StemCells Inc. (NASDAQ: STEM) is in the process of winding down operations as it cites shortage of cash and an unclear clinical trial path for its lead drug candidate. The decision to dissolve the operations of the company comes just a few weeks after StemCells performed a 1-for-12 reverse split of its stock that helped it regain NASDAQ listing requirement. But what are the shareholders in biotech that has come to the end of its life getting?
When you read the statement that the company issued to announce the decision to wind down, what you see is that stockholders could walk away with no value. In other words, shareholders of StemCells should prepare for a possible total loss of their investment in the company.
Although StemCells has some cash and assets that it hope to monetize as it winds down, priority will be given to repayment of the company’s debts. If any money remains after the company sells its assets and repays its liabilities, only then can shareholders get anything. But there is no guarantee that will happen considering that winding down the company also carries some costs to be met.
What is the cash and what are the assets?
At the time of announcing that it was going out of business, StemCells Inc. (NASDAQ: STEM) said it had cash and equivalents totaling $5.5 million. But in the most recent quarter, the company’s balance reflected total debt of $9.3 million.
The assets that StemCells says it could monetize are its intellectual property and the compound that it was developing to treat spinal cord injury. It is doubtful whether repaying the outstanding debts and meeting dissolution expenses will leave anything to be distributed to stockholders.
Reason for winding down StemCells Inc. (NASDAQ: STEM)
StemCells Inc. (NASDAQ: STEM) is winding down because of cash shortage. Although the trial of the company’s candidate for spinal cord injury showed positive results in a Phase 2 clinical study, the results were not compelling enough and heightened the possibility that the candidate could flop in advanced trial. Faced with these odds, the management has decided that winding down the company is the best way out.