Biostage CEO Provides Mid-Year Update to Shareholders

HOLLISTON, Mass., June 21, 2016 /PRNewswire/ -- Biostage, Inc. (NASDAQ: BSTG), a biotechnology company developing bioengineered organ implants to treat cancer and other life-threatening conditions of the esophagus, bronchus and trachea, today updated its shareholders on the Company's progress and outlook in the form of a letter from Biostage CEO Jim McGorry.  The text of the letter follows:

Dear Biostage Shareholders,

As the second quarter comes to a close, I would like to share with you my thoughts on Biostage's progress, the outlook for the second half 2016 and the Company's valuation.  This is a great time for Biostage as over the remainder of 2016 we look to transition from pre-clinical development and large-animal studies and move to filing an investigational new drug application (IND) with the U.S. Food and Drug Administration (FDA) to start human clinical trials.

I am very pleased with our development and operational progress.  Biostage is a rapidly evolving company focused on bringing our breakthrough Cellframe™ technology to patients with life-threatening conditions of the esophagus, bronchus and trachea.  If you saw value in our company at the start of 2016, you should see even more today as we have continued to advance the key aspects of the company.  Why that progress has not yet been reflected in our share price is something I will address later in this letter.  Please know that I take my responsibility for building our company and improving the stock price very seriously, and I am at all times focused on building shareholder value.

In the first half of 2016 we made tremendous progress in developing our innovative and unique Cellframe technology.  We replicated and complemented the positive data that we announced in November 2015.  We were testing and improving every aspect of our Cellspan™ Esophageal Implant to finalize our product design and establish the basis for our IND filing with the FDA.  We have a plan, and we are executing on that plan.  At the start of 2016, I was six months into my role as CEO.  I had seen our progress over those six months and knew it would take most of 2016 to complete the product development and necessary pre-clinical work to move into human studies.  We took the appropriate time to develop what we believe will be a safe and efficacious product and remain on our schedule to file our IND by the end of 2016 to advance into human clinical trials.

In May, we announced positive proof-of-concept results in large-animal studies of our Cellspan Esophageal Implant conducted with Mayo Clinic.  The data from these studies will form the basis of our application to the FDA seeking orphan designation for our esophageal product.  Further, the data are currently being summarized for publication in a peer-reviewed scientific journal.  Securing the publication of these data will greatly support and validate our progress.  We expect the attainment of these goals to present potential value inflection moments for shareholders over the back half of 2016.

Our next step is to execute these same studies under Good Laboratory Practice (GLP) standards.  GLP refers to a quality system to ensure safety and reproducibility according to FDA standards and is a key milestone on the way to initiating trials in humans.  We believe we are ready to execute the GLP studies and are confident that we will be able to complete all the necessary requirements.  

With regard to our recent funding, we were planning to utilize share price momentum following the May 12th press release describing the ground-breaking large-animal study data to raise additional capital.  We had put in place a share purchase agreement with Aspire Capital in preparation for this effort, as the agreement represented an effective means to raise capital in a situation of positive share price and volume momentum.  Unfortunately the market did not react favorably following our data announcement, and BSTG traded down approximately 15% that day, it appears largely due to funding concerns despite our March 31, 2016 cash position of $4.8 million.  While our technology and data are world class, it was apparent the markets were fixated on our cash position and we believed that the downward pressure on our stock price would not subside until we increased our cash position.

After carefully evaluating multiple financing alternatives, we negotiated a $5 million at-the-market offering.  We felt strongly that solidifying our cash position to ensure we could execute on our near term plans was our top priority and in the best interests of the company and our shareholders.  As a shareholder myself, I understand that no shareholder wants unnecessary dilution.  We did what we thought — and still think — was best for the company and its shareholders.  We believe that we now have the capital to get us through a number of milestones in 2016 including the filing of an IND, and we expect to move into human clinical trials in 2017.

Through the next six months, as Biostage executes on our GLP studies, submits an application to the FDA for an orphan designation in the esophagus, publishes proof-of-concept data from our collaborative large-animal study and completes our IND filing with the FDA seeking to commence human clinical trials, we believe the company's momentum, liquidity and value should substantially increase.

We believe that by this time next year our esophageal implant will be in a human clinical trial.  We expect that such human use will also result in a fuller recognition of the value of our work to date.  We also expect to follow this first esophageal product candidate with additional products to address life-threatening conditions of the bronchus and trachea.  We will continue to drive our product development programs forward to bring life-saving products to the market. You have our continued promise that we will evaluate every strategic and creative alternative to advance the performance and funding of our company, with the objective of building value for our shareholders.

Our commitment to you, our shareholders, remains unshakable – as does our commitment to the physicians and patients who can most benefit from our technology and products.  Those who face life-threatening conditions need treatment alternatives as quickly as possible.  Our patients' unmet needs fuel our sense of purpose and urgency.

I am grateful for the opportunity to serve as your CEO.  While none of us are content with the current market valuation of our company and no one can predict the movement of the broader capital markets, I am confident that the true potential and value of our company will ultimately be reflected in our share price.  I look forward to keeping you informed on our progress.

Thank you for your support and confidence.

Sincerely,

Jim McGorry, CEO and Biostage shareholder

About Biostage, Inc.: www.biostage.com 
Biostage is a biotechnology company developing bioengineered organ implants based on the company's new Cellframe™ technology which combines a proprietary biocompatible scaffold with a patient's own stem cells to create Cellspan™ organ implants. Cellspan implants are being developed to treat life-threatening conditions of the esophagus, bronchus or trachea with the hope of dramatically improving the treatment paradigm for patients. Based on its preclinical data, Biostage has selected life-threatening conditions of the esophagus as the initial clinical application of its technology.

Cellspan implants are currently being advanced and tested in a collaborative preclinical study.  Biostage has a joint development agreement in place with Mayo Clinic regarding the esophageal implant initiative, and as a result Mayo Clinic has a potential financial interest in this technology.  This testing is expanding the base of preclinical data in support of Biostage's goal of filing an Investigational New Drug (IND) application with the U.S. FDA in late 2016. The IND will seek approval to initiate clinical trials for its esophageal implants in humans.

Forward-Looking Statements: 
Some of the statements in this press release are "forward-looking" and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These "forward-looking" statements in this press release include, but are not limited to, development expectations and regulatory approval of any of our products, including those utilizing our Cellframe technology, by the FDA, EMA, MHRA or otherwise, which expectations or approvals may not be achieved or obtained on a timely basis or at all; or success with respect to any collaborations, clinical trials and other development and commercialization efforts of our products, including those utilizing our Cellframe technology,  which such success may not be achieved or obtained on a timely basis or at all. These statements involve risks and uncertainties that may cause results to differ materially from the statements set forth in this press release, including, among other things, our ability to obtain and maintain regulatory approval for our products; plus other factors described under the heading "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 or described in our other public filings. Our results may also be affected by factors of which we are not currently aware. The forward-looking statements in this press release speak only as of the date of this press release. Biostage expressly disclaims any obligation or undertaking to release publicly any updates or revisions to such statements to reflect any change in its expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based.

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