SUMM.L Regulatory News (SUMM)

27 Feb 2006 08:03

VASTox plc27 February 2006 27 February 2006 VASTox plc ("VASTox" or the "Company") Placing of 5,903,955 New Ordinary Shares to raise £10.45 million and Pre-close update Oxford, UK, 27 February 2006 - VASTox (AIM: VOX), a leading chemical genomicscompany, today announces it has successfully raised £10.45 million in a placingof New Ordinary Shares to institutional investors. The new funds will be used bythe Company to accelerate the development of its lead therapeutic programme inDuchenne muscular dystrophy (DMD), for which it announced promising preclinicalresults earlier this year. The Placing has been fully underwritten by Evolution Securities Limited. Highlights: • Placing of 5,903,955 new Ordinary Shares (the "New Ordinary Shares")at a placing price of 177p raising £10.45 million (before expenses) for theCompany. • Funds raised to be used to accelerate the development of the Company'slead DMD programme. • Company expects to announce revenues of not less than £0.5 million forits services division for the year ended 31 January 2006. • 1,500,000 Existing Ordinary Shares placed on behalf of certain foundershareholders (the "Selling Founder Shareholders"). Professor Stephen Davies, Chairman of VASTox, comments: "Our positive preclinical results for the Company's DMD programme represented asignificant breakthrough in the development of a potentially effective treatmentof DMD and for the Company. This fundraising now provides VASTox with the meansto accelerate the development of this programme while still allowing the Companyto maintain its development timetable around its other research programmes asplanned." A circular containing a notice of an extraordinary general meeting convened for9.00 a.m. on 22 March 2006 (the "EGM") has today been sent to shareholders ofthe Company ("Shareholders") outlining the terms of the proposed conditionalplacing of the New Ordinary Shares and the Exisiting Ordinary Shares (the "Placing") and seeking Shareholder approval to, inter alia, enable the Directorsto allot the New Ordinary Shares in connection with the Placing. This summary should be read in conjunction with, and is subject to, the fulltext of the attached announcement. Enquiries: VASTox Office: +44 (0) 1235 443 910 Steven Lee, PhD, CEO Mobile: +44 (0) 7766 913 898Darren Millington, Head of Finance Citigate Dewe Rogerson +44 (0) 20 7638 9571 David Dible, Mark Swallow, Valerie Auffray Evolution Securities Matt Wood +44 (0) 20 7071 4300 This announcement contains forward-looking statements. Forward-lookingstatements can be identified by words such as "anticipates", "intends", "plans","seeks", "believes", "estimates", "expects" and similar references to futureperiods, or by the inclusion of forecasts or projections. Forward-looking statements are based on the Company's current expectations andassumptions regarding its business, the economy and other future conditions.Because forward-looking statements relate to the future, by their nature, theyare subject to inherent uncertainties, risks and changes in circumstances thatare difficult to predict. The Company's actual results may differ materiallyfrom those contemplated by the forward-looking statements. The Company cautionsyou therefore that you should not rely on any of these forward-lookingstatements as statements of historical fact or as guarantees or assurances offuture performance. Important factors that could cause actual results to differmaterially from those in the forward-looking statements include factors includedin this announcement and regional, national, global political, economic,business, competitive, market and regulatory conditions. Placing of 5,903,955 New Ordinary Shares and 1,500,000 existing Ordinary Shares 1. Introduction and summary VASTox is a chemical genomics group that discovers and develops proprietary newdrugs and provides a range of screening and chemistry services to the lifesciences industry. Since the Company's business commenced in January 2003, VASTox has establishedfour drug discovery programmes. The Company's most advanced programme is focusedon developing a new treatment for Duchenne Muscular Dystrophy ('DMD') based onthe up-regulation of the protein utrophin. A second programme in Spinal MuscularAtrophy ('SMA') is also progressing well and two additional programmes inmulti-drug resistance and osteoarthritis have also been initiated. Supporting VASTox' drug discovery efforts is a range of chemical genomics andsynthetic chemistry services that it offers to third parties for their own drugdiscovery programmes. The revenue of the Company and its subsidiaries (the "Group") associated with these services is growing strongly through increasingnumbers of profitable service contracts with pharmaceutical, biotechnology andagrochemical companies. The Group aims to continue providing these services withthe intention of developing more substantial and longer-term partnerships in thefuture. VASTox' genomics technology uses zebrafish (Danio rerio) and fruitflies(Drosophila melanogaster) to allow high-volume screening of small molecule drugcandidates. This approach generates data that is highly predictive of efficacyand toxicity in humans, while having the potential to dramatically decrease thetime and cost of drug discovery and development. The proceeds of the placing of New Ordinary Shares of £10.45 million (beforeexpenses) will enable the Group to accelerate the development of the DMDprogramme without jeopardising existing or future drug discovery programmes. Inaddition, the Directors believe that increasing the cash resources of the Groupwill allow VASTox to negotiate with any potential licensees or partners from aposition of greater strength. The placing of 5,903,955 New Ordinary Shares at a price of 177 pence per PlacingShare ("the Placing Price") is conditional, inter alia, upon (i) the passing ofthe resolutions set out in the notice convening the EGM (the "Resolutions"); and(ii) admission of the New Ordinary Shares to trading on AIM becoming effective("Admission"). The Placing has been fully underwritten by Evolution SecuritiesLimited ("Evolution Securities"). 2. Drug discovery programmes VASTox currently manages four in-house drug discovery and development programmesin both niche and broad therapy areas. The most advanced drug programme isfocused on developing a small molecule therapy for the treatment of DMD, acongenital disease, affecting only boys, which is caused by the body's inabilityto produce sufficient amounts of the protein dystrophin. This protein isessential for healthy muscle tissue and a lack of dystrophin leads to adeterioration in muscle strength throughout the body. DMD patients rarely livebeyond 30 as their heart and diaphragm muscles eventually stop working. Thereare estimated to be approximately 30,000 DMD patients in the developed world andthere is currently no effective treatment for this disease. VASTox' approach to this disease has been to focus on developing a drug thatmakes the patient's own body produce increased amounts of the protein utrophin.Utrophin is a naturally occurring protein which is present in all people at lowlevels. Increasing the amount of utrophin in muscles has been shown tocompensate for a lack of dystrophin. The effect of this protein has been extensively studied by VASTox' co-founderand member of the Group's Scientific Advisory Board (the "SAB"), Professor KayDavies FRS, and has been shown to be efficacious in animal models of DMD (mdxmouse). The Directors believe that this offers a promising scientific approachto the treatment of this disease. The Group has exclusive rights to the relevantpatents relating to up-regulation of utrophin. The Group's second drug discovery programme in neuromuscular disorders isfocused on SMA. This disease is estimated to affect approximately 50,000patients in the developed world and, as with DMD, is similarly caused by themalfunctioning of a gene. SMA causes a fault in the neuromuscular junction which prevents electricalsignals reaching muscles. Through lack of use, these muscles atrophy, leading todeath at an early age. In the most severe form of SMA, patients rarely livebeyond two years old. The Group's remaining drug discovery programmes arerelated to multi-drug resistant infections (in particular the role of the enzymeN-acetyl transferase) and osteoarthritis. These programmes are at an earlierstage of development and are currently at the primary screening stage. Through the Group's Scientific Advisory Board, VASTox has access to a wide rangeof academics in a number of research institutions. The Directors believe thatthe Group is well placed to in-licence promising technologies and drug discoveryprogrammes at an early stage. The Group's management team regularly reviews newdrug discovery and technology opportunities with a view to establishing newprogrammes in areas of commercial interest. 3. Background to and reasons for the placing of New Ordinary Shares VASTox has focused on DMD as a therapy area because the Directors believe thatthe Group has both the scientific expertise and commercial skills to makesignificant value from this programme. The Directors believe the potentialmarket size for a therapy in DMD to be a very attractive one, that is, worth atleast $800 million per annum. Furthermore, the Directors believe that becauseDMD is a deadly disease in young people and there is currently no cure, it isaligned with the key positive health economic arguments for treatment. The Group's approach to DMD is based on extensive research by VASTox'co-founder, Professor Kay Davies FRS, who was the first to publish researchsuggesting that up-regulating utrophin could compensate for a lack of dystrophinin DMD patients. This replacement approach to treating DMD now has widescientific acceptance. On 24 January 2006, the Group announced the discovery of a number of smallmolecules that had shown in vivo up-regulation of utrophin. This is the firsttime the result has been shown with small, drug-like, molecules and allows theGroup, to begin optimising the chemical 'hits' which could lead to thedevelopment of a medicine. The Directors believe that to capitalise on this early positive result, theGroup should accelerate the development of the DMD programme, with the aim ofselecting a lead drug candidate by Q4 2007, followed by the commencing of phaseI clinical trials within two years. The Directors forecast that £10 million ofnew funds will be required to accelerate the development of the DMD programme toa clinical proof of concept, that is, a point during the phase II clinicaltrials where the efficacy of the drug candidate is clear. Current plans indicatethat this point should be reached in the second half of 2008. Whilst the Group currently has sufficient funds to accelerate the DMD programme,the Directors believe that this would materially impact the development of theGroup's other drug discovery programmes, in particular SMA. It would alsoprevent the Group from initiating new drug discovery programmes. Both of theseconsequences, in the opinion of the Directors, are not in the long terminterests of Shareholders. The Directors believe that a placing of New Ordinary Shares will be in the bestinterests of the Group as this will allow an acceleration of the DMD programmewithout jeopardising progress in the Group's current and future drug discoveryprogrammes. 4. Use of proceeds The net proceeds of the placing of New Ordinary Shares will: • Allow the Group to recruit high calibre staff with experience indrug development and clinical trial design, suitable candidates for some of thepositions having already been identified; • Fund regulatory, legal and patent-related costs necessarily incurredto protect the Group's developing intellectual property assets; • Fund all pre-clinical chemistry and biology stages in thedevelopment of a DMD lead drug candidate; • Fund phase I clinical trials in healthy volunteers and thecommencement of phase II clinical trials in respect of the DMD programme; and • Fund the necessary capital expenditure associated with developmentof a DMD lead drug candidate. 5. Sale of Ordinary Shares by the Selling Founder Shareholders At the time of the Company's admission to AIM in October 2004, all of thefounding shareholders entered into undertakings not to dispose of OrdinaryShares for periods of up to two years from the date of flotation. The Directorsbelieve that, in order to satisfy institutional demand, widen the Company'sShareholder base and to improve the liquidity in the Company's Ordinary Sharesit is in the best interests of the Company to allow certain founder shareholders(excluding the Directors, Professor Kay Davies and IP2IPO Group plc) to disposeof a proportion of their shareholding now through the Placing. Accordingly,conditional upon Admission, the Selling Founder Shareholders, have today agreedto sell a total of 1,500,000 Ordinary Shares, which form part of the Placing. Furthermore, the Directors, certain members of the SAB and IP2IPO Group plc, whoin aggregate currently hold approximately 48.8 per cent. of the existing issuedordinary share capital of the Company, have given firm undertakings that theywill not (subject to certain limited exceptions) sell any Ordinary Shares priorto the date on which the Company's preliminary results for the year ending 31January 2007 are announced. 6. Current trading and prospects Since 12 October 2005, being the date of the Group's interim results for the sixmonths ended 31 July 2005, the Group has announced that it has initiated afourth drug discovery programme focused on the bone morphogenetic protein (BMP)signalling pathway and its role in osteoarthritis (November 2005) and also thepositive preclinical results in DMD (January 2006). The Directors expect to announce the Group's preliminary results for the yearending 31 January 2006 in May 2006. In these results, the Group expects toannounce that the service division has been profitable, recording revenues ofnot less than £0.5 million for the year just ended (£0.1 million in the prioryear) and that the Group has good revenue visibility for the current financialyear. The Directors expect that the Group will report net cash levels as at 31January 2006 of approximately £12.6 million. The operational targets that the Directors have set for the current financialyear include recruiting a high calibre Chief Scientific Officer, whose primaryresponsibility will be the development of the lead drug candidate for DMD, andgaining orphan drug designation for the DMD programme. The Directors anticipatebeing able to announce further positive progress on the other three R&Dprogrammes as well as initiating development of new programmes from the growingpipeline of opportunities. Finally, the Directors expect to announce the signingof larger service contracts from the services division during the year. 7. The Placing The Placing is conditional upon, inter alia, the passing of the Resolutions andAdmission becoming effective. The Placing Shares are or will be in registeredform and, on Admission, will rank pari passu with the existing issued OrdinaryShares. On Admission, the Company will have 37,217,066 Ordinary Shares in issue (the "Enlarged Issued Share Capital") and a market capitalisation of approximately£65.9 million at the Placing Price. The New Ordinary Shares will represent 15.9per cent. of the Enlarged Issued Share Capital. The Placing Price represents adiscount of 7.3 per cent. to the closing middle market price of 191 pence perOrdinary Share at the close of business on 24 February 2006, being the lastbusiness date prior to the date of this announcement. Application will be made to the London Stock Exchange for the New OrdinaryShares to be admitted to trading on AIM. It is expected that Admission willoccur on 23 March 2006. 8. Extraordinary General Meeting The circular to be sent to Shareholders today contains a notice convening an EGMto be held on 22 March 2006 at the Company's rRegistered office at 9.00 a.m., atwhich the Resolutions will be proposed for the purposes of implementing thePlacing. This information is provided by RNS The company news service from the London Stock Exchange