After warning in August it had sufficient capital to last it only until November, Echo Therapeutics (NSDQ:ECTE) abruptly suspended operations, saying its cash resources will be drained by the end of September and raising the specter of a bankruptcy filing.
Philadelphia-based Echo Therapeutics has been developing a wireless system it calls Symphony for the continuous monitoring of blood glucose levels in hospitals.
The company lost $3.8 million in the 2nd quarter as revenue ebbed 15% from a year earlier to $19.1 million; Echo Therapeutics reported available cash reserves of $4.1 million as of June 30, down from $8.1 million at the start of the year.
Echo had been negotiating for financing with Platinum Management, but could not come to terms, and the companies are now locked in litigation. Echo Therapeutics also claimed that it’s owed funding from Medical Technologies Innovation Asia via a December 2013 stock purchase agreement, which it has yet to receive.
The suspension will impact product development, research, manufacturing and clinical programs and follows layoffs and other cost-cutting actions announced in August. Echo Therapeutics indicated it will continue to seek outside funding to resume operations.
"We deeply regret the necessity of today’s decision, but we do not have the financial resources to support our continued operations. Reducing our workforce of dedicated employees and ceasing active development of Symphony are among the most difficult decisions we have made," interim CFO Charles Bernhardt said in prepared remarks. "Our directors and management team have devoted substantial time and effort to identifying and reviewing potential opportunities to provide funding for Echo’s operations; however, that process did not yield a credible and sufficient financing transaction. Despite public statements by Platinum Management (NY) LLC and the other members of its investor group that Platinum or its affiliates would be willing to fund Echo’s operations, and despite weeks of negotiations with Platinum over the terms of financing transaction, Platinum has not provided Echo with any credible proposal that would have allowed us to fund our operations and to bring Symphony’s development to a meaningful milestone. Additionally, the failure by Medical Technologies Innovation Asia (MTIA) to provide Echo with the funding contemplated by its December 2013 Stock Purchase Agreement with Echo has resulted in MTIA’s material breach of the agreement. Accordingly, Echo doesn’t expect MTIA to fulfill its prior funding commitment."
Platinum Management, which owns a 30% stake in Echo, responded by detailing a $3 million financing offer it says would allow Echo to continue operating. Platinum also demanded the removal of 3 Echo Therapeutics directors before the new $2-per-share infusion could convert into cash. ECTE shares were listed at 75¢ this morning.
Echo Therapeutics traces its corporate heritage to the 1996 creation of Sontra Medical in Massachusetts, based on ultrasound skin permutation technology co-developed by Joseph Kost and Robert Langer at MIT.