Note: This English translation is an abstract of the official announcement in Japanese.

Transcription

1 Note: This English translation is an abstract of the official announcement in Japanese. News Release Dated June 14, 2016 MEDRx Co., Ltd. Masayoshi Matsumura, President & CEO Stock code: 4586, TSE Mothers Announcement of Offerings of Unsecured Convertible-bond Type Bonds with Stock Acquisition Rights No.1 and Stock Acquisition Rights No. 11 and 12 through Third-party Allotment MEDRx Co., Ltd. (hereinafter the Company ) announces that at a meeting held on June 14, 2016, its Board of Directors approved a resolution to make offerings of unsecured convertible-bond type bonds with stock acquisition rights No. 1 (hereinafter the Bonds with Stock Acquisition Rights, of which the bonds and stock acquisition rights hereinafter called the Bonds and the Convertible Bonds with Stock Acquisition Rights, respectively) and the stock acquisition rights No. 11 and No. 12 (hereinafter collectively the Stock Acquisition Rights ) by a third-party allotment, in which the prospective allottee is Whiz Healthcare Japan 2.0 Investment Limited Partnership, for which Whiz Partners Inc. serves as a managing partner. The Board of Directors also approved a resolution to establish an investment agreement with Whiz Partners, the managing partner of the prospective allottee. Details are as follows. 1. Outline of Offerings (1) Unsecured convertible-bond type bonds with stock acquisition rights No. 1 (1) Payment date June 30, 2016 (2) Total number of stock 40 acquisition rights (3) Issue prices of bonds and stock acquisition rights (4) Number of dilutive shares after the 600,000 shares issuance (5) Amount of funds to 631,800,000 yen be raised (6) Conversion price 1,053 yen (7) Method of offering or allotment (the prospective allottee) The issue price of the Bonds: 15,795,000 yen (100 yen per face value of 100 yen) The issue price of the Convertible Bonds with Stock Acquisition Rights: gratis A third-party allotment will be used with all amounts allotted to Whiz Healthcare Japan 2.0 Investment Limited Partnership. (8) Interest rate No interest will be paid on Bonds. (1) Each of the items above is subject to effective registration under the Financial Instruments and Exchange Act. (2) Redemption requests from the prospective allottee The prospective allottee may, only in either of cases a. to e. below, on or after the payment date and during the period until June 30, 2018 (inclusive), by the written notification to the Company at least 15 business days before the intended redemption date, request advanced redemption of the Bonds, wholly or partly, held by the prospective allottee in an amount equivalent to the face value multiplied by a (9) Others ratio of 110.0%. This item shall not apply on or after July 1, a. Organizational restructuring of the Company and MEDRx USA INC. (the Company and MEDRx USA ) b. Transfer or acceptance of the whole, or of an important part, of the business of the Company and MEDRx USA c. Application being made for the commencement of procedures for dissolution or bankruptcy, commencement of procedures for corporate reorganization, commencement of procedures for civil rehabilitation, commencement of procedures for special liquidation and the commencement of other types of 1

2 corporate insolvency by the Company and MEDRx USA d. Delisting or a decision for delisting of the common stock of the Company e. A serious violation of the investment agreement by the Company (including but not limited to a false and inaccurate statement and guarantee by the Company in the investment agreement) or a minor violation of the investment agreement by the Company and the Company fails to rectify the violation within two weeks of receipt of a request for correction from Whiz Partners (2) Stock acquisition rights No. 11 (1) Allotment date June 30, 2016 (2) Total number of stock 120 acquisition rights (3) Issue price Total amount: 19,812,000 yen (165,100 yen per stock acquisition right) (4) Number of dilutive shares after the 1,200,000 shares (10,000 shares per stock acquisition right) issuance 1,283,412,000 yen (5) Amount of funds to (Breakdown) For the issuance of stock acquisition rights: 19,812,000 yen be raised For the exercise of stock acquisition rights: 1,263,600,000 yen (6) Exercise price 1,053 yen (7) Method of offering or A third-party allotment will be used with all amounts allotted to Whiz Healthcare Japan allotment (the 2.0 Investment Limited Partnership. prospective allottee) (1) Each of the items above is subject to effective registration under the Financial Instruments and Exchange Act. (2) Starting on June 30, 2016, the Company may instruct the prospective allottee to exercise the Stock Acquisition Rights in either of the following cases. The prospective allottee must exercise these rights as instructed within two business days of the date the exercise notice was received (the Exercise Instruction Date ). a. When the closing price of the Company s common stock on the Tokyo Stock Exchange is more than 150% of the exercise price for 10 consecutive trading days including the Exercise Instruction Date (the 10 trading days do not include any days when there was no closing price; the same shall apply hereinafter), the Company can instruct the prospective allottee to exercise up to total 30 of the Stock Acquisition Rights No. 11 (total exercise amount of 315,900,000 yen and 300,000 shares). b. When the closing price of the Company s common stock on the Tokyo Stock Exchange is more than 200% of the exercise price for 10 consecutive days including the Exercise Instruction Date, the Company can instruct the prospective (8) Others allottee to exercise up to total 60 of the Stock Acquisition Rights No. 11, which includes the rights exercised in the preceding section (total exercise amount of 631,800,000 yen and 600,000 shares). However, in all cases, on the Exercise Instruction Date, the number of Stock Acquisition Rights No. 11 that the Company can instruct to exercise cannot be more than 20% of the average daily trading volume during the applicable period. Furthermore, in all cases, the Company cannot ask for the exercise of more than 60 (total exercise amount of 631,800,000 yen and 600,000 shares) of the Stock Acquisition Rights No. 11. However, the Company cannot submit instructions to the prospective allottee to exercise Stock Acquisition Rights No. 11 (i) within five business days of submitting instructions to exercise Stock Acquisition Rights No. 11 based on the provisions of this section (2), (ii) within five business days of a day when the prospective allottee requested to exercise the Convertible Bonds with Stock Acquisition Rights or the Stock Acquisition Rights or (iii) during a period when the prospective allottee or Whiz Partners has insider information about the Company. 2

3 (3) Stock acquisition rights No. 12 (1) Allotment date June 30, 2016 (2) Total number of stock acquisition rights 40 (3) Issue price Total amount: 52,000 yen (1,300 yen per stock acquisition right) (4) Number of dilutive shares after the issuance 200,000 shares (5,000 shares per stock acquisition right) 316,052,000 yen (5) Amount of funds to be (Breakdown) For the issuance of stock acquisition rights: 52,000 yen raised For the exercise of stock acquisition rights: 316,000,000 yen (6) Exercise price 1,580 yen (7) Method of offering or allotment (the prospective allottee) (8) Others A third-party allotment will be used with all amounts allotted to Whiz Healthcare Japan 2.0 Investment Limited Partnership. Each of the items above is subject to effective registration under the Financial Instruments and Exchange Act. 2. Purpose and Reason for Offerings The MEDRx Group is a drug-discovery venture that develops pharmaceuticals with new forms of added value. The Group uses drug production technologies that primarily utilize the Ionic Liquid (*1) Transdermal System (ILTS ), which is an exclusive MEDRx technology. This technology dramatically increases absorption by the skin (*2) of a variety of effective substances ranging from low to high molecular weights. The first compound in the MEDRx pipeline is ETOREAT, an etodolac (*3) -incorporated topical patch for alleviating pain caused by inflammation, which is under clinical development in the United States. In addition, clinical trials (*4) or preparations for these trials are under way in the United States for three pipelines in addition to ETOREAT. For MRX-1OXT (a medicated (Oxycodone (*5) ) patch for alleviating central pain), non-clinical trials (*6) started in November 2015 to prepare for U.S. clinical trials. For the U.S. production of the drug to be used for these trials, the Company is currently transferring manufacturing technologies to The Tapemark Company (based in the U.S. state of Minnesota), which concluded a consignment agreement with the Company in December For MRX-5LBT (a medicated (Lidocaine (*7) ) patch for alleviating nerve pain associated with shingles), clinical trials started on March For MRX-4TZT (a medicated (Tizanidine (*8) ) patch for alleviating spastic paralysis), clinical trials are planned to start at some time in The MEDRx Pipeline Product name Development code Development stage Non-clinical trial Phase I clinical trial Phase II clinical trial Phase III clinical trial Application Launch ETOREAT (in USA) MRX-1OXT (in USA) MRX-5LBT (in USA) The non-clinical trial was started in Nov (1) Results to be announced in Jul.-Aug (2) Results to be announced in the first half of 2017 A manufacturing consignment agreement for investigational new drug was concluded with Tapemark, U.S. in Dec Phase I clinical trial has completed in May 2016 Goal is NDA approval as early as possible MRX-4TZT (in USA) The phase I clinical trial to be started in

4 The Group plans to earn profits primarily by receiving revenue based on alliance agreements with pharmaceutical and other companies concerning ETOREAT. The Group also expects to receive revenue prior to the launch (*9) of ETOREAT by receiving milestone fees once pre-determined accomplishments have been made. However, these milestone fees are difficult to predict because the receipt of these payments will depend on progress with development activities. The primary purpose of this fund procurement is to accelerate the Group s growth without having to wait for revenue from the ETOREAT alliance contract to generate funds required for the development of subsequent products. Flexible raising of funds will enable us to progress with development activities for MRX-4TZT (a medicated (tizanidine) patch for alleviating spastic paralysis) for which some funds for development work have not yet been secured, new pipeline item MRX-5DML (transdermal drug for the treatment of Alzheimer s disease (a patch containing Donepezil (*10) and Memantine (*11) ) and subsequent pipeline items. MRX-4TZT: Drug for alleviating spastic paralysis (Tizanidine patch) The Company has developed a medicated tape with tizanidine, a drug that incorporates ILTS and is a central muscle relaxant. Non-clinical trials are now under way and the Company plans to start clinical trials in MRX-5DML: Transdermal drug for the treatment of Alzheimer s disease (patch containing donepezil and memantine) Separately from work involving ILTS, the Company has been performing R&D concerning transdermal drugs that use MEDRx exclusive Nano-sized Colloid Transdermal System (NCTS). By transforming drugs into nano-colloids (*12), the NCTS greatly increases the absorption of drugs through the skin. MRX-5DML uses the NCTS to develop a drug combining donepezil and memantine for use in a patch for the treatment of Alzheimer s disease. A non-clinical trial is under way for MRX-5DML, making it possible to start the clinical trial phase in The Group is determined to produce substantial business value from its drug production technologies, chiefly ILTS and NCTS. The Group believes that the only way to accomplish this goal is to move ahead with the development of ETOREAT, the primary pipeline product, while also working on the development of MRX -1OXT, MRX-5LBT, MRX-4TZT, MRX-5DML and other subsequent items in the pipeline. To diversify the revenue uncertainties stemming from the uncertain state of development progress on ETOREAT and other pipelines, the Group believes that making aggressive investments in subsequent pipelines is one of the best ways to build a stronger and more diverse profit structure. This is ultimately expected to contribute to medium - to long-term growth in corporate value. The primary activities of the Company involve active ingredients of drugs that were developed internally. The Company performs clinical development activities in the United States with the goal of either receiving U.S. regulatory approval to manufacture and sell prescription drugs or licensing these drugs to other companies. As a result, establishing U.S. bases for the development of drugs and the production of drugs for testing is a critical management issue for the Company in order to perform development activities faster and more efficiently. Therefore, one purpose of these offerings is to procure funds that will be required to establish capital and business alliances with companies that have facilities for the development and production of transdermal drugs in the United States. At this time, the Company is holding discussions regarding cooperation, including the possibility of capital and business alliances, with a number of companies with U.S. transdermal drug development and production facilities. The Company plans to use some of the funds procured from these offerings for alliances if any agreements are reached. Terminology *1: An ionic liquid is a salt with a melting point of not more than 100ºC and is also called a room temperature molten salt. Properties include a low melting point, high ion conductivity, high polarity, non -volatility and non-combustibility. Many applications are being examined for ionic liquids, including in solar cells and environmentally responsible reaction solvents. The Company was first in the world to discover that converting drugs into ionic liquids and dissolving drugs in ionic liquids can dramatically increase the transdermal permeability of these drugs. The Company has gained considerable knowledge involving ionic liquids. There is a library of ionic liquids that are believed to be safe by combining them with compounds 4

5 that have already been used for human consumption. The Company has expertise in selecting ionic liquids that are best suited to increasing the transdermal permeability of targeted drugs. And the Company has the know-how to produce drugs in format that is easy to use (patches, ointments, etc.) while retaining the properties of ionic liquids that contain drugs. The exclusive technology for producing transdermal drugs, which incorporates this knowledge, is called the Ionic Liquid Transdermal System (ILTS ). *2: Skin absorption is the absorption and permeation of a drug through the skin. *3: Etodolac is a non-steroidal anti-inflammatory drug (NSAID) that is used extensively worldwide as an oral treatment for pain and inflammation. The Company s ETOREAT is the world s first attempt to develop a version for use as a patch. *4: A clinical trial is a generic term referring to trials conducted on humans to verify a drug candidate s efficacy and safety. Phase I trials are conducted on small numbers of healthy individuals to determine safe ty and pharmacokinetics. Phase II trials are conducted on small numbers of patients on an exploratory basis to determine efficacy and safety. Phase III trials are conducted on large numbers of patients to verify efficacy and safety. *5: Oxycodone is a type of central analgesic (acts on the central nerves in the brain and the spinal cord to relieve pain) and is a designated medical drug. It is used for relieving severe acute pain, chronic pain, and cancer pain. *6: A non-clinical trial is a trial in which drug candidates are tested, mainly on animals, to determine whether they have sufficient safety and efficacy to be used in human trials. *7: Lidocaine is a type of local anesthetic that reduces pain by blocking the transmission of pain signals at the ends of nerves. *8: Tizanidine is a type of central muscle relaxant (acts on the central nerves in the brain and the spinal cord to alleviate tension of the muscles). This drug is used to alleviate discomfort from shoulder stiffness, back problems, frozen shoulder, tension headaches, spastic paralysis and other muscle problems. *9: Launch means the receipt of approval from regulatory authorities as a new drug and the actual start of sales. *10: Donepezil is an acetylcholinesterase inhibitor that slows the progression of Alzheimer s dementia and dementia with Lewy bodies. *11: Memantine is a glutamate NMDA receptor antagonist that slows the progression of medium to severe Alzheimer s dementia. *12: A colloid is a substance in which particles remain suspended in a uniform manner in a gaseous, liquid or solid medium. A nano-colloid is a colloid consisting of nano-particles. The Company discovered that converting a drug into a nano-colloid increases absorption by the skin. The Company calls this drug production technology the Nano-sized Colloid Transdermal System (NCTS). With this technology, a transdermal drug can be used in liquid form in a patch. This advance is expected to lead to revolutionary drugs that are fast-acting and long-lasting. 3. Amount of Funds to be Raised, Use of Funds and Timing of Expenditure (1) Amount of funds to be raised 1) Total amount paid 2,231,264,000 yen Breakdown: (a) Issuance of Unsecured Convertible-bond Type Bonds with Stock Acquisition Rights No ,800,000 yen (b) Issuance of Stock Acquisition Rights No ,812,000 yen (c) Exercise of Stock Acquisition Rights No. 11 1,263,600,000 yen (d) Issuance of Stock Acquisition Rights No ,000 yen (e) Exercise of Stock Acquisition Rights No ,000,000 yen 2) Estimated issuing expenses 16,500,000 yen 3) Estimated net proceeds 2,214,764,000 yen Notes: 1. As payments from the exercise of the Stock Acquisition Rights depend, in principle, on the judgment of rights holders of the Stock Acquisition Rights, the total amount to be paid through the exercise of the 5

6 Stock Acquisition Rights is determined by the exercise conditions of the Stock Acquisition Rights. Consequently, the aforementioned estimated net proceeds may vary in the future. 2. Estimated issuing expenses do not include consumption taxes. 3. The estimated issuing expenses consist of attorney s fees of 3 million yen, remuneration for the estimation and valuation of the stock acquisition rights and others of 4 million yen, third-party research organization remuneration costs relating to investigating the possibility of the existence of relationships with anti-social forces of 1.7 million yen, registration license tax of 7.4 million yen, and expenses for the preparation of a securities registration statement, the costs of making registration changes, and other administrative fees of 400,000 yen. (2) Specific use of funds procured Specific use Amount (Millions of yen) Scheduled timing of expenditure Expenses for MRX-4TZT clinical trials in the United States 480 From July 2016 to October 2017 Expenses for non-clinical and clinical trials in the United States for MRX-5DML and other associated activities 1,230 From July 2016 to April 2018 Expenses for establishing capital and business alliances with companies that have transdermal drug development and production facilities in the United States or expenses for non-clinical and pre-clinical trials and associated expenses for the Company s own pipeline items 504 From July 2016 to October 2018 Notes: 1. The Company plans to use 480 million yen for expenses involving clinical trials for MRX-4TZT (drug for alleviating spastic paralysis). 2. The Company plans to use 150 million yen for non-clinical trial expenses, 960 million yen for clinical trial expenses and 120 million yen for production of drugs for testing and stability tests for MRX-5DML (a treatment for Alzheimer s disease). 3. The Company plans to use 504 million yen for capital and business alliances with companies that have transdermal drug development and production facilities in the United States. However, prior to any agreement to establish an alliance with a candidate company, the development of candidate compounds for new transdermal pain management drugs or peptide pharmaceuticals, for which R&D is now under way, may progress to the point where clinical trials can begin in the near future. In this case, instead of using funds for capital and business alliances, the Company instead plans to use 150 million yen for non-clinical trials of candidate compounds, 294 million yen for pre-clinical trials and 60 million yen for the production of drugs for testing and their stability tests. 4. The Company s order of priority for using net proceeds of the offerings is as follows: (1) Expenses for MRX-4TZT clinical trials in the United States; (2) Expenses for non-clinical and clinical trials in the United States for MRX-5DML and other associated activities; (3) Expenses for establishing capital and business alliances with companies that have transdermal drug development and production facilities in the United States or expenses for non-clinical and pre-clinical trials and associated expenses for the Company s own pipeline items. 5. A financial institution will place the proceeds of the offerings in secure financial instruments until the funds are needed. 6. As payments from the exercise of the Stock Acquisition Rights depend, in principle, on the judgment of rights holders of the Stock Acquisition Rights, the total amount to be paid through the exercise of the Stock Acquisition Rights is determined by the exercise conditions of the Stock Acquisition Rights. Consequently, in case the funding by the Stock Acquisition Rights becomes difficult to achieve due to insufficient exercise of the Stock Acquisition Rights, the Company intends to examine the possibility of implementing other funding means. 7. Specific uses and amounts may be modified according to changes in future conditions. If the uses are finally determined and specific uses are modified, such information will be appropriately disclosed. 6

7 3. Reason for selecting the prospective allottee and other information (1) Profile of the prospective allottee (As of June 13, 2016) (1) Name Whiz Healthcare Japan 2.0 Investment Limited Partnership (2) Address 36th Floor, Atago Green Hills MORI Tower, 2-5-1, Atago, Minato-ku, Tokyo (3) Jurisdiction Limited Partnership Act for Investment (Act No. 90 of 1998, including subsequent revisions) (4) Activities This partnership was formed for the purpose of investing in healthcare-related companies that have innovative scientific discoveries or technologies or that use a revolutionary business model with the aim of helping enable people enjoy long and healthy lives. (5) Established October 1, 2014 (6) Total capitalization 15,480,000,000 yen (7) (8) (9) Unitholders, percentage of investment units held and profiles Overview of managing partner Relationships between the Company and the fund/general partner %: Organization for Small & Medium Enterprises and Regional Innovation, JAPAN %: Japan Trustee Services Bank, Ltd. (Specific pension trust ) (Japan Trustee Services is a trustee of corporate pension funds.) *There are no other investors whose investment ratio is over 10% of the invested amount. The investment ratio of Whiz Partners Inc., an unlimited liability partner of Whiz Healthcare Japan 2.0, is 1.6%. Name Whiz Partners Inc. 36th floor, Atago Green Hills MORI Tower Address 2-5-1, Atago, Minato-ku, Tokyo Toshio Ando, Representative Chief Executive Officer and President 1. Investment in, and assisting the development of, companies operating mainly in the fields of life sciences (biotechnology) and IT (information technology) in Japan and overseas 2. Establishment of investment partnerships and Business management and operation of investment partnership assets 3. General management consulting 4. Type II financial instruments business, investment advisory, agency operations and investment management business Capital 100 million yen Relationships between the Company and the fund Relationships between the Company and the general partner Neither the Company nor persons or companies associated with the Company directly or indirectly invest in the fund. In addition, there are no significant capital, personnel or business relationships between the Company, persons or companies associated with the Company and the investor of the fund, including the current investors. There are no significant capital, personnel or business relationships between the Company, persons or companies associated with the Company, and the managing partner of the fund. In addition, there are no significant capital, personnel or business relationships between the Company, persons or companies associated with the Company and the managing partner of the fund as well as persons or companies associated with the managing partner of the fund. 7

8 (2) Reason for selecting the prospective allottee The Company had expected to procure about 1,100 million yen from the sale (third-party allotment) of the No. 8 Warrants (with a provision for revising the exercise price) on December 7, The funds were to be used for the development of MRX-5LBT (drug for alleviating nerve pain associated with shingles), MRX-4TZT (drug for alleviating spastic paralysis) and other items. However, additional funds were needed because the sale of these warrants procured only about 850 million yen. As a result, the Company considered the procurement of additional funds for these development activities as well as for (i) non-clinical trials and clinical trials in the United States for MRX-5DML; (ii) the establishment of capital and business alliances with companies that have transdermal drug development and production facilities in the United States; and (iii) non-clinical and pre-clinical trials and associated expenses for the Company s own pipeline items. The Company has studied all possible funding means including the issuance of shares, bonds with stock acquisition rights and/or stock acquisition rights by third-party allotment, in which the allottee of equity finance is a corporation that well understands the Company s business models, management policies, financial requirements and the like. Given such circumstances, the Company explained its growth strategy, financial data and capital requirements to several candidates including Whiz Healthcare Japan 2.0 so that they could understand the Company s current financial conditions. Whiz Healthcare Japan 2.0 proposed a procurement scheme that combines Bonds with Stock Acquisition Rights with the Stock Acquisition Rights. The Company subsequently proceeded with discussions about this proposal based on the belief that this was the best method for procuring funds required by the Company while taking into account the Company s stock price and the interests of current shareholders. Whiz Healthcare Japan 2.0, which is the prospective allottee of these offerings, is a fund established by its managing partner Whiz Partners. Although this fund was created solely to make investments, Whiz Partners is an organization with a global network backed by many years of experience. Whiz Partners has been making venture capital investments in Japan s biotech sector since this sector first emerged and has a long list of accomplishments involving IPOs, M&A, business alliances and other activities of portfolio companies in Japan and overseas. In addition to its expertise in the biotech and healthcare sectors, Whiz Partners has much expertise in the management of companies and related fields. Consequently, Whiz Partners had a thorough understanding of the Company s pipeline development plans for increasing corporate value, the Company s management policies and business activities, and the need to procure funds for these activities. Whiz Healthcare Japan 2.0 was established with the primary goal of increasing the value of companies that can help people enjoy long and healthy lives and companies with the potential to help build next-generation industrial infrastructures involving life sciences and many other fields. Whiz Partners submitted this proposal for an investment because the Company s operations and objectives are consistent with the investment universe of Whiz Healthcare Japan 2.0. The Company plans to use alliances and other relationships with companies across a broad spectrum of the biotech and healthcare sectors to grow and establish stronger market positions. The Company believes that receiving the support of Whiz Partners will be vital to accomplishing this goal. As a result, the Company selected Whiz Healthcare Japan 2.0 as the prospective allottee of these offerings Contact: MEDRx Co., Ltd. Management Department info@medrx.co.jp