ORPH.L Regulatory News (ORPH)

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THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATIONS (EU) NO. 596/2014 ("MAR"). WITH THE PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

Open Orphan plc

("Open Orphan" or the "Company")

Potential demerger of certain non-core assets

Proposed Capital Reduction, Distribution in Specie and notice of General Meeting

Open Orphan plc (AIM: ORPH), a rapidly growing specialist pharmaceutical services clinical research organisation (CRO) and a world leader in vaccine and antiviral testing using human challenge clinical trials, announces that it is at an advanced stage in planning for a possible spin-out of certain non-core Development IP Assets. These Development IP Assets are a portfoilio of intellectual property and development assets, including HVO-001 which has potential application in the treatment of respiratory disease. These do not include the equity interests in Imutex Limited and PrEP Biopharm Limited.

The Board believes that to maximise shareholder value that the Development IP Assets are best developed separately from the core services business. Furthermore, such a spin-out transaction could provide the opportunity to secure separate financial resources for these assets, to enable accelerated development of these assets and achievement of commercial milestones. A spin-out transaction would also allow Shareholders to benefit from both the value of the development assets and the standalone value of the core services business, as they progress through their own key milestones.

To this end, a circular (a "Circular") is being sent to shareholders today providing background to, details of and reasons for, a proposed Reduction of Capital and Distribution in Specie, to facilitate the possible spin-out and admission to AIM of the Company's non-core Development IP Assets. The reduction in capital will also allow for the Company to pay dividends and distributions to shareholders should the Board deem it appropriate in the future.

The Board has decided to take the necessary preliminary steps in preparation for a potential spin-out, including incorporating a new subsidiary, further details of which are outlined in the Circular. The Company has decided to proceed in obtaining the approvals necessary for the Reduction of Capital and the Distribution in Specie which are required to implement the demerger. Notwithstanding that the Company is seeking the necessary approvals for the Reduction of Capital and the Distribution in Specie now, these considerations remain at an early stage, and there can be no guarantee that the Reduction of Capital and/or the Distribution in Specie will be completed. HMRC advance clearance for the Demerger has been successfully obtained so any distribution would be exempt for income tax purposes and have no capital gains implications for UK shareholders. Further announcements will be made at the appropriate time.

Notice of General Meeting

The Circular contains a notice convening the General Meeting to be held at 11 a.m. on 29 April 2021 at which the Resolutions will be proposed.

Full details are outlined in the Circular, which will be posted to Shareholders today and will shortly be available, in accordance with AIM Rule 20, here: https://www.openorphan.com/investors/circulars-and-admission-document

Cathal Friel, Executive Chairman, said: "I am delighted that we are putting in place the first steps needed to enable the monetisation of some of our non-core assets. Over the last year we have been busy transforming Open Orphan into a profitable enterprise with a world leading position testing vaccines and antivirals using human challenge studies. We now have an opportunity to deliver significant further shareholder value by the Demerger of these non-core assets. Their development and commercialisation can be accelerated through the Demerger, which offers the opportunity to access financing as a separate public company listed on AIM and a separate business focussed on the successful commercialisation of pharmaceutical products.

"It is well known in the global public markets that value is better recognised in the life sciences space when profitable services businesses are viewed separately from pharmaceutical development businesses that have different funding needs. This is now an excellent opportunity for shareholders in Open Orphan to maximise value through separate shareholdings in both a profitable pharma services company as well as an exciting pharma products commercialisation company. I believe that both are well positioned for success as we head into a decade of exponential capital investment across a broad range of infectious disease and respiratory illnesess. This is a sector that has been under-invested in the last thirty years and as such, will be one of the more exciting growth opportunities within the life sciences industry."

Definitions contained in the Circular have the same meaning as in this announcement.

The information provided below includes information contained within the Circular, which should be read as a whole.

Introduction

Open Orphan is a pharmaceutical service/contract research company that is a world leader in testing vaccines and antivirals using human challenge clinical trials. The Company provides services to Big Pharma, biotech and government/public health organisations. This was described in the Company's admission document dated 9 December 2019, following the acquisition of hVIVO by Open Orphan (the "Acquisition"). Since the Acquisition, the enlarged group has pursued a services led strategy centred around its leading position in vaccine and antiviral testing using human challenge clinical trials. The Group further provides a suite of consulting and clinical trial services to pharmaceutical and biotech companies as a leading Clinical Research Organisation ("CRO").

The Group has continued to develop this services-led strategy since the Acquisition and has completed a post-merger restructuring and integration of its operations to drive efficiency and competitiveness in order to increase profitability. This restructuring, combined with renewed interest and investment in the treatment and prevention of respiratory disease, has resulted in the strong performance of the Group and its CRO services.

Prior to the Acquisition, hVIVO had made significant investments and had developed a portfolio of intellectual property covering the treatment and prevention of respiratory and infectious disease. Having repositioned the Group's services the Directors have undertaken a review of the Group's non-core assets. In order for some of these assets to achieve their full commercial potential further investment and deployment of management resource would be required. As a result of having refocused the Group on services, the Directors have taken the strategic decision to demerge certain development assets from the existing CRO business to maximise the future potential and value of both businesses. The Directors are now undertaking the required preliminary steps in order that they may execute a demerger of the Group's wholly owned Development IP Assets later this year. This demerger would exclude the Group's equity interests in Imutex Limited and PrEP Biopharm Limited. Such a demerger would include certain intellectual property surrounding these Development IP Assets. The Company will update Shareholders in due course on its final plans and the timing of an expected demerger. The demerger would allow for any required future investment in the Development IP Assets without consuming existing Group funds or management resource.

The Development IP Assets include HVO-001 with the Demerger intended to enable accelerated development of this asset utilising an outsourced partnership model and separate management team. It is also intended to provide the financial resources required to rapidly develop this molecule. A spin-out transaction of the Development IP Assets could also allow Shareholders to benefit from both the value of the Development IP Assets including HVO-001 and the standalone value of the remaining business as it progresses through its own key milestones.

The Board is now taking the necessary preliminary steps in preparation for a potential spin-out of its wholly owned Development IP Assets, including the incorporation of a new subsidiary, ORPH Pharma IP, further details of which are set out below. The Company has decided to proceed with obtaining the approvals necessary for the Reduction of Capital and the Distribution in Specie which are required to implement the Demerger. Notwithstanding that the Company is seeking the necessary approvals for the Reduction of Capital and the Distribution in Specie now, these proposals remain at an early stage and there can be no guarantee that the Reduction of Capital and/or the Distribution in Specie will be completed. Further announcements will be made at the appropriate time.

Demerger

As announced, the Company has been evaluating its plans for the Development IP Assets, including HVO-001. HVO-001 is an orally available, small molecule immunomodulator drug with potential as a treatment for severe influenza and symptoms requiring treatment in hospital with the drug unaffected by viral heterogeneity. It has the potential to treat a broad range of serious unmet needs in patients suffering from severe and fatal respiratory disease.

Having considered these plans in further detail, the Board has decided that a spin-out and admission to AIM of the wholly owned Development IP Assets may provide the opportunity to secure separate financial resources for the Development IP Assets, with the goal of enabling accelerated development of the asset portfolio and achievement of development and commercial milestones. It is anticipated that a spin-out pursuant to the Demerger would allow the Company's shareholders to benefit from both the value of the Development IP Assets and the standalone value of the remaining business as they progress through their own key milestones.

The Company has completed various initial steps in anticipation of the implementation of the potential Demerger, including the transfer by HSL to ORPH Pharma IP, the Company's recently incorporated wholly owned subsidiary, of the intellectual property relating to the Development IP Assets including HVO-001. Pursuant to the assignment and licence agreement executed by HSL in favour of ORPH Pharma IP, HSL has assigned its interest in certain patents and patent applications to ORPH Pharma IP and licensed to ORPH Pharma IP certain trademarks, know-how, data and challenge agents; and, in addition, HSL has sub-licensed and sub-contracted in favour of ORPH Pharma IP its rights and obligations in relation to certain further intellectual property. As part of the foregoing, HSL will execute in favour of ORPH Pharma IP certain customary documents which will allow ORPH Pharma IP to register itself formally as the proprietor of the transferred intellectual property.

The next steps involve the Reduction of Capital to create distributable reserves to allow the Distribution in Specie to be declared pursuant to which the Demerger will be implemented and the Development IP Assets moved to Newco.

The Directors believe that the Development IP Assets have the potential to deliver significant upside value for Shareholders. The Directors are therefore exploring funding options for that business, including equity funding, and the Directors intend on conducting initial market soundings in order to assist them in determining the feasibility of Newco being admitted to trading on AIM should the Demerger take place. Further announcements will be made at the appropriate time.

The value of the proposed Distribution in Specie (the "Value") has not yet been determined and the number of Newco Ordinary Shares (the "Ratio") that each Shareholder would receive pursuant to the proposed Distribution in Specie has not yet been determined. If the results of the market sounding exercise for Newco are positive, the Board intends to declare the Distribution in Specie shortly prior to completion of the Fundraising and subsequent Admission, at which point the Value and the Ratio will be determined and announced to Shareholders via an RIS. The distribution in specie of the entire issued share capital of ORPH Pharma IP by the Company to Newco will be in return for Newco allotting and issuing Newco Ordinary Shares to Open Orphan Shareholders who are registered on the Open Orphan register of members at the specified demerger record date at a time and date to be determined by the Company and notified to the Shareholders in due course, on the basis of the determined Ratio (save that fractions of a Newco Ordinary Share will not be issued).

The Company plans to use an external agent to establish a trust over the legal interest in the Newco Ordinary Shares allotted and issued pursuant to the Demerger, from the allotment and issue of such shares until the end of the Lock-In Period, pursuant to a nominee arrangement. The intention is that, following the end of the Lock-In Period, the agent will transfer legal title to the Newco Ordinary Shares to those beneficially entitled to them. Shareholders should therefore be aware that if the Demerger is implemented they will not be able to sell, transfer or deal in the Newco Ordinary Shares they receive for a period to be determined by the Board and expected to be up to nine months following Admission. During the period of such nominee arrangements, and except as follows, such nominee will exercise the voting rights attaching to the Newco Ordinary Shares held by it in accordance with the wishes, if any, of the underlying beneficial owners of such shares. However, prior to Admission it will be necessary for Newco to re-register as a public limited company and, in order to facilitate the passing of the necessary resolution(s), it is intended that, on the basis that the Resolutions would already have been passed, the Board will instruct such nominee to vote all of the Newco Ordinary Shares held by it in favour of such resolution(s).

As mentioned above, Shareholders should note that the Board does not intend to declare the Distribution in Specie until the Fundraising for Newco process is near conclusion. The Fundraising process is in its early stages and so the Fundraising and Admission of Newco may or may not occur. The Distribution in Specie therefore may or may not occur. In the event that the Distribution in Specie does not occur ORPH Pharma IP will remain within the Open Orphan Group and continue to be operated as a subsidiary of the Company. The reserves created by the Reduction of Capital which were intended to be used in the implementation of the Distribution in Specie will be used, as with the balance of the reserves, to facilitate the future consideration of payment of dividends to Shareholders and the possible redemption or buy back of the Company's shares where desirable. However, no assurance can be given that any such dividend would be declared or redemption or buy-back implemented.

Reduction of Capital

The Act only permits a company to make distributions to its shareholders out of its profits available for that purpose. In addition, a public company may only fund a purchase of its own shares out of distributable profits. Such profits are, broadly, a company's accumulated realised profits so far as not previously utilised by distribution or capitalisation, less its accumulated realised losses. The Company does not currently have distributable profits and is therefore unable to make any distributions to its Shareholders or fund a purchase of its own Open Orphan Ordinary Shares out of distributable profits.

As at 31 December 2019, the Company had an accumulated retained earnings deficit on its statement of financial position of €3,513,000. At the same date, there was €19,041,000 standing to the credit of the Company's share premium account. In addition, the nominal value of the Deferred Shares (which are non-voting), which the Directors consider to be effectively worthless due to the extremely restricted rights which the shares confer on their holders, was £62,833.34.

Since 31 December 2019, the Company's share premium account has increased following the issue by the Company of Open Orphan Ordinary Shares at the following prices: (i) 207,040,800 Open Orphan Ordinary Shares at a price of £0.05775 per Open Orphan Ordinary Share; (ii) 86,885,253 Open Orphan Ordinary Shares at a price of £0.061 per Open Orphan Ordinary Share; (iii) 1,383,741 Open Orphan Ordinary Shares at a price of £0.001 per Open Orphan Ordinary Share; (iv) 2,524,860 Open Orphan Ordinary Shares at a price of £0.022 per Open Orphan Ordinary Share; (v) 114,821,824 Open Orphan Ordinary Shares at a price of £0.11 per Open Orphan Ordinary Share; and (vi) 2,172,565 Open Orphan Ordinary Shares at a price of £0.02 per Open Orphan Ordinary Share.

As at 31 December 2020, there was £44,494,997 standing to the credit of the Company's share premium account and the accumulated retained earnings deficit on the Company's statement of financial position had also increased.

The Directors therefore feel it is appropriate to seek shareholder approval to effect the Reduction of Capital and, subject to the approval of the Shareholders and of the Court, to:

The Directors then propose to apply the reserve arising on the Reduction of Capital to eliminate the Company's accumulated retained earnings deficit on its statement of financial position and, as to the balance, to create distributable profits on the balance sheet of the Company of approximately £39,388,000.

As mentioned above, the Directors are planning to effect the Demerger by way of the Distribution in Specie. However, in order to do this the Company first needs to create realised profits of the requisite amount which is the purpose of the Reduction of Capital.

In addition, the Board believes that, subject to the future performance of the Company, the creation of realised profits will give the Company the ability to not only effect the Distribution in Specie but also to make distributions to Shareholders and/or buy back its own Open Orphan Ordinary Shares in the future if and when the Directors may consider that it is appropriate to do so. However, the Directors cannot give any guarantee either that the Company will make the Distribution in Specie or make any distributions or purchases of its own Open Orphan Ordinary Shares or as to the size of any distributions or purchases of its own Open Orphan Ordinary Shares which may be made.

The rights attaching to the Deferred Shares as set out in the articles of association of the Company ("Articles") mean that the proposed cancellation of such shares does not involve a variation of such rights for any purpose and therefore the Company is authorised at any time to reduce its share capital (subject to the provisions of the Act) by cancelling the Deferred Shares without obtaining the consent of the holders of such Deferred Shares. Once the Reduction of Capital has been confirmed by the Court no further communication will be received by the holders of the Deferred Shares from the Company and all share certificates (if any) held in respect of such Deferred Shares can be destroyed.

Cancellation of the share premium account and the Deferred Shares

The cancellation of the Company's share premium account and the Deferred Shares will only become effective if (in the following order): (i) Resolution 1 as set out in the Notice of General Meeting is approved by Shareholders at the General Meeting; (ii) confirmation is given by the Court; and (iii) the Court order and a statement of capital are delivered to and registered by Companies House.

As noted above, the cancellation of the Company's share premium account and the Deferred Shares should enable the Directors to eliminate the current retained earnings deficit on the Company's statement of financial position and create distributable profits.

Notice of General Meeting

The Reduction of Capital and Distribution in Specie are conditional upon, inter alia, the Shareholders approving the Resolutions at the General Meeting.

In accordance with the UK Government's response to the COVID-19 outbreak, and to minimize public health risks, it is strongly recommended that shareholders do not physically attend the General Meeting, and instead appoint the Chairman of the meeting as a proxy to exercise their right to vote.

The Circular contains a notice convening the General Meeting to be held at 11 a.m. on 29 April 2021 at which the Resolutions will be proposed.

Shareholders should note that, unless the Resolutions are approved at the General Meeting, the spin-out of the Development IP Assets cannot take place.

Recommendation

The Directors consider that the Resolutions are in the best interests of the Company and would promote the success of the Company for the benefit of its Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as they and their immediate families and connected persons (within the meaning of section 252 of the Act) intend to do in respect of their aggregate holdings of 53,810,871 Open Orphan Ordinary Shares representing approximately 8.04 per cent. of the existing issued share capital of the Company.

ENDS

Notes to Editors

Open Orphan plc (London and Euronext: ORPH) is a rapidly growing pharmaceutical service/contract research company that is a world leader in testing vaccines and antivirals using human challenge clinical trials. The company provides services to Big Pharma, biotech and government/public health organisations.

Open Orphan runs challenge studies in London from both its 19-bedroom Whitechapel quarantine clinic, opened in February 2021, and its 24-bedroom QMB clinic which also has a highly specialised virology and immunology laboratory on-site. Open Orphan has a leading portfolio of eight human challenge study models for conditions such as RSV, flu, asthma and COPD. In addition, Open Orphan is also developing the world's first COVID-19 human challenge study model as part of the Human Challenge Programme and has signed a reservation contract with the UK Government for the first three COVID-19 vaccine challenge studies.

Building upon its many years of challenge studies and virology research, the Company is developing an in-depth database of infectious disease progression data. Based on the Company's Disease in Motion® platform, this unique dataset includes clinical, immunological, virological and digital (wearable) biomarkers. The Disease in Motion platform has many potential applications across a wide variety of end users including big technology, wearables, pharma and biotech companies. Following COVID-19 there is now a renewed interest and investment in infectious diseases.

Open Orphan's Paris office has been providing biometry, data management and statistics to its many European pharmaceutical clients for over 20 years. For over 15 years, the Company's Netherlands office has been providing drug development consultancy and services, including CMC (chemistry, manufacturing and controls), PK and medical writing, to a broad range of European clients. Both offices are now also fully integrated with the London office and working on challenge study contracts as well as supporting third party trial contracts.

Interested in becoming a volunteer?

hVIVO recruits many of its volunteers for its challenge study clinical trials through its dedicated volunteer recruitment website, www.flucamp.com. By volunteering to take part in one of our studies in a safe, controlled, clinical environment under expertly supervised conditions you are playing your part to further medical research and help increase the understanding of respiratory illnesses.

Individuals interested in taking part in COVID-19 human challenge study research can learn more at www.UKCovidChallenge.com.