Microsaic Regulatory News (MSYS)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, DIRECTLY OR INDIRECTLY, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

THIS IS AN ANNOUNCEMENT UNDER RULE 2.4 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE "TAKEOVER CODE") AND IS NOT AN ANNOUNCEMENT OF A FIRM INTENTION BY ANY PARTY TO MAKE AN OFFER UNDER RULE 2.7 OF THE TAKEOVER CODE. THERE CAN BE NO CERTAINTY THAT AN OFFER WILL BE MADE FOR MICROSAIC SYSTEMS PLC, NOR AS TO THE TERMS ON WHICH ANY OFFER MAY BE MADE

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014

29 July 2020

Microsaic Systems plc

("Microsaic" or the "Company")

Commencement of Strategic Review, formal sale process and offer period;Board and Broker Changes

Microsaic Systems plc (AIM:MSYS), the developer of substantially differentiated point of need mass spectrometry instruments, announces that its board of directors (the "Board") has decided to conduct a formal review of the various strategic options available to the Company to maximise value for shareholders (the "Strategic Review").

Background to the Strategic Review

During 2019, the Company made significant progress in both its traditional small molecule Mass Spectrometry ("MS") market, and in the key future growth area of online and at-line detection and control for biopharmaceutical manufacturing. In the small molecule market, sales were up by over 50% compared with 2018, and the Company's commercial reach was expanded by adding three new channel partnerships. Since 2017 the Company has increased its Original Equipment Manufacturers ("OEMs") and distribution partners from one to twelve, expanding its market presence in North America, Europe, China, Japan and SE Asia. Also, by focussing on niche markets the Company has been able to achieve better pricing, and its gross margin improved to 43% in H2 2019. In the biopharmaceutical market, the Company worked with the Massachusetts Institute of Technology ("MIT"), the Centre for Process Innovation ("CPI"), and industrial partners, to generate data that demonstrated the significant potential of Microsaic's MS in the in-situ analysis of large molecules (i.e. biologics).

In 2020, the Covid-19 pandemic has meant that the Company's direct and partner sales channels have been unable to operate normally, although progress has continued to be made in generating prospects and developing existing and new partnership opportunities. It has also been possible to launch, in partnership with Axcend Corp ("Axcend"), a compact, easy-to-use and cost-competitive Liquid Chromatography MS ("LCMS") system which combines the compact Microsaic 4500 MiD® MS with the portable Axcend Focus LC®. GlaxoSmithKline presented a poster at Pittcon 2020, which showed that this combined system could offer significant savings in annual running costs when compared with traditional LCMS systems, whilst also offering significant green credentials with substantially reduced usage of environmentally challenging solvents.

As previously announced, in view of the growth opportunities available to the Company, the Board has been considering the financing options available to ensure Microsaic is sufficiently capitalised for the opportunities ahead.

One of these options is to raise additional equity funding. However, following a recently completed market sounding exercise, the Board has concluded that the prevailing conditions are not supportive at the current time of raising sufficient equity from public market investors to fund the business through to profitability.

As a result, the Board has decided to undertake the Strategic Review, which will involve a broad range of options to either facilitate raising additional funding, for example through strategic investment by a business partner or other market participant, or by realising value from a sale of the Company , or its business and assets, a business combination with another entity with concomitant funding for the combined group, and/or technology and product marketing licensing for some or all of the Company's technology for individual territories, regions or globally.

Microsaic is a company subject to the City Code on Takeovers and Mergers (the "Takeover Code"); information on certain implications of the Takeover Code on some of the strategic options which are being considered are set out below.

Business Opportunity

Since 2001, Microsaic has invested over £30 million which has enabled it to develop its novel and differentiated position in miniaturised MS, with three core products and over 60 patents in chip-based, compact MS. The Company has sold over 160 MS instruments to date.

MS is a powerful and widely adopted analytical technique for chemical and biochemical analysis and identification in a range of markets including pharmaceutical, environmental, food and academic markets. The Company's core products, the compact MiD series of mass detectors, are designed to integrate seamlessly with a wide range of third-party OEMs or to be sold standalone through distributors. At the forefront of the Company's design ethos is to deliver fast, easy to use, powerful and robust performance, all in a compact footprint. This opens up new markets where the Company's technology has strong competitive advantage over traditional laboratory instruments by bringing MS to the point of need.

The Company has three core products:

(i) MiD®4500, a compact MS instrument which serves the established laboratory markets, and mobile analysis markets;

(ii) MiD®ProteinID, a newly launched product targeting the growing biologics market, where it can be used in upstream bioprocessing lines, both "on-line" and "at-line", to support regulatory and efficiency drives; and

(iii) MiDAS® (Molecular Ion Detector Automated Sampling), Microsaic's proprietary compact liquid sample handling system for direct MS analysis.

Additionally, the Company has recently launched, with its partner, Axcend, a compact LCMS system which has the potential for significant running cost savings to users, and there are a number of opportunities to create quickly other complete system combinations with Axcend and other partners.

The Board has identified a number of opportunities to invest in the Company's core technology, which would bring enhanced capability to its MS products in the medium term and enable wider market reach in traditional laboratories, point of need applications (such as in-field testing), and biologics. In light of improved pricing and anticipated gross margins on system sales, and assuming continued investment in R&D, the Board has detailed plans which, subject to additional funding, would enable the business to achieve break-even when sales of MS achieve a rate of around 100 units per annum, which is significantly less than previously estimated.

The Board believes that there is potentially a major new market for compact MS for "on-line", or "at-line" analysis in bioprocessing. Recent research identifies an addressable market of circa $0.5 billion in upstream biologics analysis instrumentation. Traditional MS instruments need specialist operators and are installed in centralised laboratories which may be remote from the bioprocessing location leading to tests taking days or even weeks. In contrast, Microsaic's compact MS has been designed to be easy to use by line operators and to measure biologics, metabolites and feedstocks in-situ, in minutes per analysis. In addition to the saving in time, which could improve process control and reduce batch failure rates, the Board believes that Microsaic's patented technology has the potential to deliver substantial cost savings in reagents. By working with the Company's partners (including MIT and CPI), the Board believes that significant returns on investment could be generated by targeted product launches in bioprocessing supported by demonstrating clearly differentiated workflows suited to real-time bioprocessing analytics.

In addition to bioprocessing, the Company has multiple opportunities in its traditional small molecule markets through the integration of its MS technology with OEMs, via distributors across North America, Europe, China, Japan, and SE Asia and through direct sales.

Compared with other so-called compact MS technologies, the Board believes that Microsaic's MS is the only commercially marketed MS technique to offer a true "all-in-one" footprint, especially designed for ease of use and maintenance, and for ease of integration with OEM equipment and production workflows. For example, based on third party research and validation, it is the Directors' belief that the Company's technology is currently the only compact MS which enables whole monoclonal antibody identification, and which can also measure small molecules such as feedstocks and metabolites. Measurement of these input and output factors is key to control, efficiency and quality assurance in bio-manufacturing.

The Board also believes that there are medium to long term opportunities for the Company's technology in other high growth markets such as point of care diagnostics, including based on its innovative compact "Triple Quad" technology, which has been developed to a prototype stage. The Triple Quad instrumentation market alone is worth circa $1.4 billion per annum, and the Board believes that Microsaic's technology could be developed to generate significant potential in markets including food, environmental, as well as the rapidly growing diagnostics market.

Cash preservation measures

As previously announced, in March 2020, operating costs were substantially reduced by cutting non-payroll expenditure to essential items, implementing a temporary 20% reduction in pay for all employees and Directors and furloughing several employees under the Coronavirus Job Retention Scheme. These actions were taken quickly by the Board as soon as it became apparent that product sales were likely to be significantly lower than anticipated given the various restrictions in place as a result of Covid-19 and that, in the short term, revenue generation was likely to be focused on the continuing sales of consumables, spare parts and service and support income.

In order to extend the cash runway further, the Board has concluded that costs must be reduced further and a process has commenced to implement additional cost reductions within the next few weeks, whilst retaining appropriate skills and resources to be able to conduct the Strategic Review process effectively, continue to sell products and to support new and existing customers and partners.

Resignation of director

As part of the cash preservation measures, it has been mutually agreed that Chris Buckley, Non-Executive Director, will step down from the Board with immediate effect. The Board thanks Chris for his contributions during his time with Microsaic, where he has provided valuable strategic marketing input for more than four years.

Resignation of broker

It has been mutually agreed to accept the resignation of WH Ireland Limited as joint broker to the Company, with immediate effect.

Nplus1 Singer Advisory LLP ("N+1 Singer") is now sole broker and continues to act as the Company's nominated adviser.

Takeover Code considerations

One of the options that will be considered in the Strategic Review is a potential sale of the Company utilising a "formal sale process" (as referred to in Note 2 on Rule 2.6 of the Takeover Code). The Takeover Panel has agreed that any discussions with third parties may be conducted within the context of a formal sale process under the Takeover Code, which will enable conversations with parties interested in making a proposal to take place on a confidential basis.

The Board has appointed BDO LLP ("BDO") as its financial adviser with regards to the Strategic Review and formal sale process including for the purposes of Rule 3 of the Takeover Code.

The Company is not in receipt of any approaches at the time of this announcement and, as described above, the Board emphasises that a sale of the Company is only one of a number of strategic options to be considered under the Strategic Review.

Another option under consideration is to seek a strategic investment in the Company. This may offer the scope for existing investors to participate but the Board recognises that, given the current market capitalisation of the Company, a significant investment could trigger the requirement for a whitewash under Rule 9 of the Takeover Code.

Parties interested in submitting any expression of interest or other proposal relating to any strategic option for the business, should contact BDO via the contact details given below.

The Takeover Panel has granted a dispensation from the requirements of Rules 2.4(a), 2.4(b) and 2.6(a) of the Takeover Code such that any interested party participating in the formal sale process will not be required to be publicly identified as a result of this announcement (subject to note 3 to Rule 2.2 of the Takeover Code) and will not be subject to the 28-day deadline referred to in Rule 2.6(a) of the Takeover Code, for so long as it is participating in the formal sale process.

It is currently expected that any party interested in submitting any form of proposal for consideration within the Strategic Review (including within the formal sale process) will, at the appropriate time, enter into a non-disclosure agreement and standstill arrangement with Microsaic on terms satisfactory to the Board and on the same terms, in all material respects, as other interested parties before being permitted to participate in the process. Following the execution of such an agreement, the Company intends to provide such interested parties with certain information on its business, following which interested parties shall be invited to submit their proposals to BDO. It is the Board's current intention to complete the first stage of the Strategic Review by mid-September 2020 and any further announcements regarding timings for the formal sale process will be made when appropriate.

The Board reserves the right to alter any aspect of the process as outlined above or to terminate the process at any time and in such cases will make an announcement as appropriate. The Board also reserves the right to reject any approach or terminate discussions with any interested party at any time.

Following this announcement, the Company is now considered to be in an "offer period" as defined in the Takeover Code, and the dealing disclosure requirements as set out below will apply.

Shareholders are advised that this announcement does not represent a firm intention by any party to make an offer under Rule 2.7 of the Takeover Code and there can be no certainty that any offers will be made as a result of the formal sale process, that any sale, strategic investment or other transaction will be concluded, nor as to the terms on which any offer, strategic investment or other transaction may be made.

For further information, please contact:

Important notices

BDO LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively as financial adviser to Microsaic and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Microsaic for providing the protections afforded to its clients nor for providing advice in relation to the subject matter of this announcement.

N+1 Singer, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as nominated adviser and broker to Microsaic and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Microsaic for providing the protections afforded to its clients nor for providing advice in relation to the subject matter of this announcement.

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.

This announcement contains inside information for the purposes of Article 7 of the Regulation (EU) No 596/2014 on Market Abuse. Upon the publication of this announcement, this information is considered to be in the public domain.

This announcement (including any information incorporated by reference in this announcement), oral statements made regarding the formal sale process, and other information published by the Company contain statements about the Company that are or may be deemed to be forward looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "projects" or words or terms of similar substance or the negative thereof, may be forward looking statements.

These forward-looking statements are not guarantees of future performance. Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward-looking statements. Due to such uncertainties and risks, readers should not rely on such forward-looking statements, which speak only as of the date of this announcement. The Company disclaims any obligation or responsibility to update publicly or review any forward-looking or other statements contained in this announcement, except as required by applicable law.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

Disclosure requirements of the Takeover Code

Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 p.m. (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 p.m. (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Takeover Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129.

Rule 2.9 disclosure

In accordance with Rule 2.9 of the Takeover Code, the Company confirms that it has 456,365,146 ordinary shares of 0.25 pence each in issue. The International Securities Identification Number (ISIN) reference for these securities is GB00B547ZY09. The Company holds no ordinary shares in treasury.

Publication on website

A copy of this announcement will be made available, subject to certain restrictions relating to persons resident in restricted jurisdictions, on the Company's website at www.microsaic.com by no later than 12 noon (London time) on the business day following the date of this announcement. Neither the content of any website referred to in this announcement nor the content of any website accessible from hyperlinks is incorporated into, or forms part of, this announcement.