C4X Discovery Holdings PLC (LON:C4XD), a pioneering drug discovery company, announced today a proposed conditional placing to raise up to approximately £7.0 million before expenses (the “Placing”) via a placing of up to 8,235,294 new ordinary shares in the capital of the Company (the “Placing Shares”), representing approximately 22.0% of the Company’s existing ordinary share capital, to current and new institutional investors through Panmure Gordon (UK) Limited as nominated adviser and broker to the Company.
The net proceeds of the Placing receivable by the Company will be used to support the execution of its strategy of becoming the world’s most productive, self-sustaining drug discovery engine by strengthening its balance sheet as partnering discussions and strategic collaborations progress, expanding its commercial capability and supporting working capital during the expansion of its pipeline portfolio.
The Placing will be conducted by way of an accelerated bookbuilding process (the “Bookbuild”) which will be launched immediately following this announcement in accordance with the terms and conditions set out in Appendix I. The Placing Shares are not being made available to the public. It is envisaged that the Bookbuild will be closed no later than 4.00 p.m. GMT today, 14 March 2017. Details of the number of Placing Shares, the price per Placing Share (the “Placing Price”) and the approximate gross proceeds of the Placing will be announced as soon as practicable after the closing of the Bookbuild.
The Placing is conditional upon, inter alia, the approval of the relevant Resolutions by Shareholders at the General Meeting to be held at 10.00 a.m. on 31 March 2017 at the offices of Panmure Gordon, One New Change, London EC4M 9AF, admission of the Placing Shares to trading on AIM becoming effective (“Admission”) and the Placing Agreement between the Company and Panmure Gordon not having been terminated prior to Admission.
Commenting on the Placing, Clive Dix, CEO of C4X Discovery, said: “This fundraise will enable us to accelerate towards our goal of becoming the world’s most productive, self-sustaining drug discovery engine. We will use the funds to expand our commercial capabilities and continue building our portfolio of commercially attractive pre-clinical assets.”
Background to the Proposed Placing
C4X Discovery aims to become the world’s most productive, self-sustaining drug discovery engine by exploiting its cutting-edge proprietary technologies to design and create best-in-class small-molecule candidates targeting a range of high value therapeutic areas. The company’s goal is to drive returns through early-stage revenue-generating licensing deals for its high value pre-clinical asset portfolio with the pharmaceutical industry.
Pharmaceutical companies’ research and development pipelines are, and will continue to be, heavily reliant on in-licensing candidates from the biotechnology sector. However, historically, biotech companies have struggled to sustainably produce a source of high quality assets – it is the Directors belief that a new, disruptive and sustainable approach to discovery is needed. There is a significant opportunity to provide pharmaceutical companies with a sustainable source of commercially attractive assets at an earlier stage in the research and development process.
To achieve its goal, C4X Discovery aims to lead the world in revolutionising drug discovery by combining innovative discovery technologies with a proactive commercialisation capability. C4XD aims to provide a highly valuable and differentiated approach to drug discovery through its enhanced DNA-based target identification and candidate molecule generation capabilities, generating differentiated candidates across multiple disease areas. C4X Discovery has a state-of-the-art suite of proprietary technologies across the drug discovery process. The company’s innovative DNA-based target identification platform (Taxonomy3®) utilises human genetic datasets to identify novel patient-specific targets leading to greater discovery productivity and increased probability of clinical success. This is complemented by C4XD’s novel drug design platform which comprises two innovative chemistry technologies, Conformetrix and Molplex, that combine 4D molecular shape analyses (based on experimental data) with best-in-class computational chemistry. This provides new and unprecedented insight into the behaviour of drug molecules, enabling the production of potent selective compounds faster and more cost effectively than the industry standard.
The Company’s goal is to produce four or more assets suitable for partnering each year at a steady state, with the aim to complete at least one revenue generating deal on the C4XD portfolio in the next 12 months. The Directors intend to drive long-term shareholder value by strategically re-investing future licensing deal revenue into the Company’s discovery engine.
Reasons for the Proposed Placing
Global licensing of pre-clinical stage assets continues to increase, with the number of pre-clinical deals worth greater than $10 million increasing from 50 in 2012 to 78 in 2015 and the value of upfront payments for these pre-clinical deals increasing by 289 per cent. to $2,433 million over the same period1. C4XD intends to capture the increasing value associated with pre-clinical licensing deals by initially focussing on disease areas with high partnering interest. The current areas of focus are inflammation, neurodegeneration and opportunistic disease areas, for example, immuno-oncology and diabetes.
To support the Company’s execution of its strategy, C4X Discovery is seeking to raise up to approximately £7.0 million by way of the Placing to further support corporate development and on-going commercial activities. In particular, the Company intends to use the net proceeds of the Placing for:
· Strengthening its balance sheet as partnering discussions and strategic collaborations progress
· Expanding its commercial capability
· Supporting working capital during the expansion of its pipeline portfolio
Current trading
On 6 January 2017, C4X Discovery announced its full year results for the year ended 31 July 2016. Revenue for the 12 months ended 31 July 2016 amounted to £279,000, largely generated through collaborations with the Company’s partners (during the year the Company ceased its fee-for-service offering, choosing only to work on a collaborative risk-and-revenue-sharing basis). R&D expenses, which comprised payroll costs, materials spend and third-party contract development costs, increased by 66% to £5,239,000 which reflected both the increase in drug discovery activity and the continued development of lead drug candidates. Administrative expenses increased to £1,817,000 reflecting one-off costs relating to the departure of a former CEO, additional professional fees, non-scientific staff costs, premises costs and some modest post-acquisition operating costs for Adorial Limited, which have been absorbed within C4XD. The loss after tax was £5,321,000. The Company had net assets at 31 July 2016 of £4,305,000 and cash, cash equivalents, short-term investments and deposits of £1,328,000. The Company completed a £5.0 million fundraise in September 2016 through the conditional placing of new Ordinary Shares in the capital of the Company (“Ordinary Shares”). The Company’s accounts are available on the Company’s website at http://www.c4xdiscovery.com/investors/.
Outlook
C4X Discovery’s combination of state-of-the-art proprietary technologies, highly experienced scientific team, and industry experience uniquely positions the Company to fulfil the pharmaceutical industry’s demand for high quality early-stage drug candidates. As the Company accelerates towards its goal of becoming the world’s most productive, self-sustaining drug discovery engine, it aims to expand its commercial capabilities and continue building a portfolio of commercially attractive pre-clinical assets, in addition to progressing partnering discussions to complete at least one revenue-generating deal on the C4XD portfolio in the next 12 months. The Board is excited about the Company’s opportunities and the future of UK drug discovery.
Details of the Placing
The Company proposes to raise up to approximately £7.0 million by way of a conditional, non-pre-emptive placing of up to 8,235,294 new Ordinary Shares at the Placing Price. The Placing Shares will, pursuant to the Placing Agreement, be placed by Panmure Gordon, as agent for the Company, with institutional and other professional investors. The Directors had considered whether the Company would be able to extend the offer of new Ordinary Shares to all existing Shareholders but, having discussed this with its professional advisers, decided that the expense of doing so could not be justified and would not be in the best interests of the Company at this time.
In connection with the proposed Placing, the Company has entered into a placing agreement with Panmure Gordon (the “Placing Agreement”). The Placing Agreement contains warranties from the Company in favour of Panmure Gordon in relation to (amongst other things) the Company and its business. In addition, the Company has agreed to indemnify Panmure Gordon in relation to certain liabilities it may incur in undertaking the Placing. Panmure Gordon has the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, it may terminate in the event that there has been a breach of any of the warranties or for force majeure.
The Placing is conditional upon, inter alia, the approval of the relevant Resolutions by Shareholders at the General Meeting (further details of which are set out below), Admission of the Placing Shares occurring on or before 8.00 a.m. on 3 April 2017 (or such later date as Panmure Gordon and the Company may agree, being not later than 8.00 a.m. on 17 April 2017) and the Placing Agreement not having been terminated prior to Admission. Pursuant to the terms of the Placing Agreement, Panmure Gordon has agreed to use reasonable endeavours to procure placees for the Placing Shares.
The Placing will be effected by way of a bookbuilding process to be managed by Panmure Gordon and will be conducted in accordance with the terms and conditions set out in Appendix I. The Bookbuild will commence with immediate effect and the book is expected to close no later than 4.00 p.m. today, 14 March 2017, but Panmure Gordon reserves the right to close the book earlier, without further notice. The Company has received non-binding indications of interest from potential institutional investors for the Placing during a pre-marketing process, during which the Company received indications of interest in the Placing in excess of the original target amount of 10.0% of the Company’s existing ordinary share capital, and consequently the Company determined to increase the proposed Placing to up to 8,235,294 Placing Shares.
The Placing will be limited to the subscription of up to 8,235,294 Placing Shares, representing up to approximately 22.0 per cent. of the Company’s existing ordinary share capital. The timing of the closing of the book and allocations is at the absolute discretion of Panmure Gordon. The number of Placing Shares and the Placing Price will be agreed by the Company with Panmure Gordon at the close of the Bookbuild. Details of the number of Placing Shares and the Placing Price will be announced as soon as practicable after the close of the Bookbuild.
EIS and VCT Advance Assurance
The Company received advance assurance in May 2016 from HM Revenue and Customs that it is a qualifying company for the purposes of the Enterprise Investment Scheme (“EIS Advance Assurance”). Furthermore, the Company has applied to HM Revenue and Customs to receive advance assurance that it continues to be a qualifying company for EIS Advance Assurance and is a qualifying holding for the purposes of the Venture Capital Trust rules (“VCT Advance Assurance”). However, there can be no certainty that either VCT Advance Assurance will be granted by HM Revenue and Customs, or that the EIS Advance Assurance will be reconfirmed. Investors considering taking advantage of EIS relief or making a qualifying VCT investment are recommended to seek their own professional advice in order that they may fully understand how the relief legislation may apply in their individual circumstances. Any Shareholder who is in any doubt as to his taxation position under the EIS and VCT legislation, or who is subject to tax in a jurisdiction other than the UK, should consult an appropriate professional adviser.
Admission and dealings
The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares of the Company, including the right to receive all dividends or other distributions made, paid or declared in respect of such shares after the date of issue of the Placing Shares.
Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM and it is expected that, subject, inter alia, to the passing of the Resolutions at the General Meeting, Admission will become effective and that dealings in the Placing Shares will commence at 8.00 a.m. on or around 3 April 2017 (or such later date as Panmure Gordon and the Company may agree, being not later than 8.00 a.m. on 17 April 2017).
General Meeting
Owing to the number of Ordinary Shares that may be issued pursuant to it, implementation of the Placing requires the Company to obtain additional authorities authorising the Directors to allot Ordinary Shares for cash on a non-pre-emptive basis. A general meeting of Shareholders is to be convened for the purpose of considering the relevant resolutions (the “Resolutions”) at 10:00 a.m. on 31 March 2017 at the offices of Panmure Gordon, One New Change, London EC4M 9AF. A circular to shareholders convening the requisite general meeting is expected to be posted later today.
Action to be taken in respect of the General Meeting
Shareholders can vote in respect of their shareholdings by attending the General Meeting or by appointing one or more proxies to attend the meeting and vote on the Shareholder’s behalf. Shareholders will find enclosed with the Circular a Form of Proxy for use at the General Meeting. Whether or not Shareholders propose to attend the General Meeting in person, it is important that Shareholders complete and sign the Form of Proxy in accordance with the instructions printed thereon and return it to the Company’s Registrars as soon as possible, to arrive by not later than 10.00 a.m. on 29 March 2017. Completing and returning the Form of Proxy will not preclude Shareholders from attending the General Meeting and voting in person should they wish to do so.
Recommendation
The Directors consider that the Placing and the Resolutions are in the best interests of the Company and its Shareholders as a whole and accordingly recommend that Shareholders vote in favour of the Resolutions, as they intend to do in respect of their own legal and/or beneficial shareholdings, amounting, in aggregate, to 3,123,389 Ordinary Shares (representing approximately 8.4 per cent. of the Existing Ordinary Shares). The Company is in receipt of undertakings from Directors to vote in favour of the Resolutions representing not less than 8.4 per cent. of the Existing Ordinary Shares.
