Things aren’t looking so sunny for Tyngsboro, MA-based Beacon Power (NASDAQ: BCON) and Devens, MA-based American Superconductor (NASDAQ: AMSC), a couple of prominent public companies in the cleantech sector.

—Beacon Power, a flywheel energy storage company, filed documents seeking Ch. 11 bankruptcy protection. The move has shone some negative light on the U.S. Department of Energy’s loan guarantee program, which two years ago provided the cleantech company with a $43 million loan guarantee, as financing for an energy storage facility Beacon planned to build in New York. Just two months ago, DOE-backed solar panel maker Solyndra, based in California, filed for bankruptcy, a move that has seen some serious political fallout. The Beacon deal has some differences though, according to a Department of Energy spokesman, Reuters reports. The Beacon plant is continuing to operate despite the bankruptcy filing, and the government loan is the first debt Beacon is responsible for paying.

—Renewable energy technology company American Superconductor backed out of plans to acquire Finnish firm The Switch Engineering for about $265 million cash. The deal fell through because of “adverse market conditions for a financing required to fund the acquisition,” according to the company announcement. Shareholders of The Switch, a maker of magnet generator and power converter products, will retain the roughly $20.6 million upfront payment from American Superconductor. The news paints an even bleaker picture for American Superconductor, which less than three months ago revealed its plans to cut 30 percent of its workforce (about 150 people) and take other measures to improve its finances.

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The Evergreen Solar story keeps getting worse. The Marlboro, MA-based solar technology company revealed today that it is filing for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Delaware. The court documents were not available online today, but other media outlets have reported that Evergreen (NASDAQ: ESLR), with assets of $424.5 million, owed its roughly 5,000 creditors $485.6 million.

Evergreen said it will cut another 65 jobs across the U.S. and Europe and suspend activities at its Midland, MI facility as part of its restructuring. That’s on top of the 800 workers Evergreen cut earlier this year when it shut down its Devens, MA plant. (The company had previously received grants and loans from the state of Massachusetts surrounding the Devens site.) Evergreen said in the release today that it will now be focusing more on producing solar wafer technology for other companies to use in solar cell and module products. As part of the shift, Evergreen will have about 85 workers in its Wuhan, China site focused on the wafer development.

“Since January, Evergreen Solar has been aggressively repositioning itself to fully leverage the potential our String Ribbon wafers can bring to high volume solar cell and module manufacturers as these customers are facing severe pressure to further reduce their total cost of manufacturing and particularly their wafer supply costs. The actions we are taking today enable the continued development of an industry standard wafer using Evergreen’s differentiated technology and thereby provide the lowest cost wafer to the growing solar industry,” Evergreen Solar president and CEO Michael El-Hillow said in the release today.

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Auto parts manufacturer Delphi has a simple description of what it’s been up to during these past four years of bankruptcy reorganization. “We’ve been quiet, but we’ve been busy,” says Jeffrey Owens, president of Delphi’s electronics and safety division.

The recent Society of Automotive Engineers (SAE) World Congress in Detroit was a kind of coming-out party for Delphi, which emerged from Chapter 11 in October 2009, and Delphi representatives were eager to show the industry and media what exactly they’ve been busy with.

The new mantra for the Troy, MI-based automotive parts manufacturer, which was spun out of General Motors in 1997, is “green, safe and connected.” But it looks as though “connected” has been its main focus—connected to where consumer products meet the automobile, and to where the nascent electric vehicle market meets the home and the electric grid.

First, the connection to the home. The apparent rise of the plug-in electric vehicle opens up “new product and market opportunities for those with the skill and foresight to pursue them,” Owens said during an SAE panel discussion that posed a kind of chicken-or-egg-style question: “Does the smart grid enable electric vehicles, or the other way around?” The answer, in Owens’ view, is that it does not matter—each can take advantage of the other. A vehicle plugged into any future smart grid can help with home energy management through smart chargers that can both provide cars with the juice they need  and give back to the home and to the grid.

But, Owens said in an interview later with Xconomy, that there is no need to wait for the “smart grid” to arrive to take advantage of the commercial opportunities. Delphi can be an enabler for electric vehicles by providing the hardware needed to make connections today.

“We don’t do batteries … and we don’t do rotating machines,” Owens says. “But all of those variants require different types of electronics that have never been in the car before. So, that’s what we do and we’ve got 20 years of experience working on just that.”

Remember General Motors’ first (failed) experiment with electric vehicles, the EV1? Delphi, in partnership with Hughes Electronics, was instrumental in putting it together. But just because the EV1 failed doesn’t mean the knowledge gained from its development went out the window.

“We fortunately kept those folks engaged and working on future generations,” Owens says.

So, while other automotive suppliers are jumping into what will be a highly competitive race to … Next Page »

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The demise of San Diego’s Verari Systems and its resurrection as Verari Technologies happened so fast you might not have realized what happened unless you were paying close attention over the holidays.

The longtime local company, which specializes in making high-performance servers, server racks, and energy-efficient data storage centers, laid off 223 employees and ceased operations just two weeks before Christmas. It was hard to make out what was happening at the time, chiefly because Verari denied media reports that it had shut down—saying instead that its doors were open and it was merely “restructuring” its business.

But a few weeks later, a notice on Verari’s website said the high-performance computer company was in fact soliciting buyers in a public auction. All Verari assets were later sold through a liquidation known as an “assignment for the benefit of creditors.” Such liquidations, sometimes known as “friendly foreclosures,” are not that unusual—especially these days, according to Bruce Bennett, a Los Angeles bankruptcy lawyer. Bennett told me that in these scenarios, a senior secured creditor, usually a bank that provided a business loan, forces the issue, but ultimately with the company’s cooperation. “It’s just an inherently simpler and less expensive way of liquidating the assets instead of going through bankruptcy,” Bennett says. In most cases, no new company emerges from such liquidations.

But Bennett says it’s not that unusual for a key figure from a distressed company to step back in and acquire all the assets—which is what happened at Verari. Dave Driggers, who founded the San Diego company in 1991 and was working as Verari’s chief technology officer, led an investment group that bought all of the old Verari’s assets. Driggers also stepped in as CEO to reboot the San Diego computer company, which is now known as Verari Technologies. Less than 40 percent of the old Verari’s 223 employees are expected to get their jobs back.

Dave Driggers

Verari reopened for business last week, capping a lightning-fast salvage that took less than six weeks to carry out. But it tortures common sense to describe what happened as a restructuring.

In a recent interview, Driggers told me that all of Verari’s previous investors were wiped out—after raising $59 million in three rounds—and that they were not part of the group that bought Verari’s assets. “You never heard me announce a restructuring,” Driggers said. “I chose not to say anything during the process—from the day we shut down until after the acquisition.”

During our conversation, Driggers explained why he’s optimistic about the future of Verari Technologies—which he says is moving forward with the same technology and a better business model. He also explained why the old Verari failed.

With a mixture of exasperation and pride, Driggers said that Verari “had incurred a huge amount of debt” while its technology and products were … Next Page »

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Venture Wire reports today that a Delaware bankruptcy court has approved the sale of Iceland-based genomics firm deCode Genetics to Arch Venture Partners and Polaris Venture Partners, both of which are previous investors in the company. Waltham, MA-based Polaris and ARCH, which has operations in Boston and Seattle, are paying $14 million for the deCode assets, the report says. DeCode (NASDAQ:DCGN) filed for Chapter 11 bankruptcy protection in November. Bob Nelsen, a managing director at Arch, wrote in an e-mail that he would talk about the deal next week, when the deal is expected to be formally announced.

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Burlington, MA-based medical devices firm HyperMed has filed for Chapter 11 bankruptcy and ceased operations, the Boston Business Journal reports today. The weekly business newspaper, citing bankruptcy filings from Massachusetts District Court, wrote that the company has $2.4 million in debts and $1.1 million in assets. The startup had been marketing a device that used hyperspectral imaging technology (originally developed for the U.S. military) to precisely diagnose the extent tissue damage in diabetic foot ulcers and other conditions attributed to poor circulation.

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The story of ill-fated spinal implant startup Innovative Spinal Technologies of Mansfield, MA, appears to be drawing to a close. Integra Life Sciences Holdings (NASDAQ: IART) of Plainsboro, NJ, said today that its subsidiary Integra Spine has acquired “substantially all of the assets” of IST in a bankruptcy auction for $9.25 million in cash.

As Xconomy was the first to report, IST shut down in January after raising $75 million in venture backing to develop implants to stabilize the spines of patients with injuries or degenerative conditions. By then, the company had already laid off most of its 100 employees. The company sought a buyer but ultimately filed for Chapter 7 bankruptcy early this summer.

Integra, which makes products for neurosurgery, orthopedic surgery, and general surgery, said the acquisition included IST’s so-called Paramount system for performing lumbar fusion and delivering stabilizing hardware to the spine via small incisions. It also included “development assets” related to IST’s Axient product line, a kind of external spine designed to stabilize the backs of patients with spinal injuries or disease while still allowing some degree of motion. Integra also acquired IST’s patent portfolio, which includes more than 100 U.S. and foreign patents and patent applications.

Randy Theken, president of Integra Spine, said in a statement that the company was “excited to add a minimally invasive spinal implant system to our product portfolio…This acquisition gives us innovative products that can be available near term, as well as intellectual property that will support a pipeline of new products, particularly in the rapidly growing field of minimally invasive spine surgery.” The company said it expects to bring the Paramount system to market early next year.

Integra said the market for minimally invasive spinal fixation systems amounts to $678 million a year—a market that IST, a 2002 spinout of the Texas Back Institute, was unable to penetrate before running out of cash, for reasons we explored in a February profile. The acquisition does seem to guarantee, as IST CEO Scott Schorer predicted to Xconomy, that some of the company’s products will reach the market, but not without significant losses for the company’s backers, which included MPM Capital and Orbimed Advisors.

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Biopure (NASDAQ:BPUR), which has struggled financially for years while making a case to U.S. and European regulators for its blood substitute, has filed for Chapter 11 bankruptcy, the company announced late yesterday. The Cambridge, MA-based firm has agreed to sell its assets to OPK Biotech, but Biopure will also seek competitive bids for the assets in an auction supervised by the bankruptcy court in Massachusetts. The Boston Herald wrote this little piece today about some of the setbacks that led to the 25-year-old company’s bankruptcy filing.

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Oscient Pharmaceuticals has apparently run short on options to keep its struggling drug business afloat. The Waltham, MA-based biotech firm (NASDAQ:OSCI) and its subsidiary Guardian II Acquisition Corporation have each filed for Chapter 11 bankruptcy protection and Oscient has landed a buyer for one of its two marketed products, Oscient announced late yesterday.

The company says it has struck an agreement to sell its assets associated with the antibiotic drug gemifloxacin mesylate (Factive), to a subsidiary of Cary, NC-based Cornerstone Therapeutics (NASDAQ:CRTX) for more than $5 million. Yet it’s expected that there will be a competitive auction for the Factive assets in bankruptcy court before the deal is sealed. The antibiotic, which treats forms of bronchitis and pneumonia, accounted for only $16.5 million of Oscient’s $86.8 million in 2008 revenue. The firm is also seeking a buyer for its top-selling drug, fenofibrate (Antara), which is prescribed for patients with above-normal cholesterol and triglyceride levels.

Oscient appears to be the latest victim of a lousy environment for unprofitable life sciences companies searching for funds to stay alive. Other local examples include Waltham, MA-based drug developer Dynogen Pharmaceuticals, which filed for bankruptcy early this year, and synthetic DNA maker Codon Devices, which reportedly shuttered its operations in Cambridge, MA, this spring. The cash shortage has also prompted Lexington, MA-based Epix Pharmaceuticals (NASDAQ:EPIX) to sell off assets and seek other alternatives to stay afloat.

Oscient, which plans to continue operations while in bankruptcy, has racked up $183.3 million in debts and has assets valued at $174 million, according to its bankruptcy filing. The filing says that the company owes $46 million to U.S. Bank National Association, of Boston, $7.8 million to funds associated with Dallas-based investment firm Maverick Capital, $6.6 million to BB Bioventures in South San Francisco, and $5.5 million to medical products giant Abbott Labs, headquartered in Abbott Park, IL, to name its four largest creditors listed in the bankruptcy filing.

The bankruptcy filing is the latest measure Oscient has taken to keep its business intact. The company cut about 100 of its some 300 workers in February to save money, and last month it said it planned to slash another 180 jobs, including its entire 150-person sales force. Still, the company said last month that it only had enough cash to operate into the third quarter of 2009. Also, the Nasdaq plans to de-list Oscient’s common stock later this month for the company’s failure to pay fees to meet its listing obligations, according to the company.

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[[Updated: see editor's note below.]]

Innovative Spinal Technologies, the Mansfield, MA, maker of minimally invasive spinal repair devices, has filed for Chapter 7 bankruptcy protection after running out of cash and shutting its doors earlier this year. VentureWire published the news this morning. Sources told Xconomy that the bankruptcy was in the works after Wade broke the story about the startup’s shutdown in January.

The seven-year-old startup—which had raised $75 million from New York-based Orbimed Advisors, JPMorgan, MPM Capital in Boston, and corporate partners such as GE—burned through millions of dollars when it scaled up its operations with a relocation from Texas to a larger facility Mansfield in 2006 and a hiring plan that swelled its staff to more than 100 workers at one point, sources have told Xconomy. Yet sales of the company’s products—which included bone screws, plates, and a delivery system used in procedures to stabilize spinal segments in patients with damaged vertebral disks—were insufficient to support the expanded operations. Last year the startup was forced to cut its staff to 10 employees or fewer.

According to documents filed May 15 with the U.S. Bankruptcy Court for the District of Massachusetts, IST owes between $10 million and $50 million to a group of creditors that numbers between 100 and 200. The company’s current assets are between $1 million and $10 million.

Much of the blame for the startup’s demise has been pinned on president and CEO Scott Schorer, a former Army Ranger and Olympic rower, who had been with the company since it was spun off from the Texas Back Institute under the name MusculoSkeletal Research Corporation in 2002. He is also credited, however, with engineering the growth of the company from a research incubator to a venture-backed provider of medical devices. Obviously, the growth of the operation and its expenses outpaced its sales traction in the competitive market for spinal devices.

After IST shuttered in late-January, Schorer told Wade that the company was trying to avoid bankruptcy through a sale of assets. Prior to that interview, at least one prospective buyer, the Biomet Spine unit of Warsaw, IN-based Biomet, walked away from buyout talks with the startup, according to sources.

Interestingly, in an exhibit attached to the May 15 bankruptcy filing, IST says that its real property includes nine human cadavers and 20 human and bovine tissue samples, kept in two separate freezers in a surgical suite at the company’s former place of business in Mansfield. The exhibit warns that if the facility’s electricity were turned off, the cadavers and samples “would defrost and pose a significant health threat to anyone entering the surgical suite that has not been immunized and wearing the appropriate attire to dispose of such items.” The document does not detail the company’s plans for disposing of the cadavers and samples.

[[Editor's note: The first paragraph of this story was changed to include a link to a story in VentureWire, which says it was the first to report IST's bankruptcy filing today, not peHub.com, which was initially cited in this story.]]

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[Updated 7:30 p.m., 5/13/09, with input from former GreenFuel interim CEO Bob Metcalfe, see below.] Cambridge, MA-based GreenFuel Technologies, which struggled for eight years to commercialize an industrial-scale process for growing algae that could be turned into biofuels or food, is closing down for lack of financing and selling off its technologies. Greentech Media broke the story earlier today.

Duncan McIntyre, an associate at Waltham, MA-based Polaris Venture Partners, which participated in several venture rounds that raised more than $70 million for GreenFuel, told Greentech that the company could not raise the funds needed to build planned test facilities in Spain. “We are closing doors. We are a victim of the economy,” McIntyre told the publication.

Xconomy is seeking comment on the reported closure from GreenFuel CEO Simon Upfill-Brown. But Bob Metcalfe, a Polaris partner who was GreenFuel’s interim CEO prior to Upfill-Brown’s hiring and is its current board chairman, confirmed the shutdown in an e-mail message. “Simon Upfill-Brown and Holly Flesh [the company's vice president of business operations] are now working to sell GreenFuel’s technologies,” he wrote. “You could help by sending potential buyers their way.”

GreenFuel’s ride was a bumpy one. The company built its first field bioreactor, using specially bred strains of algae to capture carbon dioxide emissions and rapidly convert them into biomass through photosynthesis, at MIT in 2004. In 2005 the company hired energy industry veteran Cary Bullock as CEO to lead efforts to scale up the process. But in 2007, the company had to shut down its third-generation bioreactor facility in Arizona after the plant produced more algae than the company’s equipment could handle. At the same time, the company learned that its algae harvesting system would cost twice as much as expected. Some 25 employees, about half the company’s staff, were laid off as a result of the plant shutdown.

Metcalfe relieved Bullock as CEO after the setback, and spent the next year coordinating cost-cutting efforts, raising cash, restarting the Arizona bioreactor, rounding up strategic partners, and recruiting new leadership.

Things seemed to be looking up for the company by mid-2008. In March of that year the company signed a deal with Spanish cement maker Aurantia that was expected to bring up to $92 million to the company. (Cement plants are a huge source of carbon dioxide.) New CEO Upfill-Brown joined in July, and the company obtained additional Series B funding and began work on a fourth-generation algae bioreactor in Cambridge. By October, GreenFuel had finished the first phase of its work at the Aurantia plant, a 100-square-meter prototype greenhouse and harvesting operation. A 1,000-square-meter facility was to be ready by 2010, and the company was beginning to collect some of the funds promised by Aurantia.

But the startup was hit hard by the economic crisis and by the decline in petroleum prices from their 2008 peaks, which took much of the bloom off the biofuels rose. Upfill-Brown was not able to raise a Series C investment round on the timetable that he and Metcalfe had originally projected. In January, the company laid off 19 people—again, just under half of its staff—and decided to outsource the design and engineering work on the Aurantia project.

“We’ve got to weather this economic storm as best we can…” Upfill-Brown told Bob at the time. But he said he was optimistic about the company’s direction: “We pretty much feel GreenFuel is ahead [of other biofuels companies]…We’re going to keep plugging away, stay ahead.”

Apparently, the company could no longer keep its head above water. Which could become an increasingly familiar story as biofuel startups—none of which have come close to producing ethanol or other fuels at prices comparable to those of fossil-based fuels—burn through their cash and look to empty-handed investors for additional capital rounds.

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Waltham, MA-based drug developer Dynogen Pharmaceuticals has filed for bankruptcy protection this week under the weight of $10.6 million in liabilities, the Boston Business Journal reported this morning. Dynogen, a developer of drugs for irritable bowel syndrome and other gastrointestinal disorders, raised some $67 million over the past six years from Boston-area investors such as HealthCare Ventures, Oxford Bioscience Partners, SV Life Sciences, and Abingworth Management. Last April market conditions sank Dynogen’s plans to go public in a reverse merger with California’s Apex Bioventures (AMEX:PEX).

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Skyward Mobile, a Wakefield, MA, startup developing a platform that lets users play games and read e-books on their cell phones, filed for Chapter 7 bankruptcy protection yesterday, according to a report in the Boston Business Journal. Not to be confused with Stratham, NH-based Skyward Innovations, a company working on mobile travel-related applications, Skyward Mobile was founded by Jeremy De Bonet, the former CTO of mobile video company MobiTV. Skyward it reached a settlement with MobiTV last summer in trade-secrets lawsuit launched after De Bonet left the older company. It listed liabilities of $3.6 million in its bankruptcy claim, including $400,000 in settlement claims owned to MobiTV.

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Last night we reported that Mansfield, MA-based Innovative Spinal Technologies, a maker of implants to correct degenerative spinal disorders, had gone dark—the company’s website was down and phone calls were going unanswered. A former employee who recently left the company now tells Xconomy that IST shut its doors on Friday, filed for bankruptcy protection, and let the last of its employees go after a planned sale of the seven-year-old startup to another medical device company fell through.

The source identified the potential buyer as Biomet Spine of Parsippany, NJ. IST was “in the process of selling” but Biomet backed out for unknown reasons, the source says. “They had no more options and were out of money,” hence Friday’s closure.

If all this proves right, IST used up almost $75 million in venture and private equity funding before its demise. That funding included a $6.2 million Series A round raised shortly after the company was spun out by the Texas Back Institute in 2002; a $39 million Series B round in 2005, the same year the company moved from Plano, TX, to Mansfield; an $18 million Series C round last September; and a previously undisclosed $10 million venture debt deal.

Participants in IST’s 2005 Series B round included Boston-based MPM Capital and New York-based Orbimed Advisors. We’ve contacted both firms for comment on IST’s shutdown, with no reply as of this writing. We have also been unable to locate a bankruptcy filing for Innovative Spinal Technologies in online indexes of court documents.

The former employee we spoke with, who continues to work in the medical industry and therefore requested anonymity, says the company shed staffers throughout 2008 in an effort to cut costs. After peaking at over 100 employees in 2007, the company was down to 50 employees by March 2008, 30 by May, and 20 by the fall, the source says, and only about 10 employees remained at IST by last week.

The source attributes IST’s failure mainly to poor management decisions, rather than difficult business conditions or any lack of fundamental demand for its products, which were designed to help people with damaged intervertebral disks by fusing or stabilizing their spinal segments.

“If you look at the spine market, it’s a growing market,” the source says. “There are many thriving companies. The problem was that we were not one of them.”

The company, which had several FDA-approved spinal products on the market, earned only about $5 million in revenues in 2007-2008, according to the source. That was partly a result of problems shifting from an internal sales force to an outside distributor, the source says.

The source also says the company suffered from high management turnover. “Starting in March of 2007, we lost our VP of sales, then one every month or two, until every senior manager had turned over.” To the source, at least, that was an indication of dissatisfaction or difficulty with … Next Page »

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Marlborough, MA-based ThinkEngine Networks, a telecommunications company whose media servers unify traditional circuit-switched and Internet-based voice signals, has filed for Chapter 7 bankruptcy protection in U.S. bankruptcy court in Worcester, MA, according to reports today in the Boston Business Journal and the Boston Herald. The American Stock Exchange delisted the company last March due to underperformance.

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Boston’s nTag Interactive, a maker of wearable, wireless electronic badges handed out to attendees at business conferences so that they can exchange contact information and vote in interactive polls, filed for bankruptcy in Boston federal court on December 26, according to a report today in the Boston Business Journal. The seven-year-old company, an MIT Media Lab spinoff, had raised $23 million in venture backing from the likes of Boston’s Pilot House Venture Group and Dallas-based Sevin Rosen Funds.

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The Nasdaq market halted trading in Artes Medical this morning, with the last price of the company’s stock at 3 cents a share. In a short statement, Nasdaq said trading will remain halted until Artes has fully satisfied the electronic market’s request for additional information. Nasdaq did not describe the information it’s requested. As Ryan reported last week, Artes has filed for bankruptcy liquidation. The company, which makes injectible filler for smoothing skin wrinkles, cited the downturn in the economy and a lack of consumer spending on its cosmetic treatment.

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Artes Medical, a maker of an injectable filler to smooth facial wrinkles, has filed for Chapter 7 bankruptcy, citing reduced consumer spending on its cosmetic treatment due to the poor economy.

The San Diego-based medical technology firm said in an earlier SEC filing on November 21 that a liquidation of its assets and bankruptcy were in the offing due to a drop in sales of its treatment, an inability to raise funds, and a failed bid to negotiate with lender Cowen Healthcare Royalty Partners. Artes also disclosed last month that it had reduced its workforce to fewer than 15 people, which the San Diego Union Tribune reports meant the elimination of more than 100 jobs.

Among the events leading to its bankruptcy, Artes included the proxy battle it faced in August from dissident investors headed by a shareholder named H. Michael Shack. The so-called “Shack Group” revealed an interest to invest some $30 million into Artes, but the investors and company management never reached an agreement.

“I have been with the company as vice president [of manufacturing operations] and officer since June 2004, and can honestly say this could have been prevented,” Larry Braga, one of the workers laid off, told the Union Tribune.

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Seattle-based Entellium said it has filed for bankruptcy protection today, as it prepares to sell off its assets. In October, the software company’s top two executives, Paul Johnston and Parrish Jones, resigned and were charged with fraud. The filing says Entellium has $37.7 million in assets and $12.7 million in liabilities. Its creditors are listed as Ignition Partners, WestRiver Capital, Malaysia Venture Capital Management, Middlefield Ventures, Sigma Partners, and Silicon Valley Bank. Financial software firm Intuit, based in California, has made an offer to buy Entellium’s assets.

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San Diego’s Advanced Tissue Sciences tried for 14 years to develop living-tissue patches for healing burns, wounds and chronic sores. But the business went into bankruptcy liquidation in late 2002, a victim of regulatory delays and more than $300 million in debt.

Since then, former CEO Gail Naughton says she’s been invited to speak many times about the hurdles that Advanced Tissue Sciences was unable to overcome and what she would have done differently. “After talking about what I would do differently a number of times,” Naughton says, “I decided to go out and actually do it.”

The result is Histogen, a San Diego-based life sciences company that Naughton founded last year. Naughton says the technology underlying Advanced Tissue Sciences has been reborn—with significant advances—and that Histogen intends to avoid the business pitfalls that crippled the predecessor company.

“Many of us worked for Gail at Advanced Tissue Sciences,” says Robert Kellar, Histogen’s vice president of research and development. “So we joke around by saying ‘We’re putting the band together again.’ ”

After raising more than $5.3 million from private investors in May, Naughton says Histogen plans to raise another $1.4 million from investors by the end of the year. The startup also has secured a $1.4 million loan.

A key difference at the new company is the creation of a subsidiary, Histogen Aesthetics, which is adapting the in-house expertise in fibroblasts, the cells that form connective tissue, to develop skin and hair care products. By focusing at the outset on the cosmetics, dermatology, and plastic surgery industries, Naughton says Histogen can generate immediate revenue to support the long-term development of living tissue skin grafts and other medical products that require a protracted regulatory approval process.

The company’s first cosmetics product is called ReGenica, a liquid made from fibroblast-secreted proteins, growth factors, and other products. It is intended for use in anti-aging skin treatments and to promote healing after cosmetic laser skin resurfacing.

Last week, Histogen said it also plans to evaluate whether ReGenica injected into the scalp will stimulate hair regrowth in a clinical trial of 24 patients. “Our hypothesis is that it helps to stimulate resident stem cells to become hair follicles,” Kellar says.

Naughton says Histogen already has used its expertise in culturing and growing fibroblast cells to develop products derived from human tissue cells that can be used as a growth medium by stem cell researchers. With such products already generating sales, she says Histogen can generate cash to offset at least some losses it expects to endure while it spends years working toward getting approval to sell its therapeutics products.

It was that prolonged march through the desert that eventually killed Advanced Tissue Sciences, which endured a three-year FDA delay amid mounting debts in getting the company’s Dermagraft skin patch for diabetic ulcers to market. Even after getting regulatory approval, Naughton said the reimbursement rate that insurers set for the treatment covered only a fraction of the company’s actual cost to make the patch. Today reimbursement rates are more favorable, Naughton says.

Histogen intends to use its same proprietary human “extra-cellular matrix” to develop a variety of other medical products—coatings for orthopedic implants and stents, patches for repairing torn shoulder ligaments and other tissue, and even “retentive” enemas for treating sores in the large intestine and Crohn’s Disease.

“So basically we’ve learned and we’ve brought the best and brightest people back at Histogen,” Naughton says. “The team that did it before is back together again, with decades of experience.”

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