Northstar Neuroscience will close, distribute cash to stockholders

Northstar Neuroscience, whose technology for treating stroke patients failed a clinical trial last January, said Monday it plans to lay off most of its remaining employees and seek shareholder permission to liquidate the company.

The Seattle medical device company has been pressed for months by a major shareholder to distribute its accumulated cash or sell its assets. Northstar had cash and investments worth more than $68 million as of September 30, according to its latest quarterly report.

In a harshly worded letter in mid-December, investment firm RA Capital told the company's directors that "We continue to be shocked and frustrated by the complete lack of response from Northstar Neuroscience Inc. to the several options it has to preserve and return value to its stockholders. ... Since July, the company's stock, which was then trading at an astonishing 30% discount to its cash balance per share, has fallen by nearly 50% and continues to trade at an even more appalling 60% discount from its cash balance per share."

"It would seem that some of you remain content to pay yourselves salaries from cash that belongs to stockholders while contributing nothing of any positive value in return."

Monday's statement from Northstar said its board had concluded that "in its best business judgment after consideration of potential strategic alternatives," the best course of action for Northstar and its shareholders is "to liquidate the company's assets and to dissolve the company."

Shareholders must vote on the plan. Northstar, which had about 38 employees this summer after two rounds of layoffs, said that prior to the vote, "the company will reduce its headcount to a limited number of employees who will assist in the termination of operations."

"An orderly wind down" of the business will assure all its obligations are taken care of before the remaining cash is distributed to shareholders, according to the statement.