Echo Therapeutics ($ECTE) has found a lifeline, a development partner in Asia that will help the Philadelphia device company accelerate efforts to bring its cutting-edge glucose monitor into the Chinese market. By doing so, executives appear to have satisfied the demands of a restive shareholder clamoring for major changes.
So what are the details? Echo is linking up with with Medical Technologies Innovation Asia ($MTIA) in Hong Kong. The arrangement involves both a licensing deal and an equity investment into Echo for its Symphony needle-free, wireless continuous glucose monitoring system. Platinum-Montaur Life Sciences, the (formerly) angry shareholder, also made a new financial commitment to the company, giving Echo a total cash infusion of nearly $10 million.
MTIA now has the exclusive right to develop, make, market and distribute Symphony in the greater Chinese market, which covers the People's Republic of China, Hong Kong, Macau and Taiwan. The 10-year deal gives MTIA the license but also the responsibility to shoulder most of the costs to get the job done, including expenses relating to regulatory approval. For its trouble, Echo will reimburse MTIA for its development expenses up to $1.5 million, in the form of Echo shares. Echo does gain something in return--the right to share with MTIA in the net sales generated in each territory. MTIA also has a pretty big sales territory, with more than 1,000 hospitals across China's various provinces.
But there's more, and it's interesting stuff. As part of the initial agreement, MTIA and an affiliate purchased 1.8 million shares of Echo's common stock at $2.75 per share; they also gain a number of warrants to exercise in the future. As well, Platinum-Montaur (in the form of Platinum Partners and affiliates) will snatch up an additional 1.7 million convertible preferred shares and also gain a sizeable amount of warrants similar to MTIA's terms.
Platinum-Montaur had owned about 20% of Echo's outstanding common stock before raising a ruckus earlier this fall because the stock price had plunged 95% over the previous two years. The investment firm blamed the leadership and ineffective directors, and pushed hard for Echo to join forces with a partner in China to advance Symphony's development and production. Since then, it seems, Platinum-Montaur has gotten everything it wanted, essentially outsourcing Echo's development of Symphony. There's this new deal with MTIA, of course. But Echo now has a new interim CEO, the company reduced its staff by about a third at the end of September, and executives slashed spending on marketing and manufacturing in a bid to conserve cash.
Michael Goldberg, a principal at Platinum-Montaur, said in a statement that its investment "reinforces Platinum's long-term commitment to Echo." What's more, he and his firm "congratulate the new management and board of directors for working diligently to close this deal, which we are confident will create shareholder value and help deliver against the company's strategic goals."
Meanwhile, Robert Doman, Echo's executive chairman and interim CEO, said in a statement that MTIA/Platinum investment deal, the cash infusion and positive Symphony clinical results represent "an important achievement for Echo as we progress toward regulatory clearance."
There are still obstacles ahead. Echo must begin a multicenter pivotal FDA clinical trial in the second half of 2014, for example. But now the company and its shareholders see a lower-cost way to get there by embracing a China development partner. The ultimate prize: a global market for glucose monitoring devices worth about $10 billion, according to Echo's estimates.
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