Histogen Inc. (OTC: HSTO) has been through a tumultuous journey over the past few years, navigating a series of setbacks and challenges that have tested the resilience of this biotech company. From discontinuing key development programs to facing potential delisting from the Nasdaq, Histogen has found itself in a precarious position, leading its board to approve a plan of dissolution in a last-ditch effort to maximize value for its shareholders.
Business Overview and History
Histogen was incorporated in the state of Delaware on July 13, 2005, originally under the name Conatus Pharmaceuticals Inc. The company was founded as a clinical-stage therapeutics company 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.
In July 2010, Conatus acquired all of the outstanding capital stock of Idun Pharmaceuticals, Inc., which included rights to the drug candidate emricasan. This acquisition expanded the company’s portfolio and potential therapeutic applications.
A significant transformation occurred in January 2020 when Conatus entered into an Agreement and Plan of Merger and Reorganization with privately-held Histogen, Inc. and Chinook Merger Sub, Inc., a wholly-owned subsidiary of Conatus. Under the merger agreement, Merger Sub merged with and into Private Histogen, with Private Histogen surviving as a wholly-owned subsidiary of Conatus. The merger was completed on May 26, 2020, and Conatus changed its name to Histogen Inc.
Prior to the merger, Private Histogen had been developing a proprietary portfolio of products based on its hypoxia generated growth factor technology, including Human Multipotent Cell Conditioned Media (CCM) and Human Extracellular Matrix (hECM). This merger brought together Conatus’ expertise in caspase inhibitors with Private Histogen’s regenerative medicine platform.
In 2019, before the merger, the company entered into a Settlement, Release and Termination Agreement with PUR Biologics, LLC to reacquire certain in-process research and development assets, further consolidating its intellectual property portfolio.
Product Segments
Histogen operates in several product segments, leveraging its proprietary technologies and development programs:
Proprietary Hypoxia Generated Growth Factor Technology
This segment includes the company’s Human Multipotent Cell Conditioned Media (CCM) and Human Extracellular Matrix (hECM) technologies. These proprietary technologies were developed to harness the regenerative and anti-inflammatory properties of hypoxia-generated factors to treat a variety of medical conditions.
On October 3, 2023, Histogen entered into an Asset Purchase Agreement with Allergan Sales, LLC, selling certain assets related to the hypoxia generated growth factor technology for $2.1 million. This transaction also included the termination of the Allergan License Agreements.
Emricasan
Emricasan is an orally available pan-caspase inhibitor designed to reduce the activities of human caspases, which mediate inflammation and apoptosis. It has completed extensive toxicology testing and prior clinical studies involving approximately 1,000 subjects. On April 3, 2023, Histogen entered into an Exclusive License Agreement with Johns Hopkins University for intellectual property associated with using emricasan to treat diseases resulting from viral or bacterial infections.
CTS-2090 and Inflammasome Inhibitors
CTS-2090 is a selective caspase-1 inhibitor targeting inflammasome activation, with potential to treat various inflammation-mediated diseases. Histogen also possesses a proprietary portfolio of orally active molecules that inhibit inflammasome pathways and the activation of the inflammatory cytokine interleukin-1β.
Financial Overview
Financials
Histogen’s financial performance has been marked by consistent losses and negative cash flows. For the year ended December 31, 2022, the company reported revenue of $3.77 million, a net loss of $10.62 million, and negative operating cash flows of $9.68 million. The company’s free cash flow for 2022 was negative $9.90 million.
In the most recent quarter ended September 30, 2023, Histogen reported revenue of only $5,000, a net loss of $3.85 million, and negative operating cash flows of $2.69 million. The free cash flow for this quarter was also negative $2.69 million. This significant decrease in revenue, net income, operating cash flow, and free cash flow compared to the prior year quarter was primarily due to the company discontinuing all development programs and reducing its workforce as part of the Plan of Dissolution.
The company’s cash and cash equivalents stood at $4.57 million as of September 30, 2023, down from $12.1 million at the end of 2022. Histogen’s working capital as of December 31, 2022, was $12.2 million.
Histogen operates solely in the United States and does not have any international operations.
Liquidity
Histogen’s financial ratios paint a concerning picture. As of September 30, 2023, the company had a current ratio of 4.04 and a quick ratio of 4.04, indicating potential liquidity challenges despite having no outstanding debt. The company’s debt-to-equity ratio is 0, suggesting a relatively low level of leverage, but also potentially limiting its ability to raise additional capital through debt financing.
The company had no available credit lines or credit facilities as of the latest reporting period.
Quarterly Performance and Revenue Sources
For the three and nine months ended September 30, 2023, Histogen reported total revenues of $5,000 and $15,000, respectively, primarily from license revenue related to the Allergan License Agreements. The company’s research and development expenses were $660,000 and $2.19 million for the three and nine month periods, respectively, as it focused on preclinical and clinical development activities. General and administrative expenses were $2.87 million and $6.91 million for the three and nine month periods, respectively.
Challenges and Setbacks
Histogen’s journey has been marked by a series of challenges and setbacks that have ultimately led to the company’s current predicament. In 2022, the company terminated its collaboration agreement with Amerimmune, shifting the responsibility for certain milestone payments related to the Pfizer acquisition of Idun Pharmaceuticals back to Histogen.
More recently, on September 18, 2023, Histogen announced that its board had unanimously approved a plan of dissolution, subject to shareholder approval. This decision came after an extensive review of strategic alternatives, during which the company was unable to identify any meaningful financial alternatives, a merger partner, or a purchaser for its assets.
The plan of dissolution is a last-ditch effort by the company to maximize value for its shareholders, as Histogen faces the potential delisting of its stock from the Nasdaq due to its status as a “public shell.” The company has discontinued all of its development programs and terminated all but two employees, with the remaining employees focused on managing the wind-down of operations and the dissolution process.
On September 26, 2023, Histogen received written notice from Nasdaq advising that Nasdaq believed the company was a public shell, and that the continued listing of its securities was no longer warranted. As a result, trading of the company’s common stock was suspended as of October 5, 2023, and on October 12, 2023, Nasdaq filed a Form 25-NSE with the SEC to remove the company’s common stock from listing and registration.
The Dissolution Plan and Potential Distributions
If the plan of dissolution is approved by Histogen’s shareholders, the company estimates that it may have between $1.29 million to $1.76 million in cash that could be distributed to shareholders, implying a per-share distribution of $0.30 to $0.41 based on the company’s 4.27 million shares outstanding as of October 16, 2023.
However, the timing and amount of any distributions to shareholders are subject to significant uncertainty, as they depend on the company’s ability to successfully monetize its remaining non-cash assets, resolve any outstanding claims and liabilities, and navigate the complex dissolution process. Factors such as the adequacy of contingency reserves, the resolution of potential tax claims and litigation matters, and the incurrence of wind-down expenses could all impact the final amount available for distribution.
The company is currently seeking to sell its remaining caspase program assets as part of the liquidation process, which could potentially increase the amount available for distribution to shareholders.
Conclusion
Histogen’s journey has been a tumultuous one, marked by a series of setbacks and challenges that have ultimately led the company to the brink of dissolution. With the board’s approval of the plan of dissolution, Histogen is now faced with the daunting task of maximizing value for its shareholders in the midst of a delisting threat and a shrinking cash position.
The potential distributions to shareholders, if the plan is approved, offer a glimmer of hope, but the path forward is fraught with uncertainty. The recent sale of assets to Allergan and the ongoing efforts to sell remaining caspase program assets demonstrate the company’s commitment to maximizing shareholder value during the dissolution process.
Investors in Histogen must closely monitor the company’s progress and the outcome of the shareholder vote, as the fate of the company and the potential return of capital to shareholders hangs in the balance. The dissolution process, if approved, will mark the end of Histogen’s journey as a publicly-traded company and serve as a cautionary tale of the challenges faced by small biotech firms in a highly competitive and capital-intensive industry.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.