Pharmaceutical Business review

Kanwa to acquire Midatech Pharma US

Image: Kanwa Holdings has agreed to acquire Midatech Pharma US. Photo: courtesy of rawpixel / Unsplash.

The initial consideration for the sale and transfer of the entire common stock of MTP US is $13.0 million, payable upon Closing, with up to $6m available by way of further consideration dependent on the 2018 and 2019 net sales performance of certain MTP US products, both individually and in aggregate.

The Sale is subject to, among other things, the approval of Midatech’s shareholders.

Midatech Pharma CEO Craig Cook said: “The divestment of Midatech’s US commercial arm will allow us to streamline and reshape the business from a specialty pharma to a pure play biotech company, and focus all our energy, attention and resources on advancing our innovative, higher value R&D oncology pipeline.

“Our technologies have recently reached key validation milestones in their development and following completion we intend to accelerate this momentum for our programs and platforms as we look to unlock the full value of our pipeline and address diseases with desperate unmet medical needs.”

Barings Alternative Investments’ private equity and real assets team head Jon Rotolo said: “We are excited to acquire the Midatech US supportive care business. We look forward to expanding patient access and increasing the breadth of therapeutic options available to cancer patients who experience significant adverse effects and quality-of-life issues associated with cancer treatments.

“This transaction will align with our focus on the specialty pharmaceutical healthcare sector within our Private Equity and Real Assets platform.”

Principal Terms of the Sale

Under the terms of a stock purchase agreement made between the Company MTP US and Kanwa Holdings, LP dated 26 September 2018 (“Sale Agreement”), and unanimously approved by the Board of Midatech, the initial consideration is $13.0 million (“Initial Consideration”), plus up to $6.0 million dependent on the 2018 and 2019 net sales performance of certain MTP US products individually and in aggregate (“Earn out”).

The Sale Agreement anticipates that MTP US is acquired on a debt-free cash-free basis and accordingly on completion of the sale (“Closing”), Purchaser shall deduct from the Initial Consideration (and make payment on behalf of Midatech) certain indebtedness of MTP US, under the loan agreement with MidCap Financial. 

In addition, certain transaction expenses attributable to the Sale shall also be deducted from the Initial Consideration. The amount of these transaction expenses will be calculated at Closing but are not expected to exceed $1m.

The Sale is subject to customary closing conditions including, among other things, approval of the transaction by shareholders of Midatech.  A circular containing a notice of General Meeting of Midatech Shareholders will be sent to shareholders as soon as reasonably practicable (the “Circular”) and will also be available on the Company’s website. The Circular will include further details in relation to the Sale and the basis of the Earn out.  A further announcement will be made confirming publication of the Circular.

Financial effects of sale and use of proceeds

For the financial year ended 31 December 2017, MTP US contributed £6.7 million in net statutory revenues and £3.9 million of the Group loss before tax.  Consequently, had the Sale occurred on 1 January 2017, the Group would have reported a loss before tax for the financial year ended 31 December 2017 of £13.4 million compared to the £17.3 million reported for the financial year ended 31 December 2017.

For the six-month period to 30 June 2018, MTP US contributed £3.1 million in net statutory revenues and £5.8 million of the Group loss before tax, including a fair value adjustment of £4.7 million arising on the classification of the MTP US business as an asset held for sale.  The net assets classified as held for sale as at 30 June 2018 were £11.2m.  

Had the Sale occurred on 1 January 2018, the Group would have reported a loss before tax from continuing and discontinued operations for the six-month period ended 30 June 2018 of £6.5 million compared to the £12.3 million reported for the same period.  As at 31 December 2017, the Group reported net assets of £34.7 million, of which £18.6 million were attributed to MTP US.  As at 30 June 2018, Group net assets were £23.4 million, of which £11.2 million were attributed to MTP US.

The loss of US revenue resulting from the sale of MTP US is not anticipated to have a materially negative impact on the cash flow of the Midatech Group over the short to medium term. 

Upon completion of the Sale, Midatech is required to repay its outstanding loan to MidCap Financial of $7.0 million plus early repayment fees and deferred interest.  The remaining proceeds of the Sale (i.e. after Midcap repayment and other transaction costs) are expected to be approximately $4.5 million (before any deferred consideration which may be received under the Earnout). These proceeds will be used to fund the ongoing operating expenses of the core business including the continued development of MTD201/ Q-Octreotide and MTX110.

Background to the Transaction

MTP US is the current commercial arm of Midatech. MTP US is focused on commercialising oncology supportive care products which help patients manage the impact of their cancer as well as the side effects of their cancer therapy.

As previously announced, the Board of Midatech has reviewed a range of options to meet the cash flow needs of Midatech, including non-dilutive financing and other strategic alternatives.  Accordingly, the Board has evaluated the sale of MTP US and has concluded that the Sale optimises shareholder value and also supplies the Group with additional funding.  Further, the Sale will streamline the Midatech business with a focus on R&D and allow management to completely focus on advancing on the Company’s R&D pipeline to maximise the value of the business.

Kanwa Holdings, LP is a limited partnership established for the purposes of acquiring MTP US.  It is owned by Funds managed by or through Barings LLC.

Source: Company Press Release