Midatech Pharma to acquire Bioasis Technologies Inc.

Midatech Pharma

Midatech Pharma PLC (LON:MTPH.L; Nasdaq: MTP), an R&D biotechnology company focused on improving the bio-delivery and biodistribution of medicines, is pleased to announce that the Company has conditionally agreed to acquire the entire issued and to be issued share capital of Bioasis Technologies Inc. for consideration of, in aggregate, approximately C$7.4 million (c.£4.4 million). The Acquisition consideration will be satisfied by the issue of 75,884,553 new ordinary shares of 0.1 pence each in the capital of the Company, at an exchange ratio of 0.9556 Ordinary Shares for every 1 Bioasis Share.

Bioasis’ lead product is Epidermal Growth Factor, which is being developed for optic neuritis associated with multiple sclerosis (MS).  Bioasis is also developing xB3 delivery technology for various rare and orphan neurodegenerative diseases and has entered into licensing and co-development agreements with potential payments, should various performance conditions and milestones be met, totalling in excess of US$200 million plus royalties on net sales with Chiesi Farmaceutici SpA, Prothena Corporation plc and Neuramedy Co. Ltd. Bioasis also has a research agreement with Janssen Pharmaceutica NV, a Johnson & Johnson subsidiary. 

Highlights

·    Conditional agreement for Midatech to acquire Bioasis, a TSX-V traded biopharmaceutical company focused on research and development of products for the treatment of rare and orphan diseases of the nervous system.

·    Bioasis has partnerships with pharmaceutical companies with potential payments, should various performance conditions and milestones be met, totalling in excess of US$200 million and the Enlarged Group intends to focus on rare and orphan therapeutics with two clinical stage candidates initially focused on CNS diseases.

·    The Board believes that the Acquisition is a compelling strategic opportunity to advance the Company’s repurposed strategy and is expected to deliver a number of key benefits to Midatech and its shareholders, including:

o  transition from a drug delivery platform-based company to a therapeutics company;

o  a focus on rare and orphan diseases, conferring advantages such as:

– smaller, lower cost studies;

– higher in-market prices; and

– marketing exclusivity for seven years and 10 years in the US and Europe, respectively;

o  less reliance on R&D collaborations and licences with third parties;

o  improved news flow including clinical data; and

o  lower combined overheads.

·    Proposed change of name to Biodexa Pharmaceuticals PLC, reflecting the Enlarged Group’s rare disease therapeutics strategy.

·    Two-stage fundraising of US$10.0 million (c.£8.2 million) subject, inter alia, to Shareholder approval, in order to provide the Enlarged Group with additional working capital and to repay certain of Bioasis’ outstanding indebtedness.

·    Proposed a cancellation of its admission to trading on AIM and retain listing on NASDAQ 

Midatech is also pleased to announce a two-stage fundraising of, in aggregate, US$10.0 million (c.£8.2 million) gross, comprising: (i) gross proceeds of approximately US$0.4 million (c.£0.3 million) raised pursuant to a Registered Direct Offering utilising the Company’s existing share capital authorities; and (ii) gross proceeds of approximately US$9.6 million (c.£7.9 million) pursuant to a Private Placement, subject, inter alia, to Shareholder approval, in order to provide the Enlarged Group with additional working capital and to repay certain of Bioasis’ outstanding indebtedness.

Commenting, Stephen Stamp, CEO of Midatech, said:

“We are very pleased to be announcing the proposed acquisition of Bioasis, together with an associated US$10 million equity fundraising and other proposals that the Midatech board believe presents a compelling strategic opportunity aimed at delivering  significant benefits to Midatech and its shareholders.

“By combining the two groups to create Biodexa Pharmaceuticals, we have the opportunity to reposition the enlarged group as an emerging biotech company focused on the development of therapeutics for rare diseases, supported by Midatech and Bioasis’ enabling drug delivery platforms.  We continue to believe there is substantial value to be unlocked from Midatech’s MTX110, particularly in our ongoing phase I clinical trial in GBM, and to leverage our Q-Sphera technology. In combination with Bioasis’ promising development pipeline we have the opportunity to create a much stronger group and transition from a drug delivery platform-based company to a therapeutics company.

“Whilst the proposals require a complex process and a number of structural changes that will take time to complete, we strongly believe they are in shareholder’s best interests and we look forward to making further announcements in due course.”

Proposed Acquisition of Bioasis

The Company has conditionally agreed to acquire the entire issued and to be issued share capital of Bioasis, a TSX-V traded biopharmaceutical company focused on research and development of products for the treatment of rare and orphan diseases of the nervous system, for an aggregate estimated consideration of approximately C$7.4 (c.£4.4 million), based on the Exchange Ratio. The Acquisition consideration will be satisfied by the issue of, in aggregate, 75,884,553 new Ordinary Shares, equating to 0.9556 Ordinary Shares being issued for every outstanding Bioasis Share. Based middle market closing price per Ordinary Share on AIM of 5.85 pence on 12 December 2022, being the last trading day prior to this date of this announcement, this represents a price of C$0.09 for every Bioasis Share. The Acquisition will be implemented by way of a statutory Plan of Arrangement in accordance with the laws of the Province of British Columbia, Canada.

Bioasis is a corporation existing under the laws of British Columbia and its shares are traded on the TSX-V under the stock symbol “BTI”. For its financial year ended 28 February 2022, Bioasis reported losses of C$2.96 million and had net liabilities of C$1.92 million.

The Acquisition is conditional, inter alia, upon the Arrangement being approved by the Court and the Bioasis Securityholders, the Private Placement and the approval by Existing Shareholders of the Resolutions at the Company’s General Meeting, including the cancellation of admission to trading of the Ordinary Shares on AIM, expected to be held in Q1 2023.

With effect from the AIM Cancellation, Sijmen de Vries will resign as a Director of the Company and Deborah Rathjen and Mario Saltarelli will be appointed as Directors of the Company.

Fundraising

Midatech is also pleased to announce a two-stage fundraise of approximately US$10.0 million (c.£8.2 million) gross proceeds, comprising of: (i) gross proceeds of approximately US$0.4 (c.£0.3 million) raised pursuant to the Registered Direct Offering in the United States utilising the Company’s existing share capital authorities, via the issuance of 9,849,325 new Ordinary Shares at a price of approximately 3.3 pence per Ordinary Share (equivalent to 393,973 new ADSs (the “Registered ADSs”) at a price of US$1.00 per ADS); and (ii) gross proceeds of approximately US$9.6 million (c.£7.9 million) pursuant to the Private Placement, via the issuance of 14,602,050 new Ordinary Shares (equivalent to 584,082 new ADSs, the “Unregistered ADSs”); 9,021,945 pre-funded warrants to purchase 9,021,945 ADSs; 10,000,000 A Warrants to purchase up to 10,000,000 ADSs; and 10,000,000 B Warrants to purchase up to 10,000,000 ADSs.

Under the terms of the Private Placement the Company will issue Units to the Placee, at the Placing Price, comprising: (i) one new ADS (equivalent to 25 new Ordinary Shares); and (ii) approximately 1.04 A Warrants and approximately 1.04 B Warrants; or, in lieu of an ADS, if the Placee so chooses, one Pre-Funded Warrant. The Placing Price is equal to US$1.00 per Unit and US$0.999 per Pre-Funded Warrant.

The Registered Direct Offering is expected to close on or around 15 December 2022, subject to customary closing conditions. The Private Placement is conditional upon, inter alia, completion of the Acquisition, Shareholders approving the Resolutions, as well as the Bioasis Shareholders approving the Acquisition Resolutions, and granting of the Final Order. The Registered Direct Offering and Private Placement is being effected with Armistice Capital.

Midatech intends to use the net proceeds raised under the Registered Direct Offering and its existing cash resources to loan to Bioasis the sum of US$0.75 million (c.£0.61 million) to assist in the short term with Bioasis’ working capital requirements.

The net proceeds of the Private Placement will be approximately US$8.6 million (c.£7.0 million) which the Company intends to utilise to: (i) pay off a portion of the Lind Debt (as defined below); and (ii) support the Enlarged Group’s business plan.

The A Warrants and the B Warrants will become exercisable on the date that such warrants are issued and will each be exercisable at an exercise price of US$1.00 per ADS.  The A Warrants will expire one year from the date that such warrants are issued and may be exercised on a cashless basis if six months after issuance there is no effective registration statement registering the Ordinary Shares (in the form of ADSs) to be issued in connection with the A Warrants. The B Warrants will expire six years from the date that such warrants are granted and may be exercised on a cashless basis if six months after issuance there is no effective registration statement registering the Ordinary Shares (in the form of ADSs) to be issued in connection with the B Warrants. The Pre-Funded Warrants will become exercisable on the date that the Pre-Funded Warrants are issued and will be exercisable at an exercise price of US$0.001 per ADS. Each Pre-Funded Warrant will be exercisable into 25 new Ordinary Shares (or one ADSs). The Pre-Funded Warrants shall remain exercisable until exercised in full and may be exercised on a cashless basis.

The Placee may not exercise the Placing Warrants and/or the Pre-Funded Warrants if the Placee, together with its affiliates or any person with whom it is acting in concert under the Takeover Code, would beneficially own more than 9.99% of the number of Ordinary Shares outstanding immediately after giving effect to such exercise. Furthermore, the Placee will be subject to certain restrictions pursuant to the Securities Purchase Agreement in relation to the number of Ordinary Shares (as represented by ADSs) meaning that the Placee, together with any affiliates or any person with whom it is acting in concert under the Takeover Code, cannot hold directly or indirectly in excess of 29.9% of the number of Ordinary Shares outstanding at any time.

Pursuant to the terms of the Securities Purchase Agreement, until the 18 month anniversary of Completion, upon any issuance by the Company or any of its subsidiaries of Ordinary Shares or Ordinary Share equivalents, for cash consideration, indebtedness, or a combination of units thereof, the Placee will have the right to participate in up to an amount of the Subsequent Financing equal to 25% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing, subject to certain exceptions.

Ladenburg Thalmann & Co. Inc. is acting as the exclusive placement agent for the Registered Direct Offering and the Private Placement.

The Registered ADSs described above (but not the Unregistered ADSs, Warrants or the ADSs underlying the Warrants) are being offered pursuant to a shelf registration statement (File No.  333-267932) which became effective on 26 October 2022.  The Registered ADSs may be offered only by means of a prospectus supplement that forms a part of the effective registration statement.  A prospectus supplement and the accompanying prospectus relating to the Registered Direct Offering will be filed with the SEC.  Electronic copies of the prospectus supplement and the accompanying prospectus may be obtained, when available, from the SEC’s website at http://www.sec.gov or from Ladenburg Thalmann & Co. Inc., at Attn: Prospectus Department, 640 Fifth Avenue, 4th Floor, New York, NY 10019 or by e-mail at prospectus@ladenburg.com.

Pursuant to a registration rights agreement with the Placee, the Company has agreed to file one or more registration statements with the SEC covering the resale of the securities sold in the Private Placement.

Subject to, inter alia, shareholder approval, the Company will also issue 20,630,531 new Ordinary Shares to Lind in consideration of the repayment of certain of the Lind indebtedness pursuant to the Bioasis Convertible Security Agreement, and 27,863,856 new Ordinary Shares to Ladenburg in consideration for fees of US$2 million owed by Bioasis to Ladenburg pursuant to the Bioasis Investment Banking Agreement.

Following completion of the Acquisition and the Private Placement, the interests of the Bioasis Shareholders, the Placee and Lind in the securities of the Company are set out in the table below:

Ordinary SharesUndiluted percentage of Enlarged Issued Share Capital following CompletionPre-Funded Warrants (over Ordinary Shares)Existing Warrants, A Warrants, B Warrants, Placement Agent Warrants, Ladenburg Fee Warrants (over Ordinary Shares)Maximum number of Cresence Shares that may be issued pursuant to the Cresence Amendment AgreementExisting Options / New OptionsFully Diluted
In issue at the date of the Announcement98,493,41339.8%17,226,0533,007,197 (Existing Options)118,726,66313.1%
Ordinary Shares issued pursuant to the Registered Direct Offering9,849,3254%9,849,3251.1%
In issue following Registered Direct Offering 108,342,73843.8%17,226,0533,007,197 (Existing Options) 128,575,98814.1%
Bioasis Securityholders holdings following Completion 75,884,55330.7% 21,285,4978,481,459  (New Options) 105,651,50911.6%
Cresence Founders5,733,337 5,733,3370.6%
Lind holdings following Completion 20,630,5318.3% 41,261,062 61,891,5936.8%
Placee holdings following Completion 14,602,0505.9%225,548,625 500,000,000 514,602,05056.6%
Ladenburg holdings following Completion 27,863,85611.3% 65,333,739 93,197,59510.2%
TOTAL FOLLOWING COMPLETION247,323,728100%225,548,625 645,106,3525,733,33711,488,656 909,652,073100.0%

* The Placee may not exercise the Placing Warrants if the Placee, together with its affiliates, would beneficially own more than 9.99% of the number of Ordinary Shares outstanding immediately after giving effect to such exercise.

Current Financial Position

The Company’s cash balance as at 30 June 2022 was approximately £6.4 million which was expected to be sufficient to fund operations into the first quarter of 2023. Midatech’s current cash balance is approximately £3.6 million. Following the Company’s receipt of the net proceeds from the Registered Direct Offering and Midatech’s issue of the loan to Bioasis, Midatech expects its cash resources to remain sufficient to fund operations, in the event that the Acquisition does not proceed, to mid-March 2023.

Accordingly, should the Private Placement not be completed, the Company would need to seek urgently alternative sources of funding. There can be no guarantee that the Company will be able to find alternative sources of potential funding, which may or may not be on similar commercial terms, and may not be obtainable on a timely basis, or at all. If the Private Placement does not proceed, it is likely that the Company would be unable to continue to develop and commercialise any of its assets and may not be able to continue as a going concern. If any alternative sources of potential funding are not available, the Directors believe that it is likely that the Company would be forced to enter into administration processes shortly after the forthcoming General Meeting.

ACCORDINGLY, EXISTING SHAREHOLDERS ARE ENCOURAGED TO VOTE IN FAVOUR OF THE PROPOSALS AS THE BOARD INTEND TO DO IN RESPECT OF THEIR SHAREHOLDINGS AT THE TIME OF THE GENERAL MEETING.

Loan to Bioasis

As stated above, Midatech intends to use the net proceeds raised under the Registered Direct Offering and its existing cash resources to loan US$0.75 million (the “Loan Amount”) pursuant to the terms of the Bioasis Promissory Note, to assist in the short term with Bioasis’ working capital requirements. Pursuant to the terms of the Bioasis Promissory Note, Bioasis will pay the Company the Loan Amount on the earliest of (each, as applicable, the “Bioasis Maturity Date”) (a) the occurrence of an Event of Default (as defined in the Bioasis Promissory Note); (b) Completion; and (c) 30 June 2023. Interest is payable on the Loan Amount (including any overdue interest) at a rate of 2.00% per month or, from and after the Bioasis Maturity Date, at a default rate of 15.00% per annum.

Proposed cancellation of admission to trading on AIM

The Board has decided to propose the AIM Cancellation for the following reasons:

•    an increasingly smaller proportion of the trading in the Company’s Ordinary Shares is being conducted on AIM compared to NASDAQ and a continuation of the decline in this proportion would be likely to lead to a decrease in the liquidity of the Ordinary Shares trading on AIM;

•    the AIM Cancellation is expected to further enhance the liquidity of trading in the Company’s securities by combining on a single trading facility, NASDAQ, the volume of existing transactions from both NASDAQ and AIM;

•    a NASDAQ-only listing structure provides for a streamlined operation that showcases the global nature of the Company and places it more clearly within the ranks of international therapeutics companies that are its true peers;

•    the cost of complying with the AIM Rules for Companies and maintaining a quotation on AIM is duplicative of that for complying with the NASDAQ Rules and the Company sees advantages in terms of reducing its cost base as it progresses its clinical programmes and commercial strategy;

•    internal financial and legal staff’s time spent on compliance with the AIM Rules for Companies is duplicative of that required for compliance with the NASDAQ Rules; and

•    ADSs representing the Company’s Ordinary Shares will still be tradeable on NASDAQ.

Accordingly, in order to save costs and concentrate trading volume on a single market, the Directors believe that it is no longer in the best interests of the Company or its Shareholders as a whole for the Company to retain admission of its Ordinary Shares to trading on AIM and the AIM Cancellation will therefore be proposed as a special resolution at the General Meeting.

As at 12 December 2022, being the latest practicable date prior to the date of this announcement, approximately 44% of Company’s Existing Ordinary Shares were represented by ADSs tradeable on NASDAQ. Following Completion, approximately 80% of the Company’s Enlarged Share Capital would be represented by ADSs. Historically, trading volumes of ADSs on NASDAQ have been higher than equivalent trading volumes on AIM. All Shareholders who have not already deposited their Ordinary Shares for delivery of ADSs are currently able to do so at any time.

In order to facilitate the transition to a sole listing on NASDAQ, the Company is providing an opportunity for Shareholders to deposit their Ordinary Shares with the Depositary Bank in exchange for delivery of ADSs prior to the AIM Cancellation becoming effective.

The ADSs will continue to be traded on NASDAQ and the Company has no intention to cancel the listing of its ADSs on the NASDAQ.

Proposed change of name

To reflect the business of the Enlarged Group, the Board is proposing to change the name of the Company to Biodexa Pharmaceuticals PLC, which will be put forward as a special resolution at the forthcoming General Meeting.

Letters of intent

The Company has received letters of intent from certain Existing Shareholders (including CMS Medical Venture Investment (HK) Limited and A&B (HK) Company Limited) to vote in favour of the Resolutions in respect of a total 17,926,169 Ordinary Shares representing, in aggregate, approximately 18.2% of the Ordinary Shares in issue on 12 December 2022 (being the latest practicable date prior to this announcement).

General Meeting

Due to the certain timings for the Acquisition as prescribed by Canadian laws, a circular and a notice convening the General Meeting is expected to be published by the Company in the next two to three weeks. The General Meeting is expected to be held no later than 28 February 2023. The Company will seek authority from Shareholders, inter alia, to: (i) allot the Transaction Shares and the Warrant Shares that will be issuable upon exercise of the New Warrants; (ii) cancel the admission to trading on AIM of the Ordinary Shares; (iii) change the Company’s name to Biodexa Pharmaceuticals PLC; and (iv) to adopt the New Articles.

Expected timetable of principal events

Expected date that the Interim Order of the Supreme Court of British Columbia in connection with the Plan of Arrangement will be obtainedNo later than 13 January 2023
Expected date for publication and posting of the Circular and related materials to ShareholdersEarly-January 2023 and in any event no later than 3 February 2023
Expected date for publication and posting of the Bioasis Circular and related materials to Bioasis SecurityholdersEarly-January 2023 and in any event no later than 3 February 2023
Expected date of General MeetingNo later than 28 February 2023
Expected date of Bioasis Special MeetingNo later than 28 February 2023

Admission and total voting rights

Application will be made for the admission of the 9,849,325 new Ordinary Shares, being issued pursuant to the Registered Direct Offering, to trading on the AIM market of the London Stock Exchange plc, which is expected to become effective and trading commence at 8.00 a.m. on or around 19 December 2022. The new Ordinary Shares will rank pari passu with the existing Ordinary Shares.

The Company’s enlarged issued share capital following Admission will comprise 247,323,728 Ordinary Shares each with voting rights. Midatech Pharma does not hold any shares in treasury. This figure of 247,323,728 may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company under the FCA’s Disclosure Guidance and Transparency Rules.

Additional information

Further information of the proposal is set out in the appendix to this announcement, and will be included in the Circular convening the General Meeting to be sent to Shareholders in due course.

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