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ARK THERAPEUTICS GROUP PLC

TERMINATION OF OFFER PERIOD AND DISPOSAL UNDER LISTING RULE 10.8 WAIVER

Ark Therapeutics Group Plc - Termination of offer period, update on financial position and disposal of subsidiaries

London, UK, 15 March 2013 - Further to the announcement by Ark Therapeutics Group plc ("Ark Plc" or the "Company") on 30 January 2013 the Company today announces that it is no longer in discussions in the context of a "formal sale process" as defined in The City Code on Takeovers and Mergers (the "FSP"). As such, the Company is no longer in an offer period for the purposes of the City Code on Takeovers and Mergers.

A large number of potential purchasers were approached pursuant to the competitively run FSP. Several potential purchasers requested non-disclosure agreements and entered the virtual data room to conduct due diligence investigations. However, save for Wölbern Private Equity GmbH ("WPE" or "Wölbern Private Equity") no other party who took part in the FSP made an offer and, on 28 February 2013, WPE withdrew its offer for the entire issued share capital of the Company. The board of directors of Ark Plc (the "Board" or the "Directors") has therefore terminated these discussions to pursue the disposal outlined below.

Rule 10.8 Waiver

The Board announces today the sale of the entire issued share capital of each of Ark Therapeutics Limited (including its wholly owned subsidiary Ark Therapeutics Oy) and Lymphatix Oy (together, the "Target Companies") to WKD Holding Oy (the "Purchaser"), a nominee of WPE (the "Disposal"). The principal business of the Target Companies is viral product focused contract development and manufacturing services with development and GMP manufacturing operations in Finland. 

The Directors believe that the Disposal is in the best interests of Ark Plc and the shareholders of the Company (the "Shareholders") as a whole and that unless the Disposal was completed, the Company would have been unable to meet its financial commitments as they fell due and consequently would have been unable to continue to trade.

The Board has therefore concluded, having taken and agreed with independent advice from Zolfo Cooper LLP (in relation to insolvency issues), its sponsor WG Partners, a trading name of Charles Stanley & Co. Limited ("WGP") and its legal advisers Ashurst LLP, that in the absence of an alternative proposal, of which there is none, that there would be no reasonable prospect of avoiding insolvent liquidation (i.e. filing for an insolvency process) imminently.

The United Kingdom Listing Authority (the "UKLA") has granted a waiver under Listing Rule 10.8 in respect of the requirement to prepare a circular and obtain shareholder approval for the Disposal, available only to companies in severe financial difficulty.

As a consequence of the Disposal, Ark Plc will have a net cash balance of approximately £1 million following settlement of all currently outstanding liabilities. Ark Plc is expecting the Woundcare business to continue to perform, so as to trigger the payment obligation of up to £0.926 million (in deferred consideration) as a result of the disposal of the Woundcare business in 2010.

Background

Ark Therapeutics historically followed a classical biotech business model to fund the development of new therapeutic products. Following the failure of its lead candidate, Cerepro, to achieve European license approval, the Company had limited funds remaining and launched a strategic review. This resulted in selling off non-core assets and refocusing the Company on utilising its capabilities for revenue generating contract development and manufacturing services, thereby placing an increasing emphasis on the revenue generating capability of the Company's manufacturing assets. An emphasis of matter in respect of the Company's 2012 half yearly accounts was reported, along with the following statement: "The Board recognises that the timing of contract and partnership revenues in the early stages is inevitably uncertain and therefore recognises that the Company may seek to raise additional equity finance to ensure sufficient funding through to optimal implementation of the strategic plan. As a consequence, we continue to review all options and have been in regular dialogue with our shareholders in respect of the general terms of the transition." On 21 January 2013, the Company announced that it had over the last year reduced its cost base, terminated all costly investment in early stage product development and re-structured its business to focus solely upon the generation of revenue from its viral development and manufacturing services based in Kuopio, Finland.

Notwithstanding these initiatives and the fact that the Company had a growing order book of new contracts for its services it was clear to the management team that there would be a potential shortfall in working capital to break through to profitability. This was discussed with key Shareholders and highlighted in several of the Company's press releases in the period leading up to a planned fundraising in the second half of 2012. In addition the financial position became more acute when there were delays in key contracts which coupled with the time taken to negotiate new customer contracts resulted in the Company needing more capital than originally envisaged.

Steps taken to raise finance

In order to fund the new business model through to profitability, throughout the last quarter of 2012 the Board had discussions with a number of Shareholders and other financial institutions in order to gauge support for a substantial equity fund-raising. However, the level of support obtained was insufficient to justify continuing with the proposal, and as such those discussions were discontinued.

With no prospect of any further revenue being received in the near term the Board announced on 30 January 2013 that Ark Plc had appointed WGP, to assist the Company in reviewing and evaluating a number of strategic options open to the Company to maximise value for Shareholders. These options included the FSP. 

The Company was not in receipt of any indicative offers pursuant to the FSP for Ark Plc on the date set for submission of bids, being 28 February 2013. In parallel, the Board attempted at various points to obtain finance from clients, direct competitors, banks and via the disposal of non-core product assets. However, all such steps proved unsuccessful.

Consequently, it became clear to the Board that unless an urgent solution was identified, the Ark group of companies (the "Group") would be unable to continue to trade and Ark Plc would run-out of cash prior to the end of April 2013.

Discussions with Wölbern Private Equity

A formal offer for the Target Companies was made by WPE on 7 March 2013. This offer was expressly conditional on the UKLA agreeing to apply Listing Rule 10.8 to the Disposal due to WPE's concerns as to the financial position of Ark Plc and the effect of the lay-off process being undertaken in Finland which was due to expire on 15 March 2013 and which would result in the bulk of the Finnish employees being laid off on that day.

Wölbern Private Equity confirmed that it would not be prepared to proceed with the Disposal if the lay-offs were effected, as such lay-offs would significantly reduce the value of the business in Finland. WPE therefore confirmed to the Board on 10 March 2013 that the transaction had to be completed on or before 15 March 2013 otherwise its offer would lapse. These confirmations have also been provided by WPE to the UKLA.

The Company was not in a position to seek shareholder approval for the Disposal, as WPE confirmed that it was not willing to proceed with an acquisition of the Target Companies post 15 March 2013.

Financial information

Based on unaudited management accounts, for the year ended 31 December 2012, the trade and assets of the Target Companies, that were the subject of the Disposal, contributed revenue of approximately £1.82 million and losses before tax of approximately £9.98 million with no prospect of any further revenue being received in the near term. The net book value of the assets subject to the Disposal is approximately £6.18 million.

Immediately prior to completion of the Disposal, Ark Therapeutics Group Plc (including the Target Companies) had approximately £1.069 million of cash and approximately £2.068 million of total liabilities (before close down costs). Accordingly, the Group was materially balance sheet insolvent with no prospect of additional revenue in the near term.

It therefore became clear to the Board that if the Disposal described in this announcement was not effected immediately, Ark Plc would not have been able to avoid formal insolvency proceedings. In such circumstances, there would have been no value left for distribution to the Shareholders.

The Disposal

The Board was advised that in light of the serious financial position of Ark Plc, it had a primary duty to act in the best interests of Ark Plc's creditors. In order to achieve the best results for creditors and Shareholders, two courses of action were identified by the Board: (i) to implement an appropriate insolvency procedure or (ii) to pursue the disposal of the Target Companies. The Board concluded that a disposal of the Target Companies was the preferable route.

The terms of the Disposal are as follows:

(a) the Purchaser acquired the majority of the assets of Ark Plc, being the shares of the Target Companies (the "Shares"), the main operating companies of the Group, and procured the repayment of intercompany loans owed to Ark Plc by the Target Companies by way of set-off;

(b) Ark Plc received £1.335 million in cash on completion from the sale of the Shares and will use all but £0.345 million of this amount to satisfy its liabilities. The repayment obligations of Ark Plc pursuant to intercompany loans granted by the Target Companies have been novated from Ark Plc to the Purchaser. Ark Plc therefore has a cash balance of approximately £1 million (including existing cash balances), the majority of which will be available for distribution to the Company's Shareholders after payment of the Company's limited running costs, expected to be circa £0.3 million;

(c) all of the current Directors resigned on completion from the boards of the Target Companies;

(d) the Company has agreed to assist the Purchaser to achieve an orderly transition; and

(e) Wölbern Private Equity has confirmed its intention to continue to operate the business as a going concern, thereby giving greater certainty of employment for the Target Companies' employees than would be achieved via an insolvency process.

The disposal of the majority of the Target Companies would ordinarily require the consent of Shareholders in a general meeting and the posting of a circular. The UKLA has agreed, however, under Listing Rule 10.8.1 not to require Ark Plc to obtain the approval of the Shareholders for the Disposal as it had no alternative but immediately to dispose of these assets in order to avoid an insolvency process.

Ark Plc is expecting the Woundcare business to continue to perform, so as to trigger the payment obligation of up to £0.926 million (in deferred consideration) as a result of the disposal of the Woundcare business in 2010. This payment is expected to be made in early 2014. Following receipt of this deferred consideration, the Directors intend to make a distribution to Shareholders of all the distributable cash in the Company at that time following settlement of any liabilities and enter into a solvent liquidation process.

Confirmations

The Company is of the opinion that the working capital available to Ark Plc (which no longer has any trading subsidiaries) is sufficient for Ark Plc's present requirements, that is, for at least 12 months from the date of this announcement.

Ark Plc confirms, as it has so confirmed to the UKLA, that in respect of the Disposal:

(a) negotiation did not allow time for shareholder approval;

(b) all alternative methods of financing had been exhausted and the only option remaining was to effect the Disposal;

(c) by taking the decision to implement the Disposal, the Directors were acting in the best interests of the Company and its shareholders as a whole and unless the Disposal was completed receivers, administrators or liquidators were likely to be appointed; and

(d) the Disposal was not with a related party.

The Disposal could have been implemented following a delisting under Listing Rule 5.2.7. However, such a course of action would have necessitated a further delay of more than 20 business days. The Directors did not consider this route acceptable due to the lay-off process in Finland being completed on 15 March 2013 and WPE's confirmation that it was not willing to proceed with an acquisition of the Target Companies post 15 March 2013. Further such route would have resulted in no value being left for distribution to Shareholders.

Additionally, WGP, who are acting as sponsor to Ark Plc in relation to the Disposal confirms, as it has to the UKLA, that in its opinion and on the basis of information available to it, the Company was in severe financial difficulty and the Company would not have been in a position to meet its obligations as they fell due unless the Disposal took place immediately.

The Directors believe that the Disposal was in the best interests of Ark Plc and the Shareholders as a whole and that unless the Disposal was completed the Company would have been unable to meet its financial commitments as they fell due and consequently would have been unable to continue to trade resulting in the Board having to conclude that there was no reasonable prospect of avoiding insolvency and file promptly for administration.

Commenting on the Disposal, Iain Ross, Executive Chairman, said:

"The Board and management of the Company had hoped to build Ark Plc as a profitable standalone CDMO business. Unfortunately, despite having built a strong order book, we could not raise sufficient funds to get through to profitability and therefore had no choice but to put the Company up for sale. In the absence of offers for the Company as a whole, and in view of our financial position, with the approval of UKLA, we made the Disposal as it ensured the best deal for our creditors, shareholders and employees. I wish Wölbern Private Equity every success and believe the market opportunity for viral services is set to explode over the next 10 years."

Directors

Professor Seppo Ylä-Herttuala, who was one of Ark's co-founders in 1997 and became a non-executive director of the Company on 8 March 2004, and David Prince, who joined the Company as a non-executive director in May 2004, have both resigned from the Board with immediate effect.

Dr. David Venables' employment as Chief Executive Officer and Iain Ross' employment as Executive Chairman will be terminated by reason of redundancy. However, both Iain and David will continue to serve on the Board as non-executive directors, with Iain Ross being non-executive Chairman.

- Ends -

Enquiries

WG Partners, a trading name of Charles Stanley & Co. Limited, is acting exclusively as financial adviser to Ark Plc and no one else in connection with the matters described in this announcement. In connection with such matters, WG Partners, its affiliates and their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to any other person other than Ark Plc for providing the protections afforded to clients of WG Partners, or for providing advice in connection with the matters described in this announcement or any matter referred to herein.