciting, but early shareholders may be too early to fully realize the value if it does come to fruition.

Harvard Bioscience has struggled as well since the spinoff, though it has held up far better than Biostage.

Disclosure: The author owns shares of HBIO and BSTG. Sadly.