Northstar Neuroscience said Thursday it would lay off a third of its workforce — 20 people — and focus solely on a treatment...

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Northstar Neuroscience said Thursday it would lay off a third of its workforce — 20 people — and focus solely on a treatment for depression, even while pondering alternatives such as a sale of the company.

The Seattle-based biomedical-devices company also said it would lease out 40 percent of its office space. By the end of the third quarter, it will have just 38 employees — down from 84 at the end of last year, before the failure of its lead clinical program to treat strokes led to a collapse of its stock and the first round of layoffs.

Northstar also announced that it had let go research Vice President Bradford Gliner and marketing and business-development Vice President Scott Lynch. The executives will depart on Oct. 31 and on Aug. 31, respectively.

The cuts will bring Northstar’s costs down to the level it had as a private, development-stage company, Chief Financial Officer Raymond Calvert said during a conference call.

Northstar said Thursday that it had $74 million in cash and investments at the end of the quarter — far more than its current market capitalization of $47 million.

That gap has fostered discontent among some irate shareholders.

In early July, major shareholder Tang Capital made a bid for the company that valued it at $58 million. Northstar’s management rebuffed the offer, earning a scolding from RA Capital, another major stockholder, which urged the biotech to sell or liquidate itself.

Chief Executive John Bowers said Thursday that the company is exploring all options to enhance shareholder value, but details remained confidential, he said.

The company also disclosed in a filing that it was sued by a shareholder in King County Superior Court for breach of fiduciary duty. The plaintiff alleged that Northstar refused to negotiate in good faith with Tang. Northstar said it believes that the complaint is “without merit.”

The cost-cutting measures will bring the company’s cash burn to the $13 million to $14 million range for 2009, said Bowers. For the first half of 2008, the company’s net losses amounted to $13.6 million.

Northstar’s results
Dollar figures in thousands, except per share; parentheses denote losses.
June 30 %
2nd QTR 2008 2007 CHG
Profit ($4,124) ($6,986) +40.1
Per share (0.16) (0.27) +40.7
1st HALF 2008 2007 CHG
Profit $(9,554) $(13,575) +29.6
Per share (0.37) (0.53) +30.2