Biostage Inc. reduced its workforce by 71% and took other cost-cutting measures after its pursuit of a private placement with First Pecos LLC failed.
The company completed a reduction in headcount of 17 of its employees on Oct. 10. It said the reduction and other cost-cutting measures are expected to slow the company's cash burn rate while it explores strategic alternatives with its advisers.
Biostage originally planned to raise about $3.1 million in the placement with First Pecos to raise funds for its product pipeline.
The company forecasts that it will incur charges for one-time termination benefits related to the headcount reduction of about $153,000 for employee severance, benefits and related costs, all of which are expected to be paid during the fourth quarter.
CEO Jim McGorry said the failure leaves the company in a "weakened financial position."
First Pecos delivered a notice to the company on Oct. 10, stating that it was terminating the agreement for the private placement because of alleged breaches by Biostage of its obligations. It demanded that the company pay a $500,000 termination fee under the terms of the agreement.
Biostage believes it was not in breach of the agreement at any time, and that First Pecos' notice was unjustified and without any legal merit or factual basis. It is reviewing all of its rights and remedies against First Pecos.
"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. We are facing the realities of the situation and moving quickly to address our cash burn rate to extend our operational runway," said McGorry.