Histogen Inc. (OTC: HSTO), a clinical-stage therapeutics company, has found itself at a crossroads as it navigates the challenging path towards dissolution. After extensive consideration of potential strategic alternatives, the company's Board of Directors unanimously approved a plan of complete liquidation and dissolution (the "Plan of Dissolution") in September 2023, subject to stockholder approval.

Business Overview

The company's journey has been marked by both successes and setbacks. Histogen was previously focused on developing potential first-in-class clinical and preclinical small molecule pan-caspase and caspase selective inhibitors that protect the body's natural process to restore immune function. However, the company has now discontinued all of its development programs as it pursues the approval of the Plan of Dissolution from its shareholders.

Financials

In the latest quarter ended September 30, 2023, Histogen reported revenue of $5,000, a significant decrease from the $3,765,000 reported in the same period of the prior year. This decline was primarily due to the one-time payment of $3.75 million received in March 2022 as consideration for the execution of the 2022 Allergan Letter Agreement. For the full year 2022, the company reported revenue of $3,769,000.

The company's net loss for the third quarter of 2023 was $3,854,000, compared to a net loss of $3,599,000 in the same period of the prior year. For the nine months ended September 30, 2023, Histogen reported a net loss of $9,416,000, compared to a net loss of $7,677,000 in the same period of the prior year. The company's annual net loss for 2022 was $10,481,000.

Histogen's operating cash flow for the nine months ended September 30, 2023 was negative $7,635,000, compared to negative $7,244,000 in the same period of the prior year. The company's annual operating cash flow for 2022 was negative $9,683,000. Free cash flow for the nine-month period ended September 30, 2023 was negative $7,622,000, compared to negative $7,459,000 in the same period of the prior year. Histogen's annual free cash flow for 2022 was negative $9,899,000.

Liquidity

The company's balance sheet as of September 30, 2023 showed cash and cash equivalents of $4,573,000 and total assets of $5,817,000. Histogen's current ratio stood at 4.05, indicating a strong liquidity position, though this is expected to change as the company moves forward with the dissolution process.

Recent Developments

Histogen's decision to pursue the Plan of Dissolution comes after an extensive review of strategic alternatives, including a sale or merger of the company or one or more sales of its assets. However, the company has been unable to identify any meaningful financial alternatives, a merger partner, or a purchaser of the company or substantially all of its assets.

In connection with the Plan of Dissolution, Histogen has discontinued all of its development programs and terminated all but two employees as of September 30, 2023. The remaining two employees are tasked with managing the wind-down of the company's operations and matters related to the Dissolution, including obtaining the necessary stockholder approval.

The company's caspase program assets and other remaining assets are currently being sought for sale, with the goal of maximizing value for Histogen's stockholders and creditors. However, the success and timing of these potential transactions are subject to significant risks and uncertainties, including the impact of macroeconomic and geopolitical developments, as well as the availability of financing for potential buyers.

Histogen's decision to pursue the Plan of Dissolution has also led to the delisting of its common stock from the Nasdaq Stock Market. On September 26, 2023, the company received written notice from Nasdaq advising that based on its review, Nasdaq believed Histogen was a "public shell," and that the continued listing of its securities was no longer warranted. As a result, trading of Histogen's common stock was suspended as of October 5, 2023, and the stock was subsequently delisted from Nasdaq on October 12, 2023.

If the Plan of Dissolution is approved by Histogen's shareholders, the company estimates that it will have between approximately $1.29 to $1.76 million of cash that it will be able to distribute to its stockholders, which implies a per share distribution of between $0.30 and $0.41 based on 4,271,759 assumed shares outstanding as of October 16, 2023. However, the actual amount and timing of any distributions to stockholders remain uncertain and will depend on various factors, including the company's ability to successfully sell or dispose of its remaining non-cash assets, the resolution of potential tax claims and litigation matters, and the satisfaction of the company's obligations and liabilities.

Risks and Challenges

Histogen's journey towards dissolution is not without its challenges. The company faces risks related to the availability, timing, and amount of any liquidating distributions, the adequacy of contingency reserves to satisfy its obligations, and its ability to favorably resolve potential tax claims, litigation matters, and other unresolved contingent liabilities. Additionally, the company's Board retains the ability to abandon, modify, or delay the implementation of the Plan of Dissolution, even after stockholder approval.

Conclusion

In conclusion, Histogen's transition towards dissolution amidst challenging circumstances underscores the complexities and uncertainties inherent in such a process. While the company's future remains uncertain, Histogen's management and Board are committed to navigating this process in a manner that aims to maximize value for its stockholders and creditors. Investors should closely monitor the company's progress and the outcome of the shareholder vote on the Plan of Dissolution.