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Regulatory News

12 December 2011

Merrion Pharmaceuticals Plc Equity Funding Proposal

The Board of Merrion ("Merrion" or the "Company") announces today a number of developments as part of its previously announced strategic review and its overall plan to rebuild shareholder value:

  • Issue of new equity to strengthen the Company’s balance sheet for financial stability and long term investment;
  • Focusing of the Company’s resources on a proprietary drug development model;
  • Changes to the Board of Directors;
  • Implementation of cost reductions to reflect the new focus; and
  • An update on the Company’s previously announced strategic partner process.

Financing

The Board of Merrion believes that its technology base continues to offer opportunities for long term value creation. However, since time horizons for such opportunities can be long, the Company has decided to raise new equity capital.

Accordingly, following the raising in June 2011 of $5 million in secured debt financing from Hercules Technology Growth Capital, Inc. ("Hercules") (NASDAQ: HTGC), the Board has now decided to raise €2.5 million of fresh equity (the "Equity Fundraising") which is fully underpinned by the commitment of certain of its largest current shareholders, who have agreed to support the proposed Equity Fundraising.

In line with the Company’s cash requirements, which are spread over the next 18 months or so, the Board has decided to provide shareholders with the opportunity to participate in the Equity Fundraising, at Merrion’s closing price per share on Friday 9 December 2011 of €0.22. Existing Merrion shareholders will be offered an opportunity to participate in the Equity Fundraising by means of an open offer of shares at the above mentioned price.

The Company will be writing shortly to shareholders setting out the details of the proposed Equity Fundraising and the extraordinary general meeting required in connection with the proposed Equity Fundraising.

Hercules

Merrion has agreed with Hercules to make a number of modifications to the facility agreement entered into in June 2011 (the "Hercules Facility"), which modifications include, among other things as follows:

  • A covenant for Merrion to hold minimum cash balances of $1.7 million from December 2011 to 10 February 2012, $2.5 million from 11 February 2012 to 31 December 2012 and $1 million for the remainder of the Loan Term, in each case less the amount of principal payments made under the Hercules Facility after the applicable minimum cash balance is in place. Merrion’s current cash balance is approximately $3.0 million and, following the Equity Fundraising, is expected to be $4.4 million. The Company has also agreed that it will seek to put in place €1.5m of additional funds on or before 1 June 2012.
  • Cancellation of the warrants previously granted to Hercules under the Hercules Facility, and the replacement of those warrants with new warrants (such new warrants to become exercisable at the same price as the proposed Equity Fundraising). On completion of the proposed Equity Fundraising, Hercules will hold c. 2 2 million warrants which, if exercised, would represent 4.8% of Merrion’s share capital after the proposed Equity Fundraising.

Rule 9 Waiver

Under Rule 9 of the Irish Takeover Rules (the "Rules"), any person (or persons acting in concert) who holds 30 per cent. or more of the voting rights in a company that is subject to the Rules, such as the Company, and who acquires more than 0.05% of the issued share capital of a company, is obliged to make a mandatory cash offer to the remaining shareholders to acquire the balance of the issued ordinary shares in that company.

Under the Irish Takeover Rules certain existing shareholders are deemed to be acting in concert and the Irish Takeover Panel has agreed to waive the requirement to make a mandatory offer under Rule 9 of the Rules subject to a number of conditions, including the passing of a "whitewash" resolution on a poll by a majority of the independent shareholders.

The Company intends to publish a circular containing a notice of an extraordinary general meeting. The purpose of the meeting is to authorise the issue of new ordinary shares required to give effect to the proposed Equity Fundraising and to seek the approval by independent shareholders of a waiver under Rule 9 of the Takeover Rules in connection with the participation by substantial shareholders (and related parties) in the Equity Fundraising and their consequent increased aggregate holding of up to 69.44 per cent of the Company’s enlarged issued share capital.

Proprietary Compound Development:

Following the results of its comprehensive business review, Merrion has refocused on advancing its proprietary compounds into the clinic. The Company is pleased to announce that it has demonstrated favourable preclinical results for two new oral formulations of existing pharmaceuticals in the anti-infective and blood disorder areas. Merrion is immediately placing significant effort into the development of one of these promising GIPET based programs as the Company believes that the GIPET-based formulations will increase patient use and efficacy levels. Merrion expects to complete the Phase I/II - proof of concept study for the first of its selected proprietary products by the end of Q1 2013.

Board changes

Paddy O'Sullivan, Chairman of the Board of Directors, has informed the Board that due to his other commitments, he has decided to relinquish his roles as Chairman of the Board and Chairman of the Compensation Committee of the Board with effect from 12 December 2011. He will continue as a member of the Board.

Effective today, Michael Donnelly, who is Chairman and CEO of Growcorp and a founder of Merrion and who has been a director since 2003, becomes Chairman of the Board.

Michael Donnelly brings to his role as Chairman, a wealth of international healthcare experience and relationships, in America, Asia and across Europe.

The Board of Merrion would like to thank Paddy for his service as Chairman.

Paddy O'Sullivan will be replaced as Chairman of the Compensation Committee of the Board by Senior Independent Director Harry Stratford, who will also continue to chair the Nomination and Governance Committee of the Board.

Cost Reductions:

The cost reduction programme announced by the Company in September 2011 has been implemented, resulting in monthly cash expenditure of less than €275k per month on average (excluding debt service) which compares with €575K for 2010. As stated in September, the Company is now focusing on an outsourcing business model, which allows Merrion to focus on its core business of developing products using its GIPET technology to enable the licensing of its products and technology.

Update on Strategic Partner Process:

The Strategic Partnership process Merrion announced on 20 October 2011 is now well underway. While there can be no assurance that the process will lead to any form of transaction, the initial stages of the process have generated interest from a significant number of potential strategic partners.

In addition, the reinforcement of the Company’s financial position through the Equity Fundraising will enable the Company to evaluate the various strategic alternatives from a position of greater financial strength while continuing to develop its technology asset base.

The process is being managed in collaboration with Ondra Partners and a further update will be provided in due course.

Timetable

The Company expects that it will be in a position to post EGM documentation to shareholders in early January 2012.

An Extraordinary General Meeting of the Company will be convened for the week ending on the 3 February 2012 at which the required approvals will be sought from shareholders. The Company expects to complete the Equity Fundraising in early February 2012.

 

Enquiries:

Merrion Pharmaceuticals
Jonathan O'Connell, Chief Executive Officer
T +353 (0)1 642 3300

info@merrionpharma.com
www.merrionpharma.com

Investor Enquiries:

Davy Corporate Finance
Ivan Murphy
T +353 1 679 6363

Media Enquiries:

Slattery Communications
Conor Dempsey
T +353 (0)86 247 9892
E-mail: conor.dempsey@scomms.ie

 

The Directors of Merrion accept responsibility for the information contained in this announcement. To the best of their knowledge and belief (having taken all reasonable care to ensure such is the case), the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.

 

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