Talaris Therapeutics aimed to transform solid organ transplants with a cell therapy that replaces anti-rejection drugs patients need for the rest of their lives. But after clinical trial setbacks, the biotech has decided to end two kidney transplant studies. Although a separate test of its experimental therapy is continuing in a rare autoimmune condition, Talaris has commenced a restructuring plan that it said could culminate in a merger or sale of the company.

The restructuring announced Thursday will lead to the layoff of about one-third of Talaris’s staff. As of the end of the third quarter of 2022, the Louisville, Kentucky-based biotech reported its headcount was 131.

Talaris’s lead therapeutic candidate, FCR001, is comprised of immune and stem cells from the organ donor. These cells are intended to reprogram the transplant recipient’s immune system to tolerate the new organ. The hope was that this one-time cell therapy would enable a patient to avoid the need for lifelong immunosuppressive therapies, which increase the risk of infections and other complications.

Talaris was testing its cell therapy in a Phase 3 study enrolling first-time kidney transplant patients and a Phase 2 test in those who have previously received a kidney from a living donor. Last summer, the company implemented changes to the Phase 3 study to mitigate the risk of a graft-versus-host disease (GvHD), a complication in which donor cells attack the patient. In October, Talaris reported a patient death. The deceased patient was one of three diagnosed in June with GvHD. Given the trial modifications in place, the independent data monitoring committee recommended the study continue. But on Thursday, Talaris said it is ending both kidney transplant studies, a decision “primarily attributable to the pace of enrollment and the associated timeline to critical milestones.”

The study that will continue is evaluating FCR001 in scleroderma, a rare disease in which the immune system attacks multiple organs and tissues. This disease can be treated with a hematopoietic stem cell transplant, but the procedure’s risks include GvHD. Measuring the occurrence of this complication is one of the main goals of this Phase 2 study.

“While we are disappointed that our work in kidney transplantation will not continue, given the potential of FCR001 to induce durable tolerance, we intend to continue its evaluation for scleroderma, which remains a very high unmet medical need for which there are limited treatment options,” Talaris CEO Scott Requadt said in a prepared statement.

Talaris said it will no longer provide guidance for the scleroderma study or any of its other programs. The company also won’t provide a timetable for its strategic review. In a regulatory filing, Talaris said it expects to complete the layoffs by the end of February. The workers who remain will focus on cell therapy manufacturing and conducting the scleroderma clinical trial. Talaris estimates it will incur $2.9 million in restructuring costs in the first and second quarters of this year. As of the end of 2022, Talaris reported its cash position was $181.3 million.

Shares of Talaris opened at $1.72 each on Thursday. When Talaris raised $150 million in its 2021 IPO, the biotech priced its shares at $17 apiece.

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