Announcement PDF RNS Number : 9508L Genedrive PLC 05 May 2020 The information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this Announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, NEW ZEALAND, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. THIS ANNOUNCEMENT (INCLUDING THE APPENDIX) DOES NOT CONSTITUTE AN OFFER TO BUY, ACQUIRE OR SUBSCRIBE FOR (OR THE SOLICITATION OF AN OFFER TO BUY, ACQUIRE OR SUBSCRIBE FOR) ORDINARY SHARES TO ANY PERSON WITH A REGISTERED ADDRESS IN, LOCATED IN, OR WHO IS A RESIDENT OF, THE UNITED STATES, AUSTRALIA, NEW ZEALAND, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR IN ANY OTHER JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL OR CONTRAVENE ANY REGISTRATION OR QUALIFICATION REQUIREMENTS UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. 5 May 2020 genedrive plc ("genedrive" or the "Company") Proposed Placing to raise £7 million, Proposed Broker Option to raise up to £1 million genedrive plc (AIM: GDR), the near patient molecular diagnostics company, today announces its intention to raise £7 million, before expenses, by way of a conditional placing (the "Placing") with existing and new institutional investors through the issue of 8,750,000 new ordinary shares ("Placing Shares") at a price of 80 pence per Placing Share (the "Placing Price"). The Company also announces a proposal to raise up to a further £1 million by way of a broker option through the issue of up to 1,250,000 additional new Ordinary Shares (the "Broker Option Shares" and, together with the Placing Shares, the "New Ordinary Shares") at the Placing Price in order to enable smaller shareholders in the Company and other retail and institutional investors to participate in the Fundraising (the "Broker Option" and, together with the Placing, the "Fundraising"). The net proceeds of the Fundraising will support the rapid development of the Genedrive® SARS-CoV-2 assays, fund the scale-up of the Genedrive-96-SARS-CoV-2 test including build-up of inventory for an initial period, fund product development, commercialisation and general corporate purposes. The Placing Price of 80 pence per New Ordinary Share equates to a 60 per cent. discount to the mid-market closing price of an Ordinary Shares on 4 May 2020, the last practicable date prior to the date of the Announcement, and a 1.8 per cent. discount to the 20 day volume weighted average price ending on 4 May 2020. On 24 March 2020 the Company's share price closed at 9p and on the following day the Company issued a business update confirming that it was developing two SARS-CoV-2 tests. genedrive's share price rose on the day of this announcement, closed at 29.5p and has performed very strongly since. The Directors believe this share price performance has been driven by increased investor interest in companies with potential diagnostic and therapeutic solutions to the COVID-19 crisis. The Company's share price rose further following the Company's announcements on 20 April 2020 (confirming it had entered into an agreement with Cytiva for the development of the Genedrive® 96 SARSCoV-2 assay for use on lab-based PCR instruments) and the announcement on 1 May 2020 (confirming it has completed the last significant manufacturing milestone in the codevelopment of the Genedrive® 96 SARS-CoV-2 kit with Cytiva). The price of an Ordinary Share at the close of business on 27 April 2020, the day before the Company started the roadshow with potential investors for the Fundraising, was 88p. The Company's share price closed at 198p on 4 May 2020, the last practicable date prior to the date of this Announcement. The Company has recently received advance assurance from HMRC that the Ordinary Shares in the Company represent a qualifying investment for a VCT and are capable of qualifying for EIS tax reliefs. Accordingly around £5 million of the Placing Shares and Broker Option Shares (together the "New Ordinary Shares") are expected to rank as "eligible shares" and will be capable of being a "qualifying holding" for the purposes of investment by VCTs, and that the Company can issue EIS 3 "compliance certificates" for the purpose of EIS. Certain of the Directors and an employee considered a PDMR have indicated an intention to place orders for, in aggregate, Placing Shares with an aggregate value of £20,000 via the Placing and certain of the Directors have indicated an intention to place orders to subscribe for, in aggregate, Broker Option Shares with an aggregate value of up to £40,000 via the Broker Option. The Fundraising will be conditional (amongst other things) on the passing of resolutions to grant authority to the Directors to allot the New Ordinary Shares and to disapply statutory pre-emption rights (the "Resolutions") at a General Meeting. A circular containing a notice convening the General Meeting will be posted to Shareholders in due course. Peel Hunt LLP ("Peel Hunt") and finnCap Ltd ("finnCap") are acting as joint bookrunners (together, the "Bookrunners") in respect of the Placing and Broker Option. Neither the Placing nor the Broker Option have been underwritten. The person responsible for the release of this Announcement on behalf of genedrive plc is Matthew Fowler, Chief Financial Officer. genedrive plc David Budd: CEO / Matthew Fowler: CFO +44 (0)161 989 0245 Peel Hunt LLP (Nominated Adviser, Joint Bookrunner and Joint Broker) James Steel / Oliver Jackson / Jock Maxwell Macdonald +44 (0)20 7418 8900 finnCap (Joint Bookrunner and Joint Broker) Geoff Nash / Kate Bannatyne / Alice Lane +44 (0)20 7220 0500 Walbrook PR Ltd (Media & Investor Relations) Paul McManus / Anna Dunphy +44 (0)20 7933 8780 or genedrive@walbrookpr.com +44 (0)7980 541 893 / +44 (0)7876 741 001 About genedrive plc (http://www.genedriveplc.com) genedrive plc is a molecular diagnostics company developing and commercialising a low cost, rapid, versatile, simple to use and robust point of need molecular diagnostics platform for the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications. The Genedrive® mt-RNR1-ID kit has received CE-IVD Certification and will be launched into Europe and other markets following full evaluation by the UK National Health Service. The Company has assays on market for the detection of HCV, certain military biological targets, and has tests in development for tuberculosis (mTB). The company recently announced the development of the high throughput SARS-CoV-2 assay, based on Genedrive PCR chemistry. Important notice This Announcement may not be published, distributed or transmitted by any means or media, directly or indirectly, in whole or in part, in or into the United States (including its territories and possessions, any State of the United States and the District of Columbia) or any other jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction. This Announcement does not constitute or form a part of any offer to sell, or a solicitation of an offer to buy or subscribe for, securities in the United States. The New Ordinary Shares have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"). The New Ordinary Shares have not been and will not be offered or sold within the United States absent registration under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements under the Securities Act. There is no intention to register the New Ordinary Shares mentioned herein in the United States or to make a public offering of such securities in the United States. Peel Hunt and finnCap, which are authorised and regulated in the United Kingdom by the Financial Conduct Authority ("FCA"), are acting exclusively for the Company and for no‐ one else in relation to the proposed Fundraising (as defined below), and will not be responsible to any other person for providing the protections afforded to their respective clients nor for providing advice in connection with the matters contained in this Announcement. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Peel Hunt or finnCap nor by any of their affiliates or agents (or any of their respective directors, officers, employees or advisers), as to or in relation to, the contents, accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, or any other statement made or purported to be made by or on behalf of Peel Hunt or finnCap. Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "MiFID II Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the New Ordinary Shares have been subject to a product approval process, which has determined that the New Ordinary Shares are: (i) compatible with an end target market of (a) retail investors, (b) investors who meet the criteria of professional clients and (c) eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, distributors should note that: the price of the New Ordinary Shares may decline and investors could lose all or part of their investment; the New Ordinary Shares offer no guaranteed income and no capital protection; and an investment in the New Ordinary Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Placing. Furthermore, it is noted that, notwithstanding the Target Market Assessment, Peel Hunt and finnCap will only procure investors who meet the criteria of professional clients and eligible counterparties. For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the New Ordinary Shares. Each distributor is responsible for undertaking its own target market assessment in respect of the New Ordinary Shares and determining appropriate distribution channels. Certain statements in this Announcement may be forward-looking. Although the Company believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance or guarantee that these expectations will prove to have been correct because these statements involve risks and uncertainties and other important factors beyond the Company's control that could cause the actual results, performance or achievements of the Group to be materially different from future results, performance or achievements expressed or implied by such forward looking statements. 1. Background to and reasons for the Fundraising Background genedrive is a rapidly developing commercial-stage molecular diagnostics business, which develops highly accurate molecular diagnostic assays for use on its Genedrive® point-of-need molecular diagnostic gene reader instrument. genedrive has three tests on market or close to launch: · Genedrive® HCV ID assay, which is the first approved decentralised hepatitis C (HCV) test on market designed to diagnose if people should be treated with new life saving Direct-Antiviral Treatment; · an Antibiotic-Induced Hearing Loss assay, which screens children for a genetic defect causing life-long deafness from certain antibiotics; and · a portable field-deployed bio-warfare testing system developed for the US Department of Defense. As announced on 25 March 2020, following the rapid global shift of healthcare emphasis towards testing and treatment of COVID-19, the Company refocused a significant part of its core resources towards development of two SARS-CoV-2 tests to detect people with active COVID-19 infections. The first test, which is circa three weeks from market, is a high throughput laboratory test and the second test, expected to be launched circa December 2020, is a point-of-care test that would run on a Genedrive® instrument. The Directors believe that the Company's skill set is also relevant for developing high throughput laboratory based tests and that the Company will be able to leverage its strong development, manufacturing and commercial relationships in its SARS-CoV-2 tests. The Company is expecting to make use of its existing distributor relationships as well as new distributors and some direct sales in accessing the markets for SARs-COV-2 testing. The Company also has a tuberculosis test in development expected to be launched in 2022. In the announcement issued on 25 March 2020 the Company also confirmed that, based on an assumption of it delivering circa £1.0m in revenues to 30 June 2020, the Company had a cash runway, at that time, of 6-9 months. This excludes any funding or additional revenues from HCV, AIHL and the SARS-COV-2 assays, but does assume genedrive utilises various UK Government support packages. To date the Company has not received funds from any UK Government lending package but has placed certain staff on furlough and has submitted a claim under the Governments Coronavirus Job Retention Scheme. The Company estimates that, excluding any net proceeds of the Fundraising (and on the same product revenue assumptions set out in the announcement of 25 March 2020), it has a cash runway of around five to seven months as at the date of this Announcement. 2. The Market COVID-19 diagnostics market COVID-19, caused by infection with SARS-CoV-2, has emerged as a significant global threat and, in the absence of a vaccine, this is placing a huge burden on healthcare systems and economies worldwide. Diagnostic testing is a critical part of monitoring and controlling the spread of COVID-19 and only a few countries can potentially claim to have been testing widely enough to be able to control significantly the spread of disease. There are two types of tests for SARS-CoV-2 - those which test whether a person has the virus (PCR tests) and those used to detect the presence of antibodies against the virus (serology). Governments require exit strategies from severe lock-downs which have been implemented around the world to slow the spread of the SARS-CoV-2 virus. Implementing high levels of diagnostic testing (to determine whether a person has the virus) and contact tracing is likely to be a critical part of providing key intelligence on the spread of the virus and reducing the risk of further waves of infection and corresponding impacts on health systems and economic activity. Only a relatively small percentage of the global population is estimated to have been infected to date with a recent WHO study finding this to be not more than 2% to 3%. Antibody tests, which look to identify certain biomarkers associated with COVID-19 infections, are also expected to be an important tool in monitoring disease progression through populations. However the WHO has recently warned that antibody testing has not yet been fully developed and proven for SARS-CoV-2 and therefore as a reliable next step for countries seeking to lift lockdown restrictions. The WHO has been advising against issuing things like immunity passports and risk free certificates at this point in the pandemic. Pending the advancement of understanding of COVID-19 and treatment options for patients with more severe forms of the disease, detection of active disease in populations is likely to remain a key part of disease control policies. Further, the Directors believe that until therapeutic breakthroughs, and/or vaccines are approved and widely available, diagnostic testing and contact tracing are likely to remain critical elements of monitoring and controlling the spread of COVID-19. The COVID-19 diagnostic market is highly fragmented with many companies marketing molecular, serology and antibody tests of varying speeds, requirements and accuracy. The US Food and Drug Administration (FDA) has granted Emergency Use authorization (EUA) to over 50 COVID-19 diagnostic tests of which three are approved for use in patient care settings. The Directors believe the demand for diagnostic testing currently far exceeds supply. Tests to determine the presence of the virus can firstly be divided into those that can only be performed on a specific instrument (closed platform) and those that can be performed on multiple instruments (open platform), and secondly into laboratory based tests and tests that can be used at the point-of-care. Many "tests" are sold as a package of raw ingredients requiring the lab to assemble and verify. Whilst first to market opportunities are significant, the Directors believe that the underlying qualities and reliability of a test are also of significant importance. The Directors believe that distributors and end-users are looking for a clinically validated product that is stable and able to use used across the globe and that any assay should be flexible and able to be run on open platforms, easy to use and have internal controls and quality assurance. genedrive's SARS-CoV-2 tests genedrive is developing the Genedrive® 96-SARS-CoV-2, which is an open platform laboratory based test. The Genedrive® 96-SARS-CoV-2 is a one-step "ready to go" polymerase chain reaction (RT-PCR) test. It is a high volume laboratory assay compatible with multiple third party platforms and is expected to be able to perform 96 tests in under two hours. The Genedrive 96 SARS-CoV2-test is a final format test, meaning that it only requires the addition of patient sample, and no other user preparation is required. The test can be transported globally without the need for refrigeration, which will support global product distribution and use in a variety of different environments. Other open platform laboratory based tests include the Novacyt COVID19 test and the Altona RealStar SARS-CoV-2 RT-PCR Kit. On 20 April 2020, genedrive announced that it had entered into a development agreement with Cytiva (formerly GE Healthcare Life Sciences) to allow for high throughput manufacturing of over 10,000 tests per hour. genedrive has also secured sufficient supply chain commitments for the most critical components to enable the manufacturing of six million tests. The Company anticipates launching the Genedrive® 96-SARS-CoV-2 in May 2020 at an estimated price of £8-10 per test. The Company will address the market on a non-exclusive basis with sales through an appropriate mix of distributors and direct to customers. The Directors believe that based on its sales volume forecasts and estimates of selling prices in the market, the Company will be able to achieve attractive gross margins of at least 60%, noting genedrive does not fully absorb labour costs into its margins. The exact performance characteristics of the assay will be determined following data generated with the production batches of assay, and finalised at the point of CE marking. In the development ("wet") phase prior to the freeze-drying process with Cytiva, the assay was able to detect 5-10 copies of COVID-19 virus target per reaction, a limit of detection equivalent to other validated PCR tests. genedrive is also developing the Genedrive® SARS-CoV-2 ID Kit, which is a closed platform single patient point-of-care test that will run on the Genedrive® instrument. The Genedrive® SARS-CoV-2 ID Kit could provide rapid acute care testing for hospital staff, care homes, mobile facilities and emergency outbreaks with a target turnaround time of under 90 minutes. Other closed platform point-of-care tests include Abbott's Abbott ID NOW™ COVID-19 test. Cytiva will manufacture the test cartridges, which will be able to be shipped at room temperature in a stable test-pack. genedrive intends to apply for a CE Mark for the test and seek relevant approvals in other relevant markets. The Company anticipates launching the Genedrive® SARS-CoV-2 ID Kit circa December 2020 through distributors at an estimated price of £20 per test and the Directors expect to achieve similar gross margins to the Genedrive® 96-SARS-CoV-2. Genedrive® HCV-ID Assay According to a 2015 WHO report, an estimated 70 million people worldwide are infected with HCV and there are 1.75 million new HCV infections annually. HCV primarily affects the liver and over many years infection often leads to liver disease, cirrhosis, liver failure or cancer. New 'curative' Direct Acting Antiviral (DAA) treatments for HCV are now becoming available at an affordable price in many target countries but molecular diagnostics need to be widely available prior to treatment to help identify the millions of patients that will benefit from DAAs. genedrive is the first to market a qualitative point-of-need molecular test. In independent field testing, the Genedrive® HCV-ID assay was shown to have sensitivity and specificity of 100% versus the laboratory standard. genedrive has distribution agreements in place with Sysmex in Europe, Africa and Asia (excluding India) and Arkray in India. As announced on 25 March 2020, commercial traction has recently been impacted by the spread of COVID-19. The Company announced receipt of WHO Prequalification for its HCV-ID Kit on 4 May 2020. Antibiotic-Induced Hearing Loss ("AIHL") Around one in 500 infants carry a genetic mutation that's puts them at risk of suffering lifelong profound hearing loss after exposure to gentamycin, a commonly used antibiotic. genedrive has developed world's first rapid point-of-care genetic test for neonatal intensive care. There are no other point-of-care tests commercially available for AIHL and the Directors believe genedrive's test could support a new standard of care for all urgent case infants. genedrive's AIHL test has a high clinical accuracy with 100% sensitivity and 100% specificity. Implementation trials for the test are progressing at Manchester and Liverpool but, as announced on 25 March 2020, have not been able to continue at the same pace as previous months as a result of NHS resources being diverted to address COVID-19. On 24 April 2020, genedrive announced that it had entered into a distribution agreement with Inspiration Healthcare Group plc for the distribution of genedrive's AIHL test in the UK and Ireland. The Directors estimate the UK and global markets for this test to be worth up to £3.5 million and £35 million per year, respectively, to genedrive based on a price of £2,000 per Genedrive® unit and £35 per test. US Department of Defense ("DoD") genedrive was contracted by the United States Department of Defense (DoD) to develop Genedrive® as a portable bio-warfare testing system. The development contract was worth approximately $10.0 million to date and has included approximately 185 Genedrive unit sales since 2014. The contract has now moved on to a conventional commercial phase and, as announced on 25 March, the Company has now received confirmation that a long-term supply contract with the DoD will be agreed that will enable ordering from Autumn 2020 onwards. The first internal DoD customer to procure under this contact has indicated an intention to order circa 500 Genedrive® units over the first 3 years. The Genedrive® instrument The Genedrive® is a versatile instrument that can be used across a range of applications and provides rapid results in small hospitals, clinics and in the field. It takes as little as 27 minutes from sample to result compared to days required by a service laboratory, enabling prompt clinical decision making. It has a single use, disposable reagent cartridge revenue model and works by single push button device activation. The Genedrive® can operate in hot and humid conditions present outside laboratories and can be configured with a UPS battery to withstand fluctuating power availability. The Genedrive® instrument is designed to be affordable with the system and test price points targeted to be accessible to worldwide markets and, subject to the development of the SARS-CoV-2 ID Kit, is expected to have utility in the diagnosis of Covid-19 in a variety of environments and settings. 3. Convertible loan notes In July 2014, the Company entered into a collaborative funding agreement with the Global Health Investment Fund I, LLC (GHIF) under which it issued a US$8 million convertible bond to GHIF (GHIF Bond). The GHIF Bond was amended and restated in 2016 and 2018 and key details are set out in the announcement of 16 November 2018. The GHIF Bond matures in December 2023 and carries a 5% coupon. Interest payments are deferred up to and including January 2022 and are added to the principal. $2.0 million of the GHIF Bond can be converted at 28.75p and the remainder at 150p at GHIF's discretion. The Company can request the conversion of the first $2 million of the GHIF Bond if for 20 consecutive days the average closing price exceeds 1.3x the tranche's conversion price and the remaining $6 million if the average close price is greater than or equal to 180 pence for 20 consecutive days. The GHIF Bond contains provisions for the adjustment of the conversion price (and therefore the numbers of share to be issued on conversion) on the occurrence of certain events including the issue of shares at more than a set discount to the calculation of market price under the GHIF Bond. On the basis of a Placing Price of 80 pence no adjustment is expected to be made to the conversion price. In November 2018, BGF subscribed for a £2.5 million convertible loan note (BGF Loan Note Instrument), the key terms of which are set out in the announcement of 16 November 2018. The BGF Loan Note Instrument matures in June 2025 and carries a 7% coupon. Interest payments are deferred until December 2021 and are not convertible. The BGF Loan Notes can be converted at BGF's discretion at 28.75p. The BGF Loan Note Instrument contains provisions for the adjustment of the conversion price on the occurrence of certain events. The issue of New Ordinary Shares under the Placing and Broker Option will require an adjustment to the conversion price of the BGF Loan Notes in order to maintain BGF's percentage of voting rights after the adjustment and conversion. The maximum number of additional Ordinary Shares to be issued to BGF as a result of such adjustment, assuming subscription in full for the Placing Shares and Broker Option Shares is estimated to be 2,501,051. At the time of the issue of the BGF convertible loan notes, BGF and GHIF entered into an intercreditor agreement to regulate the ranking of payments under the GHIF Bond and BGF Loan Note Instrument. Any conversion of the GHIF Bond or BGF Loan Notes or adjustment to their terms would require the consent of GHIF and BGF. 4. Future News Flow Within the next three months, the Company expects to be able to announce the CE Marking of its Genedrive® 96-SARS-CoV-2 test followed by FDA Emergency Use authorisation and its launch and first sales. Announcements of commercial agreements and revenue from the Genedrive® 96-SARS-CoV-2 test are also anticipated. Later in the year, genedrive expects to announce a long-term contract agreement with the DoD and subsequent ordering under the contract. The completion of AIHL trials at Manchester and Liverpool NHS hospitals is expected, subject to the lifting of COVID-19 restrictions, following which the Company will launch the product in the UK and announce first sales. The receipt of regulatory approvals and launch of the Genedrive® SARS-CoV-2 ID Kit are expected at the end of the year on the basis of emergency shortened timescales and subject to the risk factors outlined in "COVID-19 Market Risk" below. 5. Current Trading The Company issued a detailed business update on 25 March 2020. Since then the Covid-19 pandemic has continued to create uncertainty over many areas of the business however significant progress has been made with the development of its PCR test and it continues to expect to have the product CE-Marked by the end of May 2020. The Company was also pleased to enter into a distribution agreement with Inspiration Healthcare Group plc for its AIHL assay and also recently confirmed it has received World Health Organisation (WHO) Prequalification for the Genedrive® HCV ID kit. At the time of the business update issued on 25 March 2020, the Company confirmed that based solely on sales and purchase orders in hand, the Company expected to achieve revenues for the year to 30 June 2020 of circa £1.0m. Unaudited cash as at the end of April 2020 was £2.1m. To date the Company has not recei