Proposed Placing and Subscription to raise up to £9 million and Notice of General Meeting

Avacta is pleased to announce a proposed Placing and Subscription (together the “Fundraising“) to raise gross proceeds of up to £9 million through the issuance of up to 59,777,013 new ordinary shares (“Ordinary Shares”) at a price of 15 pence per share. The Fundraising comprises of up to 59,577,013 placing shares (the “Placing Shares”) and 200,000 subscription shares (the “Subscription Shares”). Admission of both the Placing Shares and the Subscription Shares is subject to, amongst other things, shareholder approval at the general meeting (“General Meeting”), notice of which will be sent to shareholders shortly.

finnCap is acting as nominated adviser and joint broker, alongside WG Partners and Turner Pope who will also be acting as joint brokers in connection with the Placing (together the “Joint Brokers“). Neither the Placing or Subscription is to be underwritten.

INTRODUCTION

The Company today announced the proposed Fundraising comprising the Placing and the Subscription to raise up to £9 million for the Company (before expenses) to help to deliver the next key value inflection points, being:

  • the phase 1 clinical trial of AVA6000 pro-doxorubicin;
  • continuing to advance Affirmer immunotherapy pipeline with partners; and
  • delivering further commercial progress for therapeutics and diagnostics.

On 19 July 2019, the Company obtained advance assurance from HMRC that a subscription for New Ordinary Shares was capable of qualifying for EIS tax reliefs. Further details as regards EIS relief are set out in paragraph 10 below.

The Issue Price is at a discount of approximately 11.8 per cent to the closing price of the Ordinary Shares on AIM to 17 October 2019, being 17 pence per Ordinary Share.

The Fundraising is, amongst other things, subject to Shareholder approval, which will be proposed at the General Meeting.
BACKGROUND ON THE COMPANY

Avacta is developing novel cancer immunotherapies combining its two proprietary platforms – Affimer® biotherapeutics and tumour targeted chemotherapy. With this approach, the Company aims to address the lack of a durable response to current immunotherapies experienced by most patients. The Company is also generating near-term revenues from Affimer® reagents for diagnostics, bioprocessing and research, through a separate business unit.

The Affimer® platform is an alternative to antibodies derived from a small human protein. Affimer® technology has been designed to address many of the negative performance issues of antibodies, principally: the time taken, and the reliance on an animal’s immune response, to generate new antibodies; poor specificity in many cases; large size and cost. The Board believes that the Affimer® technology has significant commercial and technical benefits that provide major competitive advantages in both drug development and diagnostics.

Avacta’s lead targeted chemotherapy programme, AVA6000 Pro-doxorubicin, is seeking to address the significant toxicity of a well established cancer drug, Doxorubicin, which limits the duration of dosing and eligible patient population. Doxorubicin has been the standard of care treatment for over 40 years for patients with advanced soft tissue sarcomas (“ASTS”). However, patients are taken off the treatment due to irreversible heart failure once the cumulative dose reaches 450 mg/m2, even if they are experiencing clinical benefit. As a result, median progression free survival for ASTS patients is approximately six months, with median overall survival of 12 to 15 months. This severe cardiotoxicity limits the size of the Doxorubicin market, but it is still nearly $1bn. AVA6000 Pro-doxorubicin is inert when given to the patient until activated in the tumour by an enzyme called fibroblast activation protein (“FAP”). This tumour-targeted activation reduces the exposure of the heart and other healthy tissues to the active chemotherapy drug and concentrates the active drug in the tumour. The improved safety and efficacy of AVA6000 compared with standard Doxorubicin has been demonstrated in mouse models of cancer. Avacta is looking to initiate phase I clinical trials in patients with soft tissue sarcomas with AVA6000 Pro-doxorubicin in mid-2020.

The growing in vitro and in vivo Affimer® therapeutics data packages are improving the potential for substantial deal-making. The Group has established a significant drug development partnership with LG Chem Life Sciences (“LG Chem”), part of the South Korean LG Group, to develop Affimer® therapeutics in several disease areas. Following a research collaboration with Moderna Therapetuics Inc. (“Moderna”), the two companies also entered into an exclusive licensing agreement with respect to certain Affimer® proteins against a potential therapeutic target. Moderna was granted exclusive access to Avacta’s Affimer® technology for certain collaboration targets and the option to enter into exclusive licence agreements on pre-agreed terms to further research, develop and commercialise Affimers® selected by Moderna. Most recently Avacta has entered into a collaboration and licence option agreement with ADC Therapeutics SA (“ADC Therapeutics”) to combine Affimer® proteins that bind to certain cancer biomarkers with ADC Therapeutics’ PBD warheads in Affimer® drug conjugates. Each of these collaborations and commercial agreements is fully funded by the partner.

The Avacta reagents business unit works with partners world-wide to develop Affimer® proteins for evaluation by those third parties with the objective of establishing royalty bearing license deals with a particular focus on the diagnostics sector. The Company is also developing a small in-house pipeline of Affimer®-based diagnostic tests for licensing. The Group has made good progress in establishing a revenue stream based on the non-therapeutic applications of Affimer® technology and is aiming to establish a significant number of license and supply deals for Affimer® reagents as quickly as possible that could generate recurring royalty-based revenue such as the deal announced recently with New England Biolabs.

 

CURRENT TRADING AND OUTLOOK

Recently the Company entered a collaboration and option agreement with ADC Therapeutics SA, a clinical-stage oncology-focused biotechnology company pioneering the development of highly potent and targeted antibody-drug conjugates for patients suffering from haematological malignancies and solid tumours. Under the terms of the agreement, ADC Therapeutics will cover all Avacta’s costs during the collaboration. Upon ADC Therapeutics entering into each of the commercialisation licences and successfully bringing new Affimer® drug conjugates to market, Avacta will receive option fees, development and commercialisation milestones, as well as a single-digit royalty on sales.

 

AVA6000

Avacta expects to file an IND/CTA application by the end of 1Q2020, to dose first patients with AVA6000 Pro-doxorubicin by the end of 2Q2020 with initial read-out expected in 3Q/4Q2020. A positive outcome to this phase I study would require only an improved safety profile compared with standard Doxorubicin since the efficacy of this existing chemotherapy is well known. Positive data could lead to a significant licensing opportunity for AVA6000 with companies currently marketing existing Doxorubicin products or with companies that are currently carrying out clinical studies combining Doxorubicin with their checkpoint inhibitors. A successful outcome to the study would also open the potential to using the FAP targeting technology developed at Tufts University and exclusively licensed by Avacta to improve the safety profile of many other chemotherapies.

 

AVA004

The Group has remained on track to enter the clinic for first-time-in-human trials of the Affimer® platform in 2020 and has selected a specific Affimer® molecule (AVA004-251Fc) as its clinical candidate because of its excellent in vitro and in vivo pharmacological properties. This Affimer® has been shown to have equivalent tumour growth inhibition to three approved monoclonal antibody inhibitors of PD-L1 (Tecentriq, Imfinzi and Bavencio) in several in vivo animal efficacy models. The Group is now close to completing cell line development, the first stage in the manufacturing process, with its partner Selexis. The next step of GMP manufacturing of AVA004-251 with a partner that has been identified and is expected to cost the Group approximately £5 million and therefore, following completion of the Fundraising, this will be paused whilst the Group focuses on the nearest major value inflection point of delivering phase I data for AVA6000.

 

Research and Diagnostics Reagents

The combined revenue plus order intake figure for the research and diagnostics business unit for the 12 months ending 31 July 2019 of £1.2 million shows strong growth of 130 per cent. compared with previous 12 months and the Board believes that this provides a solid platform to deliver on full year revenues.

There is a pipeline of ongoing paid-for technology evaluations and custom Affimer® services projects with global commercial partners:

  • 7 diagnostics evaluations including 4 with top ten global in vitro diagnostic companies, all of which could lead to licensing deals;
  • 14 projects with pharma and biotech companies including 4 out of the top 10 largest pharmaceutical companies; and
  • 2 evaluations with bioprocessing companies, one being a global leader in affinity purification, and both with the potential to deliver licensing deals.

Having identified the diagnostics market as the main area of opportunity for Affimer® reagents, the Group will now focus its resources on business development and research activities in this market, and continue to develop a small pipeline of Affimer® based diagnostic tests for licensing. This focus on the diagnostics market will also enable the Company to reduce the cost base associated with its research and diagnostics reagents activities but with the objective of maintaining good revenue growth.

The Company confirms that following the Fundraising it has sufficient working capital in place for at least the next 12 months.

 

REASONS FOR THE FUNDRAISING AND USE OF PROCEEDS

The Fundraising will raise up to £9 million (before expenses). As referred to above, the Company intends to utilise the net proceeds of the Fundraising to enter the clinic with its first programme, to secure further significant drug development partnerships that help progress the Company’s technology platforms, and to continue to grow revenues and secure licensing partnerships for Affimer® diagnostics reagents.

It is proposed that approximately £6.5 million of the proceeds will be:

  • deployed into generating phase I data for AVA6000 pro-doxorubicin; and
  • used to continue business development activities to generate additional therapeutic partnerships and licensing agreements.

The Company will continue its collaborations and commercial partnerships with LG Chem and ADC Therapeutics that are fully paid for by the partners.

In addition, the balance of proceeds will be invested:

  • to continue to grow the custom Affimer® reagents revenue stream with a strong focus on diagnostics; and
  • to continue to develop a small pipeline of Affimer® based diagnostic tests for licensing.

DIRECTORS’ PARTICIPATION

The Directors will invest a total of £15,000 in the Fundraising as follows:

Alastair Smith, CEO, has agreed to subscribe for 33,334 Subscription Shares at the Issue Price for a total of £5,000. His resultant holding will be 679,643 Ordinary Shares representing approximately 0.39 per cent of the Enlarged Share Capital as set out below.

Eliot Forster, Chairman, has agreed to subscribe for 33,333 Subscription Shares at the Issue Price for a total of £5,000. His resultant holding will be 153,333 Ordinary Shares representing approximately 0.09 per cent of the Enlarged Share Capital as set out below.

Trevor Nicholls, Non-Executive Director, has agreed to subscribe for 33,333 Subscription Shares the Issue Price for a total of £5,000. His resultant holding will be 108,333 Ordinary Shares representing approximately 0.06 per cent of the Enlarged Share Capital as set out below.

The participating Directors’ interests as at the date of this announcement and immediately following completion of the Fundraising are as follows:

Name

Existing beneficial interest in Ordinary Shares

Shares subscribed for

Interest in Enlarged Share Capital

% of Enlarged Share Capital

Alastair Smith*

646,309

33,334

679,643

0.39%

Eliot Forster

120,000

33,333

153,333

0.09%

Trevor Nicholls

75,000

33,333

108,333

0.06%

*In addition, Alastair Smith has a joint interest in 1,640,000 Ordinary Shares. Such Ordinary Shares are jointly held by Mr Smith individually and Avacta Group Trustee Limited in its capacity as trustee of The Avacta Employees’ Share Trust. The precise nature of the joint interest is described within Joint Share Ownership Agreements between Alastair Smith (dated 9 January 2012 and 15 February 2016) and Avacta Group Trustee Limited and Avacta Group Plc.

RELATED PARTY TRANSACTIONS

The participation of Alastair Smith, Eliot Forster and Trevor Nicholls in the Fundraising is deemed a related party transaction pursuant to the AIM Rules. The Independent Directors consider, having consulted with the Company’s nominated adviser, finnCap, that the terms of such Directors’ participation in the Fundraising is fair and reasonable insofar as the Shareholders are concerned.

The participation of IP Group and JO Hambro in the Placing are deemed related party transactions pursuant to the AIM Rules. The Independent Directors consider, having consulted with the Company’s nominated adviser, finnCap, that the terms of IP Group’s and JO Hambro’s participation in the Placing is fair and reasonable insofar as the Shareholders are concerned.

THE PLACING AND THE PLACING AGREEMENT

The Company has raised up to £9 million (before expenses) through the Placing, conditional on (inter alia) First Admission and Second Admission, at the Issue Price. The Issue Price represents a discount of approximately 11.8 per cent to the closing price of the Ordinary Shares on AIM to 17 October 2019, being 17 pence per share.

First Admission is conditional, inter alia, on:

  • the relevant conditions in the Placing Agreement being satisfied or (if applicable) waived and the Placing Agreement not having been terminated in accordance with its terms prior to First Admission;
  • the passing of Resolution 1;
  • the Subscription Letters having been duly executed by all parties thereto; and
  • First Admission becoming effective by no later than 8.00 a.m. on 5 November 2019 (or such later time and/or date as the Company and the Joint Brokers may agree, not being later than 8.00 a.m. on 19 November 2019).

Second Admission is conditional, inter alia, on:

  • the relevant conditions in the Placing Agreement being satisfied or (if applicable) waived and the Placing Agreement not having been terminated in accordance with its terms prior to Second Admission;
  • First Admission becoming effective; and
  • Second Admission becoming effective by no later than 8.00 a.m. on 6 November 2019 (or such later time and/or date as the Company and the Joint Brokers may agree, not being later than 8.00 a.m. on 19 November 2019).

First and Second Admission are structured as two separate admissions to seek to enable certain investors in the Company to potentially be able to benefit from EIS/VCT tax reliefs.

It is expected that dealings in the First Placing Shares will commence at 8:00 a.m. on 5 November 2019, or in any case, by such later time and/or date as the Company and the Joint Brokers may agree, being not later than 8:00 a.m. on 19 November 2019 (the “Long Stop Date”).

It is expected that dealings in the Second Placing Shares will commence at 8:00 a.m. on 6 November 2019, or in any case, by such later time and/or sate as the Company and the Joint Broker may agree, being not later than the Long Stop Date.

In connection with the Fundraising, the Company has entered into the Placing Agreement pursuant to which the Joint Brokers have each agreed, in accordance with its terms, to use their respective reasonable endeavours to procure subscribers for the Placing Shares at the Issue Price.

The Placing Agreement contains customary undertakings and warranties given by the Company to the Joint Brokers including as to the accuracy of information contained in this announcement, to matters relating to the Group and its business and a customary indemnity given by the Company to the Joint Brokers in respect of liabilities arising out of or in connection with the Fundraising. Each of finnCap and WG Partners may, in its absolute discretion, terminate the Placing Agreement in certain circumstances including, among other things, following a material breach of the Placing Agreement by the Company or the occurrence of certain force majeure events.

The New Ordinary Shares will be issued credited as fully paid and will rank in full for all dividends and other distributions declared, made or paid after each of First Admission or Second Admission (as applicable) and will otherwise rank on each of First Admission or Second Admission (as applicable) pari passu in all respects with the Ordinary Shares then in issue. The New Ordinary Shares are not being made available to the public and are not being offered or sold in any jurisdiction where it would be unlawful to do so.

The Fundraising is not underwritten (in whole or in part).

 

THE SUBSCRIPTIONS

Pursuant to the Subscription Letters, the Subscribers have conditionally agreed to subscribe for the Subscription Shares at the Issue Price, raising approximately £30,000 in aggregate.

The Subscriptions are conditional upon (i) the Placing Agreement not being terminated in accordance with its terms and (ii) First Admission becoming effective and Second Admission taking place at 8:00 a.m. on 6 November 2019 or such later time and/or date (being not later than the Long Stop Date) as the Company and the Joint Brokers may agree.

 

GENERAL MEETING

A notice of the General Meeting will today be sent to Shareholders convening the General Meeting to be held at the offices of Walker Morris LLP at 33 Wellington Street, Leeds LS1 4DL at 10:00 a.m. on 4 November 2019.

The Directors believe the Fundraising to be the most appropriate way to provide the capital necessary to meet the Company’s future requirements. Should the Fundraising not proceed for any reason, the Company would need to find alternative funding or else face future uncertainty. The Directors urge Shareholders to vote in favour of Resolution 1, detailed in the Circular.

 

ADMISSION, DEALINGS AND SETTLEMENT ON AIM

The New Ordinary Shares will be allotted and issued fully paid and will, on issue, rank pari passu with the Ordinary Shares then in issue, including the right to receive, in full, all dividends and other distributions thereafter declared, made or paid after the date of issue together with all rights attaching to them and free from all liens, charges and encumbrances of any kind.

Applications will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM and it is expected that First Admission will become effective and trading in the First Placing Shares will commence at 8.00 a.m. on 5 November 2019 and that Second Admission will become effective and trading in the Second Placing Shares and the Subscription Shares will commence at 8:00 a.m. on 6 November 2019.