Maxim Group Downgrades Biostage (BSTG) to Hold
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Maxim Group downgraded Biostage (NASDAQ: BSTG) from Buy to Hold, citing a financing overhang.
Analyst Jason Kolbert highlighted:
- Biostage reported 3Q16, losing just over $3M and leaving a cash balance of $6M. Given the tough financing environment and our concerns about the cash balance, we are lowering our rating to Hold (from Buy).
- The FDA requested that Biostage extend its pre-clinical, large animal safety study for its Cellspan Esophageal Implant (currently ongoing). As the company stated in its press release, "the basis for the FDA's recommended extension is to mirror the duration of the proposed Phase 1 human clinical study outlined in the Company's clinical protocol for its first-in-human clinical study."
- The pilot study of N=5 to 10 patients should answer key questions to define the regulatory path forward. The goal of the implant, which can be removed two to three weeks after surgery, is to restore continuity and function of the esophagus. Removing the original scaffold can minimize complications visible in the first generation of non-removable implants (trachea) down the road in a number of ways.
- Is there value in these scaffolds? The standard of care today—surgical approaches where the stomach is "pulled up," or a piece of colon is used to replace the resected esophagus—have significant complications; morbidity and mortality are associated as well as a compromised quality of life. As such, we believe the Biostage scaffold represents an important new paradigm in organ replacement.
- Conclusion. The company's transition to man is delayed by six months. While this is not great news, it is certainly not terrible either, in our view. The key risk in the story is capital runway, and today we are acting on that risk by lowering our rating to Hold (from Buy) and removing our price target.
Shares of Biostage closed at $0.87 yesterday.
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