Where Does Biostage Inc (NASDAQ:BSTG) Go Now It's OTC

Here's an interesting one. Biostage Inc (NASDAQ:BSTG) just reported a notice of delisting from NASDAQ and that it would start trading over the counter (OTC) effective immediately.The reasons for the delisting are twofold in terms of noncompliance – first, the company is trading well below the minimum bid threshold of one dollar required by NASDAQ for listing on the exchange.Second, Biostage is in noncompliance with the $2.5 million minimum stockholders' equity requirement. BSTG Daily ChartThese are the two most common noncompliance issues at this end of the biotechnology market and many reading will likely be aware of countless companies that have had the same issues during the last couple of years alone. Normally, the company in question sells some shares to raise some capital and/or conducts a reverse split in order to resolve the issues in question.In this instance, however, Biostage has been unable to avoid delisting, but it's not because of something the company has done; instead it's due to a third-party not honoring an agreement that would've seen the company (almost certainly) resolve the minimum stockholders' equity requirement and, in turn, would've paved the way for a reverse split to ensure future listing.On the back of the delisting, Biostage has collapsed from close to $0.40 a share at the end of September to less than $0.12 a share now – a 70% depreciation – despite nothing really having changed other than the fact that it's now an OTC stock as opposed to NASDAQ.Of course, there are benefits associated with being a NASDAQ stock, which is why companies are willing to reverse split in order to maintain listing. However, that these benefits account for 70% of market capitalization is a dramatic overstatement and, by proxy, we think that the recent response is an oversell.In turn, we think that, while this is now an OTC development stage biotechnology play, there might be some value in picking up some cheap shares in anticipation of the situation resolving going forward.So what happened and what might the resolution be?We won't go into much detail here as it's not overly necessary (more detail can be found here), but, to give a brief overview, the company entered into a financing arrangement with an entity called Pecos that would see the latter pick up shares of Biostage in return for an aggregate sum of little over $3 million. This would have expanded the company's runway through till mid-2018 and would've allowed it to, with any luck, regain compliance pretty quickly.As it turned out, Pecos kept adding demands to the deal and – as of this week – hasn’t delivered the cash to Biostage.Basically, then, the deal is off, but Biostage believes that the delisting is Pecos' fault. This is an arrangement that goes back to August, so if Pecos hadn’t strung the company along, Biostage might have been able to secure an alternative resolution.So the situation now is that Biostage doesn't have enough cash and, while there is always the option to take Pecos to court, this is going to take time and money and the company is low on both. As per the most recent communication, Biostage is currently seeking "strategic alternatives" and we think this means one of two things – a buyout or the sale of its lead technology to a company that can carry one or both forward along the path towards commercialization in the US healthcare space.If the company is bought out, we should see a significant premium on the current market capitalization of just $4 million, given that the technology on which its pipeline is based is a stem cell organ implant system that is being used right now to treat previously untreatable and life-threatening conditions of the esophagus, bronchus or trachea.Sure, it is a punt, and a punt on the acquisition of an OTC biotech brings with it a substantial risk.With that said, however, and as mentioned above, ultimately, nothing is changed from a few weeks ago and this points to a considerable undervaluation, whatever ends up happening.We will be updating our subscribers as soon as we know more. For the latest updates on BSTG, sign up below!Image courtesy of Joseph Elsbernd via FlickrDisclosure: We have no position in BSTG and have not been compensated for this article.