Echo Therapeutics has converted a $2 million loan into equity as part of a new fund-raising effort aiming to raise as much as $8 million in cash for the maker of needle-less glucose monitors for diabetics.
Under terms of the deal, Platinum Montaur Life Sciences – a New York private equity firm that previously invested about $2.1 million in Echo — got just over 200 shares of the company’s Series B preferred stock and about 1.2 million shares of common stock in exchange for the loan conversion. The preferred shares are convertible into Echo common stock through an incentive-laden formula encouraging the company to raise as much money from multiple sources as quickly as it can.
For example, if Echo can raise $8 million or more through the upcoming private placement, it can simply redeem all of Platinum Montaur’s preferred stock by paying back the full $2 million. The redemption formula drops to 50 percent if the company secures $5 million or more and to 20 percent below the $5 million threshold.
But regardless of how much Echo eventually raises, Platinum Montaur’s ownership stake — at least initially — will capped at 9.9 percent of the company. For amounts above that level, the firm would instead receive warrants giving it the option to buy stock at a set price over the next five years. During the interim, Platinum Montaur also will receive quarterly dividend payments of at least $40,000 every three months over the first year, rising to $60,000 due quarterly if the private placement hasn’t closed by the end of 2010.
Echo recently retained Burnham Hill Partners LLC, a boutique investment bank based in New York, to manage its fund-raising activities. As part of its contract with the company, Burnham Hill also is in line to receive Echo stock along with cash compensation.
A steady supply of fresh funds remains critical for Echo, which has yet to record any sales since becoming a medical device manufacturer and moving to Massachusetts four years ago. In addition to development on monitors with wireless and around-the-clock capabilities, Echo currently is working on new drug to treat skin disease.
The company ended the three months ended March 31 with under $56,000 in cash, down from $242,000 at the start of the quarter. Overall, Echo has burned through over $57 million trying to bring its products to market.