TIDMNSCI
RNS Number : 5351K
NetScientific PLC
06 May 2022
NetScientific plc
( " NetScientific " , the "Group" or the "Company " )
Acquisition of 30% of Vortex Biotech Holdings
NetScientific plc (AIM: NSCI), the international life sciences
and sustainability technology investment and commercialisation
Group announces the conditional acquisition of a 30 per cent. stake
in Vortex Biotech Holdings Ltd ("VBHL") (the "Acquisition"). The
Acquisition is conditional upon the receipt by Deeptech Disruptive
Growth Investments Ltd ("Deeptech") of a customary HMRC tax
clearance relating to the restructuring of VBHL. Upon completion,
immediately before the Acquisition, of the proposed restructuring
described below, VBHL will be the owner of c.95 per cent. of Vortex
BioSciences, Inc. ("Vortex US") and 100 per cent. of Vortex Liquid
Biopsy Solutions Limited ("Vortex UK" - together "Vortex").
Highlights
-- Group regains a significant stake in Vortex with a matured technology platform
-- Board believes substantial upside potential through a
multi-pronged growth strategy focused on product and cartridge
sales, launching a services lab business, and exploring liquid
biopsy opportunities
-- Vortex active in the multi-billion oncology research and
liquid biopsy markets, which are estimated to grow at 10-14% per
annum
Background to and rationale for the Acquisition
The Group previously held a c.95 per cent. interest in Vortex
US, however the Company's previous management opted to sell this
interest (together with historic debts of c.$33 million) to
Deeptech on 22 March 2019 as it concluded that the Group was no
longer in a position to provide financial support to Vortex US.
The sale to Deeptech was managed by EMV Capital Ltd ("EMV
Capital") (which at that time was not owned by NetScientific).
Thereafter, EMV Capital entered into a fundraising and incubation
support services agreement with Vortex US on 16 June 2020
("Services Agreement") and a management agreement with Deeptech on
5 August 2020 whereby, EMV Capital agreed to provide certain
investment advisory services to Deeptech in respect of, inter alia,
Vortex ("Management Agreement"). EMV Capital was subsequently
acquired by NetScientific on 24 August 2020 and is now a fully
owned subsidiary.
Following various fundraisings and strategic changes to the
Vortex business as detailed below, the Group's Directors now
believe that the Vortex business has been materially de-risked,
having made significant commercial and operational progress,
underpinning significant growth prospects.
The Board has opted to re-acquire a strategic stake in VBHL
given its clear business, operational and technology development
roadmap, which will drive commercial growth in research, lab
services and clinical trials for fast-growing US and EU oncology
markets. The acquisition is in line with the Company's strategy of
deepening stakes in selected portfolio companies with high return
potential.
About Vortex
Vortex , which has benefited from c.$38.5 million in historical
investments, is an innovative Trans-Atlantic company operating
commercially at the junction of the rapidly growing liquid biopsy,
cell analytics and oncology markets. Vortex's mission is to be the
innovation leader in Circulating Tumour Cell (" CTC") capture -
providing researchers and clinicians access to critical insights
from whole cancer cells that underpin one of the main causes of
metastasis, treatment resistance and disease recurrence.
Originally a spin-out from University of California, Los
Angeles, Vortex is now dually based in Cambridge, UK and the Bay
Area, US, with a growing international customer base using its
automated VTX-1 instrument and generating recurring revenues from
disposable cartridges. The company has an innovative "no touch"
microfluidic chip technology. It is differentiated because it
quickly captures viable, intact CTCs from blood with high yields,
which then enable valuable follow-on analysis. This in turn is a
key component in cancer research and expected to drive liquid
biopsy approaches.
Vortex' VTX-1 platform has been placed and used for KOL
published research in leading University and Research centres in
the US, UK and EU, including UCLA, UC Berkeley, Stanford
University, Ghent University (Belgium), University of Maryland, and
Ecole Polytechnique Federale de Lausanne. In addition, the company
is now seeing growing demand from biotech clients. The company has
developed several workflow integrations of the VTX-1 instrument
with third party instruments, opening further commercialisation
opportunities.
The company's development is taking place in a growing market.
The liquid biopsy market size was valued at $8.1 billion in 2021
and projected to surpass $26.2 billion by 2030 growing at 14 per
cent. over the period (Precedent Research). To exploit these
opportunities, and after the completion of the Restructuring, the
company plans to execute a transformative fundraising.
Strategic and Operational Changes in Vortex
Upon the acquisition of Vortex US by Deeptech in March 2019, Dr
Ilian Iliev was appointed as Chairman. The aim of Deeptech (and Dr
Iliev as Chairman and EMV Capital as a fundraising adviser and
investment adviser) was to progress the Vortex business from an
R&D business into a commercially and growth focused business,
and to prepare it for scale-up and further external fundraising.
Activities over the previous three year period have included:
business development, in particular for product and cartridge sales
and leases to University and Corporate clients; reducing
operational costs; placements with key opinion leaders; preparing
key system components and their supply chain for scale and future
clinical applications; and planning CTC capture service lines of
business. To commercialise the technology in UK and Europe, Vortex
UK was incorporated on 20 June 2020 as a sister company to Vortex
US (both owned by Deeptech), and a UK-based CEO was hired to lead
Vortex.
NetScientific's Directors believe that the Vortex business has
now been materially de-risked and has made significant commercial
and operational progress, placing it in a stronger position than in
2019. The Board is accordingly delighted for the Group to be in a
position to re-acquire an interest in Vortex.
Principal details of the Acquisition
The Acquisition is conditional upon tax clearance being provided
by HMRC to Deeptech in connection with a pre-Acquisition
restructuring ( "Restructuring " ), primarily designed to result in
VBHL (a company newly incorporated on 14 April 2022): (i) becoming
the owner of a c.95 per cent. equity interest in Vortex US and a
100 per cent. equity interest in Vortex UK; and (ii) reducing and
re-financing certain loans and debts of the Vortex business that
are owed to Deeptech and certain of its associates. Should that
condition not be satisfied (or waived by Deeptech) by 30 June 2022
(or such later date as the parties may agree), the Acquisition will
not proceed.
The Restructuring shall take place on the second business day
following the receipt of the tax clearance referred to above, and
immediately thereafter the Acquisition shall take place.
The consideration for the Acquisition is GBP300,000, to be
satisfied on completion by the transfer by the Group to VBHL of
GBP300,000 of invoices ("Services Invoices") to be raised to: (i)
extinguish obligations of Vortex US to EMV Capital for services
provided under the Services Agreement; and (ii) cover fees payable
by Vortex US to EMV Capital in accordance with terms of certain
loans made to Vortex US by associates of Deeptech.
In the 9-month period ended 30 September 2021, Vortex US and
Vortex UK incurred a loss before taxation of GBP2.1 million, of
which c.GBP1 million was non-recurring and related to a prior year
adjustment on historical interest for the $33 million inter-group
loans, and revenues of GBP0.12 million. On completion of the
Acquisition, VBHL will have pro forma net liabilities of GBP3.5
million, based on the balance sheets of Vortex US and Vortex UK as
at 30 September 2021 and after taking into account the assignment
(upon completion of the Restructuring and therefore prior to the
Acquisition) by Deeptech to VBHL of the historical inter group
loans reflecting past investment into the technology.
Services Agreement and Management Agreement
On completion of the Acquisition, the Services Agreement shall
terminate and be replaced by an agreement between NetScientific's
subsidiary EMV Capital and VBHL on similar terms ("New Services
Agreement") and the Management Agreement shall terminate (in so far
as it relates to Vortex). The New Services Agreement will be for an
initial term of three years (and a minimum term of 18 months) and
includes payments to EMV Capital in the form of: (i) corporate
finance fundraising commissions of up to 5 per cent; (ii) M&A
commissions of up to 3 per cent; (iii) business introductory
commissions of up to 3 per cent; and (iv) for management support
and commercialisation services, a monthly retainer fee of GBP7,000
for at least the first nine months.
Loan facility
The Group has extended to VBHL a loan facility ("Loan Facility")
of up to GBP2 million, of which GBP250,000 shall be drawn down
today, a further GBP250,000 is available for draw down at the
option of VBHL, and a further GBP1.5 million is available for draw
down upon the agreement of both VBHL and the Group.
The loans under the Loan Facility shall be secured upon the
assets of VBHL (and if appropriate, Vortex US and /or Vortex UK)
with effect from completion of the Acquisition, shall accrue
interest at 8 per cent. per annum on monies drawn down and shall be
repaid by no later than 24 months following completion of the
Acquisition (or by 30 June 2022 should the Acquisition not
complete). The commercial terms of the Loan Facility will,
following the Restructuring, be the same as those of c.GBP4.4
million of loans from associates of Deeptech to VBHL.
Related party transactions
Each of (i) the Services Invoices, (ii) the Acquisition, (iii)
the New Services Agreement and the termination of the Management
Agreement (in so far as it relates to Vortex) and (iv) the Loan
Facility, being entered into with a company controlled by a
substantial shareholder of NetScientific, represents a related
party transaction in accordance with the AIM Rules for Companies.
The Directors, excluding Dr Iliev by reason of his interest in
Deeptech (the controlling shareholder of VBHL), consider, having
consulted with WH Ireland Limited, NetScientific's nominated
adviser, that the terms of each of these transactions are fair and
reasonable in so far as shareholders of NetScientific are
concerned.
John Clarkson, Chairman of NetScientific commented:
"NetScientific is delighted to secure this excellent transaction,
which captures both significant value and substantial upside
potential in Vortex, which has over recent years significantly
strengthened and de-risked its business proposition. It marks
another important milestone for NetScientific, completing the
turnround and the structured implementation of our strategic growth
plans. This 30 per cent. stake in Vortex fulfils our criteria for
deeper involvement in selected portfolio companies, focused on
delivering enhanced shareholder returns."
Quote from Prof. Smith, NetScientific PLC Non-Executive
Director:
"The capture and enrichment of CTCs is becoming a critical
element of cancer research, complementing general tests for cancers
based on circulating tumour DNA (ctDNA). Vortex' CTC capture
approach allows the full potential of CTCs to be realised,
especially for hard-to-treat and recurring cancers where targeting
personalised medicines and ongoing, frequent monitoring is seen as
crucial for future cancer pathway improvements. Therefore, the
Vortex technology - validated by 20+ peer reviewed publications -
has the potential to change the way we treat cancer and improve
outcomes for patients."
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR"). Upon the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
For more information, please contact:
NetScientific Via Walbrook PR
John Clarkson, Chairman
WH Ireland (NOMAD, Financial Adviser
and Broker)
Chris Fielding / Darshan Patel +44 (0)20 7220 1666
Walbrook PR
Nick Rome/ Paul McManus 07748 325 236 or 07980 541 893
About NetScientific
NetScientific plc (AIM: NSCI) is a holding company, that invests
in, develops, commercialises and realises shareholder value in life
sciences/healthcare, sustainability and technology companies, which
offer significant growth potential in the UK, Europe and USA, as
well as globally.
With the acquisition of EMV Capital in August 2020, the Group
doubled its portfolio from 8 to 23 companies, either through direct
subsidiary, balance sheet investment or capital under advisory,
varying from start-up private companies to publicly listed
equities.
NetScientific delivers shareholder returns through a proactive
and hands-on management approach to their portfolio companies;
identifying, investing in, and helping to build game-changing
companies. The Group targets value inflection points and the
release of value through partial or full exits from trade sales,
public listings, or equity sales. The Company has a strong
transatlantic and growing international presence, providing
attractive expansion prospects.
NSCI can deploy a capital-light investment structure; utilising
the power of the PLC Brand, and the NetScientific balance sheet to
anchor future investments and achieve a multiplier effect by
attracting 3rd party investment for the portfolio companies.
NetScientific is headquartered in London, United Kingdom, and
was admitted to trading on AIM, a market operated by the London
Stock Exchange, in 2013 (website: www.netscientific.net).
About Deeptech
Deeptech is an investment vehicle currently owned as to 97.5 per
cent. by Melvin Lawson (who is currently interested in c.16 per
cent. of the issued share capital of NetScientific ("ISC")) and as
to 2.5 per cent. by Ilian Iliev, the Chief Executive Officer of
NetScientific (who is currently interested in c.17 per cent. of the
ISC).
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