UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

(Mark One)

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2019

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

  For the transition period from ______________ to _______________

OR

o SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

  Date of event requiring this shell company report_________________

 

Commission File Number 001-37652

____________________________________________________________

MIDATECH PHARMA PLC

(Exact name of registrant as specified in its charter)

____________________________________________________________

England and Wales

(Jurisdiction of incorporation or organization)

 

Oddfellows House

19 Newport Road

Cardiff, CF24 0AA

United Kingdom

(Address of principal executive offices)

 

Stephen Stamp, Chief Executive Officer

Oddfellows House

19 Newport Road

Cardiff, CF24 0AA

United Kingdom

Tel: +44 1235 888 300

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class Trading Symbol   Name of each exchange on which
registered
Ordinary Shares, nominal value 0.1p each      
       
American Depositary Shares, each representing five ordinary shares MTP   NASDAQ Capital Market

 

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Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

None

(Title of Class)

____________________________________________________________

 

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2019 was: 23,464,981 Ordinary Shares

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO x

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. YES NO x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer o Accelerated filer o

Non-accelerated filer o

Emerging growth company x

 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP International Financial Reporting Standards as issued by the International Accounting Standards Board x

Other o

 

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 o

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

 

 

 

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TABLE OF CONTENTS

 

PART I
   
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS 8
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 8
ITEM 3. KEY INFORMATION 8
ITEM 4. INFORMATION ON THE GROUP 39
ITEM 4A. UNRESOLVED STAFF COMMENTS 69
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 69
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 81
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 91
ITEM 8. FINANCIAL INFORMATION 96
ITEM 9. THE OFFER AND LISTING 96
ITEM 10. ADDITIONAL INFORMATION 97
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 104
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 105
   
PART II
   
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 108
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
108
ITEM 15. CONTROLS AND PROCEDURES 108
ITEM 16. [RESERVED]  
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 110
ITEM 16B. CODE OF ETHICS 110
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 110
ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES 111
ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 111
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT 111
ITEM 16G. CORPORATE GOVERNANCE 111
ITEM 16H. MINE SAFETY DISCLOSURE 111
   
PART III
   
ITEM 17. FINANCIAL STATEMENTS 112
ITEM 18. FINANCIAL STATEMENTS 112
ITEM 19. EXHIBITS 113
SIGNATURES 116

 

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GENERAL INFORMATION

 

Midatech Pharma PLC is a public limited company organized under the laws of England and Wales under registered number 09216368. In this annual report, references to “we,” “us,” “our,” “the Group,” “Company,” “company” or “Midatech” means Midatech Pharma PLC and our consolidated subsidiaries.

 

On December 4, 2015, we acquired DARA BioSciences, Inc., or DARA, through a merger transaction, or the Merger. Immediately following the closing of the Merger, DARA became our wholly owned subsidiary and changed its named to “Midatech Pharma US Inc.”, or Midatech US. Effective as of November 1, 2018, Midatech US was sold to Kanwa Holdings, LP, an affiliate of Barings LLC. Where this Annual Report on Form 20-F (i) provides information for dates prior to December 4, 2015, such information does not include the historical information of DARA, and (ii) references Midatech US, it is referencing the former DARA entity from December 4, 2015 through October 31, 2018.

 

Our principal executive offices are located at Oddfellows House, 19 Newport Road, Cardiff, CF24 0AA, United Kingdom. The telephone number at our principal executive office is +44 1235 888 300.

 

We maintain an Internet website at www.midatechpharma.com. None of the information contained on our website, or on any other website linked to our website, will be incorporated in this annual report by reference or otherwise be deemed to be a part of this annual report.

 

The trademarks, trade names and service marks appearing in this Annual Report on Form 20-F are the property of their respective owners.

 

PRESENTATION OF FINANCIAL AND OTHER DATA

 

The consolidated financial statement data as of December 31, 2019, 2018 and 2017 and for the years ended December 31, 2019, 2018 and 2017 have been derived from our consolidated financial statements, as presented at the end of this annual report, which have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

We prepare our consolidated financial statements in British pounds sterling. Except as otherwise stated, all monetary amounts in this annual report are presented in British pounds sterling. Solely for the convenience of the reader, unless otherwise indicated, all British pounds sterling amounts as of and for the year ended December 31, 2019 have been translated into United States dollars at the rate as of December 31, 2019, of £1.00 to $1.3269, based on noon buying rates published by the Federal Reserve Bank of New York for the British pound sterling on such date. These translations should not be considered representations that any such amounts have been, could have been or could be converted into United States dollars at that or any other exchange rate as of that or any other date.

 

In this annual report, unless otherwise specified or the context otherwise requires:

 

· “$” and “U.S. dollar” each refer to the United States dollar (or units thereof); and

 

· “£,” “pence” and “p” each refer to the British pound sterling (or units thereof).

 

References to a particular “fiscal” year are to our fiscal year ended December 31 of such year. References to years not specified as being fiscal years are to calendar years.

 

On March 3, 2020, following shareholder approval, we effected a one-for-20 reverse split of our ordinary shares, nominal value 0.1p per share, or Ordinary Shares, and our Ordinary Shares began trading on AIM, a market operated by the London Stock Exchange plc, or AIM, on a split-adjusted basis as of such date. No fractional shares were issued in connection with the reverse stock split. As a result of the reverse stock split, the number of issued and outstanding Ordinary Shares was reduced to 23,494,981 shares as of March 3, 2020.

 

Concurrently with the reverse split, and in an effort to bring our Depositary Share price into compliance with The NASDAQ Stock Market LLC’s, or NASDAQ, minimum bid price per share requirement, on March 3, 2020 we effected a ratio change in the number of Ordinary Shares represented by our American depositary shares, or Depositary Shares, from 20 Ordinary Shares per Depositary Share to five Ordinary Shares per Depositary Share, reducing the number of outstanding Depositary Shares, as of the close of business on March 3, 2020 to 988,656.

 

The change in the number of shares resulting from the reverse stock split and change in the number of Depositary Shares resulting from the change in ratio has been applied retroactively to all share and per share amounts presented in this annual report, to the extent applicable.

 

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As reference, the following provides a description of the different phases of clinical trials, as may be used in this annual report:

 

· Phase I clinical trials involve the assessment of the safety, pharmacodynamics and pharmacokinetics of a drug candidate in a small group of healthy human subjects (typically 20 to 100 patients), or in certain indications such as cancer, patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.

 

· Phase II clinical trials involve the assessment in patients of a drug to determine its safety, dose range, possible side effects and preliminary efficacy (typically 100 to 300 patients).

 

· Phase III is a clinical trial involving the assessment of the efficacy and safety of a drug, usually in comparison with a marketed product or a placebo, in the patient population for which it is intended (typically 1,000 to 3,000 patients).

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This annual report contains certain forward-looking information about the Company that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this annual report or may be incorporated into this annual report by reference to other documents. Our representatives may also make forward-looking statements. Forward-looking statements are statements that are not historical facts. Words such as “expect,” “believe,” “will,” “may,” “anticipate,” “plan,” “estimate,” “intend,” “should,” “can,” “likely,” “could” and similar expressions are intended to identify forward-looking statements. Forward-looking statements appear in a number of places throughout this annual report and include statements regarding our intentions, beliefs, assumptions, projections, outlook, analyses or current expectations concerning, among other things, our intellectual property position, research and development projects, results of operations, cash needs, capital expenditures, financial condition, liquidity, prospects, growth and strategies, regulatory approvals and clearances, the markets and industry in which we operate and the trends and competition that may affect the markets, industry or us.

 

These forward-looking statements are based on currently available competitive, financial and economic data together with management’s views and assumptions regarding future events and business performance as of the time the statements are made and are subject to risks and uncertainties. We wish to caution you that there are some known and unknown factors that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements, including but not limited to risks related to:

 

· our requirement for additional financing and our ability to continue as a going concern;

 

· our estimates regarding losses, expenses, future revenues, and capital requirements;

 

· the results of our strategic review;

 

· our ability to successfully develop, test, and partner with a licensee to manufacture or commercialize products for conditions using our technology platforms;

 

· the successful commercialization and manufacturing of our any future product candidate we may commercialize or license;

 

· the outcome of our remediation plan and approach to the material weaknesses in internal control over financial reporting;

 

· our indemnity obligations;

 

· the success and timing of preclinical studies and clinical trials, if any;

 

· shifts in our business and commercial strategy;

 

· the filing and timing of regulatory filings, including Investigational New Drug applications, with respect to any of our products and the receipt of any regulatory approvals;

 

· the anticipated medical benefits of our products;

 

· the difficulties in obtaining and maintaining regulatory approval of our product candidates, and the labeling under any approval we may obtain;

 

· the success and timing of the potential commercial development of our product candidates and any product candidates we may acquire in the future;

 

· our plans and ability to develop and commercialize our product candidates and any product candidates we may acquire in the future;

 

· the ability to manufacture products in our own facilities;

 

· the rate and degree of market acceptance of any of our product candidates;

 

· the successful development of our commercialization capabilities, including our internal sales and marketing capabilities;

 

· obtaining and maintaining intellectual property protection for our product candidates and our proprietary technology;

 

· the success of competing therapies and products that are or become available;

 

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· the success of any future acquisitions;

 

· cybersecurity and other cyber incidents;

 

· industry trends;

 

· the impact of government laws and regulations;

 

· regulatory, economic and political developments in the United Kingdom, the European Union, the United States and other foreign countries, including any impact from the United Kingdom leaving the European Union;

 

· the difficulties doing business internationally, including any risks related to the novel strain of coronavirus, COVID-19;

 

· the ownership of our Ordinary Shares and Depositary Shares;

 

· our ability to continue to meet the listing criteria required to remain listed on the NASDAQ Capital Market;

 

· the status of our ongoing leadership transition and our failure to recruit or retain key scientific or management personnel or to retain our senior management;

 

· the impact and costs and expenses of any litigation we may be subject to now or in the future;

 

· the performance of third parties, including joint venture partners, our collaborators, third-party suppliers and parties to our licensing agreements; and

 

· other risks and uncertainties, including those described in “Risk Factors” in this annual report.

   

Any forward-looking statements that we make in this annual report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this annual report. See “Item 10. Additional Information—H. Documents on Display.”

 

You should also read carefully the factors described in “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this annual report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.

 

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PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.

 

Not Applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.

 

Not Applicable.

 

ITEM 3. KEY INFORMATION.

 

A. Selected Financial Data.

 

DARA BioSciences, Inc.

   

On December 4, 2015, we acquired DARA and subsequently changed its name to Midatech US. Our financial and operating data for fiscal 2015, set forth in our consolidated financial statements for the year ended December 31, 2015 and referenced in our consolidated financial statements for the years ended December 31, 2016 and 2017, was not adjusted to reflect the full year effect of our acquisition of DARA, whereas statement of financial position data and subsequent periods include contributions from Midatech US through December 31, 2017. We sold Midatech US effective November 1, 2018 and under IFRS 5, the results of Midatech US have been represented as loss from discontinued operations for fiscal 2018 and for all comparative prior periods shown elsewhere in this annual report.

  

Selected Financial Data

 

We prepare our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and as adopted by the European Union. The following table sets forth certain of our consolidated financial data as of the dates and for the periods indicated. Our historical results are not necessarily indicative of the results that may be expected in the future. The selected historical financial data presented below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our financial statements and the related notes thereto, which are included elsewhere in this annual report. The selected historical financial information in this section is not intended to replace our financial statements and the related notes thereto.

 

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Selected Financial Data

 

(£ in thousands, except share and per share data)   As of and for the
Year Ended
December 31,
 
    2019     2018     2017     2016     2015  
                               
                   
                               
Consolidated Statement of Comprehensive Income Data:                              
Revenue     312       149       149       776       273  
Loss from operations     (11,318 )     (11,815 )     (13,276 )     (9,652 )     (12,614 )
Loss before tax     (10,923 )     (12,400 )     (12,970 )     (8,388 )     (10,928 )
Loss from continuing operations     (9,138 )     (10,368 )     (11,705 )     (6,161 )     (9,887 )
Loss from discontinued operations, net of tax     (947 )     (4,662 )     (4,359 )     (14,001 )     (211 )
Loss for the year attributable to the owners of the parent     (10,085 )     (15,030 )     (16,064 )     (20,162 )     (10,099 )
Total other comprehensive (loss) income, net of tax     (207 )     (2,686 )     (1,233 )     3,228       399  
Total comprehensive loss attributable to the owners of the parent     (10,292 )     (17,716 )     (17,297 )     (16,934 )     (9,700 )
Loss Per Share Data:                                        
Basic and diluted loss per ordinary share—pence -continuing operations     (50 )p     (339 )p     (456 )p     (342 )p     (700 )p
Basic and diluted loss per ordinary share—pence -discontinued operations     (5 )p     (153 )p     (170 )p     (776 )p     (15 )p
Cash dividends declared per ordinary share     ---       ---       ---       ---       ---  
Weighted average number of ordinary shares used     18,330,588       3,056,303       2,565,866       1,803,637       1,411,491  
Consolidated Statement of Financial Position Data:                                        
Non-Current assets     17,158       14,826       30,641       34,386       43,710  
Current assets     13,737       5,618       18,583       22,303       20,331  
Cash and cash equivalents     10,928       2,343       13,204       17,608       16,175  
Total assets     30,895       20,444       49,224       56,689       64,041  
Non-Current liabilities     5,670       1,049       6,185       1,620       8,055  
Borrowings, non-current     5,670       884       6,185       1,620       1,508  
Current liabilities     5,667       2,471       8,363       9,345       9,099  
Total liabilities     11,337       3,520       14,548       10,965       17,154  
Total equity     19,558       16,924       34,676       45,724       46,887  
Total equity and liabilities     30,895       20,444       49,224       56,689       64,041  

  

Exchange Rates

 

Our financial reporting currency is the British pound sterling. Fluctuations in the exchange rate between the British pound sterling and the United States dollar will affect the United States dollar amounts received by owners of our Depositary Shares on conversion of dividends, if any, paid in British pound sterling on our Ordinary Shares, and will affect the United States dollar price of the Depositary Shares on the NASDAQ Capital Market.

  

B. Capitalization and Indebtedness

 

Not Applicable

 

C. Reasons for the Offer and Use of Proceeds

 

Not Applicable

 

D. Risk Factors

 

Our business has significant risks. In addition to the other information included in this annual report, including the matters addressed in the section of the annual report entitled “Cautionary Note Regarding Forward-Looking Statements” and in our financial statements and the related notes, you should consider carefully the risks described below. The risks and uncertainties described below are not the only risks and uncertainties we may face. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial could also negatively affect our business, financial condition, results of operations, prospects, profits and stock prices. If any of the risks described below actually occur, our business, financial condition, results of operations, prospects, profits and stock prices could be materially adversely affected.

 

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Risks Related to Our Financial Operations and Capital Needs

 

We have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.

 

We are an early-stage biopharmaceutical company. Investment in biopharmaceutical product development is highly speculative because we entail substantial upfront capital expenditures and significant risk that a product candidate will fail in development, will fail to gain regulatory approval or otherwise fail to become commercially viable. We continue to incur significant development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred substantial losses since our inception. For the year ended December 31, 2019, we had a net loss of £10.09 million and an accumulated deficit of £99.84 million. For the years ended December 31, 2018 and 2017 we had a net loss of £15.03 million and £16.06 million, respectively.

 

We expect to continue to incur losses for the foreseeable future, and do not expect these losses to reduce as we continue our development of, and work with any licensing partners to seek regulatory approvals for, our product candidates.

 

We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. If we fail to find licensing partners, if we abandon any development programs, or if any of our licensed product candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses and expected future losses have had and will continue to have an adverse effect on our shareholders’ equity and working capital.

 

We are currently undergoing a strategic review of our operations, which may be a lengthy process and yield uncertain results.

 

In March 2020, we reviewed the remaining costs necessary to complete the Phase III clinical trial of our product candidate MTD201, as well as the manufacturing scale-up of our MTD201 manufacturing capabilities at our Bilbao, Spain facilities. Given the state of the financial markets, and our current cash runway, we determined we were unlikely to conclude a license transaction or raise sufficient funds to continue the required remaining investment in MTD201 in a timely manner. Due to this, the Board of Directors made the determination to terminate the further in-house development of MTD201 immediately, including closing our Bilbao facilities, and to seek a license partner for MTD201.

 

On March 31, 2020, we announced that, due to the prevailing conditions in the capital markets and the prospect of raising additional funds and finding a partner for our assets, the Board of Directors initiated a strategic review of our operations. The objective of the review is to identify ways to maximize value for our stakeholders given the significant challenges faced by our business. We have formed a Finance Committee comprised of Mr. Stamp and Rolf Stahel, our Chairman, to review, analyze and make recommendations to the Board of Directors regarding a possible sale of our business or other strategic transactions, and have hired an outside advisor to assist us. Any sale would be subject to certain rules and regulations in the United Kingdom and the United States, and we are currently considered to be in an “offer period” under United Kingdom rules and regulations, which places certain restrictions and obligations on us. This process may be lengthy and there can be no certainty as to its result.

 

Our requirement for additional financing in the short-term represents a material uncertainty that raises substantial doubt about our ability to continue as a going concern. 

 

We have experienced net losses and significant cash outflows from cash used in operating activities over the past years as we develop our portfolio. For the year ended December 31, 2019, the Company incurred a consolidated loss from operations of £10.1 million and negative cash flows from operations of £6.5 million. As of December 31, 2019, we had an accumulated deficit of £99.8 million.

        

Our consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As at December 31, 2019, we had cash and cash equivalents of £10.93 million. In May 2020, we completed an equity offering, raising £3.7 million, net of costs. We believe we currently have enough cash to fund our planned operations into the second quarter of 2021.

 

Our future viability is dependent on our ability to generate cash from operating activities, to raise additional capital to finance our operations and to successfully obtain regulatory approval to allow marketing of our development products. Our failure to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. For example, due to our current and forecasted cash position, on March 31, 2020, we made the decision to cease self-funded development of certain of our research and development programs, close our Spanish operations and make certain positions redundant in our United Kingdom operations. In connection with our strategic review announced on the same date, we are in the process of seeking to license or assign one or more of our technologies to a partner or, alternatively, to seek a buyer for our Company. Any or all of these transactions may be on unfavorable terms.

 

We have prepared cash flow forecasts and considered the cash flow requirement for our next five years, including the period twelve months from the date of the approval of the financial statements. These forecasts show that further financing will be required during the course of the next 12 months, assuming, inter alia, that certain development programs and other operating activities continue as currently planned.  This requirement for additional financing represents a material uncertainty that raises substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2019 with respect to this uncertainty.

 

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In addition, the global spread of pandemic novel coronavirus, COVID-19, places increased uncertainty over our forecasts. The restrictions placed and being placed on the movement of people will likely cause delays to some of our plans. The scale of the impact of COVID-19 is evolving and it is difficult to assess to what extent, and for how long, it will cause delays to our operations. We have established a COVID-19 task force internally to monitor the impact of COVID-19 on our business and prioritize activities to minimize its effect.

 

In addition to utilizing the existing cash reserves, as part of our strategic review, we and our advisors are evaluating a number of near-term funding options potentially available to us, including fundraising, the partnering of assets or technologies or the sale of the Company. After considering the uncertainties, we considered it appropriate to continue to adopt the going concern basis in preparing the financial information.

 

Our ability to continue as a going concern is dependent upon our ability to obtain additional capital and/or dispose of assets, for which there can be no assurance we will be able to do on a timely basis, on favorable terms or at all.

 

Our operations are in early-stage development with no sources of recurring revenue and there is no assurance that we will successfully develop and license our product candidates or ever become profitable.

 

We are at a relatively early stage of our commercial development. To date, we have generated a minimal amount of revenue from our product candidates. Our ability to generate revenue and become and remain profitable depends, in part, on our ability to successfully find a licensing partner for our product candidates, or other product candidates we may in-license or acquire, and have such candidates successfully commercialized. Our current strategy is, once proof-of-concept of our product candidates has been established, to generate revenue via a partner, thereby earning royalty and/or milestone income; however, this is not expected to materialize in the foreseeable future, and there can be no guarantee we will be able to find a licensing partner for our product candidates. Even if our product candidates were to successfully achieve regulatory approval, we do not know when any of the product candidates will generate revenue, if at all. Our ability to generate revenue from our product candidates also depends on a number of additional factors, including our ability, and the ability of any licensing partners, to:

 

· successfully complete development activities;

 

· complete and submit new drug applications to the European Medicines Agency, or the EMA, the Medicines and Healthcare Products Regulatory Agency in the United Kingdom, or the MHRA, the United States Food and Drug Administration , or the FDA, and any other foreign regulatory authorities, and obtain regulatory approval for products for which there is a commercial market;

 

· set a commercially viable price;

 

· obtain commercial qualities of the products at acceptable cost levels;

 

· develop and maintain a commercial organization capable of sales, marketing and distribution in the markets where the product is to be sold; and

 

· obtain adequate reimbursement from third-parties, including government, departments and healthcare payors.

 

In addition, because of the numerous risks and uncertainties associated with product development, including that our product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the process described above, we anticipate incurring significant costs.

 

Even if we are able to generate royalty and/or milestone revenues from the sale of product candidates, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to cease or reduce our operations.

 

There can be no assurance that we will operate profitably, produce a reasonable return, if any, on investment, or remain solvent. If our strategy proves unsuccessful, stockholders could lose all or part of their investment.

 

If we require or seek to raise additional capital to fund our operations and we fail to obtain necessary financing, we may be unable to complete the development of our product candidates.

 

We expect to continue to spend substantial amounts of our cash resources going forward in order to advance the development of our product candidates.

 

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Until such time as we can generate a sufficient amount of revenue from the product candidates we license, if ever, we expect that we may finance future cash needs through, among other things, public or private equity or debt offerings. Such offerings may take place in the United Kingdom, the United States or other foreign countries. However, if we are unable to raise capital when needed, or on terms acceptable to us, our business could be significantly harmed. If we raise additional funds through the issuance of debt or additional equity securities, such issuance could result in dilution to our existing shareholders and/or increased fixed payment obligations. Furthermore, these securities may have rights senior to those of our Ordinary Shares and could contain covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

 

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

 

· any acquisitions and the commercialization of other assets, including licensed assets;

 

· the initiation, progress, timing, costs and results of clinical trials for any product candidates we advance to clinical trials;

 

· the attainment of milestones and the need to make any royalty payments on any of our product candidates or any other future product candidates, including any product candidates derived from our license with Secura Bio;

 

· the number and characteristics of product candidates we in-license or acquire and develop;

 

· the outcome, timing and cost of regulatory approvals by the EMA, the MHRA, the FDA and any other comparable foreign regulatory authorities, including the potential for such regulatory authorities to require that we perform more studies, or more costly studies, than those we currently expect;

 

· the cost of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights; and

 

· the effect of competing technological and market developments.

 

If a lack of available capital means that we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected.

 

We are exposed to political, regulatory, social and economic risk relating to the United Kingdom’s exit from the European Union.

 

On June 23, 2016, the United Kingdom government held an in-or-out referendum on the United Kingdom’s membership of the European Union in which voters approved the United Kingdom’s exit from the European Union, commonly referred to as “Brexit.” On March 29, 2017, the United Kingdom formally initiated its withdrawal from the European Union by triggering Article 50 of the Treaty of Lisbon. On January 9, 2020, a withdrawal agreement, setting out the terms of the United Kingdom’s withdrawal from the European Union, was approved by the United Kingdom Parliament, and on January 31, 2020, the United Kingdom formally completed its exit from the European Union. However, a transition period is expected to continue until December 31, 2020, by which time the United Kingdom is expected to negotiate a new trade agreement with the European Union, though such an agreement is not guaranteed in that timeframe. It is unknown what terms will emerge from a new trade agreement between the United Kingdom and the European Union, and the exact impact of market risks we face is uncertain. Depending on the terms of such agreement, including whether or not the United Kingdom could lose access to the single European Union market and customs union, there may be an impact on the general and economic conditions in the United Kingdom that could have a material adverse effect on our business, financial condition and results of operations.

 

From a regulatory perspective, the United Kingdom’s withdrawal from the European Union could bear significant complexity and risks.  A basic requirement of European Union law relating to the grant of a marketing authorization for a medicinal product in the European Union is that the applicant is established in the European Union. Following the withdrawal of the United Kingdom from the European Union on January 31, 2020, marketing authorizations previously granted to applicants established in the United Kingdom may no longer be valid.  Moreover, the scope of a marketing authorization for a medicinal product granted by the European Commission pursuant to the centralized procedure might not, in the future, include the United Kingdom. In these circumstances, an authorization granted by competent United Kingdom authorities would be required to place medicinal products on the United Kingdom market. In addition, the laws and regulations that will apply after the United Kingdom withdraws from the European Union would affect the manufacturing sites that hold a certification issued by the United Kingdom competent authorities, and vice versa.  Our capability to rely on these manufacturing sites for products intended for the European Union market would also depend upon the exact terms of the United Kingdom withdrawal.

 

Any of these factors could significantly increase the complexity of our activities in the European Union and in the United Kingdom, could depress our economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our Ordinary Shares and Depositary Shares.

 

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We and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting, and any failure by us to maintain an effective system of internal controls or provide reliable financial and other information in the future, may cause investors to lose confidence in our financial statements and SEC filings and the market price of our securities may be materially and adversely affected.

 

The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. We are required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosures of any material weaknesses identified by management in its internal control over financial reporting.

 

A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement.

 

In preparing our interim financial statements for the six months ending June 30, 2019, we and our independent registered public accounting firm identified a material weakness in the effectiveness of our internal controls over financial reporting, specifically that we had expensed a deposit in our income statement, as opposed to classifying it as a recoverable financial asset in other receivables during the six months ended June 30, 2019. As previously disclosed, in October 2018, pursuant to the terms of a Stock Purchase Agreement dated September 26, 2018, or Purchase Agreement, by and among the Company, Midatech US and Kanwa Holdings, LP, an affiliate of Barings LLC, we sold our subsidiary, Midatech US to Kanwa Holdings, LP. During the fiscal year ended December 31, 2019, following a request by Midatech US, we paid a deposit of £947,000 in connection with a certain indemnity obligation set forth in the Purchase Agreement.  The deposit was originally expensed in the income statement.  Following a review by our independent registered public accounting firm of the interim financial information for the six months ended June 30, 2019, this deposit was reclassified as a recoverable financial asset in other receivables. 

 

Furthermore, as part of their audit procedures, our independent registered public accounting firm identified the following material weaknesses in our internal control environment:

 

· Regarding our IT general controls environment material weaknesses included an absence of new vendor approval, inappropriate access to administration accounts of finance systems, password segregation and access security which were not designed or operating effectively. The lack of appropriate IT general controls could lead to a material misstatement of our financial statements that will not be prevented or detected in a timely manner.

 

· Several control deficiencies were identified related to the consolidation and financial reporting close functions including; the adoption of IFRS 16, adjustments required to align the results of foreign subsidiaries prepared under Spanish GAAP to IFRS, the recognition of certain costs not yet incurred that occurred during the process of preparing our financial information during the period that, when considered in aggregate, would be considered a material weakness.

 

· The design and operation of our revenue recognition process, in which required policies and procedures either were not designed or were not operating effectively at the period end. While no adjustments to our consolidated financial statements during the course of the audit were required, there were no mitigating controls that would have prevented or detected such a material error should it have occurred.

 

Although we are instituting remedial measures to address the material weaknesses identified and to continually review and evaluate our internal control systems to allow management to report on the sufficiency of our internal control over financial reporting, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such additional weaknesses or failure to adequately remediate any existing weakness could materially and adversely affect our financial condition and results of operations, as well as our ability to accurately report our financial condition and results of operations in a timely and reliable manner.

 

Additionally, the material weaknesses described above, or other material weaknesses or significant deficiencies we may become aware of in the future, could result in our determining that our controls and procedures are not effective in future periods or could result in a material misstatement of the consolidated financial statements that would not be prevented or detected.

 

Any failure to maintain effective internal controls over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, we could lose investor confidence in the accuracy and completeness of our financial statements and reports, the market price of our ordinary shares and/or Depositary Shares could decline, and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

 

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We have recognized material intangible asset impairment losses in the past and may be required to recognize additional non-cash impairment losses in the future.

 

As of December 31, 2017, in connection with our decision to suspend development of our program for Opsisporin and the resulting reduction in sales forecasts, we recognized an impairment loss for in-process research and development of Opsisporin, resulting in a charge to the income statement of £1.5 million. While Opsisporin is currently outside of our strategic focus, pre-clinical proof of concept studies have been completed and we believe that Opsisporin still has merit and development may be restarted when we have more available resources.

 

These charges discussed above and any future impairment charges could materially increase our expenses and reduce our profitability. The process of testing goodwill and intangible assets for impairment involves numerous judgments, assumptions and estimates made by our management including expected future profitability, cash flows and the fair values of assets and liabilities, which inherently reflect a high degree of uncertainty and may be affected by significant variability. If the business climate deteriorates, including the markets in which certain of our product candidates may be sold, then actual results may not be consistent with these judgments, assumptions and estimates, and our goodwill and intangible assets may become impaired in future periods. This would in turn have an adverse impact on our financial position and results of operations.

 

Further, our decision in March 2020 to terminate the continued in-house development of MTD201 could, if we are unable to realize one or any of our strategic alternatives with respect to this asset, result in impairment charges in our financial statements for the fiscal year ending December 31, 2020. These could include an impairment charge of £9.30 million in respect of the Q-Sphera in process research and development intangible asset and £2.29 million in respect of goodwill which arose from the acquisition of Q Chip Limited in December 2014.

 

In connection with our sale of Midatech US, we may be subject to significant indemnity obligations.

 

In connection with our sale of Midatech US to Kanwa Holdings, LP, and pursuant to the terms of Purchase Agreement, we agreed to indemnify Kanwa Holdings, LP from certain breaches of representations and warranties, taxes and other matters, including, but not limited to, any liability related to any prescription drug user fee amounts owed under the Prescription Drug Fee User Act, or PDUFA, to the FDA by Midatech US for the U.S. government’s fiscal year ended September 30, 2018. While Midatech US and the Company have sought a waiver for such PDUFA user fee, during the fiscal year ended December 31, 2019, following a request by Midatech US, and in connection with the indemnity obligations in the Purchase Agreement, we paid a deposit of £947,000 with respect to such fee. If the waiver is not granted, Midatech US will be entitled to keep the deposit. To the extent any other indemnity obligation is not capped in amount, we may not have sufficient cash flow to make such further indemnity payment. Further, we cannot predict the nature of and amount of all indemnity or other obligations we have to Kanwa Holdings, LP. Such payments may be costly and may materially adversely affect our financial condition and results of operations.

 

Risks Related to Our Business and Industry

 

We are in receipt of letter purporting to terminate our license agreement related to panobinostat, the active pharmaceutical ingredient in our MTX110 product. If we are unsuccessful in challenging this termination, our business, financial condition and results of operations could be materially adversely affected.

 

On June 8, 2020, we received a letter sent on behalf of Secura Bio. Inc., or Secura Bio, dated June 1, 2020, purporting to terminate a License Agreement, executed on or about June 6, 2017, or the License Agreement, by and between Midatech Limited and Novartis AG, or Novartis, which Novartis subsequently transferred to Secura Bio, or the Secura License Agreement. Pursuant to the Secura License Agreement, Midatech Limited was granted a worldwide, sublicenseable license to certain patents of panobinostat, the active pharmaceutical ingredient of Midatech’s development product MTX110. Midatech Limited’s rights are limited to the treatment of brain cancer in humans, administered by convection-enhanced delivery. We view MTX110 as an important asset and currently have three ongoing clinical trials for MTX110 and intend to fund further our clinical program of MTX110 out of proceeds raised in our May 2020 fundraising.

 

We plan to continue to pursue development of MTX110 and the strategic review process previously disclosed. We are also reviewing with our outside counsel remedies we may have if Secura Bio does not withdraw the notice and otherwise cease to interfere with our ongoing business and strategic review process, which we have formally requested. We are evaluating available actions to protect our rights under the Secura License Agreement and our assets. Notwithstanding the foregoing, if Secura Bio does not withdraw its notice, the uncertainty and diversion of time and resources associated could have a material adverse effect on our business, financial condition and prospects, and we cannot assure you that we would be successful in resolving such dispute.

 

Our future success is dependent on product development and the ability to successfully license our product candidates to partners who can seek regulatory approval and commercialization of our product candidates.

 

We continue to conduct research and development for our product candidates and, to a lesser extent, clinical trials for certain of our product candiates; however there can be no assurance that any of our targeted developments will be successful. We must develop functional products that address specific market needs. We must therefore engage in new development activities, which may not produce innovative, commercially viable results in a timely manner or at all. In addition, we may not be able to develop new technologies or identify specific market needs that are addressable by our technologies, or technologies available to us. We may encounter delays and incur additional development and production costs and expenses, over and above those expected, in order to develop technologies and products suitable for licensing. If any of our development programs are curtailed, this may have a material adverse effect on our business and financial conditions.

 

Our business is dependent on our ability to complete the development of product candidates, and license our product candidates to partners who will seek to obtain regulatory approval for and commercialize our product candidates in a timely manner. Any licensing partner cannot commercialize a product without first obtaining regulatory approval from the appropriate regulatory authorities in a country. Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, it must be demonstrated with substantial evidence gathered in preclinical and well-controlled clinical studies that the product candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate. The process of developing, obtaining regulatory approval for and commercializing product candidates is long, complex and costly. Even if a product candidate were to successfully obtain approval from the EMA, the MHRA, the FDA and/or comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for certain age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If our product candidates are unable to obtain regulatory approval in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of any other product candidate. Furthermore, even if a product candidate obtains approval from the regulatory authorities, it is likely that, in order to obtain royalty and/or milestone revenue from any of our licensing partners, our licensing partners may need to expand their commercial operations, establish commercially viable pricing and obtain approval for adequate reimbursement from third parties and government departments and healthcare payors for such products. If our product candidates are unable to successfully be commercialized, we may not be able to earn sufficient revenues to continue our business.

 

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Clinical drug development involves a risky, lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

 

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of any preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials, even after seeing promising results in earlier clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry, including many with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. For example, in May 2016, we announced that the results of our Phase II dosing study of our transbuccal insulin delivery system, which delivered insulin through the mouth, were unfavorable compared to the traditional sub-cutaneous, or through the skin, insulin delivery system. Any future clinical trial results for our other product candidates and programs may also be unsuccessful.

 

In 2018, we embarked on first-in-human clinical trial program for our MTD201 and MTX110 products, with MTD201 completing our Phase I study in the third quarter of 2018, with an additional Phase I study completed in the third quarter of 2019. The MTX110 Phase I clinical study is expected to be completed in mid-2020, although recruitment of the final patient may be delayed by COVID-19. In connection with the termination of our MTD201 program, we have determined not to conduct additional clinical trials in humans, other than clinical trials for which funding is provided by third parties or via grants. We expect our licensing partners will be responsible for any future clinical trials. We and any of our licensing partners may experience delays in ongoing or future clinical trials and we do not know whether planned clinical trials will begin or enroll subjects on time, need to be redesigned or be completed on schedule, if at all. Clinical trials may be delayed, suspended or prematurely terminated for a variety of reasons, such as:

 

· restrictions related to COVID-19;

 

· delay or failure in reaching agreement with the applicable regulatory authorities on a trial design;

 

· delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical study;

 

· delay or failure in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial providers and sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

· delay or failure in obtaining institutional review board, or IRB, or the approval of other reviewing entities, including foreign regulatory authorities, to conduct a clinical trial at each site;

 

· failure to recruit, or subsequent withdrawal of, clinical trial sites from clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials;

 

· delay or failure in recruiting and enrolling suitable subjects to participate in a trial;

 

· delay or failure in having subjects complete a trial or return for post-treatment follow-up;

 

· clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;

 

· inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication;

 

· failure of third party clinical trial managers or clinical sites to satisfy contractual duties or meet expected deadlines;

 

· failure to receive the recommendation of health technology assessment bodies such as the U.S. Agency for Healthcare Research and Quality, and other relevant international bodies or agencies responsible for pricing and utilization determinations;

 

· delay or failure in adding new clinical trial sites;

 

· ambiguous or negative interim results, or results that are inconsistent with earlier results;

 

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· feedback from the EMA, the MHRA, the FDA, the IRB, data safety monitoring boards, or other regulatory authority, or results from earlier stage or concurrent preclinical and clinical studies, which might require modification to the protocol for a given study;

 

· decisions by the EMA, the MHRA, the FDA, the IRB, other regulatory authorities, or us, or recommendation by a data safety monitoring board or other regulatory authority, to suspend or terminate a clinical trial at any time for safety issues or for any other reason;

 

· unacceptable risk-benefit profile or unforeseen safety issues or adverse side effects;

 

· failure to demonstrate a benefit from using a drug over existing marketed products;

 

· manufacturing issues, including problems with manufacturing or obtaining from third parties sufficient quantities of raw materials, active pharmaceutical ingredients, or API, or product candidates for use in clinical trials; and

 

· changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

 

Patient and/or volunteer enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, the ability to obtain and maintain patient consents, whether enrolled subjects drop out before completion, competing clinical trials, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Furthermore, we rely on contract research organizations and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their activities, we have limited influence over their actual performance.

 

If we experience delays in the completion of, or termination of, any ongoing or future clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing clinical trials may slow down our product candidate development and approval process and jeopardize the ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

 

The regulatory approval processes in the United States and Europe are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business may be substantially harmed.

  

The time required to obtain approval for a product candidate by the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities is unpredictable, but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. It is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

 

Our product candidates could fail to receive regulatory approval from the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities for many reasons, including:

 

· disagreement with the design or implementation of the clinical trials;

 

· failure to demonstrate that a product candidate is safe and effective for its proposed indication;

 

· failure of clinical trial results to meet the level of statistical significance required for approval;

 

· failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

· disagreement with our interpretation of data from preclinical studies or clinical trials;

 

· the insufficiency of data collected from clinical trials of our product candidates to support the submission and filing of a new drug application or other submission or to obtain regulatory approval;

 

· disapproval of the manufacturing processes or facilities of third party manufacturers with whom we or any licensing partner contracts with for clinical and commercial supplies; or

 

· changes in approval policies or regulations that render the preclinical and clinical data insufficient for approval.

 

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In addition, the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities may require more information, including additional preclinical or clinical data to support approval, which may delay or prevent approval and any commercialization plans, or we or any licensing partner may decide to abandon the development program. If approval were to be obtained, regulatory authorities may approve any of our product candidates for fewer or more limited indications than is requested, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. In addition, if our product candidate produces undesirable side effects or safety issues, the regulatory authorities (the FDA, MHRA, EMA or a comparable foreign regulatory authority) may require the establishment of Risk Evaluation and Mitigation Strategy, or REMS, which may, for instance, restrict distribution of the products and impose burdensome implementation requirements on us or any licensing partner. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

 

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval and limit the commercial profile of an approved label, and such side effects or other properties could result in significant negative consequences following any marketing approval of any of our product candidates.

 

Undesirable side effects caused by any of our product candidates could cause us, our licensing partner, if any, or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the EMA, the MHRA, the FDA or other comparable foreign regulatory authority. Results of the clincial trials could reveal a high and unacceptable severity and prevalence of side effects or risks associated with a product candidate’s use. In such an event, our trials could be suspended or terminated and the regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

 

Additionally, if undesirable side effects of our products are identified following marketing approval, a number of potentially significant negative consequences could result, including:

 

· marketing of such product may be suspended;

 

· a product recall or product withdrawal;

 

· regulatory authorities may withdraw approvals of such product or may require additional warnings on the label;

 

· the requirement to develop a REMS for each product or, if a strategy is already in place, to incorporate additional requirements under the REMS, or to develop a similar strategy as required by a comparable foreign regulatory authority;

 

· the requirement to conduct additional post-market studies; and

 

· being sued and held liable for harm caused to subjects or patients.

 

Consequently, our reputation and business operations may suffer.

 

Any of these events could prevent the achievement or maintaining of market acceptance of the particular product or product candidate, if approved, and could significantly harm our business, results of operations and prospects.

 

Even if our product candidates receive regulatory approval, they may still face future development, manufacturing and regulatory difficulties.

 

Our product candidates, if they receive regulatory approval, will be subject to the ongoing requirements of the EMA, the MHPA, the FDA and other regulatory agencies governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of any product is closely monitored by the EMA, the MHRA, the FDA and other regulatory authorities after approval. If the EMA, the MHRA, the FDA or other regulatory authorities become aware of new safety information after approval of any of our products or product candidates, regulatory authorities may require labeling changes or establishment of a risk mitigation strategy or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.

 

In addition, manufacturers of drug and biological products and their facilities are subject to continual review and periodic inspections by the EMA, the MHRA, the FDA and other governmental regulatory authorities for compliance with current good manufacturing practices, or cGMP, regulations. If a previously unknown problem with a product, such as adverse events of unanticipated severity or frequency, or a problem with the facility where the product is manufactured is discovered, a regulatory agency may impose restrictions on that product, the manufacturing facility or the party commercializing the product, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

 

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· issue warning letters or untitled letters;

 

· mandate modifications to, or the withdrawal of, marketing and promotional materials or require corrective information to be provided to healthcare practitioners;

 

· require the violating party to enter into a consent decree, which can include the imposition of various fines, reimbursements of inspection costs, required due dates for specific actions and penalties for noncompliance;

 

· seek an injunction or impose civil or criminal penalties or monetary fines;

 

· suspend, vary or withdraw regulatory approval;

 

· suspend any ongoing clinical studies;

 

· refuse to approve pending applications or supplements to applications filed by us or any licensing partner;

 

· suspend or impose restrictions on operations, the products, manufacturing or ourselves;

 

· require a change to the product labeling; or

 

· seize or detain products, refuse to permit the import or export of products or require a product recall.

 

The occurrence of any of these events or penalties described above may inhibit our ability to generate revenue from product candidates that are commercialized by any of our licensing partners.

  

We expect to seek to establish agreements with potential licensing partners and collaborators and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

 

Our current commercialization strategy is to deploy our proprietary drug delivery technologies to formulate a compelling portfolio of novel first-in-class sustained release formulations of products with significant commercial potential for licensing to pharmaceutical company partners at proof-of-concept stage, which would potentially result in revenue generation from product royalty and/or milestone deals. We expect to seek to work with licensing or collaboration partners for the development and commercialization of one or more of our product candidates. For example, in January 2019, we entered into that certain Licensing, Collaboration and Distribution Agreement, or the CMS License Agreement, with China Medical Systems Holdings Limited, or CMS, as guarantor, and two of its wholly owned subsidiaries, CMS Bridging Limited, or CMS Bridging, and CMS Medical Hong Kong Limited, or CMS Medical HK, each a CMS Party, pursuant to which, among other things, we agreed to license certain of our products to the CMS Parties in exchange for, among other things, royalty revenue. Likely future collaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies.

 

We face significant competition in seeking appropriate licensing or collaboration partners. Whether we reach a definitive agreement will depend, among other things, upon our assessment of the partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed partner’s evaluation of a number of factors. Those factors may include the potential differentiation of our product candidate from competing product candidates, design or results of clinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. The partner may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such collaboration could be more attractive than the one with us for our product candidate.

 

These agreements are complex and time consuming to negotiate and document. Further, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future licensing and collaboration partners.

 

We may not be able to negotiate agreements with these potential partners on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs.

 

If we enter into agreements with a licensing or collaboration partner for the development and commercialization of our product candidates, our prospects with respect to those product candidates will depend in significant part on the success of those collaborations.

 

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Some of our revenues are currently derived from licensing or collaboration agreements with other biopharmaceutical companies, research institutes and universities, and we expect a material amount of our revenue in the future will be derived from these and similar agreement. We may enter into additional agreements with a licensing or collaboration partner for the development and commercialization of certain of our product candidates. If we enter into such agreements, we will have limited control over the amount and timing of resources that our partners will dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on any future licensing partners’ ability to successfully perform the functions assigned to them in these arrangements. In addition, any future licensing or collaboration partner may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms.

 

Agreements involving our product candidates pose a number of risks, including:

 

· partners have significant discretion in determining the efforts and resources that they will apply to these matters;

 

· partners may not perform their obligations as expected;

 

· partners may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs, based on clinical trial results, changes in the their strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities;

 

· partners may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

· a partner with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;

 

· disagreements with partners, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;

 

· partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

 

· partners may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

 

· agreements may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

 

Agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. If any future partners of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product candidate licensed to it by us.

 

The commercial success of any of our product candidates is not guaranteed.

 

There can be no assurance that any of our product candidates currently in development will be successfully developed into any commercially viable product or products and/or be manufactured in commercial quantities at an acceptable cost or be marketed successfully and profitably. If we, or our partners, encounter delays at any stage, and fail successfully to address such delays, it may have a material adverse effect on our business, financial condition and prospects. In addition, our success will depend on the market’s acceptance of these products and there can be no guarantee that this acceptance will be forthcoming or that our technologies will succeed as an alternative to competing products. If a market fails to develop or develops more slowly than anticipated, we may be unable to recover the costs we may have incurred in the development of particular products and may never achieve profitable royalty or licensing revenues from that product.

    

The pharmaceutical and biotechnology industries are highly competitive.

 

The development and commercialization of new drug products is highly competitive. Our business faces competition from a range of major and specialty pharmaceutical and biotechnology companies worldwide with respect to our product candidates, and will face competition in the future with respect to any product candidates that we may seek to develop or commercialize.

 

There are a number of pharmaceutical and biotechnology companies that currently market and sell products or are pursuing development of products similar to our technology and product candidates. With respect to our product candidates, from a technology perspective, we believe other companies using gold nanoparticle technologies include CytImmune Sciences, Inc., and Nanospectra Biosciences, Inc. We believe other companies in the sustained release space include GP Pharm, S.A., Peptron, Inc., Graybug, Inc. and Nanomi B.V. In addition, Teva Pharmaceutical Industries Limited, Pharmathen S.A., Dr. Reddy’s Laboratories Limited and Mylan N.V. are all believed to be developing a sustained release octreotide injection.

  

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Some of these competitive products and therapies are based on scientific approaches that are the same or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

 

Our competitors in the biotechnology and pharmaceutical industries may have superior research and development capabilities, products, manufacturing capability or sales and marketing expertise. Many of our competitors may have significantly greater financial and human resources and may have more experience in research and development.

 

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection of other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop products that are more effective, more widely used and less costly than our own product candidates, and may be more successful in commercializing their products.

 

We anticipate that we will face increased competition in the future as new companies enter our markets and alternative products and technologies become available. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, as well as in acquiring technologies complementary to, or necessary for, our programs.

  

Any product candidate that may be commercialized may become subject to unfavorable pricing regulation, third party regulation, third party reimbursement practices or healthcare reform initiatives, as well as social and political pricing pressures, which could harm our business.

  

The ability to market and commercialize any products successfully will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Our future revenues and profitability will be adversely affected if these third-party payors do not sufficiently cover and reimburse the cost of these products and related procedures or services. If these entities do not provide sufficient coverage and reimbursement for any drug products that is marketed, these products may be too costly for general use, and physicians may prescribe them less frequently.

 

The Medicare program and certain government pricing programs, including the Medicaid drug rebate program, the Public Health Service’s 340B drug pricing program, or the 340B program, and the pricing program under Section 603 of the Veterans Health Care Act of 1992, impact the revenues we may derive from future products that we may commercialize. Any future legislation or regulatory actions altering these programs or imposing new compliance requirements could have a significant adverse effect on our business. There have been, and we expect there will continue to be, a number of legislative and regulatory actions and proposals to control and reduce health care costs. These measures may, among other things: negatively impact the level of reimbursement for pharmaceutical products; require higher levels of cost-sharing by beneficiaries; change the discounts required to be provided by pharmaceutical manufacturers to government payors and/or providers; extend government discounts to additional government programs and/or providers; or reduce the level of reimbursement for health care services and other non-drug items. Any such measures could indirectly impact demand for pharmaceutical products because they can cause payors and providers to apply heightened scrutiny and/or austerity actions to their entire operations, including pharmacy budgets.

        

Also, the trend toward managed health care in the United States, as well as the implementation of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or the Affordable Care Act, and the concurrent growth of organizations such as managed care organizations, accountable care organizations and integrated delivery networks, may result in increased pricing pressures for pharmaceutical products, including any products that may be offered by us in the future. Moreover, legislative and regulatory changes to the Affordable Care Act, including possible repeal, remain possible under the Trump Administration. Certain changes, such as the removal of the Affordable Care Act’s individual health insurance mandate, have already been made by the U.S. Congress via enactment of the Tax Cuts and Jobs Act of 2017, or the Tax Cuts Act, and the long-term effects of such legislative changes to the Affordable Care Act are unknown. In addition, third-party payors, in an effort to control costs, are increasingly making patients responsible for a higher percentage of the total cost of drugs in the outpatient setting. This can lower the demand for our products if the increased patient cost sharing obligations are more than they can afford. Individual states’ responses to ongoing financial pressures could also result in measures designed to limit reimbursement, restrict access, or impose broader or deeper discounts on branded pharmaceutical products utilized for Medicaid patients. We are unable to predict what changes in legislation or regulation relating to the health care industry or third-party coverage and reimbursement, including possible repeal of the Affordable Care Act, may be enacted in the future or what effect such legislation or regulation would have on our business.

 

There may be significant delays in obtaining coverage and reimbursement for any drug for which approval is obtained, and coverage may be more limited than the purposes for which the drug is approved by the EMA, the MHRA, the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacturing, selling and distribution costs.

 

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In addition, there may be downward pricing pressure on the price of any commercialized product candidate due to social or political pressure to lower the cost of drugs, which could reduce our revenue and future profitability. Recent events have resulted in increased public and governmental scrutiny of the cost of drugs. In particular, U.S. federal prosecutors have issued subpoenas to pharmaceutical companies seeking information about drug pricing practices. The U.S. Senate has, in the past, publicly investigated a number of pharmaceutical companies relating to drug-price increases and pricing practices. Our revenue and future profitability could be negatively affected if these inquiries were to result in legislative or regulatory proposals that limit the ability to increase the prices of the products sold. Pressure from social activist groups and future government regulations may also put downward pressure on the price of drugs, which could result in downward pressure on the prices of any product candidates we may commercialize in the future.

 

Currently enacted and future legislation in the United Kingdom, United States and other foreign jurisdictions may increase the difficulty and cost to obtain marketing approval of and commercialize our product candidates and affect the prices that may be charged.

 

In the United Kingdom, United States and other foreign jurisdictions, legislative and regulatory changes and proposed changes regarding the healthcare system could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect the ability to profitably sell any product candidates for which marketing approval is obtained.  

 

In the United States, in recent years, Congress has considered reductions in Medicare reimbursement levels for drugs administered by physicians. The Centers for Medicare also has authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. While Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.

 

In March 2010, President Obama signed into law the Affordable Care Act. This law substantially changes the way healthcare is financed by both governmental and private insurers in the United States, and significantly impacts the pharmaceutical industry.  The Affordable Care Act is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms.  The Affordable Care Act expanded manufacturers’ rebate liability under the Medicaid program from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well; increased the minimum Medicaid rebate due for most innovator drugs in general from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP; and capped the total rebate amount for innovator drugs at 100% of AMP.  The Affordable Care Act and subsequent legislation also changed the definition of AMP.  The Affordable Care Act requires pharmaceutical manufacturers of branded prescription drugs to pay a branded prescription drug fee to the federal government.  Each such manufacturer pays a prorated share of the branded prescription drug fee of $2.8 billion in 2019, based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law.  Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners if our product candidates are not approved and marketed in the United States.  The Affordable Care Act also expanded the 340B program to include additional types of covered entities.  Final Centers for Medicare regulations to implement the changes to the Medicaid drug rebate program under the Affordable Care Act became effective on April 1, 2016.  If not repealed or amended, it is likely that the Affordable Care Act will continue the pressure on pharmaceutical pricing, especially under the Medicare and Medicaid programs, and may also increase our regulatory burdens and operating costs.

 

In addition, other legislative changes have been adopted since the Affordable Care Act was enacted. Beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012.  Subsequent legislation extended the 2% reduction, on average, to 2025.  This could cause Medicare Part D plans to seek lower prices from manufacturers. Even if favorable coverage and reimbursement status is attained for our products, less favorable coverage policies and reimbursement rates may be implemented in the future.

 

As previously noted, in December 2017, the Tax Cuts Act repealed the Affordable Care Act’s penalties against individuals for failure to purchase health insurance, commonly known as the individual mandate, effective January 1, 2019. The repeal of the individual mandate will likely cause fewer Americans to be insured in the future, as compared with the prior version of the law. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.”  Congress could consider other legislation to repeal or replace certain elements of the Affordable Care Act. We ultimately cannot predict with any assurance the ultimate long-term effect of changes to the Affordable Care Act on us, nor can we provide any assurance that recent or future changes to the Affordable Care Act provisions will not have an adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our Ordinary Shares or Depositary Shares, as well as anticipated revenue from product candidates that may be successfully developed and for which marketing approval is obtained. The scope of potential future legislation to further amend the Affordable Care Act provisions is highly uncertain in many respects, as is the effect of such future legislation on our business and prospects. It is possible that some of the Affordable Care Act provisions that generally are not favorable for the research-based pharmaceutical industry could also be repealed along with Affordable Care Act coverage expansion provisions.

 

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In Europe, members of the European Union, or signatories thereto, are obliged to integrate directives into their national laws. European Union regulations, as in other European Union Member States, become immediately and directly enforceable in the member territories. These include without limitation:

 

· Directive 2001/83/EC of 6 November 2001 on the European Community code as regards medicinal products for human use;

 

· Commission Directive 2003/94/EC of October 8, 2003 enforcing principles and guidelines of good manufacturing practice as they related to medicinal products and investigational medicinal products for human use;

 

· Commission Directive 2005/28/EC of April 8, 2005 establishing the principles and guidelines for good clinical practice relating to investigational medicinal products for human use, and the authorization requirements for the manufacturing or import thereof; and

 

· Council Directive 89/105/EEC, of December 21, 1988, addressing the transparency of measures that regulate pricing of medicinal products for human use and their inclusion in national health insurance systems.

  

In the United Kingdom, the regulation of medicinal products derives from European Union legislation, particularly Directive 2001/83/EC on the European Community code relating to medicinal products for human use, and Regulation (EC) 726/2004 on the authorization and supervision of medicinal products and establishing the EMA. This legislation has been adopted in the United Kingdom by the Human Medicines Regulations 2012 (SI 2012/1916) and applied through the MHRA, which is the executive agency of the Department of Health implementing pharmaceutical legislation in the United Kingdom.  Accordingly, upon expiry of the transition period following the withdrawal of the United Kingdom from the European Union, the terms of any agreement relating to medicinal products negotiated between the United Kingdom and the European Union which may come into force at the end of the transition period, or the laws which would apply if the United Kingdom leaves the European Union without such an agreement, may result in the alteration of such regulations.

 

In the European Union, marketing approvals can be submitted through the national, mutual recognition or decentralized procedures. For marketing authorizations submitted through the centralized procedure, the EMA is responsible. The EMA advises the European Commission in relation to decisions on marketing authorizations.

 

Reimbursement in the European Union is typically controlled by statutory stipulations and controls on pharmaceutical pricing. Healthcare is broadly divided into public and private health. Products that are not to be supplied through the countries’ public health services are typically less subject to price controls. All medicines validly prescribed on a public health prescription are in principle reimbursed from that country’s public funds.

 

In many European Union member states and signatories, a separate cost/benefit analysis may be required or requested (not a legal requirement) in order for prescribed products to be reimbursed. In the United Kingdom, most new medicines undergo an assessment by the United Kingdom National Institute for Health and Care Excellence, or the NICE, which will issue guidance on if and how to use the product in the National Health Service, or the NHS, in England and Wales. This decision is largely based on the opinion of NICE regarding clinical effectiveness and cost effectiveness relative to alternative therapies. NICE appraisals follow a comprehensive and inclusive process including consultations with and contributions from stakeholders. Clinicians are expected to take NICE’s guidance into account when making prescribing decisions. Where NICE issues a positive recommendation, NHS bodies are required to make funding available to cover the cost of the product as a treatment option, consistent with NICE’s guidance. In contrast, products which are not recommended by NICE are generally not funded on a routine basis.

 

We cannot be sure whether additional legislative changes will be enacted, or whether the FDA or other jurisdictional regulations, guidance or interpretations will be changed, or what the impact of such changes (or in some instances, current regulations, guidance or interpretations) on the marketing approvals of our product candidates, if any, may be.

  

We are subject to environmental laws and regulations that govern the use, storage, handling and disposal of hazardous materials and other waste products.

 

We are subject to environmental laws and regulations governing the use, storage, handling and disposal of hazardous materials and other waste products. We have health and safety policies and procedures in place to assess the risks associated with use of hazardous materials, and the assessment includes information for employees on how the substances should be used to avoid contamination of the environment and inadvertent exposure to themselves and their colleagues. Despite our precautions for handling and disposing of these materials, we cannot eliminate the risk of accidental contamination or injury. In the event of a hazardous waste spill or other accident, we could be liable for damages, penalties or other forms of censure. If we fail to comply with any laws or regulations, or if an accident occurs, we may have to pay significant penalties and may be held liable for any damages that result. This liability could exceed our financial resources and could harm our reputation. We may also have to incur significant additional costs to comply with current or future environmental laws and regulations. Our failure to comply with any government regulation applicable to our laboratory and the materials used in our laboratory may adversely affect our ability to develop, produce, market or partner any products we may commercialize or develop.

 

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Our success depends in part on our ability to protect rights in our intellectual property, which cannot be assured.

 

Our success and ability to compete effectively are in large part dependent upon exploitation of proprietary technologies and products that we have developed internally or have acquired or in-licensed. To date, we have relied on copyright, trademark and trade secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements and licensing arrangements with our employees, consultants, contractors, customers and vendors, to establish and protect our rights to our technology and, to the best extent possible, control the access to and distribution of our technology, software, documentation and other proprietary information, all of which offer only limited protection. Where we have the right to do so under our agreements, we seek to protect our proprietary position by filing patent applications in the United States, the United Kingdom and worldwide related to our novel technologies and products that are important to our business. The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain. There can be no assurance that:

 

· the scope of our patents provides and will provide us with exclusivity with respect to any or all of our product candidates and technologies, as well as any other technologies and/or products that address the same problems as our technologies and product candidates by a different means, whether in the same manner as us or not;

 

· pending or future patent applications will be issued as patents;

 

· our patents, and/or those patents to which we are licensed, are and will remain valid and enforceable and will not be subject to invalidity or revocation proceedings and that such proceedings will not result in a complete or partial loss of rights;

 

· our entitlement to exploit patents from time to time (including patents registered solely in our name or our affiliates’ name or in the joint names of Midatech or an affiliate and a third party or patents which are licensed to us) is and will be sufficient to protect our core intellectual property rights against third parties, our commercial activities from competition or to support comprehensively our ability to develop and market our proposed products either now or in the future;

 

· the lack of any particular patents or rights to exploit any particular patents, and the scope of our patents, will not have a material adverse effect on our ability to develop and market our proposed product candidates, either now or in the future;

 

· we have or will have the resources to pursue any infringer of: (i) patents registered in our name (whether solely or jointly with a third party) from time to time; or (ii) patents licensed to us where we or an affiliate have the financial responsibility to bring such infringement actions pursuant to the relevant license agreement;

 

· we will develop technologies or product candidates which are patentable, either alone or in conjunction with third parties;

 

· the ownership, scope or validity of any patents registered in our name (either solely or jointly) from time to time will not be challenged by third parties, including parties with whom we, or any affiliate, have entered into collaboration projects or co-ownership arrangements and that any such challenge will not be successful;

 

· any patent or patent application owned solely or jointly by us will not be challenged on grounds that we failed to identify the correct inventors or that we failed to comply with our duty of disclosure to the United States Patent and Trademark Office or any equivalent office in a foreign jurisdiction having a disclosure requirement;

 

· any issued patent in our sole or joint name from time to time will not be challenged in one or more post-grant proceedings, including but not limited to inter partes review, derivation proceedings, interferences, and that like; and that any such challenge will not result in a complete or partial loss of rights to such issued patent or patents;

 

· any patent applications in our sole or joint name from time to time will not be opposed by any third party, including parties to collaboration, co-existence and any other contractual relationship with us or any of its members;

 

· the license agreements between us and third parties are and will be valid and subsisting in the future or until their expiry dates, and that we have complied with our contractual obligations under the license agreements;

 

· all intellectual property capable of being commercialized that is or has been generated pursuant to collaboration agreements between us and third parties will be or has been identified;

 

· all intellectual property generated pursuant to collaboration agreements and to which we have a contractual entitlement or generated by employees has been lawfully assigned into our sole name (or to one of our subsidiaries);

 

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· in respect of all intellectual property generated pursuant to a collaboration agreement between us and a third party to which we and that third party have a joint contractual entitlement, that such intellectual property has been lawfully assigned into joint names and the rights between us and that third party are properly regulated by a co-ownership agreement; and

 

· beyond contractual warranties, the licensors of intellectual property to us or our affiliates own the relevant patents and that those patents have not and will not be the subject of, or subject to, infringement, invalidity or revocation actions.

  

 The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside of the United Kingdom and United States. The rights already granted under any of our currently issued patents and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected.

 

With respect to patent rights, we do not know whether any of the pending patent applications for any of our licensed compounds will result in the issuance of patents that protect our technology or products, or which will effectively prevent others from commercializing competitive technologies and products. Although we have a number of issued patents covering our technology, our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Further, the examination process may require us to narrow the claims, which may limit the scope of patent protection that may be obtained. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts or patent offices in the European Union, United Kingdom, the United States and other foreign jurisdictions. Overall, such challenges may result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

 

The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them. Further, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms where they are available in any countries where we are prosecuting patents. However, the applicable authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case. Changes in either the patent laws or interpretation of the patent laws in the European Union, the United Kingdom, the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United Kingdom or the United States, and these foreign laws may also be subject to change. Publication of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications typically are not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

  

Previously, in the United States, assuming the other requirements for patentability are met, the first to make the claimed invention was entitled to the patent. Outside the United States, the first to file a patent application is entitled to the patent. In March 2013, the United States transitioned to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. Under either the previous or current system, third parties will be allowed to submit prior art prior to the issuance of a patent by the United States Patent and Trademark Office, and may become involved in opposition, derivation, reexamination, inter-partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position with respect to third parties.

 

Our commercial success depends, in part, upon our not infringing intellectual property rights owned by others.

 

Although we believe that we have proprietary platforms for our technologies and product candidates, we cannot determine with certainty whether any existing third party patents or the issuance of any third party patents in the future would require us to alter our technology, obtain licenses or cease certain activities. We may become subject to claims by third parties that our technology infringes their intellectual property rights, in which case we will have no option other than to defend the allegation, which may be possible to resolve through negotiation or which might result in court proceedings. An adverse outcome in any of these circumstances is that we might be subject to significant liabilities, be required to cease using a technology or to pay license fees (both prospectively and retrospectively); and may be subject to the payment of significant damages. We could incur substantial costs in any litigation or other proceedings relating to patent rights, even if it is resolved in our favor. If the proceedings occur in the United States, it is likely that we will be responsible for our own legal costs, no matter the outcome of the litigation. In contrast, in the United Kingdom, the losing party typically is ordered to pay the winning party’s costs, although it is rare to have a complete recovery of all costs from the losing side. Some of our competitors may be able to sustain the costs of complex litigation more effectively or for a longer time than we can because of their substantially greater resources. In addition, uncertainties or threatened or actual disputes relating to any patent, patent application or other intellectual property right (including confidential information) could have a material adverse effect on our ability to market a product, enter into collaborations in respect of the affected products, or raise additional funds.

 

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The policing of unauthorized use of our patented technologies and product candidates is difficult and expensive. There can be no assurance that the steps we take will prevent misappropriation of, or prevent an unauthorized third party from obtaining or using, the technologies, know-how and products we rely on. In addition, effective protection may be unavailable or limited in some jurisdictions. Any misappropriation of our proprietary technology, product candidates and intellectual property could have a negative impact on our business and our operating results. Litigation may be necessary in the future to enforce or protect our rights or to determine the validity or scope of the proprietary rights of others. Litigation could cause us to incur substantial costs and divert resources and management attention away from our daily business and there can be no guarantees as to the outcome of any such litigation. In addition, a defendant in any such litigation may counterclaim against us, resulting in additional time and expense to defend against such a counterclaim, which defense may not be successful.

 

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.

 

Competitors may infringe on our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. This can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend our intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

 

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

 

Our commercial success depends upon our ability and the ability of our collaborators and licensing partners to develop, manufacture, market and sell our product candidates, and to use our proprietary technologies without infringing the proprietary rights of third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and commercializing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated our confidential information or trade secrets could have a similar negative impact on our business.

 

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

 

Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies. Some of these employees, including members of our senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a potential distraction to management.

  

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If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.

 

In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. In addition, a court may determine that we failed to take adequate steps to protect our trade secrets, in which case it may not be possible to enforce our trade secret rights. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some may be less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

 

We may face product liability claims stemming from product candidates.

 

In carrying out our activities, we may potentially face contractual and statutory claims, or other types of claims from customers, suppliers and/or investors. In addition, we are exposed to potential product liability risks that are inherent in the research, development, production and supply of products. Subjects enrolled in our clinical trials, consumers, healthcare providers or other persons administering or selling products based on our and our collaborators’ technology may be able to bring claims against us based on the use of such products. If we cannot successfully defend ourselves against claims that any product candidates commercialized caused injuries, we could incur substantial costs and liabilities. Irrespective of their merits or actual outcome, liability claims may result in:

 

· decreased demand for any product candidates that we may develop;

 

· significant negative media attention and injury to our reputation;

 

· significant costs to defend the related litigation;

 

· substantial monetary awards to trial subjects or patients;

 

· loss of revenue;

 

· diversion of management and scientific resources from our business operations; and

 

· the inability to commercialize any products that we may develop.

  

We have obtained product liability insurance coverage with a £8.0 million annual aggregate coverage. Our insurance coverage may not be sufficient to cover our entire product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. If we determine that it is prudent to increase our product liability, we may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects that may be less severe than those of our products. A successful product liability claim or series of claims brought against us could cause the price of the Ordinary Shares and/or Depositary Shares to decline and, if judgments exceed our insurance coverage, could decrease our cash and have a material adverse effect our business, results of operations, financial condition and prospects.

   

We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

 

We are, and may continue to be, reliant on other parties for the successful development and commercialization of many of our product candidates. We rely upon CROs for the conduct of our clinical studies. We rely on these parties for execution of our preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs or collaboration partners does not relieve us of our regulatory responsibilities. We also rely on third parties to assist in conducting our preclinical studies in accordance with Good Laboratory Practices and requirements with respect to animal welfare. We and our CROs or collaboration or licensing partners are required to comply with Good Clinical Practices, or GCP, which are regulations and guidelines enforced by the MHRA, the FDA, the EMA and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs or partners fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the EMA, the MHPA, the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot be assured that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements. Failure to comply with these regulations may require us to repeat preclinical and clinical trials, which would delay the regulatory approval process.

 

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Our CROs are not our employees, and except for remedies available to us under such agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, then our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

 

Because we have relied on third parties, our internal capacity to perform these functions is limited. Outsourcing these functions involves risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third party providers. To the extent we are unable to identify and successfully manage the performance of third party service providers in the future, our business may be adversely affected. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

 

We are dependent on third party suppliers, and if we experience problems with any of these third parties, the manufacturing of our product candidates could be delayed, which could harm our results of operations.

 

We are dependent upon certain qualified suppliers, of which there are a limited number, for the supply of raw materials, components, devices and manufacturing equipment. Additionally, these suppliers may also have downstream suppliers who supply materials, components, devices and manufacturing equipment, which may indirectly impact our business operations. We may also become dependent in the future on third party contract manufacturing organizations for the production of our product candidates for commercial sale. Thus, the success of our business may be adversely affected by the underperformance of third parties, exploitation by third parties of our commercial dependence and by unforeseen interruptions to third parties’ businesses. Although the existence of several alternative suppliers for each function mitigates the risks associated with this dependence, as does the availability of commercial insurance in respect of the impact of accidental events, the failure of a third party to properly to carry out their contractual duties or regulatory obligations could be highly disruptive to our business. Supply chain failures can result in significant clinical or commercial supply interruptions which could materially hamper our ability to conduct clinical trials or to supply adequate commercial supplies, and efforts to qualify new suppliers can be costly and time consuming. Further, any action taken by a third party that is detrimental to our reputation could have a negative impact on our ability to register our trademarks and/or market and sell our products.

 

In the future, we intend to license certain of our products to other companies for later stages of development and subsequent marketing, and consequently we will be increasingly reliant on securing and retaining such partners once our products advance through the development process. There can be no assurance that we will be able to secure such partners or that, once secured, our partners will continue to make the necessary and timely investments in our products to complete their development in the expected time and achieve commercial success.

  

Our counterparties may become insolvent.

 

There is a risk that parties with whom we trade or have other business relationships with (including partners, joint venturers, customers, suppliers, subcontractors and other parties) may become insolvent. This may be due to general economic conditions or factors specific to that company. In the event that a party with whom we trade becomes insolvent, this could have an adverse impact on our revenues and profitability.

  

Our relationships with customers and third party payors are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

 

Healthcare providers, physicians and third party payors play a primary role in the recommendation and prescription of any of our products or any product candidate for which we obtain marketing approval. Our arrangements with third party payors and customers exposes us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we will market, sell and distribute our products for which we obtain marketing approval.

 

The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that a healthcare or pharmaceutical company may fail to comply fully with such laws and regulations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with applicable fraud and abuse or other healthcare laws and regulations or guidance. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid in the United States, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our financial condition and divert resources and the attention of our management from operating our business.

 

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We are subject to cybersecurity risks and other cyber incidents, including the misappropriation of our information and other breaches of information security that may result in disruption and the incurrence of costs in an effort to minimize those risks.

 

In the normal course of conducting our business, we collect and store sensitive data on our networks, including intellectual property, personal information of our employees, and our proprietary business information and that of our customers, vendors and business partners.  Despite the security measures we have in place and any additional measures we may implement in the future to safeguard our systems and to mitigate potential security risks, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism or other events. Any steps we take to deter and mitigate these risks may not be successful and may cause us to incur increasing costs. Any disruption of our systems or security breach or event resulting in the misappropriation, loss or other unauthorized disclosure of confidential information, whether by us directly or by our third-party service providers, could damage our reputation, result in the incurrence of costs, expose us to the risks of litigation and liability, result in regulatory penalties under laws that protect privacy of personal information, disrupt our business or otherwise affect our results of operations.

 

Regulatory, legislative or self-regulatory/standard developments regarding privacy and data security matters could adversely affect our ability to conduct our business.

 

In the European Union, the General Data Protection Regulation, or GDPR, which came into effect on May 25, 2018, may increase our burden of regulatory compliance and require us to change certain of our privacy and data security practices in order to achieve compliance. The GDPR implements more stringent operational requirements for processors and controllers of personal data, including, for example, requiring expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements, and higher standards for data controllers to demonstrate that they have obtained either valid consent or have another legal basis in place to justify their data processing activities. The GDPR further provides that European Union member states may make their own additional laws and regulations in relation to certain data processing activities, which could further limit our ability to use and share personal data and could require localized changes. Under the GDPR, fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, may be assessed for non-compliance, which significantly increases our potential financial exposure for non-compliance. We do not routinely handle or process personal data, although we do maintain a database of employee information; however, since the GDPR only came into effect recently, the potential risks associated with non-compliance therewith are uniquely difficult to predict.

 

We are currently undergoing a leadership transition and this transition, along with the possibility that we may in the future be unable to retain and recruit qualified scientists, key executives, key employees or key consultants, may delay our development efforts or otherwise harm our business.

 

On May 31, 2018, Dr. James Phillips, our then-Chief Executive Officer and member of the Board of Directors, stepped down from all of his positions with the Company and its subsidiaries. Dr. Craig Cook, formerly our Chief Operating Officer and Head of Research and Development, was appointed by the Board of Directors to succeed Dr. Phillips.  Further, on February 26, 2019, three of our non-executive directors, John Johnston, Michele Luzi, and Pavlo Protopapa, resigned, and we appointed Dr. Huaizheng Peng to the Board of Directors. In July 2019, we appointed Frédéric Duchesne to our Board of Directors. In September 2019, our then-Chief Financial Officer and member of our Board of Directors, Nicholas Robbins-Cherry, stepped down from all of his positions with the Company and its subsidiaries. Stephen Stamp was appointed by the Board of Directors to succeed Mr. Robbins-Cherry. In March 2020, Dr. Cook stepped down from all of his positions with the Company and its subsidiaries and two of our non-executive directors, Dr. Huaizheng Peng and Frédéric Duchesne resigned from the Board of Directors. Mr. Stamp was appointed our Chief Executive Officer upon Dr. Cook’s resignation, in addition to his continued service as our Chief Financial Officer. While we have confidence in Mr. Stamp and our remaining leadership team, including the Board of Directors, the uncertainty inherent in this ongoing leadership transition may be difficult to manage, may cause concerns from third parties with whom we do business, and may increase the likelihood of turnover of other key officers and employees.

 

In addition, our future development and prospects depend to a large degree on the experience, performance and continued service of our senior management team, including members of our Board of Directors. We have invested in our management team at all levels. We have entered into contractual arrangements with our directors and senior management team with the aim of securing the services of each of them. However, retention of these services or the identification of suitable replacements cannot be guaranteed. There can be no guarantee that the services of the current directors and senior management team will be retained, or that suitably skilled and qualified individuals can be identified and employed, which may adversely impact our ability to develop our technologies and/or provide our services at the time requested by our customers or our ability to market our services and technologies, and otherwise to grow our business, could be impaired. The loss of the services of any of the directors or other members of the senior management team and the costs of recruiting replacements may have a material adverse effect on us and our commercial and financial performance.

  

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The ability to continue to attract and retain employees with the appropriate expertise and skills also cannot be guaranteed. Finding and hiring any additional personnel and replacements could be costly and might require us to grant significant equity awards or other incentive compensation, which could adversely impact our financial results, and there can be no assurance that we will have sufficient financial resources to do so. Effective product development and innovation, upon which our success is dependent, is in turn dependent upon attracting and retaining talented technical and scientific personnel, who represent a significant asset and serve as the source of our technological and product innovations. If we are unable to hire, train and retain such personnel in a timely manner, the development and introduction of our products could be delayed and our ability to sell our products and otherwise to grow our business will be impaired and the delay and inability may have a detrimental effect upon our performance.

 

Our strategic review and the associated workforce reduction announced in March 2020 may not result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.

 

In March 2020, we announced a reduction in workforce as part of the termination of the MTD201 program and closing of our Bilbao, Spain manufacturing facilities. We may not realize, in full or in part, the anticipated benefits, savings and improvements in our cost structure from our efforts due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings from the restructuring, our operating results and financial condition would be adversely affected. We also cannot guarantee that we will not have to undertake additional headcount reductions or restructuring activities in the future. Furthermore, these changes may be disruptive to our operations. For example, our headcount reductions could yield unanticipated consequences, such as attrition beyond planned staff reductions, or increase difficulties in our day-to-day operations. Our headcount reductions could also harm our ability to attract and retain qualified management, scientific and medical personnel who are critical to our business. Any failure to attract or retain qualified personnel could prevent us from successfully developing and commercializing our product candidates in the future.

 

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

 

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with applicable regulations, provide accurate information to regulatory authorities, comply with manufacturing standards, comply with healthcare fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we have taken to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

 

We, or third parties upon whom we depend, may be adversely affected by natural disasters and/or global health pandemics, and our business, financial condition and results of operations could be adversely affected.

 

The occurrence of unforeseen or catastrophic events, including extreme weather events and other natural disasters, man-made disasters, or the emergence of epidemics or pandemics, depending on their scale, may cause different degrees of damage to the national and local economies and could cause a disruption in our operations and have a material adverse effect on our financial condition and results of operations. Man-made disasters, pandemics, and other events connected with the regions in which we operate could have similar effects. If a natural disaster, health pandemic, or other event beyond our control occurred that prevented us from using all or a significant portion of our offices and/or lab spaces, damaged critical infrastructure, or that otherwise disrupted operations, it may be difficult for us to continue our business for a substantial period of time.

 

On January 30, 2020, the World Health Organization, or WHO, announced a global health emergency because of a new strain of novel coronavirus, COVID-19, originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin, resulting in increased travel restrictions and extended shutdown of certain businesses in the region and certain other affected areas, including Europe. In March 2020, the WHO declared the COVID-19 outbreak a pandemic, which continues to spread throughout the world. The spread of this pandemic has caused significant volatility and uncertainty in U.S. and international markets. This has resulted in an economic downturn and may disrupt our business and delay our remaining clinical programs and timelines.

 

As COVID-19 continues to spread in the territories where we operate, including the United Kingdom and, until we are able to fully divest from it, Spain, our business operations have been interrupted, and could be further interrupted or delayed particularly if a large portion of our employees become ill. COVID-19 may also affect employees of third-party organizations located in affected geographies that we rely upon to carry out our remaining clinical trials. The spread of COVID-19, or another infectious disease, could also negatively affect the operations at our third-party suppliers, which could result in delays or disruptions in the supply of drug product or other suppliers used in our clinical trials. In addition, we have taken, and may take in the future, temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely, suspending all non-essential travel worldwide for our employees and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business. On May 11, 2020 the UK government announced that employees could return to the workplace provided appropriate safety measures were undertaken, including observance of social distancing.

 

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Further, timely enrollment in clinical trials is reliant on clinical trial sites which may be adversely affected by global health matters, including, among other things, pandemics. For example, our current clinical trial sites may be located in regions currently being afflicted by COVID-19. Some factors from the COVID-19 outbreak that we believe may adversely affect our drug development activities include:

 

· the diversion of healthcare resources away from the conduct of clinical trial matters to focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

· limitations on travel that interrupt key trial activities, such as clinical trial site initiations and monitoring;

 

· interruption in global shipping affecting the transport of clinical trial materials, such as investigational drug product used in our trials; and

 

· employee absences that delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

 

The impact of COVID-19 on our business is uncertain at this time and will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among other things, but prolonged closures or other business disruptions may negatively affect our operations and the operations of our of agents, contractors, consultants or collaborators, which could have a material adverse impact our business, results of operations and financial condition.

 

Unexpected facility shutdowns or system failures may occur and our disaster recovery plans may not be sufficient.

 

We depend on the performance, reliability and availability of our properties, machinery, and laboratory equipment and information technology systems. We may not be able to access our facilities as a result of events beyond our control, such as extreme weather conditions, quarantines, flood, fire, theft, terrorism and acts of God. Currently, the United Kingdom is in a lockdown due to COVID-19 and our facilities, including laboratory facilities in Cardiff, Wales, are working at a reduced capacity in order to conform to social distancing policies, which has resulted in a disruption in our current operations and which could have a material adverse effect on our business.

 

Further, any damage to or failure of our equipment and/or systems could also result in disruptions to our operations. A complete or partial failure of our information technology systems, or those of our CROs and other third parties on which we rely, or corruption of data could result in our inability to access information that we need in order to meet our obligations to our customers or a breach of confidentiality with respect to our or our customers’ proprietary information. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Our disaster recovery plans may not adequately address every potential event and our insurance policies may not cover any loss in full or in part (including losses resulting from business interruptions) or damage that we suffer fully or at all. The occurrence of one or more of these events could have a material adverse effect on our business, financial position, reputation or prospects, and might lead to a claim for damages.

 

Our business may be adversely affected by economic conditions and current economic weakness.

 

Any economic downturn either globally, regionally or locally, including the economic downturn due to COVID-19, in any country in which we operate may have an adverse effect on the demand for any products derived from our product candidates. A more prolonged economic downturn may lead to an overall decline in our sales, limiting our ability to generate a profit and positive cash flow. The markets in which we expect the products to be offered are directly affected by many national and international factors that are beyond our control, such as political, economic, currency, social and other factors.

 

We are exposed to the risks of doing business internationally.

 

We currently operate outside of the United Kingdom. Our international operations are subject to a number of risks inherent in operating in different countries. These include, but are not limited to, risks regarding:

 

· currency exchange rate fluctuations;

 

· restrictions on repatriation of earnings;

 

· difficulty of effective enforcement of contractual provisions in local jurisdictions;

 

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· inadequate intellectual property (including confidentiality) protection in foreign countries;

 

· public health epidemics or outbreaks, such as COVID-19;

 

· trade-protection measures, import or export licensing requirements and fines, penalties or suspension or revocation of export privileges; and

 

· changes in a specific country’s or a region’s political or economic conditions, particularly in emerging markets.

  

The occurrence of any of these events or conditions could adversely affect our ability to increase or maintain our operations in various countries.

 

We have undertaken, and may in the future undertake, additional strategic acquisitions. Failure to integrate acquisitions could adversely affect our value.

 

One of the ways we have grown our pipeline and business in the past is through strategic acquisitions, such as our acquisition of DARA. We may, from time to time, evaluate additional acquisition opportunities, and may, in the future, strategically make further acquisitions of, and investments in, businesses and technologies when we believe the opportunity is advantageous to our prospects. There can be no assurance that in the future we will be able to find appropriate acquisitions or investments. In connection with these acquisitions or investments, we may:

 

· issue stock that would dilute our shareholders’ percentage of ownership;

 

· be obligated to make milestone or other contingent or non-contingent payments;

 

· incur debt and assume liabilities; and

 

· incur amortization expenses related to intangible assets or incur large and immediate write-offs.

  

We also may be unable to find suitable acquisition candidates and may not be able to complete acquisitions on favorable terms, if at all. If we do complete an acquisition, this may not ultimately strengthen our competitive position or ensure that we will not be viewed negatively by customers, financial markets or investors. Further, acquisitions could also pose numerous additional risks to our operations, including:

 

· problems integrating the purchased business, products or technologies, including the failure to achieve the expected benefits and synergies;

 

· increases to our expenses;

 

· the failure to have discovered undisclosed liabilities of the acquired asset or company;

 

· diversion of management’s attention from their day-to-day responsibilities;

 

· harm to our operating results or financial condition;

 

· entrance into markets in which we have limited or no prior experience; and

 

· potential loss of key employees, particularly those of the acquired entity.

 

        We may not be able to complete one or more acquisitions or effectively integrate the operations, products or personnel gained through any such acquisition without a material adverse effect on our business, financial condition and results of operations.

 

We are exposed to risks related to currency exchange rates.

 

We currently conduct a portion of our operations outside of the United Kingdom. Because we use the British pound sterling as our financial statement reporting currency, changes in currency exchange rates have had and could have a significant effect on our operating results when our operating results are translated from the local currency into the British pound sterling. Exchange rate fluctuations between local currencies and the British pound sterling create risk in several ways, including the following: weakening of the British pound sterling, as seen, for example, following the results of the Brexit referendum, may increase the British pound sterling cost of overseas research and development expenses and the cost of sourced product components outside the United Kingdom; strengthening of the British pound sterling may decrease the value of our revenues denominated in other currencies; the exchange rates on non-sterling transactions and cash deposits can distort our financial results; and commercial pricing and profit margins are affected by currency fluctuations. Future changes in currency exchange rates could have a material adverse effect on our financial results.

 

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The ownership of a significant portion of our outstanding Ordinary Shares by Chinese entities may expose us to greater regulatory scrutiny.

 

At various times during recent years, the governments of the United States and China have had disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the United States and China could adversely affect our ability to successfully conduct our business in China or the United States, the market price of our Ordinary Shares or Depositary Shares and our ability to access the capital markets in the United States. Also, as a result of recent controversies involving Chinese controlled companies, it is possible that such companies have come under increased scrutiny in the United States and other countries, including the United Kingdom. If we become subject to enhanced regulatory review and oversight, responding to such review and oversight may be expensive and time consuming and may have a material adverse effect on our operations, even if we otherwise have complied with all legal and regulatory requirements.

 

Risks Related to Ownership of Our Securities

 

The price of our Ordinary Shares and Depositary Shares may be volatile.

 

Each Depositary Share represents five Ordinary Shares. A public market has only been established for the Depositary Shares since December 2015, and such a market may not be sustained. Both the United States and United Kingdom stock markets have experienced significant volatility, including in pharmaceutical and biotechnology stocks. In particular, the closing prices of our Ordinary Shares on AIM and our Depositary Shares on the NASDAQ Capital Market have fluctuated significantly in the prior few years.

 

In addition to the factors discussed in this “Risk Factors” section and elsewhere in this annual report, the factors that could cause volatility in the market price of each ordinary share and the Depositary Shares include:

 

· the success of competitive products or technologies;

 

· regulatory actions;

 

· actual or anticipated changes in our growth rate relative to our competitors;

 

· announcements by us or our competitors of new products, significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

 

· the progress of preclinical development, laboratory testing and clinical trials of our product candidates or those of our competitors;

 

· the results from our clinical programs and any future trials we may conduct;

 

· developments in the clinical trials of potentially similar competitive products;

 

· EMA, FDA or international regulatory or legal developments;

 

· failure of any of our product candidates, if approved, to achieve commercial success;

 

· developments or disputes concerning patent applications, issued patents or other proprietary intellectual property rights;

 

· the recruitment or departure of key personnel;

 

· the level of expenses related to any of our product candidates or clinical development programs;

 

· litigation or public concern about the safety of our products;

 

· actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

· actual and anticipated fluctuations in our operating results;

 

· variations in our financial results or those of companies that are perceived to be similar to us;

 

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· share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

· announcements or expectations of additional financing efforts;

 

· rumors relating to us or our competitors;

 

· sales of our Ordinary Shares or Depositary Shares by us, our insiders or our other shareholders;

 

· changes in the structure of healthcare payment systems;

 

· market conditions in the pharmaceutical and biotechnology sectors, or general volatility in the market due to other factors, such as the recent volatility attributed to COVID-19;

 

· third party reimbursement policies;

 

· Brexit and any resulting economic or currency volatility;

 

· developments concerning current or future collaborations, strategic alliances, joint ventures or similar relationships; and

 

· reviews of long-term values of our assets, which could lead to impairment charges that could reduce our earnings.

 

In addition, the stock market in general, NASDAQ, and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.  Broad market and industry factors may negatively affect the market price of our Ordinary Shares, regardless of our actual operating performance.  The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our Ordinary Shares and Depositary Shares.

 

We may be subject to securities litigation, which is expensive and could divert management attention.

 

The market price of our Ordinary Shares and Depositary Shares may be volatile, and in the past, some companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

 

The liquidity of our Depositary Shares and Ordinary Shares may have an adverse effect on our share price.

 

As at May 22, 2020, we had 39,252,557 Ordinary Shares outstanding. Of these shares, 13,281,840 of our Ordinary Shares were held as Depositary Shares. Some companies that have issued American depositary shares on United States stock exchanges have experienced lower levels of liquidity in their American depositary shares than is the case for their ordinary shares listed on their domestic exchange. Our Depositary Shares are traded on the NASDAQ Capital Market and our Ordinary Shares are traded on AIM. We cannot predict the effect of this dual listing on the value of our Ordinary Shares and Depositary Shares. However, the dual listing of our Ordinary Shares and Depositary Shares may dilute the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for the Depositary Shares in the United States. The price of the Depositary Shares could also be adversely affected by trading in our Ordinary Shares on AIM. As a result of these and other factors, you may not be able to sell your Depositary Shares. In addition, investors may incur higher transaction costs when buying and selling Depositary Shares than they would incur in buying and selling common stock. An inactive market may also impair our ability to raise capital by selling Depositary Shares and Ordinary Shares and may impair our ability to enter into strategic partnerships or acquire companies or products by using our Ordinary Shares as consideration. 

 

Our Ordinary Shares and Depositary Shares trade on two different markets, and this may result in price variations and regulatory compliance issues.

 

Depositary Shares representing our Ordinary Shares are listed for trading on the NASDAQ Capital Market and our Ordinary Shares are traded on AIM. Trading in our securities on these markets is made in different currencies and at different times, including as a result of different time zones, different trading days and different public holidays in the U.S. and the United Kingdom. Consequently, the effective trading prices of our securities on these two markets may differ. Any decrease in the trading price of our securities on one of these markets could cause a decrease in the trading price of our securities on the other market.

 

Shareholder ownership interests in the Company may be diluted as a result of future financings, additional acquisitions or the exercise of our options and warrants, and may have a material negative effect on the market price of our securities.

 

We may seek to raise additional funds from time to time in public or private issuances of equity and such financings may take place in the near future or over the longer term. Sales of our securities offered through future equity offerings may result in substantial dilution to the interests of our current shareholders. The sale of a substantial number of securities to investors, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.  

 

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As of May 22, 2020, we had issued 103,776 options under the Midatech Pharma PLC Enterprise Management Incentive Plan, 167,428 non-EMI options and 13,247 options under the Midatech Pharma PLC 2016 US Option Plan. In addition, we assumed 2,857 options pursuant to the acquisition of DARA in 2015. Further, as of May 22, 2020, we had issued warrants exercisable for (i) 15,692,276 Ordinary Shares with an exercise price of £10.00 per share, (ii) 630,000 Depositary Shares with an exercise price of $6.25 each (representing 3,150,000 Ordinary Shares), (iii) 1,818,182 Depositary Shares with an exercise price of $2.05 each (representing 9,090,910 Ordinary Shares), (iv) 90,909 Depositary Shares with an exercise price of $2.0625 each (representing 454,546 Ordinary Shares), (v) 6,999,999 Ordinary Shares with an exercise price of £0.34 each, and (vi) 4,624 Ordinary Shares with a weighted average exercise price of $110.51 per share (assumed pursuant to the acquisition of DARA in 2015). We may also issue Ordinary Shares (and Depositary Shares underlying such Ordinary Shares) or other securities convertible into Ordinary Shares from time to time for future acquisition. The issuance of the securities underlying these instruments, or perception that issuance may occur, will have a dilutive impact on other shareholders and could have a material negative effect on the market price of our Ordinary Shares and Depositary Shares.

  

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

               The trading market for our Ordinary Shares and Depositary Shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, the price of our Ordinary Shares and Depositary Shares would likely decline. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price of our Ordinary Shares and Depositary Shares and our trading volume to decline.

 

The rights of holders of Depositary Shares are not the same as the rights of holders of Ordinary Shares.

 

We are a public limited company incorporated under the laws of England and Wales. The Depositary Shares represent a beneficial ownership interest in our Ordinary Shares. The rights of holders of Depositary Shares will be governed by English law, our constitutional documents, the listing rules of AIM, or AIM Rules, and the deposit agreement pursuant to which the Depositary Shares are issued. The rights and terms of the Depositary Shares are designed to replicate, to the extent reasonably practicable, the rights attendant to the Ordinary Shares, for which there is currently no active trading market in the United States. However, because of aspects of United Kingdom law, our constitutional documents and the terms of the deposit agreement, the rights of holders of Depositary Shares will not be identical to and, in some respects, may be less favorable than, the rights of holders of Ordinary Shares.

 

You may not have the same voting rights as the holders of our Ordinary Shares and may not receive voting materials in time to be able to exercise your right to vote.

 

As a holder of Depositary Shares, you will not have the right to vote the shares underlying the Depositary Shares directly unless you cancel the Depositary Shares in accordance with the terms of the related deposit agreement and vote the underlying shares at the applicable shareholders meeting. Holders of the Depositary Shares will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the Ordinary Shares represented by the Depositary Shares. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their Depositary Shares through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

 

You may not receive distributions on Ordinary Shares represented by Depositary Shares or any value for them if it is illegal or impractical to make them available to holders of Depositary Shares.

 

The depositary of the Depositary Shares has agreed to pay to you distributions with respect to cash or other distributions it or the custodian receives on Ordinary Shares or other deposited securities after deducting its agreed fees and expenses. You will receive these distributions in proportion to the number of Ordinary Shares your Depositary Shares represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of Depositary Shares. We have no obligation to take any other action to permit the distribution of our Depositary Shares, Ordinary Shares, rights or anything else to holders of our Depositary Shares. As a result, you may not receive the distributions made on Ordinary Shares or any value from them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your Depositary Shares.

 

You may be subject to limitations on transfer of your Depositary Shares.

 

Your Depositary Shares are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your Depositary Shares generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or government or governmental body, or under any provision of the deposit agreement, or for any other reason.

 

Securities traded on AIM may carry a higher risk than shares traded on other exchanges that may impact the value of your investment.

 

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Our Ordinary Shares are currently traded on the AIM. Investment in equities traded on the AIM is perceived to carry a higher risk than an investment in equities quoted on exchanges with more stringent listing requirements, such as the Main Market of the London Stock Exchange, New York Stock Exchange or NASDAQ. This is because the AIM imposes less stringent corporate governance and ongoing reporting requirements than those other exchanges. In addition, the AIM requires only semi-annual, rather than quarterly, financial reporting. You should be aware that the value of our Ordinary Shares may be influenced by many factors, some of which may be specific to us and some of which may affect AIM-listed companies generally, including the depth and liquidity of the market, our performance, a large or small volume of trading in our Ordinary Shares, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the market price of our Ordinary Shares underlying the Depositary Shares may not reflect the underlying value of the Company.

 

It may be difficult for you to bring any action or enforce any judgment obtained in the United States against us or members of our Board of Directors, which may limit the remedies otherwise available to you.

 

We are incorporated as a public limited company in England and Wales. In addition, all of the members of our Board of Directors are nationals and residents of countries, including the United Kingdom, outside of the United States. Most or all of the assets of these individuals are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States if you believe your rights have been infringed under the securities laws or otherwise. In addition, a United Kingdom court may prevent you from enforcing a judgment of a United States court against us or these individuals based on the securities laws of the United States or any state thereof. A United Kingdom court may not allow you to bring an action against us or our directors based on the securities laws of the United States or any state thereof.

 

 We have no present intention to pay dividends on our Ordinary Shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time may be if the price of Depositary Shares appreciates.

 

We have no present intention to pay dividends on our Ordinary Shares in the foreseeable future. Any determination by our Board of Directors to pay dividends will depend on many factors, including our financial condition, results of operations, legal requirements and other factors. Accordingly, if the price of the Depositary Shares falls in the foreseeable future and you sell your Depositary Shares, you will lose money on your investment, without the likelihood that this loss will be offset in part or at all by cash dividends.

 

We are a “foreign private issuer” under the rules and regulations of the SEC and, as a result, are exempt from a number of rules under the Exchange Act and are permitted to file less information with the SEC than a company incorporated in the United States.

 

We are incorporated as a public limited company in England and Wales and are deemed to be a “foreign private issuer” under the rules and regulations of the SEC. As a foreign private issuer, we are exempt from certain rules under the Exchange Act that would otherwise apply if we were a company incorporated in the United States, including:

 

· the requirement to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies with securities registered under the Exchange Act;

 

· the requirement to file financial statements prepared in accordance with U.S. GAAP;

 

· the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations; and

 

· the requirement to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information.

 

In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the related rules with respect to their purchases and sales of Ordinary Shares and Depositary Shares. Accordingly, you may receive less information about us than you would receive about a public company incorporated in the United States and may be afforded less protection under the United States federal securities laws than you would be if we were incorporated in the United States.

 

Additional reporting requirements may apply if we lose our status as a foreign private issuer.

 

If we lose our status as a foreign private issuer at some future time, then we will no longer be exempt from such rules and, among other things, will be required to file periodic reports and financial statements as if we were a company incorporated in the United States. The costs incurred in fulfilling these additional regulatory requirements could be substantial.

 

As a foreign private issuer, we are not required to comply with many of the corporate governance standards of NASDAQ applicable to companies incorporated in the United States.

 

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Our Board of Directors is required to maintain an audit committee comprised solely of three or more directors satisfying the independence standards of NASDAQ applicable to audit committee members. As a foreign private issuer, however, we are not required to comply with most of the other corporate governance rules of NASDAQ, including the requirement to maintain a majority of independent directors, and nominating and compensation committees of our Board of Directors comprised solely of independent directors. Although United Kingdom corporate governance rules which we abide by have comparable requirements, holders of Depositary Shares may not be afforded the benefits of the corporate governance standards of NASDAQ to the same extent applicable to companies incorporated in the United States.

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our securities less attractive to investors.

 

We are currently an “emerging growth company,” as defined under the Jumpstart Our Business Startups Act. We will remain an “emerging growth company” until December 31, 2020; provided, however, that if our annual gross revenues exceed $1.07 billion, or our non-convertible debt issued within a three-year period exceeds $1 billion, or the market value of our common shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, we are not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, we have reduced disclosure obligations, including with regard to our financial statements and executive compensation, and we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

 

We are subject to the periodic reporting requirements of the Exchange Act. We design our disclosure controls and procedures to reasonably assure that information we are required to disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosure due to error or fraud may occur and we may not detect them.

 

Any failure to maintain effective internal controls and procedures over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows.

 

We are incurring increased costs as a result of operating as a public company, and management will be required to devote substantial time to new compliance initiatives.

 

As a public company in the United Kingdom and United States, we are incurring significant legal, accounting and other expenses that we did not incur as a private company, and these expenses may increase even more after we are no longer an “emerging growth company.” We are subject to the reporting requirements of, in the United Kingdom, the AIM Rules, the Market Abuse Regulation, or MAR, and the Disclosure Guidance and Transparency Rules, and in the United States, the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and to be adopted, by the SEC and the NASDAQ. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the sufficient coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as members of our senior management.

 

Regulations related to “conflict minerals” may cause us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products.

 

In August 2012, the SEC adopted a rule requiring disclosures of specified minerals, known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured by U.S. public companies. The conflict minerals rule requires companies annually to diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and other specified countries. The rule could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture of our products, including gold. The number of suppliers who provide conflict-free minerals may be limited. In addition, there may be material costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, as well as costs of possible changes to products, processes, or sources of supply as a consequence of such verification activities. Since our supply chain is complex, we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. In addition, we may encounter challenges to satisfy those customers who require that all of the components of our products be certified as conflict-free, which could place us at a competitive disadvantage if we are unable to do so.

  

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If we cannot continue to meet NASDAQ’s continued listing requirements, NASDAQ may delist our Depositary Shares, which could have an adverse impact on the liquidity and market price of our Depositary Shares.

 

Our Depositary Shares are currently listed on the NASDAQ Capital Market. We are required to meet certain qualitative and financial tests to maintain the listing of our Depositary Shares on NASDAQ. On December 11, 2019, we received a letter from NASDAQ stating that, for the previous 30 consecutive business days, the bid price for our Depositary Shares had closed below the minimum $1.00 bid price per share requirement for continued listing on The NASDAQ Capital Market under NASDAQ Listing Rule 5550(a)(2). On March 18, 2020, we received written notice from NASDAQ notifying us that for the preceding 10 consecutive business days the closing bid price for our Depositary Shares had been $1.00 or greater. Accordingly, NASDAQ determined that we had regained compliance with NASDAQ Listing Rule 5550(a)(2).

 

Having regained compliance with these rules, we are now in compliance with all applicable requirements for continued listing on the NASDAQ Capital Market. However, we cannot assure you that we will remain in compliance with all applicable requirements for continued listing on the NASDAQ Capital Market. If, in the future, we fail to sustain compliance with all applicable requirements for continued listing on NASDAQ, our Depositary Shares may be subject to delisting by NASDAQ. This could inhibit the ability of our holders of Depositary Shares to trade their shares in the open market, thereby severely limiting the liquidity of such shares. Although stockholders may be able to trade their shares of Depositary Shares on the over-the-counter market, there can be no assurance that this would occur. Further, the over-the-counter market provides significantly less liquidity than NASDAQ and other national securities exchanges, is thinly traded and highly volatile, has fewer market makers and is not followed by analysts. As a result, your ability to trade or obtain quotations for these securities may be more limited than if they were quoted on NASDAQ or other national securities exchanges.

 

The change in ratio of our Ordinary Shares to Depositary Shares may not increase our Depositary Share price over the long-term.

 

On March 3, 2020, in an effort to bring our Depositary Share price into compliance with NASDAQ’s minimum bid price per share requirement, we effected a ratio change in the number of Ordinary Shares represented by our Depositary Shares from 20 Ordinary Shares per Depositary Share to five Ordinary Shares per Depositary Share. We cannot assure you, however, that the ratio change will accomplish this objective for any meaningful period of time, or result in any permanent or sustained increase in the market price of our Depositary Shares, which is dependent upon many factors, including our business and financial performance, general market conditions, and prospects for future success.

The change in ratio of our Ordinary Shares to Depositary Shares may decrease the liquidity of our Depositary Shares.

 

Although the Board of Directors believes that the increase in the market price of our Depositary Shares could encourage interest in our Depositary Shares and possibly promote greater liquidity for our stockholders, such liquidity could also be adversely affected by the reduced number of Depositary Shares outstanding after the ratio change. A reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for our Depositary Shares. In addition, the ratio change may increase the number of stockholders who own odd lots (less than 100 shares) of our Depositary Shares, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty affecting such sales.

 

We intend to operate so as to be treated exclusively as a resident of the United Kingdom for tax purposes, but the relevant tax authorities may treat us as also being a resident of another jurisdiction for tax purposes.

 

We are a public limited company incorporated under the laws of England and Wales. Under current English law, the decisions of the English courts and the published practice of Her Majesty’s Revenue and Customs suggest that we are likely to be regarded as being a United Kingdom resident and should remain so if, as we intend that, (i) all major meetings of our Board of Directors and most routine meetings are held in the United Kingdom with a majority of directors present in the United Kingdom for those meetings; (ii) at those meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting us and our subsidiaries; (iii) those meetings are properly minuted; (iv) at least some of our directors, together with supporting staff, are based in the United Kingdom; and (v) we have permanent staffed office premises in the United Kingdom sufficient to discharge our functions.

 

Even if we are considered by Her Majesty’s Revenue and Customs as resident in the United Kingdom for United Kingdom tax purposes, as expected, we would nevertheless not be treated as resident in the United Kingdom if (a) we were concurrently resident in another jurisdiction (applying the tax residence rules of that jurisdiction) that has a double tax treaty with the United Kingdom and (b) there is a tiebreaker provision in that tax treaty which allocates exclusive residence to that other jurisdiction. Because this analysis is highly factual and may depend on future changes in our management and organizational structure, there can be no assurance regarding the final determination of our tax residence. Should we be treated as resident for tax purposes in another jurisdiction other than the United Kingdom, we would be subject to taxation in such jurisdiction in accordance with such jurisdiction’s laws, which could result in additional costs and expenses.

 

We may be a passive foreign investment company, referred to as a PFIC, for U.S. federal income tax purposes in 2020 or in any subsequent year. This may result in adverse U.S. federal income tax consequences for U.S. taxpayers that are holders of our securities.

 

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We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. We do not believe we were a PFIC for 2019 but there can be no assurance that we will not be a PFIC in 2020 or subsequent years, as our operating results for any such years may cause us to be a PFIC. If we are a PFIC in 2020, or any subsequent year, and a U.S. shareholder does not make an election to treat us as a “qualified electing fund,” or a QEF, or make a “mark-to-market” election, then “excess distributions” to a U.S. shareholder, and any gain realized on the sale or other disposition of our securities will be subject to special rules. Under these rules: (1) the excess distribution or gain would be allocated ratably over the U.S. shareholder’s holding period for the securities; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the United States Internal Revenue Service, or the IRS, determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders who hold or have held our securities during a period when we were or are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. shareholders who made a timely QEF or mark-to-market election. However, because we do not intend to prepare or provide the information that would permit the making of a valid “qualified electing fund” election, such an election will not be available to United States holders.

 

Recent and potential future changes to U.S. and non-U.S. tax laws could materially adversely affect our Company and holders of our Ordinary Shares and the Depositary Shares.

 

The Tax Cut Act, which was legislation bringing about broad changes in the existing U.S. corporate tax system, was enacted in the United States in December 2017. The Tax Cut Act made significant changes to the U.S. federal income tax laws. Certain provisions of the Tax Cut Act could have an adverse effect on the business, financial condition, and results of operations of the Company, or an adverse effect on holders of our Ordinary Shares, Depositary Shares, Warrants, or Pre-Funded Warrants. The interpretations of many provisions of the Tax Cut Act are still unclear. We cannot predict when or to what extent any U.S. federal tax laws, regulations, interpretations, or rulings clarifying the Tax Cut Act will be issued or the impact of any such guidance on investors or the Company. Prospective investors are urged to consult their own tax advisors regarding the effect of the Tax Cut Act and other potential changes to the U.S. federal tax laws prior to investing in the Company.

 

Future changes in tax laws, regulations and treaties, or the interpretation thereof, in addition to initiatives related to the Base Erosion and Profit Shifting, Project of the Organisation for Economic Co-Operation and Development; the European Commission’s “state aid” investigations; and other developments could have an adverse effect on the taxation of international businesses, including our own. Furthermore, countries where we are subject to taxes evaluate their tax policies and rules on a regular basis, and we may see significant changes in legislation and regulations concerning taxation.

 

We are unable to predict what tax changes may be enacted in the future or what effect such changes would have on our business, but such changes could affect our effective tax rates in countries where we have operations and could have an adverse effect on our overall tax position in the future, along with increasing the complexity, burden and cost of tax compliance.

 

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ITEM 4. INFORMATION ON THE GROUP.  

 

A. History and Development of the Group

 

We were originally formed as a limited liability company under the laws of England and Wales in 2000 under the name Midatech Limited, which acquired its base nanoparticle technology through an assignment of worldwide commercialization rights and joint ownership of patent rights from Consejo Superior de Investigaciones Cientificas, or CSIC, in Madrid, Spain. Midatech Limited was a research and development focused biotech company which subsequently advanced and developed this gold nanoparticle drug delivery platform technology to enhance the delivery of medicines for major therapeutic indications where clinical therapeutic options are limited, with a particular focus on certain cancers, such as liver and brain cancer.

 

To better be able to continue the commercial development of the research and development programs of Midatech Limited, Midatech Pharma PLC was incorporated on September 12, 2014 under the laws of England and Wales, to be the public holding company of Midatech Limited and Midatech Pharma (Wales) Limited, or Midatech Wales, under registered number 09216368. On December 8, 2014, we completed our initial public offering of our Ordinary Shares in the United Kingdom.

 

Also on December 8, 2014, we acquired Midatech Wales (formerly known as Q Chip Limited) and its subsidiaries in exchange for approximately 5.4 million Ordinary Shares. Founded in 2003 with the acquisition of core intellectual property around micro-fluidics from Cardiff University, Midatech Wales develops a complementary technology and products that allow sustained delivery of substances over extended periods of time. We believe that this technology provides an additional drug delivery platform to improve biodelivery and biodistribution of existing drugs.

 

On December 4, 2015, in to establish a presence in the United States, we acquired DARA (including its commercial products) and its subsidiaries pursuant to an Agreement and Plan of Merger entered into on June 4, 2015. As a result, DARA became a wholly owned subsidiary of Midatech, and was subsequently renamed Midatech US.

 

On December 24, 2015, we expanded our commercial product portfolio by acquiring Zuplenz® (ondansetron) Oral Soluble Film, or Zuplenz, a marketed anti-emetic oral soluble film from Galena Biopharma, Inc. for the prevention of chemotherapy-induced nausea and vomiting, radiotherapy-induced nausea and vomiting, and post-operative nausea and vomiting. Zuplenz was subsequently contributed to Midatech US in April 2018.

 

Effective November 1, 2018, and pursuant to the Purchase Agreement, we sold 100% of the outstanding equity interests of Midatech US to an affiliate of Barings LLC for initial consideration of $13.0 million, and up to $6.0 million of additional payments subject to the achievement of 2018 and 2019 net sales performance targets with respect to certain Midatech US products, both individually and in the aggregate.

 

On March 31, 2020 we announced that, in the context of prevailing conditions in the capital markets, we did not expect to be able to raise capital to fund the continued development of MTD201, including scale-up of MTD201 manufacturing at our Bilbao facilities. We determined to cease further investment in MTD201 and close our operations in Bilbao, Spain, including making all our employees in Bilbao redundant.

 

On April 20, 2020, we announced an update to the strategic review of operations including the appointment of Noble Capital Markets, Inc., or Noble, to advise us on options for extracting value from its technologies. These options are expected to include partnering our clinical stage assets, partnering existing and upcoming proof of concept formulations, partnering or selling one or more of our technologies or selling the entire Company.

 

Our principal executive office and registered offices are located at Oddfellows House, 19 Newport Road, Cardiff, United Kingdom CF24 0AA, and our telephone number is +44 1235 888 300. Our authorized representative in the United States is Donald J. Puglisi of Puglisi and Associates. Our agent for service in the United States is Donald J. Puglisi of Puglisi and Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711. Our Ordinary Shares are traded on AIM under the symbol “MTPH,” and our Depositary Shares are traded on the NASDAQ Capital Market under the symbol “MTP.”

 

We file reports and other information with the SEC. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. Our filings with the SEC are available to the public through the SEC’s website at http://www.sec.gov. Our corporate website is located at www.midatechpharma.com. Information contained on our website is not part of, or incorporated in, this annual report.

 

Capital Expenditures

 

Our capital expenditures amounted to £0.31 million, £0.24 million and £0.71 million for the years ended December 31, 2019, 2018 and 2017, respectively.

 

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For the year ended December 31, 2019, our principal capital expenditures largely related to the purchase of laboratory equipment for our former manufacturing facility in Bilbao, Spain.

 

For the year ended December 31, 2018, our principal capital expenditures largely related to expansion of our pharmaceutical development capability in our Cardiff research and development facility, and production capability at our Bilbao, Spain manufacturing facility.

 

For the year ended December 31, 2017, our principal capital expenditures largely related to investment in, further development of, and equipment for, our manufacturing facility in Bilbao, Spain, costing £0.51 million.

 

B. Business Overview

 

Business Overview

 

We are focused on the research and development of medicines which we believe would benefit from improved bio-delivery and/or bio-distribution using our using our proprietary platform drug delivery technologies:

 

· Q-Sphera™ platform: Our disruptive polymer microsphere microtechnology is used for sustained delivery to prolong and control the release of therapeutics over an extended period of time, from weeks to months.

 

· MidaSolve™ platform: Our innovative oligosaccharide nanotechnology is used to solubilize drugs so that they can be administered in liquid form directly and locally into tumors.

 

· MidaCore™ platform: Our leading-edge gold nanoparticle, or GNP, nanotechnology is used for targeting sites of disease by using either chemotherapeutic agents or immunotherapeutic agents

 

The following table further summarizes our platform technologies:

 

  Q-Sphera™   MidaSolve™   MidaCore™  
             
Technology

The next generation Micro-Encapsulation PLGA polymer depot system

 

Advanced piezo printing technology

 

Several million microspheres produced per second

 

A novel Nano Inclusion technology for chemotherapeutics

Solubilises inherently insoluble drugs

 

Nano inclusion technology for chemotherapeutics

 

Complex has hydrophobic core and hydrophilic surface

 

The leading Gold Nanotechnology to deliver chemo / immuno therapeutics

 

Key attributes are small size and multi-valent binding sites

 

Decorated with therapeutic + targeting moieties

 
             
Clinical

Superior sustained-release pharmacokinetics

 

Improves usability, patient experience and compliance

 

Enhanced dosing and administration routes

 

Converts oral drugs into liquid administration forms

 

Enables infusion directly into the tumour

 

Aims to enhance efficacy and reduce toxicity

 

Size (2-4nm) improves delivery, targeting, reduces toxicity

 

Enters immune cells to enhance immune responses against tumour cells

 

Research programmes in psoriasis and solid tumours

 
             
Manufacture

Scalable, efficient high yield manufacture

 

Modest infrastructure, environmentally very friendly

 

Low CoGS and broad API compatibility

 

Multiple patent families

 

Simple manufacturing process

 

No solvents, non-toxic

 

Lyophilised powder, long shelf-life

 

Product-specific patents

 

 

Simple manufacturing process

 

Modest infrastructure

 

Multiple patent families

 

 

 

 
             

 

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We have focused our resources and activities on using our technologies to develop our oncology and rare disease product pipeline programs, including:

 

· MTD201 (Q-Octreotide), which uses our sustained release platform, Q-Sphera, to formulate a long acting dose of octreotide for the treatment of acromegaly and neuroendocrine tumors; and

 

· MTX110, which is a direct delivery treatment for diffuse intrinsic pontine glioma, or DIPG, an ultra-rare brain cancer suffered by children, using our MidaSolve technology for direct delivery.

 

In addition to these two lead programs, a further program in the clinic is MTX102, a European Union funded program seeking to develop a vaccine for Type I diabetes, based on the MidaCore technology for targeted delivery and uptake by the immune system.

 

In addition to the product candidates and collaborations discussed elsewhere, during the past three years we sold oncology treatment and supportive care products through our former subsidiary, Midatech US. With the sale of Midatech US in 2018, we no longer sell any products.

 

Intellectual Property. We have developed a strong intellectual property base and have a wide intellectual property portfolio of 120 granted patents, 70 applications in process and 36 patent families (a set of patents to protect a single invention in various countries covering a range of diverse technologies).

 

Revenue. Revenue from continuing and discontinued operations for the whole of the Group is set out below.

 

 

    Year ended December 31,  
(£ in thousands)   2019     2018     2017  
Continuing Operations:                  
Revenue (United States) (1)     60       --       --  
Revenue (Europe, including United Kingdom)     252       149       149  
                         
Discontinued Operations:                        
Revenue (United States) (1)     --       3,882       6,609  
Revenue (Europe, including United Kingdom)     --       --       --  
Total Revenue from continuing and discontinued operations     312       4,031       6,758  

 

                                              

 

  (1) Revenue for Midatech US, which we divested in 2018, is included in the consolidated statement of comprehensive income within the aggregate loss from discontinued operations through October 31, 2018.

 

Jumpstart Our Business Startups Act of 2012. As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

· an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal controls over financial reporting;

 

· an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

· reduced disclosure about the company’s executive compensation arrangements; and

 

· exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements. 

 

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We may take advantage of these provisions until December 31, 2020, or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenues, have more than $700 million in market value of our share capital held by non-affiliates or issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We have taken advantage of some reduced reporting burdens in this annual report. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

 

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.

 

Recent Developments

 

Strategic Review

 

In March 2020, we reviewed the remaining costs necessary to complete the Phase III clinical trial of MTD201, as well as the manufacturing scale-up of our MTD201 manufacturing capabilities at our Bilbao, Spain facilities. We believe the remaining costs are in the order of $30 million (of which $8.5 million has been raised in loans from the Spanish government, as discussed in more detail herein). Given the state of the financial markets, and our current cash runway, we determined we were unlikely to conclude a license transaction or raise sufficient funds to continue the required remaining investment in MTD201 in a timely manner. Due to this, the Board of Directors made the determination to terminate the further in-house development of MTD201 immediately and to seek a license partner for it.

 

In connection with the decision to terminate the MTD201 program, the Board of Directors determined to close our manufacturing facilities in Bilbao, Spain. We are currently in the process of closing these facilities. We have offered redundancy to all of our Midatech Pharma España S.L., or Midatech Spain, employees, and we are currently now, as required by Spanish law, in a period of consultation with these employees. We have also offered redundancy to five employees located in the United Kingdom in our clinical research and administrative departments.

 

With respect to MTX110, provided sufficient funding is available to support the overall program, we will continue to develop the product candidate. For example, we anticipate we will use a portion of the net proceeds from our May 2020 equity offerings to fund the clinical development program of MTX110, among other things. For more information, see “—Registered Direct Offerings and Private Placements”.

 

Following these changes, our strategy has shifted to deploying our proprietary drug delivery technologies to formulate a compelling portfolio of novel first-in-class sustained release formulations of products with significant commercial potential for licensing to pharmaceutical company partners at a proof-of-concept stage. Other than with respect to MTX110 (for which any trials will be limited to those funded from outside sources), we have no plans to undertake additional clinical trials in humans unless a license partner or grant funding has been secured.

 

On March 31, 2020, Dr. Craig Cook, our then-Chief Executive Officer, resigned from his position and as a director of Midatech, effective immediately. He was succeeded by Mr. Stephen Stamp, our current Chief Financial Officer, who will serve in the combined roles of Chief Executive Officer and Chief Financial Officer. In addition, in line with our streamlined strategy and operations, each of Dr. Huaizheng Peng and Mr. Frederic Duchesne resigned from the Board of Directors, effective March 31, 2020.

 

On March 31, 2020, we announced that, due to the prevailing conditions in the capital markets and the prospect of raising additional funds and finding a partner for our assets, the Board of Directors initiated a strategic review of our operations. The objective of the review is to identify ways to maximize value for our shareholders given the significant challenges faced by our business. We have formed a Finance Committee comprised of Mr. Stamp and Rolf Stahel, our Chairman, to review, analyze and make recommendations to the Board of Directors regarding a possible sale of our business or other strategic transactions.

 

On April 20, 2020, we announced an update to the strategic review of operations including the appointment of Noble to advise us on options for extracting value from its technologies. These options are expected to include partnering our clinical stage assets, partnering existing and upcoming proof of concept formulations, partnering or selling one or more of its technologies or selling the entire company. A sale of the company would be pursuant to a ‘Formal Sale Process’, as defined by The City Code on Takeovers and Mergers, or the Takeover Code. The Panel on Takeovers and Mergers, a United Kingdom-body that issues and administers the Takeover Code, has agreed to allow us and our advisers to conduct discussions with potential acquirors without the requirement to publicly identify any interested parties. As a result of the announcement, we are considered to be in an ‘Offer Period,’ which places certain restrictions and reporting obligations on us.

 

Secura License Agreement

 

On June 8, 2020, we received a letter sent on behalf of Secura Bio, dated June 1, 2020, purporting to terminate the Secura License Agreement. Pursuant to the Secura License Agreement, Midatech Limited was granted a non-exclusive worldwide, sublicenseable license to certain patents of panobinostat, the active pharmaceutical ingredient of our development product MTX110. Midatech Limited’s rights are limited to the treatment of brain cancer in humans, administered by convection-enhanced delivery.

 

We plan to continue to pursue development of MTX110 and the strategic review process previously disclosed. We are also reviewing with our outside counsel remedies we may have if Secura Bio does not withdraw the notice and otherwise cease to interfere with our ongoing business and strategic review process, which we have formally requested. We are evaluating available actions to protect our rights under the Secura License Agreement and our assets.

 

Impact of COVID-19

 

We established a COVID-19 task force in mid-March 2020 with the objectives of safeguarding the health and wellbeing of our staff members and monitoring the impact on our vendors and collaborators. From mid-March 2020, our employees have for the most part been working from their homes. Currently, only very few colleagues are working in our Cardiff, Wales laboratories in order to conform to social distancing policies, which has resulted in a disruption in our current operations and which could have a material adverse effect on our business.

 

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Our expectation is that the COVID-19 pandemic is likely to negatively affect businesses globally for an indeterminate period and that, once the pandemic is under control, recovery to normalization will not be instantaneous. Accordingly, we believe governmental limitations on travel will certainly cause delays to timelines. These delays may be the result of a limitation on the number of staff permitted in our facilities at any one time or delays in our vendor’s supply chains. In addition, delays are likely in the recruitment and execution of clinical trials as prospective and enrolled patients are unable to visit clinical sites.

 

It is not currently possible to quantify the impact of COVID-19 and resultant delays on the Company until it becomes clear that the global crisis has abated and a normalization of the business environment can be foreseen with confidence.

 

Registered Direct Offerings and Private Placements

 

October 2019 Offering. On October 25, 2019, we completed the closing of a registered direct offering with an institutional investor, or the October Investor, for the sale of 600,000 Depositary Shares (representing 3,000,000 Ordinary Shares) at a price per Depositary Share of $5.00, for aggregate gross proceeds of $3.0 million.

 

In a concurrent private placement, we sold to the October Investor warrants, or the October Private Placement Warrants, to purchase a total of 600,000 Depositary Shares (representing 3,000,000 Ordinary Shares) at an exercise price of $6.25 per Depositary Share. The October Private Placement Warrants became exercisable on December 23, 2019, the initial exercise date. The October Private Placement Warrants will expire five and one-half years from the initial exercise date. The closing of the private placement occurred on October 25, 2019.

 

H.C. Wainwright & Co., LLC, or Wainwright, served as the sole placement agent for the transaction. In connection therewith, we also issued to certain designees of Wainwright warrants, or Wainwright October Warrants, for the purchase of a total of 30,000 Depositary Shares (representing 150,000 Ordinary Shares) at an exercise price of $6.25 per Depositary Share pursuant to the terms of our engagement letter agreement with Wainwright. The Wainwright October Warrants became exercisable on December 23, 2019 and expire on October 22, 2024.

 

May 2020 Offering. On May 20, 2020, we completed the closing of a registered direct offering, or May Registered Direct Offering, with certain institutional investors, or the May Investors, for the sale of 1,818,182 Depositary Shares (representing 9,090,910 Ordinary Shares) at a price per Depositary Share of $1.65, for aggregate gross proceeds of $3.0 million.

 

In a concurrent private placement, we sold to the Investors warrants, or the May Private Placement Warrants, to purchase a total of 1,818,182 Depositary Shares (representing 9,090,910 Ordinary Shares) at an exercise price of $2.05 per Depositary Share. The May Private Placement Warrants, which were immediately exercisable, will expire five and one-half years from the issuance date. The closing of the private placement occurred on May 20, 2020.

 

Wainwright served as the sole placement agent for the transaction. In connection therewith, we also issued to certain designees of Wainwright warrants, or Wainwright May Warrants, for the purchase of a total of 90,909 Depositary Shares (representing 454,546 Ordinary Shares) at an exercise price of $2.0625 per Depositary Share pursuant to the terms of our engagement letter agreement with Wainwright. The Wainwright May Warrants became exercisable on May 18, 2020 and expire May 18, 2025.

 

United Kingdom Placing

 

Concurrently with the May Registered Direct Offering, on May 22, 2020, we, through Turner Pope Investments Limited, a United Kingdom Financial Conduct Authority registered broker, or TPI, completed a placing with certain investors in the United Kingdom, or the UK Placing, of 6,666,666 units, or Units, with each Unit comprising one new Ordinary Share, or Placing Share, and one warrant exercisable for one new Ordinary Share, or UK Warrant, at an issue price of £0.27 per Unit. The exercise price of the UK Warrants is £0.34 per share, for aggregate gross proceed of £1.8 million. The UK Warrants expire five years and six months from the issuance date.

 

In connection with TPI acting as the placement agent for the UK Placing, we issued to TPI UK Warrants to purchase an aggregate of 333,333 Ordinary Shares, or 5.0% of the aggregate UK Warrants issued in the UK Placing.

 

The Units and the securities underlying the Units were offered only outside the United States in reliance upon Regulation S under the Securities Act in an offshore transaction.

 

MTD201 Program

 

As set forth above, in light of the remaining costs to complete clinical trials and the manufacturing scale-up for MTD201, we have determined it necessary to terminate the in-house development of MTD201 immediately and seek a license partner for it.

 

MTD201 is for the treatment of chronic high morbidity neuro hormonal tumors in two indications - acromegaly and neuro endocrine tumors, or NET. Currently, this program has completed two Phase I clinical studies and we hope to license MTD201 to a partner for the pivotal registration studies for these two indications.

 

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The aim of the MTD201 program, using our Q-Sphera sustained release platform, is to formulate a superior and differentiated long-acting alternative to the already approved somatostatin analogue octreotide, an immediate-release injection product. This product is used to treat the clinical manifestations of NET, as well as patients suffering from acromegaly. Somatostatin analogues are the mainstay of medical treatment for carcinoid syndrome that occurs with carcinoid tumors (hormone producing tumors in the body), and acromegaly that occurs due to a growth hormone secreting tumor in the pituitary gland in the brain. MTD201 is being developed as a long acting, sustained release form of the active substance octreotide, which, if approved, is expected to compete as a new differentiated product in the $2.5 billion long-acting somatostatin analogue market, which comprises Sandostatin LAR Depot, or SLAR, which is marketed by Novartis, and Ipsen Pharma S.A.’s product, Somatuline AutoGel.

 

On August 31, 2018, we announced the results of our ‘first-in-human’ study of MTD201. The double-blind, exploratory study compared tolerability, pharmacokinetics and growth hormone profiles after 30mg intramuscular injections of MTD201 or SLAR in 24 healthy subjects. Results from the study indicated that MTD201 produces a desirable, safe and effective sustained-release profile of octreotide, supporting a once-monthly treatment interval, as is indicated for SLAR. The overall profile supports the potential for an alternative product with an improved clinical and usability profile to SLAR. Additional advantages demonstrated in the study included smaller, less painful needle size, simpler and error free reconstitution and injection, quicker bedside reconstitution, reduced wastage and significantly lower manufacturing costs.

 

Following this study, and after consultations with key opinion leaders, regulators and potential partners, we determined to develop the MTD201 program as a new differentiated commercial octreotide sustained release product for the treatment of acromegaly and NET.

 

On October 8, 2019, we commenced a Phase 1 study of MTD201 to confirm the further key advantages of the product for both a subcutaneous dosing route, as well as an extended dosing interval in the range of six to eight weeks. The study was designed to investigate subcutaneous administration of MTD201 as an additional injection route, as compared to intramuscular administration, to help determine the preferred administration route we plan to take forward into further MTD201 studies. On January 8, 2020, we announced the positive results of the trial, confirming similar pharmacokinetics and bioavailability of octreotide for subcutaneous and intramuscular routes of administration.

 

The next step would be the preparation for a pivotal trial in acromegaly. These preparations were underway when the Board determined to terminate the MTD201program and wind down all activities as expeditiously as possible. We currently have no plans for additional clinical trials for MTD201.

 

MTX110 Updates

 

The first application of our MidaSolve technology is for the treatment of debilitating childhood brain cancers that have no approved therapies. A Phase I safety study is currently being completed, and, subject to funding, the program is being expanded to additional studies planned to commence during 2020.

 

Current Clinical Trials. DIPG is an ultra-rare brain cancer, most commonly found in children. We believe MTX110 (soluble panobinostat), which is a ‘direct-to-brain’ treatment for DIPG and is based on our MidaSolve technology for direct delivery, may be an important advancement in transforming outcomes for patients with this disease. We have an open label Phase I study of safety and tolerability 8 patients ongoing in collaboration with the University of California, San Francisco, or UCSF. This study, which involves dose escalation from an initial concentration of 30µM to determine a recommended Phase II dose, is expected to report top-line results in mid-2020. To date, results indicate that locally-delivered MTX110 is tolerable at these high doses.

 

Assuming the final results of the UCSF study confirm good safety and tolerability at the optimal does of MTX110, and subject to receipt of funding, we plan to initiate a statistically-powered Phase II study to examine efficacy and safety in a further 19 patients in Europe and/or the United States. The Phase II trial will use a convection enhanced delivery, or CED, system, whereby MTX110 will be infused under slight pressure directly into and around the tumor. We believe the primary endpoint of the study to be patient survival rates after 12 months. We expect this study to be primarily funded by a €2.6 million grant from the European Union, though there can be no guarantee this grant will be received. If the grant is not received, we expect to delay this trial until funding is available. For more information regarding this grant, see “Item 5. Operating and Financial Review and Prospectus—Recent Developments—Spanish Governmental Loans and European Union Grants.

 

In addition, we have also initiated an exploratory trial in five patients with DIPG at Columbia University, using an alternative CED infusion system.

 

Orphan Drug Status. On October 24, 2019, we announced that the FDA has granted orphan drug designation for MTX110. Orphan drug designation is granted to support the development of drugs that target rate diseases with high unmet needs, affecting 200,000 or fewer U.S. patients annually, and that are expected to provide significant therapeutics advantages over existing treatments. Orphan designation qualifies a company for benefits that apply across all stages of drug development, including an accelerated approval process, seven years of market exclusivity upon regulatory approval, if received, tax credits for qualified U.S. clinical trials, eligibility for orphan drug grants and exemption from certain administrative fees.

 

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MTX102 Clinical Trial Results

 

On July 19, 2019, we announced interim positive safety results from our “first in human” study of MTX102, our immune-tolerizing diabetes vaccine product candidate. The focus of this Phase I study is to assess the safety of MTX102. The study consisted of five Type I diabetes patients, all meeting strict parameters. MTX102 was well tolerated, with asymptomatical local injection site reactions being the only drug-related finding, and no serious adverse event were reported. We believe the study provides encouraging safety validation of the MidaCore technology as a potential platform for the development of medications for use in humans.

 

All patients on the study have entered the follow-up phase of the trial, which we believe will conclude in mid-2020, after which we, along with our European Union consortium partners, will review the data and the program.

 

Spanish Governmental Loans and European Union Grant

 

On September 11, 2019, our wholly owned subsidiary, Midatech Pharma España S.L., or Midatech Spain, received a €6.6 million loan from the Spanish Ministry of Industry, Commerce and Tourism, under its Re-industrialisation Programme, or the REINDUS Loan. The loan was fully drawn down in September 2019. Principal on the REINDUS Loan is due and payable in seven equal annual installments of €0.94 million each, commencing in September 2023. Interest, which is payable annually in arrears, accrues at the annual rate of 1.647% for the life of the loan. For each of the first three years, interest payable is approximately €0.1 million, with subsequent payments diminishing over the remainder of the term of the loan. The loan is partially secured by a guarantee by the Company of €3.0 million (€2.7 million relating to the principal loan amount, plus a further €0.3 million in respect of future interest) in the form of a cash bond.

 

The REINDUS Loan was intended to partially fund activities to scale-up the manufacturing capability of our MTD201 program, however, in connection with our decision to terminate the MTD201 program and shut down our Bilbao, Spain manufacturing facilities, we have begun the process to repay this loan. Upon repayment, we expect our cash bond to be released. The total amount to be repaid is approximately €3.6 million (net of deposits returned to us). In addition, we expect to repay other loans from the Spanish government in connection with this termination.

 

On December 5, 2019, we announced that confirmation had been received for a €2.7 million grant from the European Union to be used to conduct a clinical study designed to demonstrate the efficacy of MTX110 as a treatment for DIPG. The grant, which is subject to finalization of a grant agreement with the European Union and the Company satisfying to the European Union that it meets the SME criteria of the European Union, is to be made pursuant to the European Union’s EIC Accelerator (SME Instrument) and is part of the European Innovation Council. There can be no guarantee we will satisfy the criteria for the loan and that the grant will be received. If the grant is received, we plan to begin a European study consisting of an open label trial of MTX110 during a one-year treatment period. The grant is expected to cover 70% of the expected study costs, with the Company covering the remaining amounts. If the grant is not received, we expect to cancel this planned trial.

 

Reverse Stock Split and Change in Ratio of Depositary Shares

 

On March 3, 2020, following shareholder approval, we effected a one-for-20 reverse split of our Ordinary Shares and our Ordinary Shares began trading on AIM on a split-adjusted basis as of such date. No fractional shares were issued in connection with the reverse stock split. As a result of the reverse stock split, the number of issued and outstanding Ordinary Shares was reduced to 23,494,981 shares as of March 3, 2020.

 

Concurrently with the reverse stock split, and in an effort to bring our Depositary Share price into compliance with NASDAQ’s minimum bid price per share requirement, on March 3, 2020 we effected a ratio change in the number of Ordinary Shares represented by our Depositary Shares from 20 Ordinary Shares per Depositary Share to five Ordinary Shares per Depositary Share, reducing the number of outstanding Depositary Shares, as of the close of business on March 3, 2020 to 988,656.


       The change in the number of Ordinary Shares resulting from the reverse stock split and Depositary Shares resulting from the change in ratio has been applied retroactively to all share and per share amounts presented in this annual report.

 

Regained Compliance with NASDAQ Continued Listing Requirements

 

Our Depositary Shares are currently listed on the NASDAQ Capital Market. On December 11, 2019, we received a letter from NASDAQ stating that, for the previous 30 consecutive business days, the bid price for our Depositary Shares had closed below the minimum $1.00 bid price per share requirement for continued listing on the NASDAQ Capital Market under NASDAQ Listing Rule 5550(a)(2). On March 18, 2020, we received written notice from NASDAQ notifying us that for the preceding 10 consecutive business days the closing bid price for our Depositary Shares had been $1.00 or greater. Accordingly, NASDAQ determined that we had regained compliance with NASDAQ Listing Rule 5550(a)(2).

 

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Having regained compliance with these rules, we are now in compliance with all applicable requirements for continued listing on the NASDAQ Capital Market. We cannot assure you that we will remain in compliance with all applicable requirements for continued listing on the NASDAQ Capital Market.

 

Change in Executive Officers

 

On September 9, 2019, we announced that Nicholas Robbins-Cherry, our then-Chief Financial Officer and a member of the Board of Directors, resigned as our Chief Financial Officer and director. Mr. Stephen Stamp was appointed by the Board of Directors to succeed Mr. Robbins-Cherry, effective as of such date.

 

On March 31, 2019, we announced that Dr. Craig Cook, our then-Chief Executive Officer and a member of the Board of Directors, resigned from all of his positions with the Company, effective as of such date. Mr. Stamp was appointed by the Board of Directors to succeed Dr. Cook, as well as maintain his position as Chief Financial Officer.

 

Our Strategy

 

Our business and commercialization strategy is based on advancing our proprietary technology platforms and programs with a view to partnering these assets during the course of their development. This is expected to drive a commercial pipeline of products with improved essential parameters, over and above the currently marketed source or parent compound, including safety, tolerability, efficacy and compliance profiles. We believe that our management team has significant industry and technical experience and is highly capable of, and committed to, building our value.

 

From a product perspective, we expect our platform drug delivery technologies will be used to generate our own proprietary pharmaceutical assets that can then be licensed as they reach clinical development phases. Products may be licensed outright to a pharmaceutical partner that would, in turn, complete the development of the product and seek regulatory approval prior to marketing the approved product. Product candidates may originate from in-house research of potential opportunities or proposals from third party pharmaceutical companies who may contract with us to re-formulate their proprietary medicine on a fee-for-service basis.

 

An example of this partnering approach is our license agreement with certain CMS entities, in which the Licensees will be responsible for developing and commercializing certain of our key pipeline products in China and certain other southeast Asia countries. For more information on this agreement, see “—Commercial Agreements, Strategic Partnerships and Collaborations—CMS License Agreement.”

 

From a technology perspective, the nature of our technology platforms – Q-Sphera, MidaSolve, and MidaCore – are such that they can be used to license the platforms and provide related services to a pharmaceutical partner that would in-turn create, develop and commercialize its own pharmaceutical products.

 

From a marketing perspective, we intend to out-license to a pharmaceutical partner for commercialization. In this way, we seek to maximize value for shareholders without requiring a full-scale commercial operation and infrastructure.

 

We are in the process of closing our manufacturing facilities in Bilbao, Spain, and we do not intend to reestablish manufacturing capabilities. Instead, we expect our licensee partners either to manufacture the product themselves or a third party contract manufacturer would assume responsibility for manufacturing. In both cases, manufacturing would be under a technology license with the Company.

 

Commercialization

 

We do not currently commercialize any product. Once proof-of-concept has been established, we intend to seek to license our products to a partner who would complete the development and subsequently market and sell them in the licensed territory. In addition to reimbursement of development costs, we would expect the partner to make milestone payments based upon certain sales targets, as well as royalty payments.

 

Our Platform Technologies

 

Central to our business are our three complementary platform technologies that enable the sustained release, direct local delivery, or targeted delivery improvement to previously approved therapeutic drugs. Individually, these platforms are expected to offer unique advantages that address current therapeutic challenges and needs. Our sustained release “Q-Sphera” technology platform is used for selected applications, and ensures consistently sized monodispersed polymer microparticles that may be engineered for precise and sustained release drug delivery. Our GNP “MidaCore” technology platform may provide improved targeting of chemotherapeutics agents to individual tumors using specific targeting agents in order to deliver a therapeutic payload into the tumor cell, while at the same time decreasing the side effect profile associated with off-target effects of these drugs.  Our nano-inclusion technology platform, “MidaSolve,” used for local delivery of therapeutics, allows for the delivery of generally water insoluble drugs into the site of disease through the creation of water soluble complexes without the efficacy of the active drug compound being affected. Individually and collectively, we believe that these technologies provide platforms that improve bio-delivery and bio-distribution of therapeutic molecules to the right place of disease, at the right time.

 

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Sustained Release Technology Platform: Q-Sphera

 

Our Q-Sphera technology is an advanced microencapsulation and polymer-depot sustained release drug delivery platform produced using a novel and disruptive printing-based process, with numerous and distinct advantages over conventional sustained release (reactor-based) technologies. Q-Sphera is a precise, scalable, efficient, and environmentally friendly microparticle manufacturing platform. From a clinical perspective, Q-Sphera ensures monodispersed microparticles that release active drug compounds into the body in a tightly controlled, highly predictable and linear manner over an extended period of time from one to six months.

 

Q-Sphera is the next generation polymer microsphere technology which simplifies manufacturing, facilitates the sustained release of previously unachievable products and delivers formulations with significant patient, healthcare professional and payor benefits. Our polymer microsphere platform has been developed to enable sustained release delivery solutions for peptide and small-molecule therapeutics through precise definition of the properties of polymer microparticles into which active compounds can be incorporated. Microspheres are small, spherical particles that can be utilized as a time release drug capsule. This technology contributes to our oncology franchise as well as potential applications in endocrinology and other disease areas.

 

Current reactor-based emulsion manufacturing technology has been in use for over 20 years and, despite several issues, it continues to be used by the vast majority of the market as there are limited alternatives. Reactor-based emulsion processes, used by most existing products, require large infrastructure, are energy intensive, inefficient and wasteful, producing large quantities of unusable particles, and utilize large volumes of toxic organic solvents that are damaging to the environment. The future, printing-based Q-Sphera platform we developed uniquely addresses all these problems by using advanced printing technology that is highly efficiency and scaleable, and which requires minimal infrastructure to produce several million microspheres per second, with easily removable non-toxic solvents that are environmentally friendly. The key advantages of Q-Sphera are uniformity (within each individual microsphere) and consistency (from microsphere to microsphere) of product, as the spheres are produced under controlled and identical conditions. Tight homogenous particle size distributions are produced, which increases the usable product yield and leads to a superior clinical profile with improved injectability characteristics compared to product produced with traditional emulsion manufacturing methods. Data from the recent clinical trials of the MTD201 product, showed a lack of dose dumping and burst, lower variability from subject to subject, reduced injection site pain, and use of smaller gauge needles. The clinical result of the Q-Sphera™ process is a superior formulation that produces consistent and reproducible drug concentrations in the body within narrow limits.

 

Local Delivery Technology Platform: MidaSolve

 

The MidaSolve nano inclusion (NI) technology is utilized for potent, small molecule chemotherapeutics that have minimal solubility in water at biological pH, which means they cannot normally be injected and limits them to oral administration in solid form. When reformulated with MidaSolve technology, the complexed molecules solubilize such that the molecule can be administered in liquid form into the body. This enables local infusion directly into the tumor, thus extending the available routes of administration for drugs that otherwise would be limited to oral forms only.

 

Many of the small molecule chemotherapeutics that are indicated for solid tumor treatment demonstrate this minimal solubility with limited available routes of administration. In some cases, the problem of insolubility can be addressed by formulation in mixtures of water and a solvent such as ethanol or dimethyl sulfoxide (DMSO), but such solvents are toxic to the human body and the resulting solution cannot be used for treatments of brain cancers (e.g. glioma). Our MidaSolve technology platform provides a means for increasing the aqueous solubility of several classes of cancer therapeutics and producing complexes that solubilize these agents in water, thereby enabling administration in liquid form directly into tumors.

 

The complexed molecules comprise a hydrophobic (‘water-fearing’) inner surface and a hydrophilic (‘water-loving’) outer surface, and as a result are capable of forming host-guest complexes with normally water-insoluble molecules. A hydrophobic, poorly water-soluble drug can associate with the inner, more hydrophobic surface of the MidaSolve host, while the hydrophilic outer surface allows the complex to dissolve at biological pH.

 

We have studied the complexation and solubility-enhancing effects of these nano complexes on certain classes of chemotherapeutics that, because of their insolubility, cannot be administered in liquid form. These drugs currently have to be administered as an oral tablet form, which limits the amount of drug that gets to the tumor site, as well as increasing side effects on the body as it circulates in the system.

 

MidaCore Platform

 

MidaCore is a leading innovation in ‘ultra-small’ nanomedicine and is designed for targeted delivery to enable improved delivery of therapeutics to tumor cells and the immune system. In oncology treatments MidaCore provides a nano complex (less than 5nm in size, or approximately 80,000 times smaller than the width of a hair) that carries conventional small molecule chemo-therapeutic payloads and delivers these to the tumor site in high concentrations. In immunotherapy, treatments, MidaCore acts as a nanocarrier complex for synthetic immuno-peptides that stimulate the immune system to seek out and destroy cancer cells via immune mediated vaccine processes. These small complexes can enter immune processing cells to induce T-cell mediated immune responses specifically against tumor cells, viral infected host cells or autoimmune disease.

 

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The MidaCore technology platform is based on ultra-small GNP drug conjugates, which at 2nm are among the smallest particles in biomedical use. They are composed of a core of gold atoms decorated with a permutation of therapeutic and targeting molecules. The small size and multi-functional arrangement around the gold core underpin the ability to improve biodistribution, and target tumor and/or immune sites providing a new generation of oncology drugs.

 

MidaCore design and synthesis GNP technology enables the production of 2nm to 5nm medications, which we believe is roughly five-to-tenfold smaller than any other delivery vehicle in clinical trials. MidaCore’s therapeutics are comprised of a core of gold atoms (approximately 100 gold atoms per GNP) surrounded by an organic layer of carbohydrates that stabilize the metallic core and make the particle water-soluble and biocompatible. MidaCore therapeutic constructs have a number of key advantages in their use as drug delivery vehicles, driven chiefly by their small size and multivalency attributes:

 

· Advantages of Multivalency:

 

o Targeting: multivalency enables binding of several targeting and therapeutic agents to a single nanoparticle.

 

o Therapeutics: binding of active payloads conjugated to form small (~5nm) medicines for targeted delivery.

 

o Solubility: enable the transport of water insoluble and lipid soluble compounds to disease sites.

 

o Releasability: designed to release the active compound inside the cell.

 

· Advantages of Size:

 

o Mobility: small size (~1.5 nm) and defined charge allows transport to disease sites otherwise very difficult to reach.

 

o Compatibility: ultra-small GNPs are bio-inert, non-toxic, and do not generate an immune response.

 

o Excretability: small size allows drug conjugates to be eliminated via the kidneys and liver.

 

GNP’s penetrate cell membranes in a non-disruptive way to deliver drugs inside the target cell. Intracellular release of the therapeutic payload is via glutathione, or GSH, mediated release of payloads from the GNP surface. Because the intracellular GSH concentration (1-10 mM) is substantially higher than extracellular levels (2 µM in plasma), it serves as an effective trigger to release a payload from GNP surfaces. In oncology, the difference in GSH concentrations is even more marked between cancer cells and normal cells, an important advantage in GNP cancer therapeutic.

 

MidaCore vaccines are easily injectable and are rapidly mobile to lymph nodes and antigen presenting cells, or APCs, the gateway cells of the human immune system. Upon reaching the APC’s, the MidaCore vaccine triggers the production of CD8+T-lymphocytes (a type of immune cell), attacking immune cells, that then proliferate and seek out and attack the targeted cancer cells. In the case of autoimmune disease such as Type 1 diabetes, the T lymphocytes that respond to the GNP vaccine are CD4 T-regulatory cells that instead of stimulating the immune system, act to dampen down the immune response and stops the body attacking itself.

 

Thus, the same GNP concept is common to both cancer and autoimmune applications, but the immune system is stimulated in the former and reduced in the latter depending on the GNP peptide combination selected. In addition, this concept is being applied to the development of vaccines by our partner Emergex Vaccines for killer viruses such as Ebola, Dengue, and Zika.

 

Our Product Candidates

 

MTD201

 

As disclosed herein, in light of the remaining costs to complete clinical trials and the manufacturing scale-up for MTD201, on March 31, 2020 we announced we had determined it necessary to terminate the in-house development of MTD201 immediately and seek a license partner for it.

 

We have recently completed two clinical trials for MTD201, a 2018 first-in-human Phase I study compared our Q-Sphera product, MTD201, with Novartis’ SLAR, and a 2019 Phase I study of MTD201 to investigate subcutaneous administration of MTD201as an additional injection route, as compared to intramuscular administration. For more information on these trials, see “—Recent Developments—MTD201 Program.” Given the decision to terminate the MTD201 program, we will no longer seek to conduct additional clinical trials for this program, but will work to license MTD201 to a partner who will advance it into the next stage of clinical trials.

 

Targeted Diseases. If MTD201 is successfully licensed and brought to market, we believe the first medical conditions to be treated with MTD201, utilizing Midatech’s Q-Sphera technology, will be for the treatment of chronic high morbidity neuro hormonal tumors in two indications - acromegaly and NET. This is a $2.5 billion annual market that has been dominated by SLAR for the past 20 years. Acromegaly is a chronic disease characterized by excess growth hormone production, generally due to a pituitary tumor. It is associated with increased morbidity and mortality, usually due to significant cardiovascular and heart disease due to the excessive growth hormone levels. NETs are slow growing tumors derived from hormone secreting cells. This is another debilitating disease with a high morbidity and mortality rate. Octreotide, used in MTD201 and SLAR, is a mainstay of medical treatment for both carcinoid and acromegaly.

 

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MTX110

 

Our first MidaSolve host-guest formulation is MTX110, a water-soluble complex of the histone deacetylase inhibitor, panobinostat, a ‘direct-to-brain’ treatment used for the treatment of brain cancer. The resulting complex is readily soluble in water at therapeutic concentrations, thus enabling liquid administration routes directly into the tumor that otherwise would not be possible.

 

Panobinostat (Farydak®) is a potent, nonselective histone deacetylase inhibitor. It was selected as a potential treatment for a rare and fatal childhood brain cancer, DIPG, following the screening of 83 drugs against 14 patient-derived DIPG cell cultures. This independent research studied a range of drugs selected by pediatric neuro-oncologists that were considered as either promising targeted agents or traditional chemotherapeutic agents used in pediatric brain tumor therapy. Panobinostat was effective against 12 out of 14 patient derived DIPG cell cultures. In addition, genomic data, chemical screening data, and animal data suggests panobinostat as a promising therapy for DIPG and could rapidly be translated for use in the clinic. However, panobinostat, given in its natural oral form, does not cross the blood-brain barrier, and thus does not reach brain tumors. It is also a highly toxic substance and, when given orally, suffers from significant dose-limiting side effects. MidaSolve allows an alternate means of delivery in liquid form, and MTX110, our soluble form of panobinostat, is infused directly into the tumor. Direct delivery of MTX110 bypasses the blood-brain barrier and ensures adequate drug exposure to tumor cells without exposing the rest of the body to potentially toxic concentrations. MTX110’s intratumoral delivery thus provides a significant potential for treatment of DIPG and, potentially, other forms of brain cancer. Panobinostat was developed by Novartis and approved in 2015 for the treatment of multiple myeloma. We originally licensed panobinostat from Novartis for use in treating DIPG in children and GBM in adults. The license was subsequently transferred to Secura Bio.

 

Data from our laboratory and animal studies shows significantly improved survival rates. Animal studies conducted by us in collaboration with UCSF similarly show encouraging efficacy data, where MTX110 prolongs survival in a patient-derived rat DIPG (xenograft) model when delivered by convection-enhanced delivery. A statistically significantly improved survival difference was evidenced between the control dose and MTX110: 64 days for MTX110 versus 52 days for the control dose, at a dose of 100µM. Toxicology safety data has established a large therapeutic window, with doses of up to 1,000µM (shown to be well tolerated in vivo despite highly potent in vitro efficacy of concentrations of 10,000 times less than this.

 

We have an open label Phase I study of safety and tolerability 8 patients ongoing in collaboration with UCSF. This study, which involves dose escalation from an initial concentration of 30µM to determine a recommended Phase II dose, is expected to report top-line results in the mid- 2020. To date, results indicate that locally-delivered MTX110 is tolerable at these high doses.

 

Assuming the final results of the UCSF study confirm good safety and tolerability at the optimal does of MTX110, we plan to initiate a statistically-powered Phase II study to examine efficacy and safety in a further 19 patients in Europe and/or the United States. The Phase II trial will use a CED system, whereby MTX110 will be infused under slight pressure directly into and around the tumor. We expect the primary endpoint of the study to be patient survival rates after 12 months. We expect this study to be primarily funded by a €2.6 million grant from the European Union, though there can be no guarantee this grant will be received. If the grant is not received, we expect to cancel this planned trial. For more information regarding this grant, see “—Recent Developments—Spanish Governmental Loans and European Union Grants.”

 

In addition, we have also initiated an exploratory trial in five patients with DIPG at Columbia University, using an alternative

CED infusion system.

 

Targeted Diseases. MTX110 is being developed initially for the treatment of DIPG, a rare and fatal, childhood brain cancer. DIPG is a high grade glioma that occurs mostly in children. The tumors aggressively infiltrate the brainstem such that cancer tissue typically cannot be differentiated from normal brain tissue. The overall median survival of children with DIPG is approximately nine months and remains unchanged despite decades of clinical trial research. The only standard of care is palliative focal radiotherapy, but this has minimal effect on survival and essentially all children die of this disease. Surgical resection is unavailable due to the location of the tumour in the brainstem. Approximately 1,000 individuals worldwide are diagnosed with DIPG each year and we believe new therapeutic strategies are urgently needed.

 

In addition to DIPG, MTX110 as a treatment for adult brain cancer GBM is in pre-clinical studies and we believe warrants further clinical investigation. The objective is to progress this program into the clinic in the near term.

 

Orphan Drug Status. On October 24, 2019, we announced that the FDA has granted orphan drug designation for MTX110.

Orphan drug designation is granted to support the development of drugs that target rate diseases with high unmet needs, affecting 200,000 or fewer U.S. patients annually, and that are expected to provide significant therapeutics advantages over existing treatments. Orphan designation qualifies a company for benefits that apply across all stages of drug development, including an accelerated approval process, seven years of market exclusivity upon regulatory approval, if received, tax credits for qualified U.S. clinical trials, eligibility for orphan drug grants and exemption from certain administrative fees.

 

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Secura License Agreement. On June 8, 2020, we received a letter sent on behalf of Secura Bio, dated June 1, 2020, purporting to terminate the Secura License Agreement. Pursuant to the Secura License Agreement, Midatech Limited was granted a non-exclusive worldwide, sublicenseable license to certain patents of panobinostat, the active pharmaceutical ingredient of our development product MTX110. Midatech Limited’s rights are limited to the treatment of brain cancer in humans, administered by convection-enhanced delivery. We plan to continue to pursue development of MTX110 and the strategic review process previously disclosed. For more information, see “—Recent Developments—Secura License Agreement.”

 

MidaCore Product Candidates

 

MidaCore is being developed as an immunotherapeutic as well as a chemotherapeutic platform. Our immunotherapy franchise aims to create commercial vaccines for cancer and auto-immune diseases that have no or limited treatment options. MidaCore represents an innovative approach to vaccines, whereby GNPs are designed with antigenic peptides and other immunogenic agents to either (i) activate and enhance the immune response against tumor cells or (ii) suppress the immune response in autoimmune diseases.

 

In autoimmune indications, MidaCore is in clinical development in a first-in-human Phase 1 study as a vaccine for diabetes, the most common autoimmune disease worldwide. The vaccine works to normalize the immune system, improving diabetes control by preserving the insulin producing beta cells of the pancreas. On July 19, 2019, we announced positive safety results from this clinical study. The focus of this Phase I study was to assess the safety of MTX102. The study consisted of five Type I diabetes patients, all meeting strict parameters. MTX102 was well tolerated, with asymptomatic local injection site reactions being the only drug-related finding, and no serious adverse events were reported. We believe the study provides promising safety validation of the MidaCore technology as a platform for the development of medications for use in humans.

 

All patients on the study have entered the follow-up phase of the trial, which we believe will conclude in mid-2020, after which we, along with our European Union consortium partners, will review the data and the program.

 

MidaCore is also in pre-clinical development for further oncology and autoimmune diseases. Psoriasis, with a re-engineered version of the immuno-suppressive methotrexate for topical application in psoriasis, would be a first topical formulation of methotrexate MTX, thus avoiding the need for toxic systemic administration. Data to date suggests that MidaCore GNP-MTX improves psoriatic skin towards a normal state. There are over 100 million people who suffer from psoriasis worldwide.

 

MidaCore is in preclinical development with our partner Emergex Vaccines, who have licensed MidaCore technology for various set-point GNP vaccines against infectious diseases (including Dengue Fever, Zika, Ebola and pandemic flu) through a licensed program. Vaccine complexes comprising MidaCore GNP technology involve surface chemical binding of viral or bacterial specific marker peptides, with the objective of enhancing recognition and priming of the immune system.

 

For targeted chemotherapeutics, our research indicates that conjugation of active payloads with MidaCore may, along with specific cell-surface binding peptides, re-focus the biodistribution of the compound on the tumor site and enhance uptake into tumor cells, which in turn may improve the on-target efficacy and reduce the off-target safety effects. Peptide targeted MidaCore anti-cancer drug conjugates are being researched to repurpose and improve the delivery and efficacy of existing chemotherapeutics for solid tumors.

 

Commercial Agreements, Strategic Partnerships and Collaborations 

 

We are currently collaborating with a number of biopharmaceutical companies, research institutes and universities on several of our development programs involving our core technologies.

  

CMS License Agreement. On January 29, 2019, we entered into the CMS License Agreement with CMS, as guarantor, and the Licensees. The CMS License Agreement was effective as of February 26, 2019. Pursuant to the terms of the CMS License Agreement, we agreed to license to the Licensees the exclusive right to use our technology and our intellectual property rights and information and data related to certain of our clinical and pre-clinical products (i.e. MTD201, MTX110, MTX102, MTR103 and MTD119), together with any other pipeline products or line extensions which are in or which enter pre-clinical or clinical development in the first three years following the effective time of the CMS License Agreement, together the Products, to develop and commercialize the Products in China, including Macau, Hong Kong and Taiwan, with the same rights in certain countries in south east Asia in respect of which the Licensees notifies us that such licensee wants a license after the grant of a regulatory approval of any of the Products by the FDA, EMA or by the regulatory authorities in the United Kingdom, France, Germany or Switzerland, collectively the Territory, such activities to be conducted by the Licensee(s) and affiliates of CMS and local partners as permitted sub-licensees. The Licensees have the exclusive right to import, obtain market approvals and register, market, distribute, promote and sell the Products in the Territory at the Licensees’ sole discretion, and in the event we choose not to or fail to meet the Licensees’ binding orders for the Products under certain circumstances, will be granted the right to manufacture the Products itself. The Licensees will be restricted from supplying the Products to any customers outside of the Territory, while we will be restricted from supplying the Products into the Territory, except through the Licensees.

 

In addition, we agreed to assist the Licensees (and/or any affiliate of CMS) with their applications for marketing approvals for the Products in the Territory, which approvals, if granted, will be exercised by CMS Bridging or CMS Medical HK, unless it is being transferred to us when we are entitled to terminate the CMS License Agreement for material breach by CMS Bridging or CMS Medical HK. We will manufacture the Products for the Licensees and their sub-licensees, which Products will be subject to exclusive purchase and supply arrangements with the Licensees for the Territory.

 

Further, we agreed to permit the Licensees to identify their own product and line extension targets in respect of which, if we agree, we will carry out initial development and then will, for a technology transfer fee, the amount of which will be dependent on the circumstances, transfer the specific program know-how and data to enable the Licensees to continue to develop using our platform technologies and then to commercialize in the Territory. We will receive a low single digit royalty on the Net Sales (as such term is defined in the CMS License Agreement) in the Territory. The Licensees will own any intellectual property rights it creates and any data they collect during the development process and will license such rights and data to us for the purposes of manufacturing the products in question and also to commercialize the products outside the Territory, for which we will pay the Licensees a low double digit royalty.

 

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The Licensees shall pay us lump sum payments on a Product-by-Product basis (in U.S. dollars) upon the achievement of certain regulatory approvals (in six, or potentially seven, figure amounts) and sales performance milestones (in seven, or potentially, eight figure amounts), as well as royalties upon Net Sales (as a low double digit percentage for the Products other than MTX110, for which the royalty will be a single digit percentage) in the Territory.

 

The CMS License Agreement may be terminated by either party for specific material breaches or insolvency. In particular, our rights to terminate are limited to breaches of certain non-compete restrictions, failure to pay milestones or royalties, insolvency, or a failure to develop and/or commercialize particular Products in particular countries after the grant of an FDA or EMA regulatory approval. In addition, we have the right to terminate the agreement if the Licensee directly or indirectly infringes upon our intellectual property rights or challenges their validity or, in relation to a particular Product and a particular Territory at any time, because the Licensee has made a determination that it no longer wishes to develop and/or commercialize the Product in that country in the Territory. The CMS License Agreement also includes customary indemnification for a transaction of this type.

 

Secura License Agreement. On or about June 6, 2017, our subsidiary, Midatech Limited, entered into the Secura License Agreement with Novartis, pursuant to which Novartis granted it a non-exclusive worldwide, sublicenseable license to research, develop and commercialize, under Novartis patents, the Novartis oncology compound panobinostat, used for the treatment of brain cancer in humans, administered by CED. Subsequently, Novartis transferred the license and related agreement to Secura Bio.

 

Under the terms of the Secura License Agreement, Midatech Limited was required to make an upfront flat fee payment in the low seven figures in United States dollars, and will be required to make certain milestone payments to Secura Bio of up to an aggregate of $48 million if certain regulatory and commercial events are achieved. Midatech Limited must also make royalty payments based on expected sales of the licensed product, with rates ranging from the mid-teens to mid-twenties based on net sales of the licensed products. Pursuant to the terms of the agreement, the license will continue until the expiration of the royalty term (as defined in the agreement) for the last licensed product, unless earlier terminated pursuant to its terms.

 

On June 8, 2020, we received a letter sent on behalf of Secura Bio purporting to terminate the Secura License Agreement. We plan to continue to pursue development of MTX110 and the strategic review process previously disclosed. For more information, see “—Recent Developments—Secura License Agreement.”

 

Consejo Superior De Investigaciones Cientificas. In June 2002, CSIC and Midatech Limited, the Company’s predecessor entity, entered into a patent and know-how agreement, whereby CSIC granted Midatech Limited an exclusive license to exploit its patent and know-how rights in any field and anywhere in the world where those patents are registered, and to make applications to register such patents throughout the world in CSIC and Midatech Limited’s joint names, provided that CSIC may use the patents and know-how for the purpose of performing a research agreement between CSIC and Midatech Limited, to deal in products supplied to it by Midatech Limited and to perform research for its own non-commercial purposes. CSIC also assigned to Midatech Limited PCT Application Number PCT/GB01/04633. The agreement between the parties was amended on October 14, 2004 so as to specifically include magnetic nanoparticles in the scope of the license and rights granted to Midatech Limited. The patents and know-how are considered by Midatech to be core to its business.

 

Pursuant to the terms of the agreement, CSIC is obliged to reassign the patents into Midatech Limited’s sole name within 14 days of Midatech accomplishing one of the following:

 

· concluding a license agreement with a third party in respect of any of the intellectual property rights comprising the subject matter of the agreement;

 

· demonstrating therapeutic and/or diagnostic efficacy in an animal model derived from research sponsored by Midatech (or its affiliated companies);

 

· demonstration of a diagnostic product in Phase I clinical trials arising from intellectual property rights; or

 

· selling products made by Midatech, affiliated companies or licensees exploiting the intellectual property rights comprising the subject matter of the agreement which generate net sales royalties or net revenue royalties for CSIC.

 

As of the December 31, 2019, Midatech had accomplished all of the above milestones other than milestone related to the sale of products, and may therefore request that the relevant patents are assigned to it.

 

Midatech Limited is under an obligation to pay the following royalties to CSIC in prescribed circumstances following the commercialization of the relevant intellectual property:

 

Cumulative Sales Amount   Royalty  
Net Sales to €1 million     6 %
Net Sales between €1 million and €9,999,999     5 %
Net Sales between €10 million and €99,999,999     4 %
Net Sales €100 million and above     3 %

 

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As of December 31, 2019, no royalties have been due or payable to CSIC.

 

Either party may terminate the agreement upon the insolvency of the other party or a material breach that is not remedied within 30 days’ notice.

  

EE-ASI Consortium Agreement. In June 2012, Midatech Limited entered into a consortium agreement with Cardiff University in Wales, Inserm-Transfert SA in Paris, France, Nanopass Technologies Ltd. in Israel, Leiden University Medical Center in the Netherlands, King’s College London in London, England, Institut National de la Sante et de aa Recherche Medicale, Marseille in Paris, France, and Linkopings University in Sweden. Pursuant to this agreement, the parties share and collaborate on various products and technology that is combined with the ultimate goal of integrating an antigen delivery system, to be used in clinical trials as a method of investigational medical product delivery.

 

All parties have joint ownership over any intellectual property rights which may arise. The portion of ownership is determined in proportion to a party’s contribution. Commercialization rights are to be determined on a fair and reasonable basis. Under the collaboration agreement, Midatech Limited contributed approximately €815,000 towards the consortium costs, of total requested European Union contribution of €6.0 million.

 

The project has received funds from the European Commission, which are distributed by a coordinator according to the consortium budget. The parties receive portions of this contribution, as determined by the consortium budget. A small clinical trial of six patients was completed in December 2019, with a study report expected in due course.

 

Sales and Marketing.

 

We do not currently have any internal sales and marketing organization or distribution capabilities.

 

Research and Development

  

We have a polymer micro-sphere laboratory in Cardiff, Wales used for development purposes only of our sustained release technology. We also have manufacturing facilities in Bilbao Spain, however, they are currently in the process of being closed.

 

The research and development staffing for these two sites, prior to the restructuring announced on March 31, 2020, comprised of approximately 10 Ph.D. scientists, 13 MSc scientists and 22 BSc scientists.

 

Intellectual Property

 

Our success depends in large part on our ability to obtain and maintain proprietary protection for our product candidates (and products derived therefrom), technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We strive to protect the proprietary technology that we believe is important to our business by, among other methods, seeking and maintaining patents, where available, that are intended to cover our product candidates (and products derived therefrom), compositions and formulations, their methods of use and processes for their manufacture and any other inventions that are commercially important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary and competitive position.

 

We have developed a strong intellectual property base globally, comprising patents, know-how, and trade secrets. Currently, we have 120 granted patents, 70 applications in process, in each case covering all major world markets, and 36 separate patent families covering all major regions. We continue to strengthen our patent portfolio by strategically submitting new patents and divisional patent applications based on our active research and development activities. Central to our business are our three intellectual property technologies that are designed to enable the targeted delivery, i.e. right place, and controlled sustained release, i.e. right time, of existing therapeutic drugs. These technologies have broad applications in multiple therapeutic areas and offer the potential to create multiple revenue opportunities.

 

Patent rights have been granted in all the major world markets, including Europe, the United States and Japan, or the Key Markets. They confer a broad position of exclusivity for metal-core glycated-nanoparticles, including our GNPs. Our granted patents in our patent family 1 (expiring 2021) provide the foundation to the portfolio with product, process and use claims that encompass the GNPs used in all of our major programs and technology platforms, including oncology, nanoparticle technology and sustained release technology. The granted patents and pending patent applications in our patent families are owned solely by us, co-owned with other parties or in-licensed to us. These include:

 

· Sustained release technology. 12 patent families which protect devices, methods and formulations for sustained release drug delivery. Our pipeline product MTD201 is protected by 37 granted and 29 pending applications on the subject of microspheres and sustained release formulations.

 

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· Oncology including Nano-inclusion technology. 8 patent families, which have predicted expiration dates ranging from 2025 to 2040. These patent rights include 12 granted patents and 25 pending applications in Key Markets relating to products and methods for treating and imaging cancers. In addition to the radiative and immune-based therapies contemplated by many of these patent families, our pipeline of GNP-drug conjugates for oncology benefits from protection by the foundation GNP patents of patent family 1.

 

· Nanoparticle technology. 17 patent families, with expiration dates ranging from 2021 to 2039. These patent families include 72 granted patents and 13 pending patent applications in Key Markets protecting products in our pipeline.

 

We also have in our portfolio several vaccine and infectious disease related patent families. These relate to GNPs for immune-based therapy and antibiotic-GNP conjugates. We acquired through the Q Chip transaction patent applications directed to the apparatus and methods of “Q Sphera” technology, which employs a piezoelectric droplet generator to form polymeric microparticles that encapsulate a drug for sustained release. The combination of our GNP technology with Midatech Wales’ sustained release technology has provided possibilities for new formulations of GNP-drug conjugates. Our GNPs, when encapsulated in Midatech Wales’ microparticles, enjoy patent protection conferred by the existing granted patents.

  

The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the filing date of a non-provisional patent application. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent.

 

The term of a United States patent that covers a drug, biological product or medical device approved pursuant to a pre-market approval may also be eligible for patent term extension when FDA approval is granted, provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug, provided that statutory and regulatory requirements are met. Thus, in the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors. The expiration dates of our patents and patent applications referred to above are without regard to potential patent term extension or other market exclusivity that may be available to us.

 

In addition to patents, we may rely, in some circumstances, on trade secrets to protect our technology and maintain our competitive position. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, corporate and scientific collaborators, consultants, scientific advisors, contractors and other third parties. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

 

Government Regulations

 

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union and the United Kingdom, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources. As we have disclosed herein, we are seeking to license our products candidates and other formulations to licensing partners. While many of the rules and regulations set forth herein do and will apply to us, some are more applicable to any licensing partner who seeks to conduct clinical trials, obtain regulatory approval and commercialize any of formulations or product candidates, which could have an impact on any licensing revenue received by us.

 

Review and Approval of Drugs in the United States

 

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and implementing regulations. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, exclusion from participation in government sponsored insurance programs such as Medicare, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice, or the DOJ, or other governmental entities.

 

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An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

 

· completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;

 

· submission to the FDA of an investigational new drug application, which must take effect before human clinical trials may begin;

 

· approval of clinical protocols by an independent institutional review board, or IRB, representing each clinical site before each site may enroll subjects;

 

· potential initiation and completion of successive clinical trials that establish safety dose ranges;

 

· performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each indication;

 

· preparation and submission to the FDA of a new drug application, or NDA, or a biologics license application, or BLA;

 

· review of the submission by an FDA advisory committee, where appropriate or if applicable;

 

· satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

 

· satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;

 

· payment of user fees and securing FDA approval of the NDA or BLA; and

 

· agree to comply with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval studies required by the FDA.

 

Preclinical Studies

 

Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or API and the formulated drug or drug product, as well as in vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.

 

Human Clinical Trials in Support of an NDA

 

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the clinical trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.

 

In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct a continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.

 

Human clinical trials are typically conducted in three sequential phases, Phase I, Phase II and Phase III, which may overlap or be combined.

 

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Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase I, Phase II and Phase III clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

 

Submission of an NDA to the FDA

 

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, currently $2,942,965, and the sponsor of an approved NDA is also subject to annual product and establishment user fees, currently $325,424. These fees are typically increased annually. Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses

  

The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA’s receipt of the submission whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing, and most applications for “priority review” products are meant to be reviewed within six months of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

 

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections cover all facilities associated with an NDA submission, including drug component manufacturing (such as active pharmaceutical ingredients, or API), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

 

In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of a product.

 

The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

 

Fast Track, Breakthrough Therapy and Priority Review Designations

 

The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are fast track designation, breakthrough therapy designation and priority review designation.

 

Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product’s NDA before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the NDA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

 

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In 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law established a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.

 

The FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case- by-case basis, whether the proposed drug represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.

 

Accelerated Approval Pathway

 

The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a drug when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

 

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.

 

The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. For example, accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large clinical trials to demonstrate a clinical or survival benefit.

 

The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.

 

The FDA’s Decision on an NDA

 

On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

 

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If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase IV clinical trials, be conducted to further assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

 

Post-Approval Requirements

 

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

 

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

 

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

 

· restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

 

· fines, warning letters or holds on post-approval clinical trials;

 

· refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;

 

· product seizure or detention, or refusal to permit the import or export of products; or

 

· injunctions or the imposition of civil or criminal penalties.

 

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

 

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

 

Abbreviated New Drug Applications for Generic Drugs

 

In 1984, with passage of the Hatch-Waxman amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD.

 

Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.”

 

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Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

 

Under the Hatch-Waxman amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity. In cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication.

 

Hatch-Waxman Patent Certification and the 30-Month Stay

 

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.

 

Specifically, the applicant must certify with respect to each patent that:

 

· the required patent information has not been filed;

 

· the listed patent has expired;

 

· the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or

 

· the listed patent is invalid, unenforceable or will not be infringed by the new product.

 

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the ANDA applicant is not seeking approval).

 

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent or a decision in the infringement case that is favorable to the ANDA applicant.

 

Pediatric Studies and Exclusivity

 

Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the FDASIA in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

 

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

 

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Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.

 

Orphan Drug Designation and Exclusivity

 

Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

  

If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will be receiving orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity.

 

Patent Term Restoration and Extension

 

The term of a United States patent that covers a drug, biological product or medical device approved pursuant to a PMA may also be eligible for patent term extension when FDA approval is granted, provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug, provided that statutory and regulatory requirements are met. The United States Patent and Trade Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.

 

Regulation Outside the United States

 

In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

 

Regulation and Marketing Authorization in the European Union

 

The process governing approval of medicinal products in the European Union follows essentially the same lines as in the United States and, likewise, generally involves satisfactorily completing each of the following:

 

· preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable European Union Good Laboratory Practice regulations;

 

· submission to the relevant national authorities of a clinical trial application, or CTA, which must be approved before human clinical trials may begin;

 

· performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;

 

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· submission to the relevant competent authorities of a marketing authorization application, or MAA, which includes the data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labelling;

 

· satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced current cGMP;

 

· potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and

 

· review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product.

 

Preclinical Studies

 

Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds for testing must comply with the relevant European Union regulations and requirements. The results of the preclinical tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.

 

Clinical Trial Approval

 

The Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on Good Clinical Practice, or GCP, and the related national implementing provisions of the individual European Union Member States govern the system for the approval of clinical trials in the E.U. Under this system, an applicant must obtain prior approval from the competent national authority of the European Union Member States in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial at a specific study site after the competent ethics committee has issued a favorable opinion. The clinical trial application must be accompanied by, among other documents, an investigational medicinal product dossier (the Common Technical Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual European Union Member States and further detailed in applicable guidance documents.

 

In April 2014, the new Clinical Trials Regulation, (E.U.) No 536/2014 (Clinical Trials Regulation) was adopted. The Regulation was published on June 16, 2014, but is not expected to apply until later in 2020. The Clinical Trials Regulation will be directly applicable in all the European Union Member States, repealing the current Clinical Trials Directive 2001/20/EC and replacing any national legislation that was put in place to implement the Directive. Conduct of all clinical trials performed in the European Union will continue to be bound by currently applicable provisions until the new Clinical Trials Regulation becomes applicable. The extent to which ongoing clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials Regulation becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that time begin to apply to the clinical trial.

 

The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The main characteristics of the regulation include: a streamlined application procedure via a single entry point, the “E.U. Portal and Database”; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the appointed reporting Member State, whose assessment report is submitted for review by the sponsor and all other competent authorities of all European Union Member States in which an application for authorization of a clinical trial has been submitted (Concerned Member States). Part II is assessed separately by each Concerned Member State. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the Concerned Member State. However, overall related timelines will be defined by the Clinical Trials Regulation.

 

As in the United States, similar requirements for posting clinical trial information are present in the European Union (EudraCT) website: https://eudract.ema.europa.eu/ and other countries.

 

PRIME Designation in the European Union

 

In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage drug development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation reviewed under the centralized procedure. Products from small- and medium-sized enterprises, or SMEs, may qualify for earlier entry into the PRIME scheme than larger companies. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the Committee for Human Medicinal Products, or CHMP, or Committee for Advanced Therapies, or CAT', are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.

 

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Marketing Authorization

 

To obtain a marketing authorization for a product under European Union regulatory systems, an applicant must submit an MAA either under a centralized procedure administered by the EMA, or one of the procedures administered by competent authorities in the European Union Member States (decentralized procedure, national procedure or mutual recognition procedure). A marketing authorization may be granted only to an applicant established in the European Union Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Paediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted (1) a product-specific waiver, (2) a class waiver or (3) a deferral for one or more of the measures included in the PIP.

 

The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid across the European Economic Area (i.e. the European Union as well as Iceland, Liechtenstein and Norway). Pursuant to Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy medicinal products and products with a new active substance indicated for the treatment of certain diseases, including products for the treatment of cancer. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional. The centralized procedure may at the request of the applicant also be used in certain other cases.

 

Under the centralized procedure, the CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the European Union., the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. If the CHMP accepts such request, the time limit of 210 days will be reduced to 150 days, but it is possible that the CHMP can revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. At the end of this period, the CHMP provides a scientific opinion on whether or not a marketing authorization should be granted in relation to a medicinal product. Within 15 calendar days of receipt of a final opinion from the CHMP, the European Commission must prepare a draft decision concerning an application for marketing authorization. This draft decision must take the opinion and any relevant provisions of European Union law into account. Before arriving at a final decision on an application for centralized authorization of a medicinal product the European Commission must consult the Standing Committee on Medicinal Products for Human Use. The Standing Committee is composed of representatives of the European Union Member States and chaired by a non-voting European Commission representative. The European Parliament also has a related “droit de regard.” The European Parliament's role is to ensure that the European Commission has not exceeded its powers in deciding to grant or refuse to grant a marketing authorization.

 

The European Commission may grant a so-called “marketing authorization under exceptional circumstances.” Such authorization is intended for products for which the applicant can demonstrate that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use, because the indications for which the product in question is intended are encountered so rarely that the applicant cannot reasonably be expected to provide comprehensive evidence, or in the present state of scientific knowledge, comprehensive information cannot be provided, or it would be contrary to generally accepted principles of medical ethics to collect such information. Consequently, marketing authorization under exceptional circumstances may be granted subject to certain specific obligations, which may include the following:

 

· the applicant must complete an identified program of studies within a time period specified by the competent authority, the results of which form the basis of a reassessment of the benefit/risk profile;

 

· the medicinal product in question may be supplied on medical prescription only and may in certain cases be administered only under strict medical supervision, possibly in a hospital and in the case of a radiopharmaceutical, by an authorized person; and

 

· the package leaflet and any medical information must draw the attention of the medical practitioner to the fact that the particulars available concerning the medicinal product in question are as yet inadequate in certain specified respects.

 

A marketing authorization under exceptional circumstances is subject to annual review to reassess the risk-benefit balance in an annual reassessment procedure. Continuation of the authorization is linked to the annual reassessment and a negative assessment could potentially result in the marketing authorization being suspended or revoked. The renewal of a marketing authorization of a medicinal product under exceptional circumstances, however, follows the same rules as a “normal” marketing authorization. Thus, a marketing authorization under exceptional circumstances is granted for an initial five years, after which the authorization will become valid indefinitely, unless the EMA decides that safety grounds merit one additional five-year renewal.

 

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The European Commission may also grant a so-called “conditional marketing authorization” prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional marketing authorizations may be granted for product candidates (including medicines designated as orphan medicinal products), if (i) the risk-benefit balance of the product candidate is positive, (ii) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (iii) the product fulfills an unmet medical need and (iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.

 

The European Union medicines rules expressly permit the European Union Member States to adopt national legislation prohibiting or restricting the sale, supply or use of any medicinal product containing, consisting of or derived from a specific type of human or animal cell, such as embryonic stem cells. While the products we have in development do not make use of embryonic stem cells, it is possible that the national laws in certain European Union Member States may prohibit or restrict us from commercializing our products, even if they have been granted an European Union marketing authorization.

 

Unlike the centralized authorization procedure, the decentralized marketing authorization procedure requires a separate application to, and leads to separate approval by, the competent authorities of each European Union Member State in which the product is to be marketed. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The reference European Union Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the concerned European Union Member States who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned European Union Member State cannot approve the assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the European Commission, whose decision is binding on all European Union Member States.

 

The mutual recognition procedure similarly is based on the acceptance by the competent authorities of the European Union Member States of the marketing authorization of a medicinal product by the competent authorities of other European Union Member States. The holder of a national marketing authorization may submit an application to the competent authority of a European Union Member State requesting that this authority recognize the marketing authorization delivered by the competent authority of another European Union Member State.

 

Regulatory Data Protection in the European Union

 

In the European Union, innovative medicinal products approved on the basis of a complete independent data package qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Directive 2001/83/EC. Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized in accordance to the centralized authorization procedure. Data exclusivity prevents applicants for authorization of generics of these innovative products from referencing the innovator’s data to assess a generic (abridged) application for a period of eight years. During an additional two-year period of market exclusivity, a generic marketing authorization application can be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the European Union market until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity so that the innovator gains the prescribed period of data exclusivity, another company nevertheless could also market another version of the product if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.

 

Periods of Authorization and Renewals

 

A marketing authorization has an initial validity for five years in principle. The marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the E.U. Member State. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. The European Commission or the competent authorities of the E.U. Member States may decide, on justified grounds relating to pharmacovigilance, to proceed with one further five-year period of marketing authorization. Once subsequently definitively renewed, the marketing authorization shall be valid for an unlimited period. Any authorization which is not followed by the actual placing of the medicinal product on the E.U. market (in case of centralized procedure) or on the market of the authorizing E.U. Member State within three years after authorization ceases to be valid (the so-called sunset clause).

 

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Pediatric Studies

 

Prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Paediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver, or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Paediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Paediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly population.

 

Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.

 

Regulatory Requirements after a Marketing Authorization has been Obtained

 

In case an authorization for a medicinal product in the European Union is obtained, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. These include:

 

· Compliance with the European Union’s stringent pharmacovigilance or safety reporting rules must be ensured. These rules can impose post-authorization studies and additional monitoring obligations.

 

· The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the applicable European Union laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with European Union cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the European Union with the intention to import the active pharmaceutical ingredients into the European Union.

 

· The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union notably under Directive 2001/83EC, as amended, and European Union Member State laws. Direct-to-consumer advertising of prescription medicines is prohibited across the European Union.

 

Orphan Drug Designation and Exclusivity

 

The European Commission, following an evaluation by the EMA’s Committee for Orphan Medicinal Products, has designated SMT C1100 as an orphan medicinal product (EU orphan designation number: EU/3/08/591). Pursuant to Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000, the European Commission can grant such orphan medicinal product designation to products for which the sponsor can establish that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 people in the European Union, or a life threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that sales of the drug in the European Union would generate a sufficient return to justify the necessary investment. In addition, the sponsor must establish that there is no other satisfactory method approved in the European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients.

 

Orphan drug designation is not a marketing authorization. It is a designation that provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to apply for a centralized European Union marketing authorization, as well as ten years of market exclusivity following a marketing authorization. During this market exclusivity period, neither the EMA, the European Commission nor the member states can accept an application or grant a marketing authorization for a ‘similar medicinal product. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as those contained in an authorized orphan medicinal product and that is intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, a competing similar medicinal product may in limited circumstances be authorized prior to the expiration of the market exclusivity period, including if it is shown to be safer, more effective or otherwise clinically superior to the already approved orphan drug. Furthermore, a product can lose orphan designation, and the related benefits, prior to us obtaining a marketing authorization if it is demonstrated that the orphan designation criteria are no longer met.

 

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Brexit and the Regulatory Framework in the United Kingdom

 

On June 23, 2016, the United Kingdom government held an in-or-out referendum on the United Kingdom’s membership of the European Union in which voters approved the United Kingdom’s exit from the European Union, commonly referred to as “Brexit.” On March 29, 2017, the United Kingdom formally initiated its withdrawal from the European Union by triggering Article 50 of the Treaty of Lisbon. On January 9, 2020, a withdrawal agreement, setting out the terms of the United Kingdom’s withdrawal from the European Union, was approved by the United Kingdom Parliament, and on January 31, 2020, the United Kingdom formally completed its exit from the European Union. However, a transition period is expected to continue until December 31, 2020, by which time the United Kingdom is expected to negotiate a new trade agreement with the European Union, though such an agreement is not guaranteed in that timeframe. Since the regulatory framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from European Union directives and regulations, Brexit could materially impact the future regulatory regime which applies to products and the approval of product candidates in the United Kingdom. It remains to be seen how, if at all, Brexit will impact regulatory requirements for product candidates and products in the United Kingdom.

 

General Data Protection Regulation

 

The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the European Union, including personal health data, is subject to the European Union’s General Data Protection Regulation, or GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the European Union, including the U.S., and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance.

 

Pricing Decisions for Approved Products

 

In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its Member States to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. Member States may approve a specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other Member States allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many countries in the European Union have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage health care expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the European Union. The downward pressure on health care costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various Member States, and parallel trade, i.e., arbitrage between low-priced and high-priced Member States, can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries.

 

Patent Term Extension

 

In order to compensate the patentee for delays in obtaining a marketing authorization for a patented product, a supplementary certificate, or SPC, may be granted extending the exclusivity period for that specific product by up to five years. Applications for SPCs must be made to the relevant patent office in each European Union member state and the granted certificates are valid only in the member state of grant. An application has to be made by the patent owner within six months of the first marketing authorization being granted in the European Union (assuming the patent in question has not expired, lapsed or been revoked) or within six months of the grant of the patent (if the marketing authorization is granted first). In the context of SPCs, the term “product” means the active ingredient or combination of active ingredients for a medicinal product and the term “patent” means a patent protecting such a product or a new manufacturing process or application for it. The duration of an SPC is calculated as the difference between the patent’s filing date and the date of the first marketing authorization, minus five years, subject to a maximum term of five years.

 

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A six month pediatric extension of an SPC may be obtained where the patentee has carried out an agreed pediatric investigation plan, the authorized product information includes information on the results of the studies and the product is authorized in all member states of the European Union.

 

Healthcare Law and Regulation

 

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations include the following:

 

· the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;

 

· the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

· the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

 

· HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

· the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

 

· the federal transparency requirements under the Affordable Care Act requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests; and

 

· analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

 

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

 

Pharmaceutical Insurance Coverage and Health Care Reform

 

In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated health care costs. Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Thus, even if a product candidate is approved, sales of the product will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage and establish adequate reimbursement levels for, the product. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.

 

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In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered medically necessary or cost effective. A decision by a third-party payor not to cover a product could reduce physician utilization once the product is approved and have a material adverse effect on sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor.

 

The containment of health care costs also has become a priority of federal, state and foreign governments and the prices of products have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

 

There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and other medical products, government control and other changes to the healthcare system in the United States. In March 2010, the United States Congress enacted the Affordable Care Act which, among other things, includes changes to the coverage and payment for drug products under government health care programs. Among the provisions of the ACA of importance to our potential product candidates are:

 

· an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

 

· expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

 

· expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices;

 

· addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

 

· expanded the types of entities eligible for the 340B drug discount program;

 

· established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50% (and 70% starting January 1, 2019) point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; and

 

· a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

 

Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments, will remain in effect through 2027 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

 

Since enactment of the Affordable Care Act, there have been numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with enactment of the Tax Cuts Act, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amended the Affordable Care Act, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” The Congress will likely consider other legislation to replace elements of the Affordable Care Act in the future.

 

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The Trump Administration has also taken executive actions to undermine or delay implementation of the Affordable Care Act. Since January 2017, President Trump has signed two executive orders designed to delay the implementation of certain provisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second executive order terminates the cost-sharing subsidies that reimburse insurers under the Affordable Care Act. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the Affordable Care Act for plans sold through such marketplaces. Further, on June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12 billion in Affordable Care Act risk corridor payments to third-party payors who argued were owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the Affordable Care Act marketplace, providers, and potentially our business, are not yet known.

 

Further, there have been several recent U.S. congressional inquiries and proposed federal and proposed and enacted state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. For example, there have been several recent U.S. congressional inquiries and proposed federal and proposed and enacted state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.

 

For example, on May 11, 2018, the Trump Administration issued a plan to lower drug prices. Under this blueprint for action, the Trump Administration indicated that the Department of Health and Human Services (HHS) will: take steps to end the gaming of regulatory and patent processes by drug makers to unfairly protect monopolies; advance biosimilars and generics to boost price competition; evaluate the inclusion of prices in drug makers’ ads to enhance price competition; speed access to and lower the cost of new drugs by clarifying policies for sharing information between insurers and drug makers; avoid excessive pricing by relying more on value-based pricing by expanding outcome-based payments in Medicare and Medicaid; work to give Part D plan sponsors more negotiation power with drug makers; examine which Medicare Part B drugs could be negotiated for a lower price by Part D plans, and improving the design of the Part B Competitive Acquisition Program; update Medicare’s drug-pricing dashboard to increase transparency; prohibit Part D contracts that include “gag rules” that prevent pharmacists from informing patients when they could pay less out-of-pocket by not using insurance; and require that Part D plan members be provided with an annual statement of plan payments, out-of-pocket spending, and drug price increases. More recently, on January 31, 2019, the HHS Office of Inspector General proposed modifications to the federal Anti-Kickback Statute discount safe harbor for the purpose of reducing the cost of drug products to consumers which, among other things, if finalized, will affect discounts paid by manufacturers to Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers working with these organizations.

 

At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

 

Competition

 

Our drug conjugate platform is among the latest generation of nanomedicine technology. Liposomes, an artificially prepared spherical vehicle composed of a lipid bilayer that can be used as vehicle for the administration of nutrients and drugs, followed by various polymeric nanoparticles, were the first nanotechnologies, and now inorganic nanoparticles like our GNPs are emerging as the fastest growing sector within the nanomedicine market. The speed and nature of technological change means that physical science is always evolving and new competition and alternatives are always a possibility, however we believe that we have established competitive advantage over our peers. As a result of the combination of our platform technology, intellectual property and proprietary know-how, we have a protected position in the nanoparticle space which allows the potential for highly differentiated drugs serving high unmet needs like orphan oncology to be rapidly and independently manufactured and scaled.

 

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Competitive Dynamics

 

Barriers to entry for competitors are high. The significant level of capital, scientific capabilities, and infrastructure required to achieve what we have achieved to date may deter new entrants. A high degree of specialization and expertise in equivalent drug conjugate and sustained release technologies and relevant therapeutic areas is essential for any competitor to succeed, which we have built up over many years since inception. While the power of suppliers has been relatively low given our development manufacturing capabilities, with the reduction in these capabilities the power of suppliers will likely increase. The power of buyers, i.e. pharmaceutical companies, is important insofar as they may be partners for the commercialization and distribution of our product candidates. Even for large pharmaceutical companies, the know-how, manufacturing, and effort involved in developing alternative products to us would potentially see them engage as partners rather than as competitors. Competitive pressures or substitutes for our compounds come from conventional small molecules or biologics (such as antibody drug conjugates). There is a growing trend for drugs to be produced using biotechnologies and it is likely that the main threat in the future will come from this class, albeit the costs of production and development are much higher, and the regulatory pathways more complex.

 

Competitive Technology

 

The main competing nanotechnologies are liposomes, polymers, carbon assemblies and other inorganic/metallic platforms. Carbon assemblies are not widely used in healthcare applications. Most nano activity has traditionally involved liposomes and polymers. More recently, the focus has moved to include inorganic nanoparticles using solid cores whereas ours is one of a few companies using gold. To the best of our knowledge, we are the only company using non-colloidal gold (colloidal gold is defined as larger GNPs 10-15nm and more, whereas our core GNP construct is less than 2nm) and are sufficiently progressed with the technology to have undertaken Phase II clinical trials. We believe we are therefore well positioned versus the other technologies and companies providing a differentiated platform that imparts favorable characteristics in drug delivery, including targeting and mobility, solubility (for otherwise non soluble compounds), stability (of peptides), compatibility (inert and biocompatible) and highly controlled delivery and release in the cell.

 

Competitive Therapeutic Areas

 

Much of the historical and current focus and activity of the nanomedicine market is oncology. Within this domain, we believe we are well positioned given our focus on selected orphan oncology applications where unmet needs persist, an accelerated regulatory process is possible and fewer companies compete (reflecting the challenges that need to be addressed). With our sustained release technology, the ability to address shortcomings of other controlled technologies such as burst, lag, release profile and consistency enables us to pursue unmet opportunities such as sustained release octreotide, which to date has no generic competition despite being off patent for many years. Our nano inclusion technology conjugates solubilize cancer drugs that could otherwise not be administered directly into tumors.

 

Competitive Companies

 

From a technology perspective, we believe other companies using GNP technologies include CytImmune Sciences, Inc., and Nanospectra Biosciences, Inc. Some companies use larger colloidal GNPs of 10 to 15nm or bigger, whereas we typically use non-colloidal gold cores smaller than 2nm.

 

Our Q-Sphera technology for biodegradable sustained-release formulation takes a microsphere-based approach that is based on printing individual microspheres. It enables next-generation formulation and engineering. We believe other companies in the sustained release space include GP Pharm, S.A., Peptron, Inc., Graybug, Inc. and Nanomi B.V., and Teva Pharmaceutical Industries Ltd, or Teva, Pharmathen S.A., Dr. Reddy’s Laboratories Ltd. and Mylan N.V. are developing sustained release octreotide formulations.

   

Manufacturing

  

We currently have manufacturing facilities in Bilbao, Spain, which we are in the process of closing. Following the closing of these facilities, we will not have any material manufacturing facilities. We currently are reliant on third part contract manufacturers.

 

To establish proof-of-concept for potential licensees, we are able to manufacture non-GMP material at pilot scale at our facility in Cardiff, Wales. We would expect a licensee to assume responsibility for manufacturing GMP material and commercial scale-up pursuant to a technology transfer agreement.

 

Environmental Matters

 

We may from time to time be subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. Based on information currently available to us, we do not expect environmental costs and contingencies to have a material adverse effect on it. The operation of our manufacturing facility, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements.

 

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Our current business does not generally reflect any significant degree of seasonality.

 

Legal Proceedings

 

We are party to a claim by the estate of a former employee of Midatech Spain for unfair dismissal. The claim comprises various elements totaling up to €258,000. The case has been dismissed by an employment court in Spain, however it has been re-filed by the state in a civil court in Spain. We consider the claim without foundation and intend to vigorously defend against the claim.

 

Additionally, from time to time, we may be subject to various claims or legal proceedings that arise in the ordinary course of our business. Other than as disclosed in this Annual Report on Form 20-F, we currently are not a party to, and are not aware of any threat of, any legal proceedings, which, in the opinion of management, is likely to have or could reasonably possibly have a material adverse effect on our business, financial condition or results of operations.

 

Property, Plant and Equipment

 

Our headquarters, which houses our corporate offices, is located in Cardiff, Wales. We lease approximately 265 square meters (approximately 2,854 square feet), which also includes a sustainable release research laboratory, which lease expires in April 2022.

 

Our previous headquarters were located in Oxfordshire, United Kingdom, where we leased offices and laboratory facilities of approximately 543 square meters (approximately 1,782 square feet). We vacated this space on December 31, 2018, and the lease expired in February 2020. A sublease was granted for the term of the property lease, following our vacating of the premises. We also rent a single office from a service provider in Reading, United Kingdom, which may be terminated on three months’ notice.

 

We believe that our Cardiff, Wales facility is sufficient to meet our current needs.

 

We previously renewed our lease for our 513 square meter (approximately 5,524 square feet) manufacturing facility in Bilbao, Spain. The lease expires by its terms in 2030, with the option to terminate after five years. In addition, on September 1, 2019, we entered into a lease for a second facility in Bilbao, Spain for approximately 2,327 square meters (approximately 24,999 square feet), including storage space. The lease expires in August 2029, with the option to terminate after five years. In connection with the termination of the MTD201 program, we closed our Bilbao manufacturing facilities and provided notice to the landlord in respect of one lease. We expect to provide notice to the landlord in respect of the second lease in due course once we have made arrangements to sell or transfer the equipment contained in that facility. Both leases require one months’ notice and require us to return the building to its original condition.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS.

 

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

 

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes thereto appearing at the end of this Annual Report on Form 20-F. We present our consolidated financial statements in British pounds sterling and in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

The following discussion and analysis contains forward-looking statements. Statements that are not statements of historical fact, including expression of management’s beliefs and expectations, may be forward-looking in nature and based on current plans, estimates, projections and beliefs. Forward-looking statements are applicable only as of the date made, and we undertake no obligation to update any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. These factors include those identified under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

 

Information pertaining to fiscal year 2017 was included in our Annual Report on Form 20-F for the year ended December 31, 2018 on page 81 under “Item 5. Operating and Financial Review and Prospects” which was filed with the SEC on April 30, 2019.

 

Recent Developments

 

For information regarding our recent developments, please see “Item 4. Information on the Group—B. Business Overview—Recent Developments,” which is incorporated herein by reference.

  

A. Operating Results.

 

This section begins with an overview of the principal factors and trends affecting our results of operations. The overview is followed by a discussion of the components of our income statement and our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments reflected in our reported financial results. We then present an analysis of our results of operations for the last three fiscal years. Following the sale of Midatech US, we contain one reportable segment, referred to as Pipeline Research and Development.

 

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The following discussion should be read in conjunction with our consolidated financial statements included in Item 18 of this Annual Report on Form 20-F and “Item 3.DKey InformationRisk Factors.” Our financial statements and the financial information discussed below have been prepared in accordance with IFRS.

 

Principal Factors Affecting Results of Operations

 

We consider the currency exchange rate between the British pound sterling, Euros and the United States dollar and certain other factors affecting the comparability of results of operations between periods as those most likely to influence our financial condition and results of operations.

 

Currency Exchange Rate

 

We report our financial results in British pound sterling and our cash reserves are also largely denominated in British pound sterling. Costs from our Spanish operation are denominated in Euros and revenues and costs from our former United States operations are denominated in United States dollars, which subjects us to currency exchange risks. A strong Euro or United States dollar against the British pound sterling would result in these Euros or United States dollars denominated costs needing a greater amount of cash to settle the cost.

 

During the periods set forth in our financial statements, incorporated herein by reference, and in particular during 2017, 2018 and the 2019, there has been considerable volatility in the British pound sterling against the Euro and the United States dollar. During 2017, 2018 and 2019, volatility in the British pound sterling was significant as currency markets fluctuated over the prospect of the United Kingdom and European Union reaching a deal over Brexit. At this time, we do not consider the exposure sufficient to utilize derivatives to manage the forward exchange risk. Certain other costs are denominated in other currencies; however, these are not considered material.

 

 Acquisition Transactions

 

Effective November 1, 2018, we sold Midatech US. In accordance with IFRS 5, the sale of Midatech US has been accounted for as a discontinued operation. Under IFRS 5, the results of the discontinued operation are removed from each line in the statement of comprehensive income and the overall losses attributable to the continuing and discontinued operations are reported separately on the face of the statement of comprehensive income. Consequently, the results set out in the statement of comprehensive income and described below refer to the continuing operations only; the loss from discontinued operations is shown in aggregate as a single line entry on the face of our consolidated statement of comprehensive income. Comparative figures in the statement of comprehensive income were restated to show continuing operations on a consistent basis.

 

Components of Consolidated Statement of Comprehensive Income Items

 

Revenue

 

Following the sale of Midatech US, our income streams comprise revenue derived from services provided to collaboration partners, milestone income from research and development contracts and grant revenue. Collaboration revenue is recognized at the agreed day rate as the relevant services are delivered. Milestone income is recognized as revenue in the accounting period in which the milestones are achieved. Milestones are agreed on a project by project basis and will be evidenced by set deliverables. Grant revenue is recognized in the accounting period in which unconditional funding is received.

 

Operating Expenses

 

We classify our operating expenses into three categories: (i) research and development, (ii) administrative costs and (iii) sales and marketing. These categories correspond to different functional areas within the Company. Prior to the sale of Midatech US, costs were also classified as distribution costs, sales and marketing, however this is no longer a material category for the business.

 

Our operating expenses primarily consist of personnel costs, contract research and development costs, professional service fees and depreciation. Personnel costs for each category of operating expenses include salaries, bonuses, social security, health insurance, other employee benefits and share-based compensation for personnel in that category. We allocate share-based compensation expense resulting from the amortization of the fair value of options. Central overheads, such as rent, computer and other technology costs, are not allocated out to departments.

  

Research and Development Cost. Research and development costs consist of costs that are directly attributable to our research and development programs associated with the products described herein, including the cost of operating our Spanish manufacturing facility, which produces material exclusively for preclinical and clinical studies. This includes costs of third party contract research organizations, research specialist professional services providers, chemicals and other consumables used in the research and manufacturing process, depreciation of assets related to the research and development function, and payroll costs of staff directly assigned to the research and manufacturing operations.

 

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Administrative Costs. All other costs are classified as administrative costs. These primarily consist of personnel costs for our executive, finance, corporate development and administrative personnel, as well as legal, accounting and other professional service fees, other corporate expenses, merger and acquisition costs and initial public offering costs that are charged to the consolidated statement of comprehensive income. Administrative costs also include depreciation of administrative assets. In 2018, administrative costs included a penalty charge of £0.3 million in respect of the early redemption of our loan facility with Midcap Financial Services, LLC, or MidCap.

 

Impairment of intangible assets. There was no impairment charge in 2019 or 2018. In 2017, the charge arising from impairment of intangible assets is shown separately on the face of the income statement

 

Finance Income

 

Finance income includes all interest receivable on cash deposits. In 2019, finance income also included a gain on an equity settled derivative financial liability. In October 2019 we issued 3,150,000 warrants in connection with a registered direct offering. In 2015, we assumed fully vested warrants and share options on the acquisition of DARA. The number of Ordinary Shares to be issued when the warrants and options are exercised is fixed, however the exercise prices are denominated in United States dollars, which is different from the functional currency of the Company. Therefore, the warrants and share options are classified as equity settled derivative financial liabilities in the consolidated statement of financial position with any gains or losses being recognized through finance income or finance expense in the consolidated statement of comprehensive income.

 

In 2018, finance income comprised bank interest received.

 

Finance Expense

 

Finance expenses include all interest payable on borrowings and loan instruments, and related arrangement fees. In 2019, finance expenses were comprised primarily of interest payable on loans from the Spanish govemment. In 2018, finance expenses were comprised primarily of interest payable in respect of our loan facility with MidCap.

 

Taxation

 

Taxation represents tax credits receivable by Group companies in respect of qualifying research and development costs incurred.

  

Critical Accounting Estimates and Judgments

 

The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that can have a significant impact on the reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities, at the respective dates of our financial statements. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management evaluates estimates, assumptions and judgments on a regular basis and makes changes accordingly, and discusses critical accounting estimates with the Board of Directors.

 

The following are considered to be critical accounting policies because they are important to the portrayal of our financial condition or results of operations and they require critical management estimates and judgments about matters that are uncertain.

 

Impairment of Goodwill and Intangible Assets Not Yet Ready for Use

 

Goodwill and intangibles not yet ready for use are tested for impairment at the cash generating unit level on an annual basis at the year end and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a cash generating unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

 

Application of the goodwill impairment test requires judgment, including the identification of cash generating units, assignment of assets and liabilities to such units, assignment of goodwill to such units and determination of the fair value of a unit and for intangible assets not yet ready for use the fair value of the asset. The fair value of each cash generating unit or asset is estimated using the income approach, on a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the business, estimation of the useful life over which cash flows will occur and determination of our weighted-average cost of capital. The carrying value of our goodwill was £2.3 million and £2.3 million as of December 31, 2019 and 2018, respectively, and intangible assets not yet ready for use was £10.1 million and £10.1 million as of December 31, 2019 and 2018, respectively. Following the sale of Midatech US, the value of intangibles relating to product and marketing rights as of December 31, 2019 and 2018 was nil.

 

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The estimates used to calculate the fair value of a cash generating unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each such unit. There was no impairment to any of the intangible assets for the year ended December 31, 2019 and 2018. There was no impairment to goodwill for the periods ended December 31, 2019 or 2018.

 

Share-Based Payments

 

We account for share-based payment transactions for employees in accordance with IFRS 2, Share- Based Payment, which requires it to measure the cost of employee services received in exchange for the options on our ordinary shares, based on the fair value of the award on the grant date. We selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of its share-based awards without market conditions. For performance-based options that include vesting conditions relating to the market performance of our ordinary shares, a Monte Carlo pricing model was used in order to reflect the valuation impact of price hurdles that have to be met as conditions to vesting.

 

The resulting cost of an equity incentive award is recognized as expense over the requisite service period of the award, which is usually the vesting period. Compensation expense is recognized over the vesting period using the straight-line method and classified in the consolidated statements of comprehensive income.

 

The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 27 to our consolidated financial statements for the year ended December 31, 2019 and are estimated as follows:

 

· volatility is estimated based on the average annualized volatility of a number of publicly traded peer companies in the biotech sector;

 

· the estimated life of the option is estimated to be until the first exercise period, which is typically the month after the option vests; and

 

· the dividend return is estimated by reference to our historical dividend payments. Currently, this is estimated to be zero as no dividend has been paid in the prior periods.

  

Income Taxes

 

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

 

In 2019 and 2018, there were £49.6 million and £40.7 million of gross unutilized tax losses carried forward, respectively. Deferred tax assets of £1.6 million and £1.7 million as of December 31, 2019 and 2018, respectively, have been recognized because they qualify for offset against the deferred tax liabilities arising on the acquisition of Midatech Wales. The remaining potential deferred tax asset of £9.0 million and £7.3 million as of December 31, 2019 and 2018, respectively, has not been recognized in these accounts due to uncertainty as to the whether the asset would be recovered.

  

Research and Development Cost

 

Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical and preclinical activities, drug development and manufacturing costs, and third-party service fees, including for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are periodically recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses.

 

Leases

 

IFRS 16, Leases, defines the lease term as the non-cancellable period of a lease together with the options to extend or terminate a lease, if the lessee were reasonably certain to exercise that option. Where the lease includes the option for us to extend the lease term, we make a judgement as to whether it is reasonably certain that the option will be taken. This will take into account the length of time remaining before the option is exercisable, current trading, future trading forecasts as to the ongoing profitability of the organisation and the level and type of planned future capital investment. The judgement is reassessed at each reporting period. A reassessment of the remaining life of the lease could result in a recalculation of the lease liability and a material adjustment to the associated balances.

 

The discount rate used in the calculation of the lease liability involves estimation. The discount rate used is the incremental borrowing rate. This rates represents the rate we would have had to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment.

 

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During 2019, we entered into an additional property lease in Spain. As of December 31, 2019 the Group had four leases that it accounted for under IFRS16, two in the United Kingdom and two in Spain. Management considered the extent to which extension option clauses in the two Spanish property leases gave us an enforceable right to extend the leases beyond their original terms. We concluded no enforceable right was provided. At January 1, 2019 and December 31, 2019, we assessed it was reasonably certain the expected life of the lease would be less than one year for a United Kingdom property lease, two to three years for the Spanish property lease and three to five years for the other United Kingdom property lease. As of December 31, 2019, we assessed it was reasonably certain the expected life of the leases would be less than one year for the United Kingdom property leases and three to five years for the Spanish property leases.

 

Discontinued Operations

 

Under the terms of the Purchase Agreement for the sale of Midatech US, we agreed to indemnify the Purchaser against, among other things, any liability related to any prescription drug user fee amounts owed to the FDA under the Prescription Drug Fee User Act by Midatech US for the United States government’s fiscal year ended September 30, 2018.

 

Midatech US had successfully obtained waivers for user fees for all prior fiscal periods in which it was liable under PDUFA and entered into the Purchase Agreement with the Purchaser believing that a further waiver would be obtained. However, during 2019 Midatech US sought approval from the FDA for a filing relating to one of its commercial products and was informed by the FDA that the approval would not be forthcoming while the PDUFA fee remained unpaid. Consequently, Midatech US paid the PDUFA fee of £0.95m and then, in accordance with the terms of the Purchase Agreement, we deposited the same amount with Midatech US, pending completion of the waiver application process. As of December 31, 2019, we considered the requirement to provide for a claim under the indemnity provisions in the Purchase Agreement, and concluded no provision was required.

 

As of June 30, 2019, we considered the deposit amount recoverable from Midatech US, based on the waiver application process being on-going and the historical success Midatech US had had in obtaining the waiver.

 

As of December 31, 2019, we reconsidered the recoverability of the deposit sum paid under the indemnity, and although the waiver process is still on-going, we concluded, based on third party advice, that the probability of successfully achieving the waiver had diminished and therefore have taken the decision to expense the cost of the indemnity claim in 2019.

 

Going Concern

 

We are subject to a number of risks similar to those of other development and early-commercial stage pharmaceutical companies. These risks include, amongst others, generation of revenue from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of our pipeline products. Ultimately, the attainment of profitable operations is dependent on future uncertain events which include obtaining adequate financing to fulfill our commercial and development activities and generating a level of revenue adequate to support our cost structure.

 

We have experienced net losses and significant cash outflows from cash used in operating activities over the past years as we develop our portfolio. For the year ended December 31, 2019, the Company incurred a consolidated loss from operations of £10.1 million and negative cash flows from operations of £6.5 million. As of December 31, 2019, we had an accumulated deficit of £99.8 million.

        

Our consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As at December 31, 2019, we had cash and cash equivalents of £10.93 million. In May 2020, we completed an equity offering, raising £3.7 million, net of costs. We believe we currently have enough cash to fund our planned operations into the second quarter of 2021.

 

Our future viability is dependent on our ability to generate cash from operating activities, to raise additional capital to finance our operations and to successfully obtain regulatory approval to allow marketing of our development products. Our failure to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. For example, due to our current and forecasted cash position, on March 31, 2020, we made the decision to cease self-funded development of certain of our research and development programs, close our Spanish operations and make certain positions redundant in our United Kingdom operations. In connection with our strategic review announced on the same date, we are in the process of seeking to license or assign one or more of our technologies to a partner or, alternatively, to seek a buyer for our Company. Any or all of these transactions may be on unfavorable terms.

 

We have prepared cash flow forecasts and considered the cash flow requirement for our next five years, including the period twelve months from the date of the approval of the financial statements. These forecasts show that further financing will be required during the course of the next 12 months, assuming, inter alia, that certain development programs and other operating activities continue as currently planned.  This requirement for additional financing represents a material uncertainty that raises substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2019 with respect to this uncertainty.

 

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In addition, the global spread of pandemic novel coronavirus, COVID-19, places increased uncertainty over our forecasts. The restrictions placed and being placed on the movement of people will likely cause delays to some of our plans. The scale of the impact of COVID-19 is evolving and it is difficult to assess to what extent, and for how long, it will cause delays to our operations. We have established a COVID-19 task force internally to monitor the impact of COVID-19 on our business and prioritize activities to minimize its effect.

 

In addition to utilizing the existing cash reserves, as part of our strategic review, we and our advisors are evaluating a number of near-term funding options potentially available to us, including fundraising, the partnering of assets or technologies or the sale of the Company. After considering the uncertainties, we considered it appropriate to continue to adopt the going concern basis in preparing the financial information.

 

Our ability to continue as a going concern is dependent upon our ability to obtain additional capital and/or dispose of assets, for which there can be no assurance we will be able to do on a timely basis, on favorable terms or at all.

 

Recently Issued and Adopted Accounting Pronouncements

 

A number of new standards, amendments to standards, and interpretations became effective from January 1, 2019 or January 1, 2020, as applicable, and were applied in preparing our financial statements.

   

IFRS 16 Leases. IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

 

Adoption of IFRS 16 results in us recognizing right-of-use assets and lease liabilities for all contracts that are, or contain, a lease. For leases previously classified as operating leases, we did not recognize related assets or liabilities, and instead spread the lease payments on a straight-line basis over the lease term, disclosing in our annual financial statements the total commitment.

 

We have implemented the new standard effective January 1, 2019, applying the modified retrospective adoption method in IFRS 16, and, therefore, we only recognize leases on the balance sheet as at January 1, 2019. In addition, we have determined to measure right-of-use assets by reference to the measurement of the lease liability on that date. This will ensure there is no immediate impact to net assets on that date. At January 1, 2019 and December 31, 2019, we recorded a lease liability of £546,000 and £907,000, respectively in our accounts, reflecting a 3.0% and 4.8%, respectively, discount rate on the lease commitment. At January 1, 2019 and December 31, 2019, we recognized a corresponding right-of-use asset of £395,000 in respect of two of our leases, based upon the present value of future payments under these leases. As of December 31, 2019, we recognized a corresponding right-of-use asset of £828,000 in respect of three of our leases, based upon the present value of future payments under these leases.

 

The balance of the lease liability of £152,000 relates to a sublease agreement entered into by the Company to mitigate the impact of an otherwise onerous lease on the closure of our Abingdon, United Kingdom headquarters. This has been recognized as a lease receivable as we have determined that the sublease meets the definition of a finance lease under the transitional provisions of IFRS16 and therefore, no right-of-use asset is recognized.

 

Instead of recognizing an operating expense for our operating lease payments, we instead recognize interest on our lease liabilities and amortization on our right-of-use assets. Given the nature of the leases involved and assuming the current low interest rate environment continues, we do not currently expect the effect on loss from operations to be significant.

 

IFRIC 23 Uncertainty over Income Tax Treatments. IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. IFRIC 23 requires us:

 

· to contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;

 

· to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and

 

· to measure, if it is not probable that the uncertain tax treatment will be accepted, the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty.

 

We elected to apply IFRIC 23 retrospectively with any cumulative effect to be recorded in retained earnings as at the date of initial application, January 1, 2019. The adoption of IFRIC 23 did not result in a change in corporate tax liabilities or assets.

 

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There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that we have decided not to adopt early. The following amendments are effective for the period beginning January 1, 2020:

 

· IAS 1, Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment – Definition of Material);

 

· IFRS 3, Business Combinations (Amendment – Definition of Business); and

 

· Revised Conceptual Framework for Financial Reporting.

 

We do not expect any other standards issued by the IASB, but not yet effective, to have a material impact on us.

 

In January 2020, the IASB issued amendments to IAS 1, which clarifies the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that ‘settlement’ includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2022.

 

We are currently assessing the impact of this new accounting standard and amendment.

 

Results of Operations

  

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

The following table summarizes our consolidated results of operations for the years ended December 31, 2019 and 2018. These results reflect the sale of Midatech US in November 2018 and the resultant classification of its results under discontinued operations:

 

 

 

   

Year Ended

December 31,

 
    2019     2018  
    (£ in thousands)  
             
Revenue     312       149  
Grant revenue     362       1,789  
Total revenue     674       1,938  
Other income     15       --  
Research and development costs     (7,843 )     (9,359 )
Distribution costs, sales and marketing     (323 )     --  
Administrative costs     (3,841 )     (4,394 )
Loss from operations     (11,318 )     (11,815 )
Finance income     492       2  
Finance expense     (97 )     (587 )
Loss before taxation     (10,923 )     (12,400 )
Taxation     1,785       2,032  
Loss from continuing operations     (9,138 )     (10,368 )
Loss from discontinued operations     (947 )     (4,662 )
Loss for the year attributable to the owners of the parent     (10,085 )     (15,030 )

 

 

Revenue. For the year ended December 31, 2019, we generated consolidated Revenues from continuing operations of £0.31 million, compared to £0.15 million in 2018, comprising formulation services for customers in each year.

 

Research and Development Costs. We incurred research and development costs of £7.84 million in 2019, compared to £9.36 million in 2018, a decrease of 16%, primarily due to lower research and development headcount costs and associated overheads of £2.18 million offset by £0.98 million of higher clinical development costs, primarily associated with our lead clinical programs, MTD201 and MTX110.

 

Distribution costs, sales and marketing. In 2019, these costs related to market, payor and pricing research related to our lead clinical programs, MTD201 and MTX110. There were no costs in the year ended December 31, 2018.

 

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Administrative costs. For the year ended December 31, 2019, our administrative costs were £3.84 million, as opposed to £4.39 million in 2018, a decrease of 13%, primarily as a result of a movement on foreign exchange losses of £0.44 million and a loan redemption penalty and other costs relating to the early repayment of the MidCap Credit Agreement of £0.30 million in 2018, offset by a reduction in property costs and other overheads.

  

Finance Income. Overall, finance income of £0.49 million was credited to the income statement in 2019, comprising a gain on an equity settled financial liability of £0.48 million and bank interest received of £8.00 thousand, compared to £2.00 thousand in 2018.

 

Finance Expense. Finance expenses of £0.10 million were charged in 2019, as compared to £0.59 million in 2018, a decrease of £0.49 million. The decrease is due to a full year of loan interest plus arrangement fees relating to the MidCap Credit Agreement being charged in 2018 offset by an increase in interest charged on government loan notes in Midatech Spain after a principal drawdown of €6.6 million in September 2019.

  

Loss from discontinued operations. This comprises the aggregate income statement loss from the Midatech US business. The loss in the year ended December 31, 2019 was £0.95 million compared to £4.66 million in 2018. The 2019 loss relates to a claim made under the indemnification provisions pursuant to the Purchase Agreement for Midatech US, which we paid a deposit on in April 2019, pending the final determination of the PDUFA waiver by the FDA. We reassessed the fair value of the deposit receivable to be nil as of December 31, 2019. The 2018 loss includes the loss on disposal of £1.41 million associated with the sale of the Midatech US business.

 

B. Liquidity and Capital Resources.

 

Overview

 

We have incurred significant net losses and have had negative cash flows from operations during each period from inception through December 31, 2019, and had an accumulated deficit of £99.8 million as of December 31, 2019. We have yet to generate a profit and, excluding share issues, cash flows have been consistently negative from the date of incorporation. Management expects operating losses and negative cash flows to continue for the foreseeable future. We believe our existing balances of cash and cash equivalents will be insufficient to satisfy our working capital needs and other liquidity requirements associated with our existing operations over the next 12 months. Additional funding will have to be obtained, which may include public or private equity or debt offerings. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development of our product candidates and formulations, as well as consider other strategic alternatives. 

 

If we raise additional funds through the issuance of debt securities or additional equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of our ordinary shares (including the Depositary Shares) and could contain covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

 

As of December 31, 2019, we had cash and cash equivalents of £10.9 million. Historically, we have financed our operations primarily from the net proceeds of public and private share placings. In December 2014, we received net proceeds of £30.6 million from the issuance and sale of 599,250 of our Ordinary Shares in our initial public offering and associated listing on AIM. In October 2016, we received net proceeds of £15.6 million from the issuance and sale of 757,852 of our Ordinary Shares in a placing and open offer outside of the United States. In September 2017, we received net proceeds of £5.7 million from the issuance and sale of 615,733 Ordinary Shares in a placing outside of the United States. In February 2019, we received net proceeds of £12.3 million from the issuance and sale of 17,410,773 Ordinary Shares in a subscription, placing and open offer outside of the United States. In October 2019, we received net proceeds of £1.8 million from the issuance and sale of 600,000 Depositary Shares (representing 3,000,000 Ordinary Shares) and warrants to purchase 600,000 Depositary Shares (representing 3,000,000 Ordinary Shares) in registered direct offering and concurrent private placement in the United States.

 

In May 2020, we received net proceeds of $2.6 million from the issuance and sale of 1,818,182 Depositary Shares (representing 9,090,910 Ordinary Shares) and warrants to purchase 600,000 Depositary Shares (representing 9,090,910 Ordinary Shares) in a registered direct offering and concurrent private placement in the United States. In addition, in May 2020, we received net proceeds of £1.6 million from the issuance and sale of 6,666,666 Units in the UK Placing.

 

In addition to the potential issuance of any debt securities or additional equity securities, we continue to assess the market value of certain of our assets so that non-dilutive funding could be available, if required, to drive long term value for the Company without a reliance on equity funding. In connection with this, effective November 1, 2018, we sold all of the issued and outstanding stock of Midatech US to an affiliate of Barings LLC for initial cash consideration of $13.0 million, plus up to an additional $6.0 million in cash payable upon the obtainment of certain net sales milestones in 2018 and 2019 with respect to certain of the products marketed by Midatech US, individually and in the aggregate, less than any amounts payable pursuant to any indemnification provisions under the Purchase Agreement. The net sales milestones for 2019 and 2018 were not achieved and no additional cash was payable to us for such period. In April 2019, we paid an indemnification claim of $1.2 million in respect of PDUFA fees, which fees remain the subject of a waiver request with the FDA. If the waiver request is accepted by the FDA, such amount paid will be returned to us, though there can be no guarantee that such waiver will be approved. In connection with the closing of the Midatech US sale, we paid off all of the outstanding amounts under the MidCap Credit Agreement and terminated the MidCap Credit Agreement. Such amount, including early repayment fees and deferred interests, was $7.7 million.

 

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On September 1, 2018, we were awarded a €1.5 million unsecured loan from the regional government of the Basque region of Spain as part of their Gauzatu Industry program, which is a government funded program to support local small and medium-sized enterprises in establishing infrastructure and capability for global industries. The Basque Loan was intended to be used as part of our commercial scale up for our MTD201 program and Q-Sphera technology platform. The Basque Loan was never drawn by the Company. Due to the termination of the MTD201 program and shut down of our Bilbao, Spain manufacturing facilities, we have terminated this loan agreement.

 

On September 11, 2019, we were awarded a €6.6 million loan from the Spanish Ministry of Industry, Commerce and Tourism, under its Re-industrialisation Programme. The loan can be drawn down through January 2021, with principal due and payable in seven equal annual installments of €0.94 million each, commencing in September 2023. Interest, which is payable annually in arrears, accrues at the annual rate of 1.647% for the life of the loan. For each of the first three years, interest payable is approximately €0.1 million, with subsequent payments diminishing over the remainder of the term of the loan. The loan is partially secured by a guarantee by the Company of €3.0 million (€2.7 million relating to the principal loan amount, plus a further €0.3 million in respect of future interest) in the form of a cash bond. The REINDUS Loan was intended to partially fund activities to scale-up the manufacturing capability of our MTD201 program, however, in connection with our decision to terminate the MTD201 program and shut down our Bilbao, Spain manufacturing facilities, we have begun the process to repay this loan. Upon repayment, we expect our cash bond to be released. The total amount to be repaid is approximately €3.6 million (net of deposits returned to us).

 

In March 2020, we reviewed the remaining costs necessary to complete the Phase III clinical trial of MTD201, as well as the manufacturing scale-up of our MTD201 manufacturing capabilities at our Bilbao, Spain facilities. We believe the remaining costs are in the order of $30 million (of which $8.5 million has been raised in loans from the Spanish government, as discussed in more detail herein). Given the state of the financial markets, and our current cash runway, we determined we were unlikely to conclude a license transaction or raise sufficient funds to continue the required remaining investment in MTD201 in a timely manner. Due to this, the Board of Directors made the determination to terminate the further in-house development of MTD201 immediately and to seek a license partner for it.

 

In connection with the decision to terminate the MTD201 program, the Board of Directors determined to close our manufacturing facilities in Bilbao, Spain. We are currently in the process of closing these facilities. We have offered redundancy to all of our Midatech Spain employees, and we are currently now, as required by Spanish law, in a period of consultation with these employees. We have also offered redundancy to five employees located in the United Kingdom in our clinical research and administrative departments.

 

With respect to MTX110, provided sufficient funding is available to support the overall program we will continue to develop the product candidate. For example, we anticipate we will use a portion of the net proceeds from our May 2020 equity offerings to fund the clinical development program of MTX110, among other things.

 

On March 31, 2020, we announced that, due to the prevailing conditions in the capital markets and the prospect of raising additional funds and finding a partner for our assets, the Board of Directors initiated a strategic review of our operations. The objective of the review is to identify ways to maximize value for our shareholders given the significant challenges faced by our business. We have formed a Finance Committee comprised of Mr. Stamp and Rolf Stahel, our Chairman, to review, analyze and make recommendations to the Board of Directors regarding a possible sale of our business or other strategic transactions.

 

On April 20, 2020, we announced an update to the strategic review of operations including the appointment of Noble to advise us on options for extracting value from its technologies. These options are expected to include partnering our clinical stage assets, partnering existing and upcoming proof of concept formulations, partnering or selling one or more of its technologies or selling the entire company. A sale of the company would be pursuant to a ‘Formal Sale Process’, as defined by the Takeover Code. The Panel on Takeovers and Mergers, a United Kingdom-body that issues and administers the Takeover Code, has agreed to allow us and our advisers to conduct discussions with potential acquirors without the requirement to publicly identify any interested parties. As a result of the announcement, we are considered to be in an ‘Offer Period,’ which places certain restrictions and reporting obligations on us.

 

On June 8, 2020, we received a letter sent on behalf of Secura Bio, dated June 1, 2020, purporting to terminate the Secura License Agreement. Pursuant to the Secura License Agreement, Midatech Limited was granted a non-exclusive worldwide, sublicenseable license to certain patents of panobinostat, the active pharmaceutical ingredient of our development product MTX110. Midatech Limited’s rights are limited to the treatment of brain cancer in humans, administered by convection-enhanced delivery.

 

We plan to continue to pursue development of MTX110 and the strategic review process previously disclosed. We are also reviewing with our outside counsel remedies we may have if Secura Bio does not withdraw the notice and otherwise cease to interfere with our ongoing business and strategic review process, which we have formally requested. We are evaluating available actions to protect our rights under the Secura License Agreement and our assets.

  

Our current strategy is based on advancing our proprietary technology platforms and programs with a view to partnering these assets during the course of their development, thereby earning royalty income, or working with third party pharmaceutical companies to re-formulate their proprietary medicine on a fee-for-service basis. We are subject to risks incident in the development of new biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

 

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the timing of clinical trials. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. If we lack sufficient capital to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected.

 

Cash Flows

 

The following table presents a summary of the primary sources and uses of cash for the years ended December 31, 2019 and 2018:

 

    Year ended December 31,  
    2019     2018        
    (£ in thousands)  
Cash used in operating activities     (6,489 )     (13,450 )      
Cash (used in) provided by investing activities     (3,807 )     9,042          
Cash provided by (used in) financing activities     18,733       (6,472 )        
Net increase (decrease) in cash and equivalents     8,437       (10,880 )        

 

The following table presents a summary of our cash flows from discontinued operating activities arising from the discontinued Midatech US business:

 

 

 

    Year ended December 31,  
    2019     2018        
    (£ in thousands)  
Cash used in operating activities     --       (5,368 )      
Cash used in investing activities     (947 )     9,259          
Cash used in financing activities     --       7          
Net cash flows from discontinued operations     (947 )     3,898          

 

Cash outflow from operating activities arising from discontinued operations for the year ended December 31, 2019 was nil compared to £5.37 million for the year ended December 31, 2018. Midatech US was sold in November 2018.  

 

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Cash Provided By (Used In) Investing Activities from Discontinued Operations. The cash outflow in 2019 in investing activities of £0.95 million relates to a deposit paid in respect of a claim made under the indemnification provisions of the Purchase Agreement for Midatech US. Cash provided by (used in) investing activities includes the following amounts relating to the sale of the discontinued Midatech US operation to an affiliate of Barings LLC for initial cash consideration of $13.0 million:

 

 

    Year ended December 31,  
    2019     2018        
    (£ in thousands)  
Cash consideration received     --       9,350        
Other consideration received     --       --          
Total consideration received     --       9,350          
Cash disposed of     --       (91 )        
PDUFA deposit     (947 )     --          
Net cash outflow on disposal of discontinued operations     (947 )     9,259          

 

Operating Activities

 

The following table presents a summary of the cash used in operations as of the years ended December 31, 2019 and 2018:

 

   

Year Ended

December 31,

 
    2019     2018        
    (£’s in thousands)  
Cash flows from operating activities before changes in working capital     (10,207 )     (13,361 )      
Changes in working capital     1,798       (1,453 )        
Cash used in operations     (8,409 )     (14,814 )        

 

 

Cash flows from Operating Activities before Changes in Working Capital. Net cash outflow from operating activities before changes in working capital was £10.21 million as of December 31, 2019, as opposed to £13.36 million during the same period in 2018. This decreased cash outflow of £3.15 million, or 24%, reflected lower operating losses of £4.95 million offset by an increase in interest costs of £0.98 million, a lower loss on disposal of subsidiary of £0.46 million and other items of £0.35 million.

 

Cash Used in Operations. Working capital decreased in cash flow terms by £1.80 million for the year ended December 31, 2019, compared to an increase of £1.45 million for 2018.  The decrease in 2019 primarily comprised a decrease in trade and other receivables of £0.72 million and an increase in trade and other payables of £1.14 million.

 

Taxes Paid.  Research and development tax credits of £1.92 million were received in 2019, as opposed to £1.36 million in 2018. This related to claims submitted in the prior financial year.

 

Investing Activities

 

Purchase of property, plant and equipment of £0.31 million occurred in the year ended December 31, 2019, compared to £0.24 million for the same period in 2018. This was largely related to the purchase of equipment for our former manufacturing facility in Bilbo, Spain. During 2019, a cash-backed guarantee was put in place as security for the loan received from the Spanish government in the same period.

 

Financing Activities

 

Repayment of Borrowings. In 2019, we repaid borrowings of £0.58 million, as opposed to £5.82 million in 2018.

  

Loan Finance Raised. For the year ended December 31, 2019, we raised £5.58 million in loans from Spanish governmental agencies, which was split between principal and government subsidy.

 

For the year ended December 31, 2018, we entered into a loan agreement, however we did not draw on the loan.

  

Shares Issued Net of Costs. We raised £15.8 million in gross proceeds for the year ended December 31, 2019 in cash, in a subscription, open offer and placing in February 2019 and registered direct offering and private placement in October 2019. We incurred expenses of £1.6 million in the aggregate with respect to these offerings.

 

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On February 26, 2019, we issued (i) 10,389,610 units to new investors pursuant to a subscription agreement for aggregate consideration of £8.0 million, (ii) 4,331,384 units in connection with a placing, or the 2019 Placing, to certain new and existing investors and 1,716,951 Ordinary Shares to an existing investor, for an aggregate consideration of £4.7 million, and (iii) 972,827 units in connection with an open offer to all of our existing shareholders who did not participate in the 2019 Placing, for an aggregate consideration of approximately £0.75 million. Each unit consisted of one Ordinary Share and one warrant to acquire Ordinary Shares.

 

On October 25, 2019, we completed the closing of a registered direct offering with an investor for the sale of 3,000,000 Ordinary Shares represented by 600,000 Depositary Shares at a price per Depositary Share of $5.00, for aggregate gross proceeds of $3.0 million (£2.36 million). In the concurrent private placement, we sold to the Investor Private Placement Warrants to purchase a total of 3,000,000 Ordinary Shares represented by 600,000 Depositary Shares at an exercise price of $6.25 per Depositary Share.

 

We did not conduct any fundraising activities for the year ended December 31, 2018.

 

For the year ended December 31, 2019, we issued 25,000 Ordinary Shares to be purchased by the Midatech Pharma Share Incentive Plan, an employee share incentive trust.

 

For the year ended December 31, 2018, we issued 5,000 Ordinary Shares to be purchased by the Midatech Pharma Share Incentive Plan.

  

Cash and Cash Equivalents

 

Cash increased for the year ended December 31, 2019 by £8.44 million, before the impact of foreign exchange movements, compared to a decrease of £10.88 million in the corresponding period in 2018. This increase was due to continuing trading losses offset by the net proceeds from share issuances during the year of £14.11 million. As of December 31, 2019, we had cash and cash equivalents of £10.93 million compared to £2.34 million as at December 31, 2018.

 

C. Research and Development, Patents and Licenses, Etc.

 

For more information regarding our research and development program, see “Item 4. Information on the Company—B. Business Overview—Research and Development.”

 

D. Trend Information.

 

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenues, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

 

E. Off-Balance Sheet Arrangements.

 

As of December 31, 2019, we did not have any off-balance sheet arrangements as defined in Item 5.E.2 of Form 20-F.

 

F. Tabular Disclosure of Contractual Obligations.

 

The following table summarizes our contractual obligations as of December 31, 2019:

 

    Payments due by period  
    Total     Less than
1 year
    1-3 years     3-5 years     More than 5
years
 
    (£ in thousands)  
Government Research Loans     6,678       272       374       2,715       3,317  
Lease Liabilities     1,296       244       595       457       --  
Total     7,974       516       969       3,172       3,317  

 

  

Lease Liabilities relate to leases for analytical equipment used in our Spanish manufacturing facility and Cardiff, United Kingdom research and development site and also leases on properties occupied by the Group. During 2019, we entered into new lease commitments.

 

In September 2019, Midatech Spain was awarded a €6.6 million loan from the Spanish Ministry of Industry, Commerce and Tourism, under its Re-industrialisation Programme. For more information, see “—B. Liquidity and Capital Resources—Overview.” On initial recognition, the REINDUS Loan is discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognized. No such expenditure was recognized in 2019.

 

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Midatech Spain has a further three Government Research Loans outstanding as at December 31, 2019 for the finance of research, technical innovation and the construction of their laboratory. The loans are term loans which carry sub-market interest rates, and they are repayable over periods through to 2024. The loans carry default interest rates in the event of scheduled repayments not being met. The loans are discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognized.

 

G. Safe Harbor

 

Certain of the statements included in this annual report and the documents incorporated herein by reference may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For our cautionary statement on the forward-looking statements in this Annual Report on Form 20-F, see “Cautionary Note Regarding Forward-Looking Statements.”

 

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

 

A. Directors and Senior Management

 

The following table sets forth certain information about our current directors and senior management. The professional address of each of the directors is care of Midatech Pharma PLC, Oddfellows House, 19 Newport Road, Cardiff, CF24 0AA, United Kingdom.  

 

Name  

Age at

12/31/2019

  Position/Title
Directors:        
Stephen Stamp (1) (2)   58   Chief Executive Officer and Chief Financial Officer, Director
Rolf Stahel (1) (2) (3) (4)   75   Non-Executive Chairman of the Board of Directors
Simon Turton, Ph.D. (1) (2) (3) (4)   52   Senior Independent Non-Executive Director

Sijmen (Simon) de Vries, M.D. (1) (2) (3) (4)

  60   Non-Executive Director
Senior Management (5):        
Steve Damment   62   Executive Vice President, Research & Development

__________________________

(1) Nominations Committee member
(2) Disclosure Committee member
(3) Remuneration Committee member
(4) Audit Committee member
(5) Other than directors who are also members of senior management.

 

Directors

 

Stephen Stamp has served as our Chief Executive Officer since March 31, 2020, and our Chief Financial Officer and a member of our Board of Directors since September 2019. Prior to joining the Company, Mr. Stamp served as Chief Executive Officer of Ergomed plc (AIM: ERGO) from December 2017 until January 2019 and Chief Financial Officer from January 2016 to July 2018. From March 2013 until July 2015, Mr. Stamp served as the Chief Financial Officer of Assurex Health, Inc. Mr. Stamp served as Chief Financial Officer of EZCORP Inc. (NASDAQ: EZPW) and KV Pharmaceuticals Co. from November 2010 to October 2012 and March 2010 to June 2010. Mr. Stamp has also previously served as Chief Operating Officer of Xanodyne Pharmaceuticals, Inc., and Group Finance Director of Regus PLC (now IWG plc) (LON: IWG) and Shire plc (subsequently acquired by Takeda Pharmaceuticals Company Limited). Mr. Stamp is a Chartered Accountant and qualified with KPMG LLP. Mr. Stamp has a Bachelor’s degree in economics from the University of Manchester.

 

Rolf Stahel has served as our non-executive Chairman of the Board and director (including his service to our predecessor entity) since March 1, 2014. Since December 2016 Mr. Stahel served as the non-executive Chairman and a director of Ampha Limited. Between 2009 and 2016, Mr. Stahel served as the Non-Executive Chairman and a director of Connexios Sciences Pvt. Ltd., and between April 2014 and March 2017 he served as Non-Executive Chairman and a director of Ergomed plc (LON: ERGO). Mr. Stahel is also the sole shareholder and founder of Chesyl Pharma Ltd. From March 1994 to March 2003, Mr. Stahel served as the Chief Executive Officer and a director of Shire plc (subsequently acquired by Takeda Pharmaceuticals Company Limited). Prior to that time, Mr. Stahel worked in various positions with Wellcome plc, the predecessor to GlaxoSmithKline plc (NYSE: GSK), for 27 years. Mr. Stahel has previously served as the Non-Executive Chairman of EUSA, Cosmos Pharmaceuticals SpA (SIX: COPN), PowderMed Ltd. and Newron Pharmaceuticals SpA (SWX: NWRN).

 

Simon Turton, Ph.D. has served as a non-executive member of our Board of Directors since December 2014. Dr. Turton served as Chairman of Q Chip and OpsiRx Pharmaceuticals from March 2014 until their acquisition by us in December 2014. Since January 2015, he has served as the Managing Director of Gensmile Limited. In 2002, Dr. Turton joined Warburg Pincus’, most recently as head of healthcare investing activities in Europe, until June 2011. Dr. Turton has previously served on the board of Archimedes Pharma, Eurand, ProStrakan Group plc and Tornier, Inc. (NASDAQ: TRNX). Dr. Turton has a Master’s of Business Administration from INSEAD and a Ph.D. in pharmacy from the University of London.

  

Sijmen (Simon) de Vries, M.D. has served as a non-executive member of our Board of Directors since October 2004 (including his service to our predecessor entity). Since November 2008, Dr. de Vries has served as of the Chief Executive Officer of Pharming Group NV (Euronext: PHARM). Prior to that, Dr. de Vries served as Chief Executive Officer of 4-Antibody and Morphochem AG. Prior to this he worked at Novartis Pharma, Novartis Ophthalmics and at SmithKline Beecham Pharmaceuticals Plc, where he held senior business and commercial positions. Dr. de Vries holds an M.D. degree from the University of Amsterdam and a Masters of Business Administration in General Management from Ashridge Management College (United Kingdom).

 

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Senior Management

 

Steve Damment has served as our Executive Vice President, Research and Development since March 2018. Prior to that time, Dr. Damment served our Senior Vice President of Translational Medicine from May 2015 to March 2018. Dr. Damment is also the founder and, since January 2014, the Chief Science Officer of Aluztura Bio Ltd., a start-up oncology company. From January 2000 to December 2013, Dr. Damment served as Senior Vice President, Biosciences for Shire Pharmaceutical Development Ltd., a subsidiary of Shire plc. Dr. Damment also served in various roles with Glaxo-Wellcome R&D Ltd., most recently as Head of Toxicology. Dr. Damment has a Bachelor of Science in zoology and marine biology from the University of Liverpool, a Master’s of Science and a diploma in toxicology from the University of Birmingham and Royal College of Pathologists, respectively, and a Ph.D. in toxicology/physiology from the University of Manchester.

 

For the biographical information of Stephen Stamp, our Chief Executive Officer and Chief Financial Officer, see “—A. Directors and Senior Management—Directors.”

 

B. Compensation

 

The following section reports the remuneration of our Board of Directors and senior management and describes our compensation policies and actual compensation for its executive officers as well as our use of equity incentives.

  

Compensation of Non-Executive Directors

 

Our non-executive directors receive a fee for their services as a director, which is approved by our Board of Directors, giving due consideration to the time commitment and responsibilities of their roles and of current market rates for comparable organizations and appointments. Non-executive directors are reimbursed for travelling and other incidental expenses incurred on our business in accordance with our expenses policy.

 

As part of a broader commitment to reduce costs across the business during 2017, the Board of Directors unanimously agreed to reduce the remuneration for the non-executive directors, effective from October 1, 2017. As result of this, the remuneration of the non-executive directors was reduced by 20%. These reductions will be reversed at such time as our share price returns to a closing price of £20.00.

 

The following table summarizes the compensation paid to our non-employee directors during 2019 (including for any service on any our subsidiaries).

 

 

Name  

Fees Earned or

Paid in Cash

(£)(1)

 

All Other

Compensation

(£)(2)

 

Total

£

Sijmen de Vries   30,400   -   30,400
Frédéric Duchesne (3)   12,784   -   12,784
Michele Luzi (4)(5)   7,600   -   7,600
John Johnston (4)(5)   7,600   -   7,600
Dr. Huaizheng Peng (6)   25,765   -   25,765
Pavlo Protopapa (5)   7,600   -   7,600
Rolf Stahel   40,000   50,000   90,000
Simon Turton (4)   30,400   -   30,400

_____________

(1) Includes annual fees, committee chairpersonship fees and meeting fees.
(2) Includes fees paid to Mr. Stahel in connection with a consultancy agreement with Chesyl Pharma Limited, a company wholly owned by Mr. Stahel.
(3) Mr. Duchesne was appointed to the Board of Directors on July 31, 2019 and resigned from the Board of Directors effective March 31, 2020.
(4) A portion of the compensation paid to each of Messrs. Johnston, Luzi and Turton for their services on the Board of Directors are paid to consulting firms owned by each of Messrs. Johnston, Luzi and Mr. Turton, respectively; however, we do not receive any consulting services from Messrs. Johnston, Luzi or Turton or their respective consulting firms.
(5) Each of Messrs. Luzi, Johnston and Protopapa resigned from the Board of Directors effective as of February 26, 2019.
(6) Dr. Peng was appointed to the Board of Directors on February 26, 2019 and resigned from the Board of Directors effective March 31, 2020.

 

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The following table sets forth, as of December 31, 2019, the aggregate number of option awards held by those individuals who served as non-executive directors during 2019:

 


 Name
 

Number of

Options

 

Grant

Date

 

Exercise Price

per Share

(£)

 

Expiration

Date

Michele Luzi (1)(2)   939   (3)   4/20/2012   83.80   4/20/2022
Sijmen de Vries   200   (3)   4/20/2012   83.80   4/20/2022
    500   (4)   6/30/2014   1.50   6/30/2024

___________

(1) Stock options held by Mr. Luzi were granted as part of a prior investment in Midatech Limited in 2011 and not for service as a non-executive director.
(2) Mr. Luzi resigned from our Board of Directors effective as of February 26, 2019.
(3) The stock options are fully vested.
(4) The stock options vest in the following installments: (i) 50% of the stock options vest when our share price is £106.20 a share, (ii) a further 25% of the stock options vest when our share price is £274.40 a share and (iii) the remaining 25% of the stock options vest when our share price is £377.20 a share.

 

All stock options were granted with an exercise price at or above market value on the date of grant.

 

Deed of Indemnity

 

Under a deed poll declared by the Company on August 5, 2015, or a Deed of Indemnity, the Board of Directors and our Company Secretary are indemnified against costs and liabilities incurred in connection with their office, other than any liability owed by such person to the Company itself (or any of its associated entities) and other than indemnification for liabilities in certain circumstances, which are prohibited by virtue of the Companies Act. The Deed of Indemnity provides that a director may also be lent sums to finance any relevant defense costs, provided that, in the event such proceedings involve criminal or civil matters in which the person is convicted or has a judgment made against him or her, then such loan must be repaid.

  

Letters of Appointment

 

Each non-executive director (other than Mr. Stahel) has been appointed to serve on our Board of Directors pursuant to a letter of appointment. The initial term of appointment for each director is three years, unless terminated earlier by either party upon one month’s prior notice or in accordance with the terms of the letters of appointment. The appointment is subject to our articles of association, and is subject to confirmation at any annual general meeting of the Company.

 

Each non-executive director (other than Mr. Stahel) is paid an annual fee of £30,400, which covers all duties, including committee service or service on the board of a Midatech subsidiary, with the exception of committee chairmanships and certain additional responsibilities, such as taking on the role of senior independent director. In addition, we reimburse each director for reasonable and properly documented expenses incurred in performing their duties. As noted above, we also grant each director a deed of indemnity against certain liabilities that may be incurred as a result of their service, to the extent permitted by the Companies Act.

 

In addition, without our prior written consent, for a period of six months following a director’s termination from service, such director will not, whether as a principal or agent and whether alone or jointly with, or as a director, manager, partner, shareholder, employee consultant of, any other person, carry on or be engaged, concerned or interested in any business which is similar to or which is (or intends to be) in competition with any business being carried on by Midatech or any subsidiary, as applicable.

 

Rolf Stahel Letter of Appointment

 

Pursuant to a term of appointment dated April 15, 2014, as amended on December 2, 2014, or the Stahel Appointment Agreement, Rolf Stahel was appointed non-executive Chairman of the Board of Directors, with effect from March 1, 2014. The initial term of appointment for Mr. Stahel expired on February 28, 2015 but Mr. Stahel was subsequently re-elected by the directors of Midatech with the current term expiring in April 2020. In addition, his appointment may be terminated:

 

· by either party giving at least three months prior written notice;

 

· by the Board of Directors reasonably determining that Mr. Stahel’s acceptance of any other employment, engagement, appointment, interest or involvement with any business or person competes or conflicts with his appointment and would result in a serious conflict of interest or Mr. Stahel reasonably determines such interest would result in a serious conflict of interest, and Mr. Stahel accepts such employment, engagement, appointment, interest or involvement; or

 

· in accordance with our articles of association or applicable law.

 

Pursuant to the terms of the Stahel Appointment Agreement, Mr. Stahel is paid an annual fee of £40,000 (reduced from £50,000 with effect from October 1, 2017). Mr. Stahel is also paid an additional fee of £40,000 under a consultancy agreement (reduced from £50,000 with effect from October 1, 2017). Mr. Stahel is entitled to additional payments depending upon the amount of time he devotes to the Company under the consultancy agreement. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Agreement with Chesyl Pharma Limited.” In addition, in connection with the execution of the Stahel Appointment Agreement, we granted to Mr. Stahel options to acquire Ordinary Shares at a price of £1.50 per share, which he subsequently exercised. Mr. Stahel, in accepting the options, agreed to certain restrictions on any disposal and voting rights of such shares. As to 12,244 of such shares held by Mr. Stahel, Mr. Stahel is prohibited from disposing of such shares unless and until the Company reaches certain milestones set forth in the Stahel Appointment Letter. Such shares that are subject to disposal restrictions are unable to be voted upon by Mr. Stahel during the periods described above in respect of the amount of such shares which remain under restriction.

  

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In addition, we also are obligated to take out a reasonable directors and officers liability insurance policy, which applies to Mr. Stahel. We also agreed to reimburse Mr. Stahel for reasonable and documented expenses accrued in the course of performing his duties and provide him with up to £7,500 in professional advice in connection with performing his duties. The Stahel Appointment Agreement includes provisions related to the non-disclosure of information and assignment of inventions. Among other things, these provisions obligate Mr. Stahel from disclosing any of our proprietary and confidential information received during the course of employment and to assign to us any inventions conceived or developed during the course of their employment.

 

In the event we terminate the agreement with Mr. Stahel at any time in accordance with the provisions of the articles of association or applicable laws, Mr. Stahel will have no right to damages or compensation if he:

 

· is found guilty of any misconduct, gross negligence or dishonesty or acts in a manner which is materially adverse to our interests;

 

· commits any serious or repeated breach or non-observance of his obligations to the Company;

 

· becomes bankrupt, has an interim order made against him under the United Kingdom Insolvency Act 1986 or makes any composition or enters into any deed of arrangement with his creditors or the equivalent of any of these under any other jurisdictions;

 

· becomes of unsound mind, becomes a patient under any statute relating to mental health or is unable, due to any accident, illness or injury, to undertake his duties for the Company for a period of more than six consecutive months;

 

· is convicted of a criminal offense (other than a motoring offense for which a non-custodial penalty is imposed);

 

· is disqualified by law or an order of a court of competent jurisdiction from holding office; or

 

· has failed to submit his resignation as Chairman and as a director of the Company when required to so pursuant to the terms of the Stahel Appointment Agreement.

 

In the event we terminate the agreement at any time with immediate effect (other than pursuant to the preceding paragraph), we will pay to Mr. Stahel all fees which are due to him for the following 12 months.

 

Mr. Stahel may resign from his positions at any time if the Company (i) is guilty of any gross negligence which affects him or any dishonesty towards or concerning him or (ii) becomes insolvent, makes any composition or enters into any deed of arrangement with its creditors or the equivalent. If Mr. Stahel resigns due to these reasons, we will pay to Mr. Stahel all fees which are due to him for the following 12 months. Further, in the event that Mr. Stahel is unable, due to an accident, illness or injury, to undertake his duties for the Company in accordance with the terms of the Stahel Appointment Agreement for a period of more than six consecutive months, he may resign at any time without any rights to damages or compensation. Mr. Stahel is also required to resign in connection with the Board of Directors determination that his acceptance of any other employment, engagement, appointment, interest or involvement with any business or person competes or conflicts with his appointment and would result in a serious conflict of interest or Mr. Stahel reasonably determines such interest would result in a serious conflict of interest, and Mr. Stahel accepts such employment, engagement, appointment, interest or involvement, without any rights to damages or compensation. If Mr. Stahel resigns for any other reason, he must provide 12 months written notice.

 

Compensation of Executive Officers

 

The following table summarizes the compensation earned by our senior management during 2019 (including for any service on any our subsidiaries), including one former executive officer.

 

Name  

Salary

(£)

   

Bonus

(1)(£)

   

 

Option

Awards (2) (£)

   

All Other

Compensation

(3)(£)

   

Total

(£)

 
Stephen Stamp     49,846       5,642       35,672       5,333       96,493  
Chief Executive Officer &  Chief Financial Officer (4)                                        
Craig Cook     265,762       67,980       144,000       23,779       501,521  
Former Chief Executive Officer (5)                                        
Nick Robbins-Cherry     136,178       --       --       15,747       151,925  
Former Chief Financial Officer (6)                                        
All current and former senior management as a group (4 persons) (7)     582,911       105,758       208,872       54,711       952,252  

 

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_____________

 

(1) Mr. Stamp, Dr. Cook, Mr. Robbins-Cherry and Dr. Damment have or had a bonus target of 33%, 50%, 33%, and 30% respectively, of their annual base salary, which bonus is or was payable upon attainment of objectives as determined in the subjective judgment of the Board of Directors or a committee thereof, taking into account various factors without any preassigned weighting. The bonuses achieved for fiscal 2019 were paid in February 2020. Mr. Robbins-Cherry was not eligible to receive a bonus due to his resignation from the Company in October 2019.
(2) The amounts reported in this column represent the aggregate grant date fair value of option awards computed in accordance with IFRS as of the grant date. The grant date fair value of the stock option awards to Dr. Cook, Dr. Damment and Mr. Robbins-Cherry in 2019 was £1.60 per share, and for Mr. Stamp it was £1.05 per share. Mr. Robbins-Cherry forfeited his stock options upon his resignation from the Company in October 2019.
(3) The amounts reflect the value of benefits payable for medical benefits (£1,284, £1,082 and £0 for Dr. Cook, Mr. Robbins-Cherry and Mr. Stamp, respectively) and pursuant to pension plans (£22,495, £14,665 and £5,333 for Dr. Cook, Mr. Robbins-Cherry and Mr. Stamp, respectively).
(4) Mr. Stamp was appointed as our Chief Financial Officer effective September 9, 2019, and our Chief Executive Officer effective March 31, 2020.
(5) Dr. Cook resigned as a director and Chief Executive Officer of the Company (including all positions held with our subsidiaries) effective March 31, 2020.
(6) Mr. Robbins-Cherry resigned as a director and Chief Financial Officer of the Company (including all positions held with our subsidiaries) effective September 9, 2019. Mr. Robbins-Cherry remained employed by the Company until October 31, 2019.
(7) Includes compensation information for Dr. Damment.

  

The following table sets forth, as of December 31, 2019, the aggregate number of option awards held by our senior management. Mr. Robbins-Cherry forfeited all of his option awards upon his resignation from the Company effective October 31, 2019.

 

Name  

Number of

Options

  Grant Date  

Exercise
Price
per

Share
(£)

   

Expiration

Date

Stephen Stamp   50,000 (1)   9/9/2019     1.05     9/9/2029
                     
Dr. Craig Cook (2)   18,000 (3)   7/1/2014     1.50     7/1/2024
    7,500 (4)   10/31/2016     53.60     10/31/2026
    10,500 (4)   12/19/2016     24.20     12/19/2026
    12,050 (5)   12/15/2017     9.20     12/15/2027
    90,000 (4)   4/24/2019     1.46     3/15/2029
                     
All senior management as a group (3 persons) (6)   210,940 (7)   (8)     (9 )   (10)

_________

(1) 40% of the options vest upon a successful fundraise of at least $20 million during the 12 months of Mr. Stamp’s employment. Of the remaining 60% of the options, 7,500 vest 12 months after the grant date, and the remaining 22,500 options vest subsequently in 12 equal quarterly tranches, over a three-year period.
(2) Dr. Cook forfeited all of his option awards upon his resignation from the Company effective March 31, 2020.
(3) Vest in the following installments: (i) 50% of the stock options vest when our share price is £106.20 a share, (ii) a further 25% of the stock options vest when our share price is £274.40 a share and (iii) the remaining 25% of the stock options vest when our share price is £377.20 a share.
(4) 25% of the options vest 12 months after the grant date, followed by vesting of 12 equal quarterly tranches, over a subsequent three-year period.
(5) 25% of the options are eligible to vest 12 months after the grant date, followed by 12 equal quarterly tranches, over a subsequent three-year period. All vesting subject to the Company’s Ordinary Share price returning to a 20-day closing VWAP price of £20.00 at any time during the life of the option.
(6) Includes stock option information for Dr. Damment.
(7) 23,540 stock options are fully vested.
(8) The grant dates range from June 30, 2014 to October 2, 2019.
(9) The exercise price of the options range from £1.05 to £53.60.
(10) The stock options expire between July 1, 2024 and October 1, 2029.

 

Agreements with Senior Management

 

Stephen Stamp. On September 9, 2019, we entered into a service agreement, or the Service Agreement, with Mr. Stamp. The Service Agreement provides for a base salary, incentive compensation benefits, and, in certain circumstances, severance benefits. The Service Agreement may be terminated, subject to certain exceptions, upon six months’ prior notice.

 

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The Service Agreement provides for an initial base salary of £160,000. Mr. Stamp’s base salary is subject to increase each April 1 by the percentage increase, if any, in the “All Items Index of Retail Prices” published by the United Kingdom Office for Nation Statistics over the previous year. The base salary of Mr. Stamp is to be reviewed annually to consider any increase in salary. The Service Agreements also include a bonus target for Mr. Stamp of 33% of his annual base salary, which bonus is payable upon attainment of objectives as determined in the subjective judgment of the Board of Directors or a committee thereof, taking into account various factors without any preassigned weighting. For the year ended December 31, 2019, the Remuneration Committee determined that 75% of the 2019 bonus objective had been achieved, and, accordingly, Mr. Stamp was paid a bonus of £5,642 in February 2020 (pro-rated based upon Mr. Stamp’s service time). In addition to base salary and bonus, the Service Agreement provides for additional benefits, such as a 10% pension contribution, life insurance, medical insurance, vacation benefits and any other additional benefits as determined by the Board of Directors from time to time.

 

Pursuant to the terms of the Service Agreement, Mr. Stamp has also agreed that, for a period of six months following his termination, he will not directly or indirectly compete with the Company. The Service Agreement includes provisions related to the non-disclosure of information and assignment of inventions. Among other things, these provisions prohibit Mr. Stamp from disclosing any of our proprietary and confidential information received during the course of employment and obligates him to assign to the Company any inventions conceived or developed during the course of his employment. The Service Agreement also includes customary confidentiality, non-solicitation, non-poaching and non-disparagement provisions.

 

The Service Agreement also provides Mr. Stamp with certain payments and/or benefits upon certain terminations of employment. If he is terminated due to his inability to perform his duties due to illness or other incapacity for a continuous period of three months, or an aggregate period exceeding 100 working days in any period of 12-months, we may, notwithstanding any other provision of the Service Agreement, terminate Mr. Stamp’s employment upon six months’ written notice. During that period, Mr. Stamp will not be entitled to receive his salary or any bonus payment, but will be entitled to any benefits owed under the Service Agreement. Further, notwithstanding any notice requirements for termination set forth in the Service Agreements, we may, at any time and in its absolute discretion, terminate the Service Agreement and provide Mr. Stamp with a payment in lieu of any required notice. The payment will comprise of his base salary, but will not include any bonus or other benefits, and shall be subject to any tax or insurance deductions. Notwithstanding the foregoing, we may terminate the Service Agreement without notice or payment in lieu thereof if Mr. Stamp:

 

· is guilty of serious misconduct or any other misconduct which affects, or is likely to affect, prejudicially our interests;

 

· fails or neglects to efficiently and diligently discharge his duties or commits any serious or repeated breach or non-observance of any of the provisions of the Service Agreement or any share dealing code we have adopted;

 

· has an interim receiving order made against him, becomes bankrupt or makes any composition or enters into any deed of arrangement with his creditors;

 

· is charged with an arrestable criminal offense (other than a road traffic offense in the United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed);

 

· is disqualified from holding office in any company by reason of an order of a court of competent jurisdiction;

 

· becomes of unsound mind or becomes a patient under any statute relating to mental health;

 

· is convicted of an offense under the United Kingdom’s Criminal Justice Act 1993 in relation to insider dealings or under any other present or future statutory enactment or regulations relating to insider dealings;

 

· is in breach of the Model Code on directors’ dealings in listed securities, including securities trading on AIM, published by the London Stock Exchange (the Model Code has subsequently been replaced by provisions under the MAR, however the employment agreements have not been updated to reflect this); or

 

· commits any other act warranting summary termination at common law including, but not limited to, any act justifying dismissal without notice in the terms of our generally applicable disciplinary rules.

 

Dr. Steve Damment.  We have entered into a contract of employment, or the Contract of Employment, with Dr. Damment.  The Contract of Employment was effective as of May 11, 2015 and provides for Dr. Damment’s base salary, incentive compensation benefits, and compensation surrounding a termination of his employment.  The Contract of Employment may be terminated by either Dr. Damment or the Company with three months prior notice.

 

The Contract of Employment provides for an initial base salary and also includes an initial bonus target of 20% (since updated to 30%) of Dr. Damment’s annual base salary.  In addition to base salary and bonus, the Contract of Employment provides for additional benefits, such as a 6% pension contribution, medical insurance, vacation benefits and any other additional benefits as determined by the Board of Directors from time to time.

 

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Dr. Damment has also agreed that, for a period of six months following his termination (as reduced by any “garden leave” period), he will not compete with the Company, directly or indirectly, or solicit any customer, prospective customer or key employee.  The Contract of Employment includes provisions related to confidentiality and the non-disclosure of information and assignment of inventions.  Among other things, these provisions prohibit Dr. Damment from disclosing any of our proprietary and confidential information received during the course of employment and require Dr. Damment to assign to us any inventions conceived or developed during the course of his employment.  

 

The Contract of Employment provides that we will pay Dr. Damment his normal salary during any notice period prior to termination.  We are also permitted to terminate Dr. Damment’s employment effective immediately, without notice or payment, if Dr. Damment is found guilty of any fundamental or repudiatory breach of contract or any breach of the disciplinary rules applicable to Dr. Damment.

 

Dr. Craig Cook and Nicholas Robbins-Cherry. The service agreements of each of Dr. Craig Cook, our former Chief Executive Officer, and Nicholas Robbins-Cherry, our former Chief Financial Officer, are substantially similar to the Service Agreement for Mr. Stamp, other than that:

 

· Dr. Cook’s and Mr. Robbins-Cherry’s initial base salary was £220,000 and £125,000, respectively, and was subject to increase at such time as the AIM 30-day volume weighted average share price of the Ordinary Shares reaches 100 pence, at which time their salaries were increased to £253,000 and £176,000. Dr. Cook’s base salary as of December 31, 2019 was £266,600 and the base salary for Mr. Robbins-Cherry as of the date of his resignation from the Company was £155,000 (due to a salary reduction in 2017 as part of a commitment by the Board of Directors to reduce costs).

 

· Each of Dr. Cook’s and Mr. Robbins-Cherry’s service agreement included a target bonus of 40% and 33%, respectively, of their annual base salary. For the year ended December 31, 2019, the Remuneration Committee determined that 75% of Dr. Cook’s 2019 bonus objective had been achieved, and, accordingly, Dr. Cook was paid a bonus of £67,980 in February 2020. Mr. Robbins-Cherry was not eligible to receive a bonus due to his resignation from the Company in October 2019.

 

Settlement Agreement. In connection with Dr. Cook’ resignation as our Chief Executive Officer and a member of the Board of Directors, on April 17, 2020, we entered into a settlement agreement, or the Settlement Agreement, with him. In consideration for Dr. Cook’s resignation as Chief Executive Officer and from all other positions held with the Company or any of its subsidiaries, as well as his agreement to assist in the transition to Mr. Stamp as our Chief Executive Officer until April 30, 2020, we agreed to pay Dr. Cook a one-time payment of £40,000, £10,000 of which shall be paid for work during the transition period and £30,000 of which shall be paid as a severance payment, and unreimbursed expenses and accrued vacation time. The Settlement Agreement contains (or incorporates by reference) customary confidentiality, non-disparagement and restrictive covenants.

 

In addition, Dr. Cook was awarded 100,000 stock options at an exercise price of £0.24 per share. These options vest upon grant. Any additional options held lapsed upon his departure. Dr. Cook will also be eligible to participate in the management incentive scheme, as discussed further herein.

 

Management Incentive Scheme

 

In connection with our implementation of a strategic review of our operations, the Board of Directors approved a management incentive plan, or the Management Incentive Scheme, that is designed to provide for a payment of a bonus, or a Retention Bonus, to members of our senior management, including Mr. Stamp, Dr. Damment and our former Chief Executive Officer, Dr. Cook, (i) upon the closing of a Change of Control (as defined herein) or, (ii) if in the event one or a series of sales of our assets occurs, but such sale or sales do not constitute a Change of Control, then upon the determination of the Remuneration Committee, in its sole discretion.

 

For purposes of the Management Incentive Scheme, a “Change of Control” means (i) a sale of all or substantially all of the assets of the Company; (ii) any merger, consolidation or acquisition of the Company with, by or into another corporation, entity or person; (iii) any change in the ownership of more than 50% of the voting capital stock of the Company in one or more related transactions; or (iv) a solvent winding up of the Company.

 

C. Board Practices

 

Board of Directors

 

Our Board of Directors is currently comprised of four directors, one of whom is an executive director and three non-executive directors, reflecting a blend of different experience and backgrounds. The roles of Chairman of the Board of Directors (which is a non-executive position) and Chief Executive Officer have been split and there is a clear division of responsibility between the two. With a view towards maintaining the independence of the Board of Directors, no remuneration is paid to either the Chairman or non-executive directors in the form of shares.

 

Since becoming a public company in the United Kingdom in 2014, the Board of Directors has sought to develop our governance framework above the level required for an AIM listed company of our size by adopting many aspects of the United Kingdom Corporate Governance Code. With effect from September 28, 2018, all AIM listed companies were required to formally apply a recognized corporate governance code. We have chosen to adopt the principles of the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Sized Quoted Companies, or the QCA Code. The QCA Code identifies ten principles to be followed in order for companies to deliver growth in long term shareholder value, encompassing and efficient, effective and dynamic management framework, accompanied by good communication, to promote confidence and trust.

 

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The Board of Directors is responsible for inter alia, approving interim and annual financial statements, formulating and monitoring our strategy, approving financial plans and reviewing performance, as well as complying with legal, regulatory and corporate governance matters. There is a schedule of matters reserved for the Board of Directors.

 

The Board of Directors meets regularly to consider strategy, performance and the framework of internal controls. To enable the Board of Directors to discharge its duties, all directors receive appropriate and timely information. Briefing papers are distributed to all directors in advance of board meetings.

 

Board Committees

 

We have established audit, nomination, remuneration and disclosure committees of the Board of Directors with formally delegated duties and responsibilities. From time to time separate committees may be set up by the Board of Directors to consider specific issues when the need arises.

 

Audit Committee

 

The Audit Committee currently consists of three members: Simon Turton (Chairman), Sijmen de Vries and Rolf Stahel. John Johnston and Pavlo Protopapa each served on the Audit Committee during the year ended December 31, 2019 until their resignations from the Board of Directors on February 26, 2019. The Board of Directors has determined that Messrs. de Vries, Turton and Stahel are independent under Rule 10A-3 of the Exchange Act and the applicable rules of NASDAQ and that Mr. Turton qualifies as an “audit committee financial expert” as defined under in Item 16A of Form 20-F.

 

The Audit Committee of the Board of Directors assists the Board of Directors in discharging its responsibilities with regard to financial reporting, external and internal audits and controls, including reviewing and monitoring the integrity of the Company’s annual and interim financial statements, advising on the appointment of external auditors, reviewing and monitoring the extent of the non-audit work undertaken by external auditors, overseeing our relationship with our external auditors, reviewing the effectiveness of the external audit process and reviewing the effectiveness of our internal control review function. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board of Directors.

 

The Audit Committee meets not less than twice a year and otherwise as required.

 

Nomination Committee

 

The Nomination Committee is chaired by Rolf Stahel and is currently comprised of all other members of the Board of Directors. The Nomination Committee assists the Board of Directors in discharging its responsibilities relating to the composition and make-up of the Board of Directors and any committees of the Board of Directors. It is responsible for periodically reviewing the Board of Director’s structure and identifying potential candidates to be appointed as directors or committee members as the need may arise. The Nomination Committee is responsible for evaluating the balance of skills, knowledge and experience and the size, structure and composition of the Board of Directors and committees of the Board of Directors, retirements and appointments of additional and replacement directors and committee members and will make appropriate recommendations to the Board of Directors on such matters.

 

The Nomination Committee meets not less than once a year and otherwise as required.

 

Remuneration Committee

 

The Remuneration Committee currently consists of three members: Sijmen de Vries (Chairman), Simon Turton and Rolf Stahel. Michele Luzi served on the Remuneration Committee during the year ended December 31, 2019 until his resignation from the Board of Directors on February 26, 2019.The Board of Directors has determined that Messrs. de Vries, Turton and Stahel are independent under applicable rules of NASDAQ.

 

The Remuneration Committee of the Board of Directors is responsible, within agreed terms of reference, for establishing a formal and transparent procedure for developing policy on executive remuneration and setting the remuneration packages of individual directors. This includes agreeing with the Board of Directors on the framework for remuneration of the executive directors, the company secretary and such other members of our executive management as it is designated to consider. It is also responsible for determining the total individual remuneration packages of each director including, where appropriate, bonuses, incentive payments and share options. No director may be involved in any decision as to his/her own remuneration. The Remuneration Committee ensures compliance with the QCA Code in relation to remuneration wherever possible.

 

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The Remuneration Committee meets not less than twice a year and otherwise as required.

 

Disclosure Committee

 

The Disclosure Committee is chaired by Rolf Stahel and is currently comprised of all other members of the Board of Directors. Mr. Protopapa served on the Disclosure Committee during the year ended December 31, 2019, with Mr. Protopapa serving until his resignation from the Board of Directors on February 26, 2019.The Disclosure Committee is considered to have a quorum with at least one executive and one non-executive director in attendance. The Disclosure Committee is responsible, within agreed terms of reference, for ensuring compliance with the AIM Rules, rules and regulations promulgated by the U.S. Securities and Exchange Commission and the rules of NASDAQ, and disclosure of information. The Disclosure Committee works closely with the Board of Directors to ensure that our nominated adviser is provided with any information it reasonably requests or requires in order for it to carry out its responsibilities under the AIM Rules and the AIM Rules for Nominated Advisers.

 

The Disclosure Committee meets at least four times a year and otherwise as required.

 

Service Contracts

 

Except as described herein, we do not have service contracts with any member of our Board of Directors or our senior management.

 

D. Employees

 

The number of our employees by geographic location and function as of the end of the period for the fiscal years ended December 31, 2019, 2018 and 2017 were as follows:

  

    As of December 31,  
    2019     2018     2017  
Business functional area:                        
Research and development     52       62       62  
Sales and marketing     --       --       6  
General and administration     13       11       17  
                         
Total     65       73       85  

 

 

    As of December 31,  
    2019     2018     2017  
Geography:                  
United Kingdom     24       35       39  
North America (1)     --       --       12  
Spain     41       38       34  
                         
Total     65       73       85  

________________________

(1) We divested our U.S. operations effective as of November 1, 2018 with the sale of Midatech US.

 

To our knowledge, none of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.

 

Midatech Spain employment conditions, rules and regulations are governed by a union-based document. The contents of this document are re-negotiated with the central government every two years and stipulate professional grades relating to position descriptions and the salary bands associated with those grades. Each member of staff is assigned a grade commensurate with their position and responsibilities within the company and compliance with such document is obligatory.

 

E. Share Ownership

 

Information with respect to share ownership of members of our Board of Directors and our senior management is included in “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”

 

Equity Benefit Plans

 

Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme

 

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The Board of Directors has established the Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme, or 2014 Plan, to allow us to grant options to purchase Ordinary Shares to qualifying employees and directors of the Group, or Plan Participants, for the purpose of attracting, rewarding and retaining such persons.

 

Administration. The overall responsibility for the operation and administration of the 2014 Plan is vested in the Board of Directors.

 

Eligibility. In order to be eligible to participate as a Plan Participant in the 2014 Plan, a person must be an employee or director of the Company or any of its subsidiaries whose “committed time” amounts to at least 25 hours a week or, if less, 75% of his or her “working time,” as each of those terms are defined under the Her Majesty’s Revenue and Customs rules set out in Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 of the United Kingdom, or Schedule 5. The Board of Directors may exercise its discretion in selecting the Plan Participants to whom stock options will be granted under the 2014 EMI Scheme.

 

Grant of Options. Options may be granted from time to time by the Board of Directors, other than when grants are not permitted under the applicable law or there are other restrictions with regards to the Ordinary Shares. No payment will be made for the grant of a stock option.

 

Form of Options. Stock options granted under the 2014 Plan may be granted either with an exercise price greater than or equal to the market value of Ordinary Share at the date of grant, but not in any event at a price less than the nominal value of such share. The stock options may be stock options to subscribe for new Ordinary Shares.

 

The participant will have no stockholder rights until such time as he is able to exercise the stock option and acquire Ordinary Shares.

 

Size of Option Grants and Plan Limits. Stock options shall be granted under, and comply with, Schedule 5. This confers tax benefits on stock options up to a certain threshold. That threshold is currently such that when an employee has received and holds stock options with a value at grant of £250,000 or more, he or she may not have any further granted options for three years. In the event that this threshold is exceeded or the Company ceases to satisfy the qualifying conditions, unapproved options may instead be granted under the terms of the 2014 Plan. The total value of shares subject to unexercised options at any time may not exceed £3.0 million. All options must be exercised within 10 years from the grant date as set out in the rules of the 2014 Plan, or as set forth in the applicable option agreement.

 

The Board of Directors may from time to time specify the maximum number of Ordinary Shares in respect of which options may be granted.

 

Vesting of Options. In the normal course, stock options will become eligible for vesting subject to the satisfaction of time and financial performance targets.

 

If a Plan Participant leaves the employment of the Company or its subsidiaries for any reason, his or her stock option will generally lapse unless the Board of Directors exercises its discretion to allow the exercise of the stock option.

 

Performance Targets. All stock options granted under the 2014 Plan will be subject to appropriate performance targets determined by the Board of Directors, which may include share price targets, with stock options vesting in part on the attainment of each performance target.

 

Rights Attaching to Ordinary Shares. Ordinary Shares issued in connection with the exercise of stock options will rank equally with all other Ordinary Shares then in issue (save as regards any rights attaching to Ordinary Shares by reference to a record date prior to entry of the shares on the register of stockholders). Application will be made for admission to trading on AIM of new Ordinary Shares issued under the 2014 Plan.

 

Adjustments. If there is any adjustment of our issued share capital, the Ordinary Shares subject to a stock option will be subject to appropriate adjustment. The Board of Directors may adjust stock options in such manner as it determines to be appropriate.

 

 Midatech Pharma PLC 2016 United States Option Plan

 

In 2016, we adopted the Midatech Pharma PLC 2016 United States Option Plan, or the 2016 Plan, as a sub-plan of the 2014 Plan, to set forth the terms and conditions applicable to options that are granted under the 2014 Plan to eligible employees of our former United States subsidiaries.

 

With the sale of Midatech US, options granted to employees remaining with the business at the time of sale were deemed to be fully vested and such employees were granted two years in which to exercise. At the time of such sale, there were approximately 21,000 options subject to this. Following the sale of Midatech US, no further options have been, nor will be, granted under the 2016 Plan.

 

Administration. The responsibility for the operation and administration of the 2016 Plan is vested in either a committee appointed by the Board of Directors to administer the 2016 Plan or the Board of Directors, or the Committee.

 

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Eligibility. In order to be eligible to participate as a Plan Participant in the 2016 Plan, a person would have needed to have been an employee of one of our United States subsidiaries. Directors who were not otherwise employed by the Company or one of our United States subsidiaries were not eligible under the 2016 Plan. The Committee exercised its discretion in selecting the Plan Participants to whom stock options would be granted under the 2016 Plan and took into account any factors it deemed relevant, including the duties of the individual, the Committee’s assessment of the individual’s contributions to the success of the Company or its subsidiaries.

 

Grant of Options. Each grant of options under the 2016 Plan was made pursuant to an award agreement, in such form as the Committee determined. The award agreement specified the number of shares to which the option pertained, whether the option was an incentive stock option, or ISO, or a non-qualified stock option, the option price, the term of the option, the conditions upon which the option would vest and become exercisable, and such additional terms and conditions, not inconsistent with the provisions of the 2016 Plan, as the Committee determined. ISOs could be granted only to employees of the Company or a subsidiary. Subject to the exceptions in the 2016 Plan, or to the extent an option remains exercisable as set forth in the award agreement, an option would immediately terminate upon the participant’s termination of service with the Company and its subsidiaries for any reason.

 

Form of Options. The option price per share of options granted under the 2016 Plan could be no less than the fair market value per share on the date of grant of the option, subject to certain exceptions for grants of ISOs and the grant of options pursuant to the assumption of, or substitution of another option.

 

The participant has no stockholder rights until such time as he or she is able to exercise the stock option and acquire Ordinary Shares.

  

Adjustments. If there is any reorganization, recapitalization, stock split, stock dividend, extraordinary dividend, spin-off, combination of shares, merger, consolidation or similar transaction or other change in corporate capitalization affecting our Ordinary Shares, equitable adjustments and/or substitutions, as applicable, to prevent the dilution or enlargement of rights may be made by the Committee to the maximum number and kind of Ordinary Shares.

 

Midatech Pharma PLC Employee Share Incentive Plan

 

In 2017, we set up the Midatech Pharma Share Incentive Plan, or the MPSIP. Under the MPSIP, our employees and directors can acquire Ordinary Shares in the Company via a salary sacrifice arrangement. We grant matching shares for every share bought. In order to retain these shares, scheme participants must remain employed by the Group for three years from the date of acquisition. All shares purchased by the MPSIP are held by an Employee Benefit Trust that is not under our control. Shares must be left in the plan for five years to qualify for full income tax relief. As of December 31, 2019, we had reserved 21,389 of our Ordinary Shares for issuance under the MPSIP.

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

 

A. Major Shareholders

 

The following table sets forth information, to our knowledge, as of May 22, 2020, regarding the beneficial ownership of Ordinary Shares, including:

 

· each person that is known by us to be a beneficial owner of 3% or more of Ordinary Shares (based on information in our share register and information provided by such persons);

 

· each member of our Board of Directors;

 

· each member of our senior management; and

 

· all members of our Board of Directors and our senior management, taken as a group.

 

Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as noted by footnote, and subject to community property laws where applicable, we believe, based upon the information provided to us, that the persons and entities named in the table below have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. The percentage of beneficial ownership is based upon 39,252,557 Ordinary Shares outstanding as of May 22, 2020. Ordinary Shares subject to options or warrants currently exercisable or exercisable within 60 days of May 22, 2020 are deemed to be outstanding and beneficially owned by the person holding the options for the purposes of computing the percentage of beneficial ownership of that person and any group of which that person is a member, but are not deemed outstanding for the purpose of computing the percentage of beneficial ownership for any other person. Unless otherwise indicated, the address for each holder listed below is Midatech Pharma PLC, Oddfellows House, 19 Newport Road, Cardiff, CF24 0AA, United Kingdom. All holders of Ordinary Shares, including those shareholders listed below, have the same voting rights with respect to such shares.

 

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Name of Beneficial Owner  

Amount and

Nature

Of Ownership

 

Percent

of Class

 

Major Stockholders:        
Entities affiliated with Dr. Lam Kong (1)   20,779,220   41.9%
Blackrock Inc. (2)   5,459,861   13.4%
Armistice Capital LLC (3)   3,255,000**   8.3%
L1 Capital Global Opportunities Master Fund (4)   3,030,310***   7.7%
CVI Investments, Inc. (5)   1,985,702**   4.9%
Intracoastal Capital, LLC (6)   1,958,702**   4.9%
Lind Global Macro Fund, LP (7)   1,939,400**   4.9%
Michael Hennigan (8)   1,500,000   3.8%
Iroquois Master Fund, Ltd. (9)   1,363,640**   3.5%
 Directors and Senior Management:        
Dr. Steve Damment (10)   9,265   *

Sijmen de Vries, M.D. (11)

  47,787   *
Rolf Stahel (12)   77,709   *
Stephen Stamp   50,000   *
Simon Turton, Ph.D. (13)   97,180   *
Directors and senior management as a group (5 persons) (14)   281,941   *

 __________________

* Less than one percent of the outstanding Ordinary Shares.
** Subject to 4.99% blocker. See Footnotes (3), (5), (6), (7) and (9) below.
*** Subject to a 9.99% blocker. See Footnote (4) below.

 

(1) Information in the table and this footnote is based upon information contained in a Schedule 13D filed with the SEC on April 4, 2019 by A&B (HK) Company Limited, A&B Brother Limited, China Medical System Holdings Limited, CMS Medical Venture Investment (HK) Limited, and Dr. Lam Kong. Includes (i) for A&B (HK) Company Limited, 5,194,805 Ordinary Shares held of record and 5,194,805 Ordinary Shares issuable upon the exercise of warrants, which are exercisable at May 22, 2020, and (ii) for CMS Medical Venture Investment (HK) Limited, 5,194,805 Ordinary Shares held of record and 5,194,805 Ordinary Shares issuable upon the exercise of warrants, which are exercisable at May 22, 2020. A&B (HK) Company Limited is a wholly owned subsidiary of A&B Brother Limited, which is wholly owned by Dr. Lam Kong. CMS Medical Venture Investment (HK) Limited is a wholly owned subsidiary of China Medical System Holdings Limited, of which Dr. Lam Kong is the President, Chief Executive Officer and Chairman of the Board and maintains a 43.96% indirect ownership interest. Each of A&B (HK) Company Limited and A&B Brother Limited is deemed to be the beneficial owner with shared dispositive and voting power with respect to 5,194,805 Ordinary Shares and 5,194,805 Ordinary Shares issuable upon the exercise of warrants, which are exercisable at May 22, 2020. Each of China Medical System Holdings Limited and CMS Medical Venture Investment (HK) Limited is deemed to be the beneficial owner with shared dispositive and voting power with respect to 5,194,805 Ordinary Shares and 5,194,805 Ordinary Shares issuable upon the exercise of warrants, which are exercisable at May 22, 2020. Dr. Lam Kong is deemed to be the beneficial owner with shared dispositive and voting power with respect to 10,389,610 Ordinary Shares and 10,389,610 Ordinary Shares issuable upon the exercise of warrants, which are exercisable at May 22, 2020. The principal business address of China Medical System Holdings Limited and CMS Medical Venture Investment (HK) Limited is Unit 2106, 21/F, Island Place Tower, 510 King’s Road, North Point, Hong Kong, China. The principal place of business for A&B (HK) Company Limited is Unit A, 11/F, Chung Pont Commercial Building, 300 Hennessy Road, Wanchai, Hong Kong, China. The principal business address for A&B Brother Limited is Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Island. The principal business address of Dr. Lam Kong is Unit 2106, 21/F, Island Place Tower, 510 King’s Road, North Point, Hong Kong, China.
(2) Information in the table and this footnote is based primarily upon information contained in a Schedule 13G filed with the SEC on March 9, 2020. Includes 3,891,284 Ordinary Shares held of record and 1,568,577 Ordinary Shares issuable upon the exercise of warrants, which are exercisable at May 22, 2020. The principal business address of Blackrock Inc. is 55 East 52nd Street, New York, New York 10055
(3) Information in the table and this footnote is based primarily upon information contained in a Schedule 13G/A filed with the SEC on February 14, 2020 by Armistice Capital, LLC (though amounts included in such Schedule 13G/A have been adjusted in this annual report to give effect to the reverse stock split and Depositary Share ratio change), information provided to us by the direct stockholder, Armistice Capital Master Fund Ltd., or Armistice, and our information and belief. The amounts and percentages in the table give effect to the 4.99% beneficial ownership limitation set forth in warrants held by Armistice. Armistice Capital, LLC, the investment manager of Armistice, and Steven Boyd, the managing member of Armistice Capital, LLC, hold shared voting and dispositive power over the shares held by Armistice. The principal business address of Armistice is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, New York, 10022.
(4) Information in the table and this footnote is based primarily upon information to us by the stockholder and our information and belief. There is a 9.99% beneficial ownership limitation set forth in warrants held by the stockholder. The principal business address of the stockholder is 135 East 57th Street, 23rd Floor, New York, New York 10022.

 

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(5) Information in the table and this footnote is based primarily upon information to us by the stockholder and our information and belief. The amounts and percentages in the table give effect to the 4.99% beneficial ownership limitation set forth in warrants held by the stockholder. The principal business address of the stockholder is c/o Heights Management, Inc., 101 California Street, Suite 3250, San Francisco, California 94111.
(6) Information in the table and this footnote is based primarily upon information to us by the stockholder and our information and belief. The amounts and percentages in the table give effect to the 4.99% beneficial ownership limitation set forth in warrants held by the stockholder. The principal business address of the stockholder is 2211A Lakeside Drive, Bannockburn, Illinois 60015.
(7) Information in the table and this footnote is based primarily upon information to us by the stockholder and our information and belief. The amounts and percentages in the table give effect to the 4.99% beneficial ownership limitation set forth in warrants held by the stockholder. The principal business address of the stockholder is 444 Madison Avenue, Floor 41, New York, New York 10022.
(8) This information is based on information contained in a TR-1 Notification sent to us on May 29, 2020.
(9) Information in the table and this footnote is based primarily upon information to us by the stockholder and our information and belief. There is a 4.99% beneficial ownership limitation set forth in warrants held by the stockholder. The principal business address of the stockholder is 125 Park Avenue, 25th Floor, New York, New York 10017.
(10) Shares owned by Dr. Damment include 7,265 Ordinary Shares subject to outstanding stock options which are exercisable at May 22, 2020 or will become exercisable within 60 days after such date.
(11) Shares owned by Dr. de Vries include 200 Ordinary Shares subject to outstanding stock options and 21,344 Ordinary Shares issuable upon the exercise of warrants, each of which are exercisable at May 22, 2020 or will become exercisable within 60 days after such date. Includes 2,957 Ordinary Shares held by Promida Holdings, in which Dr. de Vries has a minority interest.
(12) Shares owned by Mr. Stahel include 23,856 Ordinary Shares issuable upon the exercise of warrants, which are exercisable at May 22, 2020.
(13) Shares owned by Dr. Turton include 41,854 Ordinary Shares issuable upon the exercise of warrants, which are exercisable at May 22, 2020.
(14) Shares owed by all directors and senior management as a group include 7,465 Ordinary Shares subject to outstanding stock options and 87,054 Ordinary Shares issuable upon the exercise of warrants, each of which are exercisable at May 15, 2020 or will become exercisable within 60 days after such date.

 

As of May 22, 2020, 70.8% of our outstanding Ordinary Shares was held by registered shareholders with addresses in the United Kingdom, and we had 303 individual holders of record . Deutsche Bank Trust Company Americas is the holder of record for our Depositary Share program, pursuant to which each Depositary Share represents five Ordinary Shares. As of May 22, 2020, Deutsche Bank Trust Company Americas, as depositary for the Depositary Shares, held 13,281,840 Ordinary Shares, representing 40.8% of the issued share capital held at that date. As of May 22, 2020, we had 24 holders of record with an address in the United States, and such holders held less than one percent of our outstanding Ordinary Shares. The number of holders of record or registered holders in the United States or United Kingdom is not representative of the number of beneficial holders or of the residence of beneficial holders.

 

In connection with the entry into the CMS License Agreement, the CMS Stockholders acquired approximately 50.8% of our outstanding Ordinary Shares as that date, and, subject to the limitations set forth in the Relationship Agreement and the other agreements with the CMS Parties or their affiliates, they are able to exert significant control over us. In addition to the Ordinary Shares owned by the CMS Stockholders, we also granted the CMS Stockholders warrants to acquire an additional 10,389,610 Ordinary Shares upon exercise of such warrant. If such warrants were exercised, the CMS Stockholders would own approximately 41.9% of our outstanding shares as of May 22, 2020.

 

To our knowledge, other than the acquisition of Ordinary Shares by the CMS Stockholders in February 2019, the transfer of shares previously held by Woodford to Link Fund Solutions Ltd. (and subsequent transfer to Blackrock, Inc.) and as disclosed elsewhere in this Annual Report on Form 20-F, there has been no significant change in the percentage ownership of our Ordinary Shares held by the principal shareholders listed above in the last three years.

 

For more information on the CMS Parties, and the rights they have with respect to our Ordinary Shares, see “—B. Related Party Transactions—Agreements with the CMS Parties.”

 

B. Related Party Transactions

 

Agreement with Chesyl Pharma Limited

 

In April 2014, Midatech Limited entered into a consultancy agreement, or the Consultancy Agreement, with Chesyl Pharma Limited, or Chesyl. Chesyl is wholly owned by Mr. Rolf Stahel, our non-executive Chairman of the Board and director. The term of the Consultancy Agreement commenced on March 1, 2014, with an initial term of 12 months and continuing thereafter until terminated in accordance with its terms. Chesyl was engaged to provide management consultancy services, including support and assistance to the board of directors of Midatech Limited in relation to operational issues and the provision of advice in relation to corporate strategy, corporate activities, fund raising and mergers and acquisition opportunities, collectively the Services.

 

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Pursuant to the terms of the Consultancy Agreement, Mr. Stahel (or a similarly qualified substitute party, approved by the Midatech Limited) is obliged to procure the Services at such times and at such locations as may be reasonably necessary for 10 full working days per year. Mr. Stahel may not sub-contract these obligations. Midatech Limited will pay Chesyl £40,000 per annum for Mr. Stahel’s services (reduced from £50,000 with effect from October 1, 2017), and if engaged for any additional days, a rate of £2,000 will be paid per full working day.

 

Agreements with the CMS Parties

 

Subscription Agreement

 

On January 29, 2019, we entered into a subscription agreement with each of the CMS Stockholders to subscribe for units of our Ordinary Shares and the CMS Warrants. Pursuant to the subscription agreements, we agreed to issue 5,194,805 units to each CMS Stockholder (10,389,610 units in aggregate), with each unit comprising one Ordinary Share and one Warrant, for a purchase price of £4.0 million each (£8.0 million in the aggregate), subject to admission on AIM. The Ordinary Shares were admitted to trading on AIM on February 26, 2019.

 

CMS License Agreement

 

For information regarding the CMS License Agreement, see “Item 4. Information on the Group—B. Business Overview—Commercial Agreements, Strategic Partnerships and Collaborations—CMS License Agreement.”

 

Relationship Agreement

 

On January 29, 2019, the Company, Panmure Gordon (UK) Limited (our nominated advisor), the CMS Stockholders and certain affiliates of the CMS Stockholders, entered a Relationship Agreement, or the Relationship Agreement, in order to regulate our relationships with the CMS and its affiliated entities, collectively the CMS Parties, and to limit their influence over our corporate actions and activities and the outcome of general matters pertaining to the Group. The Relationship Agreement was effective from February 26, 2019. The Relationship Agreement was subsequently amended on May 12, 2020.

 

Pursuant to the terms of the Relationship Agreement, the CMS Parties have agreed to (amongst other things):

 

· conduct all transactions with us on an arm’s length terms and on a normal commercial basis, including in accordance with the related party rules set out in the AIM Rules and any other applicable laws, regulations and stock exchange rules, and only with the prior approval of a majority of independent directors;

 

· exercise their voting rights or other rights and powers so as to ensure that each member of their respective Groups is capable of carrying on its business and making decisions independently of each of the CMS Parties (and any of their group companies and associates);

 

· abstain from voting in respect of any resolution concerning any contract, arrangement or transaction with a related party of each of the CMS Parties (or any of their associates); and

 

· vote, at a general meeting or when an election is required, their shares in the same manner and proportion as all other Ordinary Shares are voted by shareholders other than the CMS Parties.

 

We further agreed to conduct all transactions, agreements and relationships (whether contractual or otherwise) with the CMS Parties (and any of their group companies and associates) on arm’s length terms and on a normal commercial basis and in accordance with the related party rules set out in the AIM Rules.

 

The Relationship Agreement provides that any respective dispute between the Company and the CMS Parties and/or any of their respective associates relating to any existing or proposed transaction, arrangement or agreement between each of CMS Parties (or any of their associates) and the Company shall be resolved by a decision of the majority of independent directors.

 

The obligations of the parties under the Relationship Agreement shall automatically terminate upon:

 

· the CMS Parties (or any of their associates) ceasing to beneficially hold 10%, in aggregate, of our issued Ordinary Shares; or

 

· the Ordinary Shares ceasing to be admitted to AIM.

 

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Warrant Instrument

 

The CMS Stockholders were issued the CMS Warrants pursuant to a warrant instrument entered into by way of deed poll, or the Warrant Instrument, by the Company dated January 29, 2019, under which we agreed to issue up to an aggregate of 17,410,773 warrants to purchase our Ordinary Shares. Of this amount, and in connection with the Subscription Agreement, we issued an aggregate of 10,389,610 warrants to the CMS Stockholders.

 

Each warrant confers the right to subscribe for one Ordinary Share. The warrants are freely transferable. Each warrant is exercisable for cash at a price of £10.00 per share, subject to the terms and conditions described in the Warrant Instrument, or the Warrant Exercise Price, during the period commencing on August 26, 2019 and until August 26, 2022, or the Subscription Period.

 

The Warrant Instrument contains customary provisions for adjustments to the Warrant Exercise Price in certain circumstances, including if, prior to the end of the Subscription Period, there shall occur any reorganization, recapitalization, consolidation or subdivision, involving the Company.

 

Lock-In Deed

 

Lock-in and orderly market agreements dated January 29, 2019 have been entered into between the Company, the CMS Stockholders and Panmure Gordon (UK), pursuant to which the CMS Stockholders have undertaken to the Company and Panmure Gordon (UK) (subject to certain limited exceptions including by way of acceptance of a recommended takeover offer for the entire issued share capital of the Company), not to dispose of the Ordinary Shares held by them following their acquisition or any other securities in exchange for or convertible into, or substantially similar to, new Ordinary Shares (or any interest in them or in respect of them) at any time prior to the twelve month anniversary of February 26, 2019.

 

Furthermore, the CMS Stockholders have also undertaken to the Company and Panmure Gordon (UK) not to dispose of their Ordinary Shares for a further twelve months following the expiry of such period otherwise than through our broker with a view to maintaining an orderly market.

 

Deed of Indemnity

 

We have entered into a Deed of Indemnity for the benefit of our Board of Directors and Company Secretary. For more information, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Deed of Indemnity.”

 

Agreements with Directors and Senior Management

 

We have entered into certain agreements with directors and our senior management related to their service on our Board of Directors or employment with the Company. For more information, see “Item 6. Directors, Senior Management and Employees.”

 

Share Acquisitions by Related Parties

 

Since January 1, 2019, we have engaged in the following transactions with our directors, senior management or holders of 10% or more of our Ordinary Shares, or affiliates of our directors, senior management or holders of more than 10% of our Ordinary Shares that are required to be described in this annual report pursuant to Item 7.B. of Form 20-F.

 

In February 2019, we completed a subscription, placement and open offer of units (each unit consisting of one Ordinary Share and one warrant to acquire Ordinary Shares, or the 2019 Units) to investors at purchase price of £0.77 per 2019 Unit. In connection with such subscription, placement and open offer:

 

· the CMS Stockholders acquired an aggregate of 10,389,610 2019 Units, equal to 10,389,610 Ordinary Shares and warrants to acquire an additional aggregate of 10,389,610 Ordinary Shares, for an aggregate purchase price of £8.0 million. Immediately following this transaction, and before the exercise of any CMS Warrants, the CMS Stockholders owned approximately 50.8% of our outstanding Ordinary Shares;

 

· Woodford acquired 3,287,029 2019 Units, equal to 3,287,029 Ordinary Shares and, due to certain threshold limits applicable to the investor, warrants to acquire up to 1,568,577 Ordinary Shares, for an aggregate purchase price of approximately £2.5 million; and

 

· certain of our directors and senior management purchased an aggregate of 92,989 2019 Units, equal to 92,989 Ordinary Shares and warrants to acquire 92,989 Ordinary Shares, for an aggregate purchase price of £71,602.

 

C. Interests of Experts and Counsel

 

Not Applicable

 

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ITEM 8. FINANCIAL INFORMATION.

 

A. Consolidated Statements and Other Financial Information

 

See “Item 18. Financial Statements.”

 

Legal Proceedings

 

For more information, see “Information on the Group—B. Business Overview—Legal Proceedings”.

 

Dividend Policy

 

We have never declared or paid any cash dividends on our shares, and have no present intention of declaring or paying any dividends in the foreseeable future. We may, by ordinary resolution, declare a dividend to be paid to the share owners according to their respective rights and interests in profits, and may fix the time for payment of such dividend. No dividend may be declared in excess of the amount recommended by the directors. The directors may from time to time declare and pay to our share owners such interim dividends as appear to the directors to be justified by our profits available for distribution. There are no fixed dates on which entitlement to dividends arises on our Ordinary Shares.

 

The share owners may pass, on the recommendation of the directors, an ordinary resolution to direct that all or any part of a dividend to be paid by distributing specific assets, in particular paid up shares or debentures of any other body corporate. The articles also permit, with the prior authority of an ordinary resolution of shareholders, a scrip dividend scheme under which share owners may be given the opportunity to elect to receive fully paid Ordinary Shares instead of cash, or a combination of shares and cash, with respect to future dividends.

 

By the way of the exercise of a lien, if a share owner owes any money to the Company relating in any way to shares, the Board of Directors may deduct any of this money from any dividend on any shares held by the share owner, or from other money payable by the Company in respect of the shares. Money deducted in this way may be used to pay the amount owed to the Company.

 

Unclaimed dividends and other money payable in respect of a share can be invested or otherwise used by directors for the benefit of the Company until they are claimed. A dividend or other money remaining unclaimed 12 years after it first became due for payment will be forfeited and shall revert to the Company.

 

All of the shares represented by the Depositary Shares have the same dividend rights as all of our other outstanding shares.

  

B. Significant Changes

 

Other than the information set forth herein, there have been no significant changes since December 31, 2019.

 

ITEM 9. THE OFFER AND LISTING.

 

A. Offer and Listing Details.

 

Our Ordinary Shares are listed on AIM under the symbol “MTPH” and the Depositary Shares are listed on the NASDAQ Capital Market under the symbol “MTP.”

 

B. Plan of Distribution

 

Not applicable.

 

C. Markets

 

Our Ordinary Shares are listed on AIM under the symbol “MTPH” and the Depositary Shares are listed on the NASDAQ Capital Market under the symbol “MTP.”

 

D. Seller Shareholders

 

Not applicable.

 

E. Dilution

 

Not applicable.

 

F. Expenses of the Issue

 

Not applicable.

 

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ITEM 10. ADDITIONAL INFORMATION.

 

A. Share Capital

 

Not applicable.

 

B. Memorandum and Articles of Association

 

We incorporate by reference into this annual report the description of our articles of association contained in its Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended.

 

C. Material Contracts

 

Except as otherwise disclosed in this annual report, we are not currently, and have not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of business.

 

D. Exchange Controls

 

Other than certain economic sanctions which may in place from time to time, there are currently no United Kingdom laws, decrees or regulations restricting the import or export of capital or affecting the remittance of dividends or other payment to holders of Ordinary Shares who are non-residents of the United Kingdom. Similarly, other than certain economic sanctions which may be in force from time to time, there are no limitations relating only to non-residents of the United Kingdom under English law or our articles of association on the right to be a holder of, and to vote in respect of, the Ordinary Shares.

 

E. Taxation

 

Certain United Kingdom Taxation Considerations

 

The following is a general summary of certain United Kingdom tax considerations relating to the ownership and disposal of our Ordinary Shares or Depositary Shares and does not address all possible tax consequences relating to an investment in our Ordinary Shares or Depositary Shares. It is based on United Kingdom tax law and generally published Her Majesty’s Revenue & Customs, or HMRC, practice as of the date of this Annual Report, both of which are subject to change, possibly with retrospective effect. A United Kingdom tax year runs from April 6th in any year to April 5th in the following year.

 

Save as provided otherwise, this summary applies only to a person who is the absolute beneficial owner of our Ordinary Shares or Depositary Shares and who is resident (and, in the case of an individual, domiciled) in the United Kingdom for tax purposes and who is not resident for tax purposes in any other jurisdiction and does not have a permanent establishment or fixed base in any other jurisdiction with which the holding of our Ordinary Shares or Depositary Shares is connected, or a U.K. Holder. A person who is not a U.K. Holder, including a person (a) who is not resident (or, if resident, is not domiciled) in the United Kingdom for tax purposes, including an individual and company who trades in the United Kingdom through a branch, agency or permanent establishment in the United Kingdom to which an Ordinary Share or Depositary Share is attributable, or (b) who is resident or otherwise subject to tax in a jurisdiction outside the United Kingdom, is recommended to seek the advice of professional advisors in relation to their taxation obligations.

 

This summary is for general information only and is not intended to be, nor should it be considered to be, legal or tax advice to any particular investor. It does not address all of the tax considerations that may be relevant to specific investors in light of their particular circumstances or to investors subject to special treatment under United Kingdom tax law. In particular this summary:

 

· only applies to an absolute beneficial owner of Ordinary Shares or Depositary Shares and any dividend paid in respect of that Ordinary Share where the dividend is regarded for United Kingdom tax purposes as that person’s own income (and not the income of some other person); and

 

· (a) only addresses the principal United Kingdom tax consequences for an investor who holds Ordinary Shares or Depositary Shares as a capital asset, (b) does not address the tax consequences that may be relevant to certain special classes of investor such as a dealer, broker or trader in shares or securities and any other person who holds Ordinary Shares or Depositary Shares otherwise than as an investment, (c) does not address the tax consequences for a holder that is a financial institution, insurance company, collective investment scheme, pension scheme, charity or tax-exempt organization, (d) assumes that a holder is not an officer or employee of the company (nor of any related company) and has not (and is not deemed to have) acquired the Ordinary Shares or Depositary Shares by virtue of an office or employment, and (e) assumes that a holder does not control or hold (and is not deemed to control or hold), either alone or together with one or more associated or connected persons, directly or indirectly (including through the holding of Depositary Shares), an interest of 10% or more in the issued share capital (or in any class thereof), voting power, rights to profits or capital of the company, and is not otherwise connected with the company.

 

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This summary further assumes that a holder of Depositary Shares is the beneficial owner of the underlying Ordinary Shares for United Kingdom direct tax purposes.

 

POTENTIAL INVESTORS IN THE DEPOSITARY SHARES SHOULD SATISFY THEMSELVES PRIOR TO INVESTING AS TO THE OVERALL TAX CONSEQUENCES, INCLUDING, SPECIFICALLY, THE CONSEQUENCES UNDER UNITED KINGDOM TAX LAW AND HMRC PRACTICE OF THE ACQUISITION, OWNERSHIP AND DISPOSAL OF THE ORDINARY SHARES OR DEPOSITARY SHARES, IN THEIR OWN PARTICULAR CIRCUMSTANCES BY CONSULTING THEIR OWN TAX ADVISERS.

 

Taxation of Dividends

 

Withholding Tax.      A dividend payment in respect of an Ordinary Share may be made without withholding or deduction for or on account of United Kingdom tax.

 

Income Tax. An individual holder of Ordinary Shares or Depositary Shares who is not a U.K. Holder will not be chargeable to United Kingdom income tax on a dividend paid by the Company, unless such holder carries on (whether solely or in partnership) a trade, profession or vocation in the United Kingdom through a branch or agency in the United Kingdom to which the Ordinary Shares or Depositary Shares are attributable. In these circumstances, such holder may, depending on his or her individual circumstances, be chargeable to United Kingdom income tax on a dividend received from the Company.

 

A dividend received by individual U.K. Holders will be subject to United Kingdom income tax. The rate of United Kingdom income tax that is chargeable on dividends received in the tax year 2020/2021 by an individual U.K. Holder who is (i) an additional rate taxpayer is 38.1%, (ii) a higher rate taxpayer is 32.5%, and (iii) a basic rate taxpayer is 7.5%. An individual U.K. Holder may be entitled to a tax-free dividend allowance (in addition to their personal allowance) of £2,000 for the tax year 2020/2021. This means that the relevant individual does not need to pay United Kingdom income tax on their first £2,000 of dividend income received. Dividends within the dividend allowance will still count towards the relevant individual's basic, higher or additional rate bands however. An individual’s dividend income is treated as the top slice of their total income that is chargeable to United Kingdom income tax. Dividends which are covered by an individual’s personal income tax allowance do not count towards and are ignored for the dividend allowance.

 

Corporation Tax. A U.K. Holder within the charge to United Kingdom corporation tax may be entitled to exemption from United Kingdom corporation tax in respect of dividend payments in respect of an Ordinary Share. If the conditions for the exemption are not satisfied or such U.K. Holder elects for an otherwise exempt dividend to be taxable, United Kingdom corporation tax will be chargeable on the dividend. The rate of United Kingdom corporation tax is currently 19%. If potential investors are in any doubt as to their position, they should consult their own professional advisers.

 

A corporate holder of Ordinary Shares or Depositary Shares that is not a U.K. Holder will not be subject to United Kingdom corporation tax on a dividend received from the company, unless it carries on a trade in the United Kingdom through a permanent establishment to which the Ordinary Shares or Depositary Shares are attributable. In these circumstances, such holder may, depending on its individual circumstances and if the exemption from United Kingdom corporation tax discussed above does not apply, be chargeable to United Kingdom corporation tax on dividends received from the Company.

 

Taxation of Disposals

 

U.K. Holders. A disposal or deemed disposal of Ordinary Shares or Depositary Shares by an individual U.K. Holder may, depending on his or her individual circumstances, give rise to a chargeable gain or to an allowable loss for the purpose of United Kingdom capital gains tax. The principal factors that will determine the capital gains tax position on a disposal of Ordinary Shares or Depositary Shares are the extent to which the holder realizes any other capital gains in the tax year in which the disposal is made, the extent to which the holder has incurred capital losses in that or any earlier tax year and the level at which the annual exempt amount for United Kingdom capital gains tax (the “annual exempt amount”) is set by the United Kingdom government for that tax year. The annual exempt amount for the 2020/2021 tax year is £12,300. If, after all allowable deductions, an individual U.K. Holder’s total taxable income for the relevant tax year exceeds the basic rate income tax limit, a taxable capital gain accruing on a disposal of an Ordinary Share or a Depositary Shares is taxed at the rate of 20%. In other cases, a taxable capital gain accruing on a disposal of our Ordinary Shares or Depositary Shares may be taxed at the rate of 10% or the rate of 20% or at a combination of both rates.

 

An individual U.K. Holder who ceases to be resident in the United Kingdom (or who fails to be regarded as resident in a territory outside the United Kingdom for the purposes of double taxation relief) for a period of less than five calendar years and who disposes of Ordinary Shares or Depositary Shares during that period of temporary non-United Kingdom residence may be liable to United Kingdom capital gains tax on a chargeable gain accruing on such disposal on his or her return to the United Kingdom (or upon ceasing to be regarded as resident outside the United Kingdom for the purposes of double taxation relief) (subject to available exemptions or reliefs).

 

A disposal (or deemed disposal) of Ordinary Shares or Depositary Shares by a corporate U.K. Holder may give rise to a chargeable gain or an allowable loss for such holder for the purpose of United Kingdom corporation tax. Such a holder should be entitled to an indexation allowance, which applies to reduce a capital gain to the extent that such a gain arises due to inflation. The allowance may reduce a chargeable gain but will not create or increase an allowable loss. The indexation allowance was frozen with effect from December 31, 2017, such that for disposals on or after January 1, 2018, the indexation allowance figure only covers the movement in the "retail price index" to December 31, 2017.

 

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Any gain or loss in respect of currency fluctuations over the period of holding Ordinary Shares or Depositary Shares is also brought into account on a disposal.

 

Non-U.K. Holders. An individual holder who is not a U.K. Holder will not be liable to United Kingdom capital gains tax on capital gains realized on the disposal of Ordinary Shares or Depositary Shares unless such holder carries on (whether solely or in partnership) a trade, profession or vocation in the U.K. through a branch or agency in the United Kingdom to which the Ordinary Shares or Depositary Shares are attributable. In these circumstances, such holder may, depending on his or her individual circumstances, be chargeable to United Kingdom capital gains tax on chargeable gains arising from a disposal of his or her Ordinary Shares or Depositary Shares.

 

A corporate holder of Ordinary Shares or Depositary Shares that is not a U.K. Holder will not be liable for United Kingdom corporation tax on chargeable gains realized on the disposal of Ordinary Shares or Depositary Shares unless it carries on a trade in the United Kingdom through a permanent establishment to which the Ordinary Shares or Depositary Shares are attributable. In these circumstances, a disposal (or deemed disposal) of Ordinary Shares or Depositary Shares by such holder may give rise to a chargeable gain or an allowable loss for the purposes of United Kingdom corporation tax.

 

Inheritance Tax

 

If for the purposes of the Double Taxation Relief (Taxes on Estates of Deceased Persons and on Gifts) Treaty United States of America Order 1979 (SI 1979/1454) between the United States and the United Kingdom an individual holder is at the time of their death or a transfer made during their lifetime, domiciled in the United States and is not a national of the United Kingdom, any Ordinary Shares or Depositary Shares beneficially owned by that holder should not generally be subject to United Kingdom inheritance tax, provided that any applicable United States federal gift or estate tax liability is paid, except where (i) the Ordinary Shares or Depositary Shares are part of the business property of a United Kingdom permanent establishment or pertains to a United Kingdom fixed base used for the performance of independent personal services; or (ii) the Ordinary Shares or Depositary Shares are comprised in a settlement unless, at the time the settlement was made, the settlor was domiciled in the United States and not a national of the United Kingdom (in which case no charge to United Kingdom inheritance tax should apply).

 

Stamp Duty and Stamp Duty Reserve Tax

 

The United Kingdom stamp duty, or stamp duty, and United Kingdom stamp duty reserve tax, or SDRT, treatment of the issue and transfer of, and the agreement to transfer, an ordinary share outside a depositary receipt system or a clearance service is discussed in the paragraphs under “General” below. The stamp duty and SDRT treatment of such transactions in relation to such systems is discussed in the paragraphs under “Depositary Receipt Systems and Clearance Services” below.

 

General

 

An agreement to transfer an ordinary share would normally give rise to a charge to SDRT at the rate of 0.5% of the amount or value of the consideration payable for the transfer. SDRT is, in general, payable by the purchaser. However, since April 28, 2014, no SDRT or stamp duty is chargeable in respect of shares that are admitted to trading on a ‘recognized growth market’ and not listed on any ‘recognized stock exchange’, or the AIM Exemption. As our Ordinary Shares are admitted to trading on AIM (which qualifies as a ‘recognized growth market’) and not listed on any market that would qualify as a ‘recognized stock exchange,’ a transfer of an ordinary share is presently exempt from the charge to SDRT.

 

Subject to the above noted AIM Exemption, a transfer of an Ordinary Share would be subject to stamp duty at the rate of 0.5% of the consideration given for the transfer (rounded up to the next £5). The purchaser is liable to HMRC for the payment of the stamp duty (if any). Under current HMRC guidance, no stamp duty should be payable on a written instrument transferring a Depositary Share or on a written agreement to transfer a Depositary Share, on the basis that the Depositary Share is not regarded as either “stock” or a “marketable security” for United Kingdom stamp duty purposes.

 

If a duly stamped transfer completing an agreement to transfer is produced within six years of the date on which the agreement is made (or, if the agreement is conditional, the date on which the agreement becomes unconditional) any SDRT already paid is generally repayable, normally with interest, and any SDRT charge yet to be paid is canceled to avoid a double charge as the stamp duty has been paid.

 

Depositary Receipt Systems and Clearance Services

 

The Court of Justice of the European Union in C-569/07 HSBC Holdings Plc, Vidacos Nominees Limited v The Commissioners of Her Majesty’s Revenue & Customs and the First-tier Tax Tribunal decision in HSBC Holdings Plc and the Bank of New York Mellon Corporation v The Commissioners of Her Majesty’s Revenue & Customs, have considered the provisions of the European Union Council Directive 69/335/EEC, which was subsequently substituted by the European Union Council Directive 2008/7/EEC, or the E.U. Directives. Following these decisions HMRC has publicly confirmed that issues or transfers of shares of United Kingdom incorporated companies, such as us, to a clearance service (such as, in our understanding, DTC) or a depositary receipt system will not be charged to United Kingdom SDRT at 1.5% where that issue or transfer is an integral part of a raising of new capital.

 

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It was announced as part of the United Kingdom Budget 2017 by the United Kingdom government that the 1.5% stamp duty and SDRT charge will not be enforced on the issue of shares by United Kingdom incorporated companies (and transfers of such shares where the transfer is integral to new capital raising) into clearance services and depositary receipt systems following Brexit. However, following Brexit, the United Kingdom government could potentially introduce new United Kingdom legislation with the effect that a future issue or transfer of our ordinary shares following (i) Brexit and (ii) any such change of United Kingdom law into a clearance service or depositary receipt system (even where such an issue or transfer is an integral part of the raising of new capital by the company) may potentially become chargeable to 1.5% stamp duty or SDRT. However, as long as the company’s ordinary shares continue to be admitted to trading on AIM and not to be listed on any market that would qualify as a ‘recognized stock exchange,’ it is our understanding that the AIM Exemption should continue to exempt future issues and transfers of the company’s ordinary shares into clearance services or depositary receipt systems from any 1.5% stamp duty and SDRT charge, including following a Brexit event.

 

Subject to the AIM exemption, where an ordinary share is transferred (i) to, or to a nominee for, a person whose business is or includes the provision of clearance services or (ii) to, or to a nominee for a person whose business is or includes issuing depositary receipts and that transfer is not integral to the raising of new capital by the company, stamp duty or SDRT would generally be chargeable at the rate of 1.5% of the amount or value of the consideration given or, in certain circumstances, the value of the shares.

 

There is an exception from the 1.5% charge on the transfer to, or to a nominee , a clearance service where the clearance service has made and maintained an election under section 97A(1) of the Finance Act 1986, which has been approved by HMRC. If such an election were made by a clearance service, subject to the AIM exemption, SDRT at the rate of 0.5% of the amount or value of the consideration payable for the transfer would arise on any transfer of an ordinary share into such a clearance service and on subsequent agreements to transfer such share within such clearance service. It is our understanding that DTC has not to date made an election under section 97A(1) of the Finance Act of 1986.

 

Any liability for stamp duty or SDRT in respect of a transfer into a clearance service or depositary receipt system, or in respect of a transfer within such a service, which does arise, will strictly be accountable to HMRC by the clearance service or depositary receipt system operator or their nominee, as the case may be, but will, in practice, be payable by the participants in the clearance service or depositary receipt system.

 

The Proposed Financial Transactions Tax

 

The European Commission has published a proposal for a Directive for a Common Financial Transactions Tax (“FTT”) in Belgium, Germany, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (described below as the “participating Member States”).

 

The proposed FTT has very broad scope and could, if introduced in its current form, apply to certain dealings in Ordinary Shares (including secondary market transactions) in certain circumstances.

 

Under current proposals, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Company's Ordinary Shares where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (i) by transacting with a person established in a participating Member State or (ii) where the financial instrument which is subject to the dealings is issued in participating Member State.

 

The FTT proposal remains subject to negotiation between the participating Member States. Further, the legality of the FTT proposal is at present uncertain. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional European Union Member States may decide to participate. The FTT proposal remains only a proposal and little progress has been made in recent years; the impact of an FTT on us and holders of our Ordinary Shares and Depositary Shares is made more uncertain following the United Kingdom’s decision to withdraw from the European Union. Prospective holders of Ordinary Shares or Depositary Shares are advised to seek their own professional advice in relation to the FTT.

 

Certain United States Taxation Considerations

 

The following is a summary of material United States federal income tax consequences of the ownership and disposition of Depositary Shares by United States holders (as defined below). This summary is for general information only and is not tax advice. Each investor should consult its tax advisor with respect to the tax consequences of the ownership and disposition of our securities, including the impact of the recently enacted Tax Cut Act.

 

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This summary is based on provisions of the Internal Revenue Code of 1986, as amended, or the Code, United States Treasury regulations promulgated thereunder (whether final, temporary, or proposed), administrative rulings, and judicial interpretations thereof, and the Convention Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains of 2001, as amended, or the United States-U.K. Treaty, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.

 

For purposes of this discussion, the term “United States holder” means a holder of our Ordinary Shares or Depositary Shares that is, for United States federal income tax purposes:

 

· an individual who is a citizen or resident of the United States;

 

· a corporation or other entity taxable as a corporation that is created or organized in the United States or under the laws of the United States or any state thereof or the District of Columbia;

 

· an estate the income of which is subject to United States federal income taxation regardless of its source; or

 

· any trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or (b) such trust has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

 

This summary addresses only the United States federal income tax considerations for United States holders that acquire and hold the Depositary Shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of United States federal income taxation that may be relevant to a holder in light of its particular circumstances, or that may apply to holders that are subject to special treatment under the United States federal income tax laws (including, for example, banks, financial institutions, underwriters, insurance companies, dealers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting for their securities, persons subject to the alternative minimum tax, persons that have a functional currency other than the United States dollar, tax-exempt organizations (including private foundations), mutual funds, subchapter S corporations, partnerships or other pass-through entities for United States federal income tax purposes, certain expatriates, corporations that accumulate earnings to avoid United States federal income tax, persons who hold Depositary Shares as part of a hedge, straddle, constructive sale, conversion or other integrated transaction, persons who acquire Depositary Shares through the exercise of options or other compensation arrangements, persons who own (or are treated as owning) 10% or more of our outstanding voting stock, or persons who are not United States holders). In addition, this discussion does not address any aspect of state, local, foreign, estate, gift or other tax law that may apply to holders of Depositary Shares.

 

The United States federal income tax treatment of a partner in a partnership (including any entity or arrangement treated as a partnership for United States federal income tax purposes) generally will depend on the status of the partner and the activities of the partnership. A partner in such a partnership should consult its tax advisor regarding the associated tax consequences.

 

Consequences Relating to Ownership and Disposition of Depositary Shares

 

Ownership of Depositary Shares. For United States federal income tax purposes, a holder of Depositary Shares will generally be treated as if such holder directly owned the ordinary shares represented by such Depositary Shares.

 

Distributions on Depositary Shares. Subject to the discussion below under Passive Foreign Investment Company Rules,” the gross amount of any distribution on Depositary Shares (including withheld taxes, if any) made out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) will generally be taxable to a United States holder as dividend income on the date such distribution is actually or constructively received. Any such dividends paid to corporate United States holders generally will not qualify for the dividends received deduction that may otherwise be allowed under the Code. Distributions in excess of our current and accumulated earnings and profits would generally be treated first as a non-taxable return of capital to the extent of the United States holder’s basis in the Depositary Shares, and thereafter as capital gain. However, since we do not calculate our earnings and profits under United States federal income tax principles, it is expected that any distribution on Depositary Shares will be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

 

Dividends paid in currencies other than the United States dollar, if any, will generally be taxable to a United States holder as ordinary dividend income in an amount equal to the United States dollar value of the currency received on the date such distribution is actually or constructively received. Such United States dollar value must be determined using the spot rate of exchange on such date, regardless of whether the non-United States currency is actually converted into United States dollars on such date. The United States holder may realize exchange gain or loss if the currency received is converted into United States dollars after the date on which it is actually or constructively received. In general, any such gain or loss will be ordinary and will be treated as from sources within the United States for United States foreign tax credit purposes.

 

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Subject to the discussion below under 3.8% Medicare Tax on Net Investment Income,” dividends received by certain non-corporate United States holders (including individuals) from a “qualified foreign corporation” may be eligible for reduced rates of taxation, currently at a maximum rate of 20%, provided that certain holding period requirements and other conditions are satisfied. For these purposes, a foreign corporation will generally be treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that the Depositary Shares, which are listed on the NASDAQ Capital Market, would be considered readily tradable on an established securities market in the United States. However, there can be no assurance that the Depositary Shares will be considered readily tradable on an established securities market in future years. A foreign corporation is also treated as a qualified foreign corporation if it is eligible for the benefits of a comprehensive income tax treaty with the United States which is determined by the United States Treasury Department to be satisfactory for purposes of these rules and which includes an exchange of information provision. The United States Treasury Department has determined that the United States-U.K. Treaty meets these requirements. We would not constitute a qualified foreign corporation for purposes of these rules if we are a passive foreign investment company for the taxable year in which we pay a dividend or for the preceding taxable year, as discussed below under “—Passive Foreign Investment Company Rules.”

 

Subject to certain conditions and limitations, non-United States taxes, if any, withheld on dividends paid by the Company may be treated as foreign taxes eligible for a credit against a United States holder’s United States federal income tax liability under the United States foreign tax credit rules. The rules governing the United States foreign tax credit are complex, and United States holders should consult their tax advisors regarding the availability of the United States foreign tax credit under their particular circumstances.

 

Sale of Depositary Shares

 

A United States holder will generally recognize gain or loss on any sale, exchange, redemption, or other taxable disposition of Depositary Shares in an amount equal to the difference between the amount realized on the disposition and such holder’s tax basis in such securities. Subject to the discussion below under “—Passive Foreign Investment Company Rules,” any gain or loss recognized by a United States holder on a taxable disposition of Depositary Shares will generally be capital gain or loss and will be long-term capital gain or loss if the holder’s holding period in such share exceeds one year at the time of the disposition. The deductibility of capital losses is subject to limitations.

 

For a cash basis taxpayer, units of foreign currency received will generally be translated into United States dollars at the spot rate on the settlement date of the sale. In that case, no foreign currency exchange gain or loss will result from currency fluctuations between the trade date and the settlement date of such sale. An accrual basis taxpayer may elect to apply the same rules applicable to cash basis taxpayers with respect to the sale of Depositary Receipts that are traded on an established securities market, provided that the election must be applied consistently from year to year and cannot be changed without the consent of the IRS. For an accrual method taxpayer who does not make such an election, units of foreign currency received will generally be translated into United States dollars at the spot rate on the trade date of the sale. Such an accrual basis taxpayer may recognize foreign currency exchange gain or loss based on currency fluctuations between the trade date and the settlement date of such sale. In general, any such gain or loss will be ordinary and will be treated as from sources within the United States for United States foreign tax credit purposes.

 

Passive Foreign Investment Company Rules

 

A foreign corporation is a PFIC if either (1) 75% or more of its gross income for the taxable year is passive income or (2) the average percentage of assets held by such corporation during the taxable year that produce passive income or that are held for the production of passive income is at least 50%. For purposes of applying the tests in the preceding sentence, the foreign corporation is deemed to own its proportionate share of the assets, and to receive directly its proportionate share of the income, of any other corporation of which the foreign corporation owns, directly or indirectly, at least 25% by value of the stock.

 

Based upon estimates with respect to its income, assets, and operations, it is expected that we will not be a PFIC for the current taxable year. However, because the determination of PFIC status must be made on an annual basis after the end of the taxable year and will depend on the composition of the income and assets, as well as the nature of the activities, of our activities and those of our subsidiaries from time to time, there can be no assurance that we will not be considered a PFIC for any taxable year.

 

If we were to be classified as a PFIC for any taxable year in which a United States holder held the Depositary Shares, various adverse United States tax consequences could result to such United States holders, including taxation of gain on a sale or other disposition of the shares of the corporation, Depositary Shares at ordinary income rates and imposition of an interest charge on gain or on distributions with respect to the shares, Depositary Shares. Unless a United States holder of PFIC shares elects, in either case if eligible, to be taxed annually on a mark-to-market basis or makes a QEF election and certain other requirements are met, gain realized on the sale or other disposition of PFIC shares would generally not be treated as capital gain. Instead, the United States holder would be treated as if the United States holder had realized such gain ratably over the holder’s holding period for such securities. The amounts allocated to the taxable year of sale or other disposition and to any year before the foreign corporation became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for such year, together with an interest charge in respect of the tax attributable to each such year. Similar rules apply to the extent any distribution in respect of PFIC shares exceeds 125% of the average annual distribution on such PFIC securities received by the shareholder during the preceding three years or holding period, whichever is shorter. With certain exceptions, a foreign corporation is treated as a PFIC with respect to a shareholder (or warrant holder, as applicable) if the corporation was a PFIC with respect to such holder at any time during the holder’s holding period of the foreign corporation’s stock or warrants. Dividends paid to with respect to shares of a PFIC are not eligible for the special tax rates applicable to qualified dividend income of certain non-corporate holders. Instead, such dividend income is taxable at rates applicable to ordinary income.

 

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If we were to be treated as a PFIC, the tax consequences described above could be avoided by a “mark-to-market” election with respect to the Depositary Shares. A United States holder making a “mark-to-market” election (assuming the requirements for such an election are satisfied) generally would (i) be required to include as ordinary income the excess of the fair market value of the Depositary Shares on the last day of the United States holder’s taxable year over the United States holder’s adjusted tax basis in such Depositary Shares and (ii) be allowed a deduction in an amount equal to the lesser of (A) the excess, if any, of the United States holder’s adjusted tax basis in the Depositary Shares over the fair market value of such Depositary Shares on the last day of the United States holder’s taxable year or (B) the excess, if any, of the amount included in income because of the election for prior taxable years over the amount allowed as a deduction because of the election for prior taxable years. In addition, upon a sale or other taxable disposition of Depositary Shares, a United States holder would recognize ordinary income or loss (which loss could not be in excess of the amount included in income because of the election for prior taxable years over the amount allowed as a deduction because of the election for prior taxable years). We do not intend to prepare or provide the information necessary for United States shareholders to make a QEF election.

 

United States holders are urged to consult their own tax advisors about the PFIC rules, including the availability of the “mark-to-market” election.

 

3.8% Medicare Tax on “Net Investment Income”

 

A 3.8% tax, or “Medicare Tax,” is imposed on all or a portion of “net investment income,” which may include any gain realized or amounts received with respect to Depositary Shares received by (i) United States holders that are individuals with modified adjusted gross income in excess of certain thresholds, and (ii) certain estates and trusts. United States holders should consult their own tax advisors with respect to the applicability of the Medicare Tax resulting from ownership or disposition of Depositary Shares.

 

Information Reporting and Backup Withholding

 

United States holders may be subject to information reporting requirements and may be subject to backup withholding with respect to dividends on Depositary Shares and on the proceeds from the sale, exchange, or disposition of Depositary Shares unless the United States holder provides an accurate taxpayer identification number and complies with certain certification procedures or otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax and amounts withheld may be allowed as a credit against the United States holder’s United States federal income tax liability and may entitle the United States holder to a refund, provided that certain required information is timely furnished to the IRS.

 

Foreign Asset Reporting

 

United States holders who are individuals and who own “specified foreign financial assets” with an aggregate value in excess of $50,000 are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. “Specified foreign financial assets” include securities issued by a non-United States issuer (which would include an investment in our securities) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Individuals who fail to report the required information could be subject to substantial penalties, and such individuals should consult their own tax advisors concerning the application of these rules to their investment in Depositary Shares.

 

F. Dividends and Payment Agents

 

Not applicable.

 

G. Statements by Experts

 

Not applicable.

 

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H. Documents on Display

 

We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. The SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

 

We also make available on our website, free of charge, our annual report and the text of its reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is “www.midatechpharma.com.” The information contained on our website is not incorporated by reference in this annual report.

 

I. Subsidiary Information

 

Not applicable.

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are exposed to a variety of financial risks, including, but not limited to, market risk (including foreign exchange and interest rate risks), credit risks, and liquidity risks. Our overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on its financial performance.

  

Credit Risk

 

Credit risk is the risk of financial loss to the Group if a development partner or counterparty to a financial instrument fails to meet its contractual obligations. We are mainly exposed to credit risk from amounts due from collaborative partners which are deemed to be low.

 

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with high credit status are accepted.

 

We do not enter into derivatives to manage credit risk.

 

The total exposure to credit risk of the Group is equal to the total value of the financial assets held at year end. The consolidated entity recognizes a loss allowance for expected credit losses on financial assets which are either measured at amortized cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

 

Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognized is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognized within other comprehensive income. In all other cases, the loss allowance is recognized in profit or loss.

 

Cash in Bank

 

We are continually reviewing the credit risk associated with holding money on deposit in banks and seek to mitigate this risk by holding deposits with banks with high credit status.

  

Foreign Exchange Risk

 

Foreign exchange risk arises because we have a material operation located in Bilbao, Spain, whose functional currency is not the same as our functional currency. Due to significant currency fluctuations during the years ended December 31, 2019, 2018 and 2017, particularly in respect of British pounds sterling against the Euro, our foreign exchange risk was significant. Our net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into British pounds sterling. Given the levels of materiality, and despite this historical volatility, we do not hedge our net investments in overseas operations as the cost of doing so is disproportionate to the exposure.

 

Foreign exchange risk also arises when our individual entities enter into transactions denominated in a currency other than our functional currency. Our transactions outside the United Kingdom to Europe drive foreign exchange movements where suppliers invoice in currency other than British pounds sterling. These transactions are not hedged because the cost of doing so is disproportionate to the risk.

 

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 Liquidity Risk

 

Liquidity risk arises from our management of working capital. It is the risk that we will encounter difficulty in meeting our financial obligations as they fall due.

 

It is our aim to settle balances as they become due.

 

In February 2019, we completed a Subscription, Placing and Open Offer which raised gross proceeds of £13.4 million. In October 2019, we completed a registered direct offering and concurrent private placement in the United States which raised gross proceeds of £2.4 million. In May 2020, we completed a registered direct offering and concurrent private placement in the United States which raised gross proceeds of $3.0 million and a placing in the United Kingdom which raised gross proceeds of £1.8 million. We have prepared cash flow forecasts and considered the cash flow requirement for our next five years, including the period twelve months from the date of the approval of the financial statements. These forecasts show that further financing will be required during the course of the next 12 months, assuming, inter alia, that certain development programs and other operating activities continue as currently planned.  This requirement for additional financing represents a material uncertainty that raises substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2019 with respect to this uncertainty.

 

In addition, the global spread of pandemic novel coronavirus, COVID-19, places increased uncertainty over our forecasts. The restrictions placed and being placed on the movement of people will likely cause delays to some of our plans. The scale of the impact of COVID-19 is evolving and it is difficult to assess to what extent, and for how long, it will cause delays to our operations. We have established a COVID-19 task force internally to monitor the impact of COVID-19 on our business and prioritize activities to minimize its effect.

 

In addition to utilizing the existing cash reserves, as part of our strategic review, we and our advisors are evaluating a number of near-term funding options potentially available to us, including fundraising, the partnering of assets or technologies or the sale of the Company. After considering the uncertainties, we considered it appropriate to continue to adopt the going concern basis in preparing the financial information.

 

Our ability to continue as a going concern is dependent upon our ability to obtain additional capital and/or dispose of assets, for which there can be no assurance we will be able to do on a timely basis, on favorable terms or at all.

 

For more information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Estimates and Judgments—Going Concern.”

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

 

A. Debt Securities

 

Not applicable.

 

B. Warrants and Rights

 

Not applicable.

 

C. Other Securities

 

Not applicable.

 

D. American Depositary Shares

 

Depositary Share holders will be required to pay the following service fees to Deutsche Bank Trust Company Americas, the depositary bank for the Depositary Share, or the Depositary, and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of such holders Depositary Shares):

 

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Service

 

 

Fees

     
· to any person to whom Depositary Shares are issued or to any person to whom a distribution is made in respect of Depositary Share distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash)   Up to US$0.05 per Depositary Share issued
     
· to any person surrendering Depositary Shares for withdrawal of deposited securities or whose Depositary Shares are cancelled or reduced for any other reason including, inter alia, cash distributions made pursuant to a cancellation or withdrawal   Up to US$0.05 per Depositary Share cancelled
     
· Distribution of cash dividends   Up to US$0.05 per Depositary Share held
     
· Distribution of cash entitlements (other than cash dividends) and/or cash proceeds, including proceeds from the sale of rights, securities and other entitlements   Up to US$0.05 per Depositary Share held
     
· Distribution of Depositary Shares pursuant to exercise of rights.   Up to US$0.05 per Depositary Share held
     
· Depositary services   Up to US$0.05 annually per Depositary Share held on the applicable record date(s) established by the depositary bank

 

In addition, Depositary Share holders, beneficial owners of Depositary Shares, persons depositing Ordinary Shares for deposit and persons surrendering Depositary Shares for cancellation and withdrawal of deposited securities will be required to pay the following charges:

 

· taxes (including applicable interest and penalties) and other governmental charges;

 

· such registration fees as may from time to time be in effect for the registration of Ordinary Shares or other deposited securities with our share registrar and applicable to transfers of Ordinary Shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively;

 

· such cable, telex, facsimile and electronic transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of the person depositing or withdrawing Ordinary Shares or Depositary Share holders and beneficial owners of Depositary Shares;

 

· the expenses, fees and other charges incurred by the depositary in the conversion of foreign currency, including, without limitation, the expenses, fees and other charges imposed by any affiliate of the depositary (which may, in its sole discretion, act in a principal capacity in such transaction) that may be utilized in connection therewith;

 

· such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Ordinary Shares, deposited securities, Depositary Shares and ADRs;

 

· the fees and expenses incurred by the depositary in connection with the delivery of deposited securities, including any fees of a central depository for securities in the local market, where applicable; and

 

· any fees, charges, costs or expenses that may be incurred from time to time by the depositary and/or any of the depositary’s agents, including the custodian, and/or agents of the depositary’s agents in connection with the servicing of Ordinary Shares, deposited securities and/or Depositary Shares, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation (such fees, charges, costs or expenses to be assessed against Depositary Share holders of record as at the date or dates set by the depositary as it sees fit and collected at the sole discretion of the depositary by billing such Depositary Share holders for such fee or by deducting such fee from one or more cash dividends or other cash distributions).

 

The depositary fees payable upon the issuance and cancellation of Depositary Shares are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued Depositary Shares from the depositary bank and by the brokers (on behalf of their clients) delivering the Depositary Shares to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to Depositary Share holders and the depositary services fee are charged by the depositary bank to the holders of record of Depositary Shares as of the applicable Depositary Share record date.

 

The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the Depositary Share record date holders concurrent with the distribution. In the case of Depositary Shares registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date Depositary Share holders. In the case of Depositary Shares held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the Depositary Shares held in DTC) from the brokers and custodians holding Depositary Shares in their DTC accounts. The brokers and custodians who hold their clients’ Depositary Shares in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.

 

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In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the Depositary Share holder.

 

The depositary has agreed to reimburse us for a portion of certain expenses it incurs that are related to establishment and maintenance of the ADR program, including investor relations expenses. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of fees the depositary collects from investors. Further, the depositary has agreed to reimburse us certain fees payable to the depositary by holders of Depositary Shares. Neither we nor the depositary can determine the exact amount to be made available to us because (i) the number of Depositary Shares that will be issued and outstanding, (ii) the level of service fees to be charged to holders of Depositary Shares and (iii) its reimbursable expenses related to the program are not known at this time.

 

Payment of Taxes

 

Holders of Depositary Shares will be responsible for any taxes or other governmental charges payable, or which become payable, on their Depositary Shares or on the deposited securities represented by any of their Depositary Shares. The depositary may refuse to register or transfer the Depositary Shares or allow a holder to withdraw the deposited securities represented by the Depositary Shares until such taxes or other charges are paid. It may apply payments owed to a holder of Depositary Shares or sell deposited securities represented by the Depositary Shares to pay any taxes owed and such holder will remain liable for any deficiency. If the Depositary sells deposited securities, it will, if appropriate, reduce the number of Depositary Shares to reflect the sale and pay to the holder any net proceeds, or send to the holder any property, remaining after it has paid the taxes. Each holder of Depositary Shares agrees to indemnify Midatech, the Depositary, the custodian and each of their respective agents, directors, employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes and additions to tax (including applicable interest and penalties thereon) arising from any refund of taxes, reduced rate of withholding at source or other tax benefit obtained for or by such holder. A holder’s obligations under this paragraph shall survive any transfer of American Depositary Receipts, any surrender of American Depositary Receipts and withdrawal of deposited securities or the termination of the deposit agreement.

  

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PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

 

Not applicable.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.

 

Not applicable.

 

ITEM 15. CONTROLS AND PROCEDURES.

 

A. Disclosure Controls and Procedures

 

We have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) under the supervision and the participation of the Group’s management, which is responsible for the management of the internal controls, and which includes our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Group’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

 

Based upon our evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable level of assurance.

 

B. Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed, under the supervision of the Chief Executive Officer and the Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with International Financial Reporting Standards.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Moreover, projections of any evaluation of the effectiveness of internal control to future periods are subject to a risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

 

Our management has assessed the effectiveness of internal control over financial reporting as of December 31, 2019 based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013. Based on this assessment, our management has concluded that there was a material weakness in the design and operating effectiveness of our internal controls over financial reporting for the fiscal year ended December 31, 2019. Furthermore, during 2018, a material weakness in the design and operation of our internal controls over financial reporting was identified relating to the financial reporting period for the fiscal year ended December 31, 2018. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. A description of the identified material weaknesses in internal control over financial reporting are set forth below.

 

Material Weaknesses Identified for the Year Ended December 31, 2019

 

In preparing our interim financial statements for the six months ending June 30, 2019, we and our independent registered public accounting firm identified a material weakness in the effectiveness of our internal controls over financial reporting, specifically that we had expensed a deposit in our income statement, as opposed to classifying it as a recoverable financial asset in other receivables during the six months ended June 30, 2019. As previously disclosed, in October 2018, pursuant to the terms of the Purchase Agreement by and among the Company, Midatech US and Kanwa Holdings, LP, an affiliate of Barings LLC, we sold our subsidiary, Midatech US to Kanwa Holdings, LP. During the fiscal year ended December 31, 2019, following a request by Midatech US, we paid a deposit of £947,000 in connection with a certain indemnity obligation set forth in the Purchase Agreement.  The deposit was originally expensed in the income statement.  Following a review by our independent registered public accounting firm of the interim financial information for the six months ended June 30, 2019, this deposit was reclassified as a recoverable financial asset in other receivables. 

 

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Furthermore, as part of their audit procedures, our independent registered public accounting firm identified the following material weaknesses in our internal control environment:

 

· Regarding our IT general controls environment material weaknesses included an absence of new vendor approval, inappropriate access to administration accounts of finance systems, password segregation and access security which were not designed or operating effectively. The lack of appropriate IT general controls could lead to a material misstatement of our financial statements that will not be prevented or detected in a timely manner.

 

· Several control deficiencies were identified related to the consolidation and financial reporting close functions including; the adoption of IFRS 16, adjustments required to align the results of foreign subsidiaries prepared under Spanish GAAP to IFRS, the recognition of certain costs not yet incurred that occurred during the process of preparing our financial information during the period that, when considered in aggregate, would be considered a material weakness.

 

· The design and operation of our revenue recognition process, in which required policies and procedures either were not designed or were not operating effectively at the period end. While no adjustments to our consolidated financial statements during the course of the audit were required, there were no mitigating controls that would have prevented or detected such a material error should it have occurred.

 

We did not prevent these errors from being recorded, nor did we detect them after they had occurred. 

  

Material Weaknesses Identified for the Year Ended December 31, 2018

 

For the fiscal year ended December 31, 2018, following the reclassification to assets held for sale and discontinued operations under IFRS 5 in the interim financial information for the period ended June 30, 2018, a number of adjustments were identified. These primarily related to the carrying value of assets at the point of disposal and the income statement entries for Midatech US for the 10-month period prior to disposal. The aggregate impact of these entries was an increased loss on disposal of £459,000 and a corresponding credit to the results from discontinued operations before disposal. This error in classification has no impact on the loss before tax or the net assets of the Group in any year presented.

 

Although we have instituted remedial measures to address the material weaknesses identified and to continually review and evaluate our internal control systems to allow management to report on the sufficiency of our internal control over financial reporting. We cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such additional weaknesses or failure to adequately remediate any existing weakness could materially and adversely affect our financial condition and results of operations, as well as our ability to accurately report our financial condition and results of operations in a timely and reliable manner.

 

Additionally, the material weaknesses described above, or other material weaknesses or significant deficiencies we may become aware of in the future, could result in our determining that our controls and procedures are not effective in future periods or could result in a material misstatement of the consolidated financial statements that would not be prevented or detected.

 

Any failure to maintain effective internal controls over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, we could lose investor confidence in the accuracy and completeness of our financial statements and reports, the market price of the Ordinary Shares and/or Depositary Shares could decline, and we could be subject to sanctions or investigations by the NASDAQ Stock Market LLC, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

 

Remediation Efforts to Address Material Weakness Identified as of December 31, 2019

 

Material weaknesses have been disclosed in this Annual Report on Form 20-F for the year ended December 31, 2019, as set forth in greater detail above.  The specific remediation actions taken by management include:

 

· Implementing additional controls and procedures to facilitate senior management and audit committee review in order to remediate the underlying causes of the material weakness in our internal controls over financial reporting, including, but not limited to, appointing a new controller and re-designing our delegated authority control matrix and processes.

 

Remediation Efforts to Address Material Weakness Identified as of December 31, 2018

 

Material weaknesses have been disclosed in our Annual Report on Form 20-F for the year ended December 31, 2018, pertaining to adjustments to the classification of assets held for sale and discontinued operations under IFRS 5.  The specific remediation actions taken by management include:

 

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· Implementing additional controls and procedures to facilitate senior management and audit committee review in order to remediate the underlying causes of the material weakness in our internal controls over financial reporting; and

 

· Seeking outside assistance, as necessary, from third party experts when or if we enter into or effect future, non-routine transactions which involve complex accounting and related disclosure matters.

 

C.       Attestation Report of the Registered Public Accounting Firm

 

This annual report does not include an attestation report of our registered public accounting firm as it is an emerging growth company.

 

D.       Changes in Internal Control Over Financing Reporting

 

We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. Other than the changes discussed herein, there were no changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2019 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.

 

The Audit Committee consists of three members: Simon Turton (Chairman), Sijmen de Vries and Rolf Stahel. The Board of Directors has determined that Messrs. de Vries, Turton and Stahel are independent under Rule 10A-3 of the Exchange Act and the applicable rules of NASDAQ and that Dr. Turton qualifies as an “audit committee financial expert” as defined under in Item 16A of Form 20-F.

  

ITEM 16B. CODE OF ETHICS.

 

Our Code of Business Conduct and Ethics is applicable to all of our employees, officers and directors and is available on our website at http://www.midatechpharma.com. The Code of Business Conduct and Ethics provides that our directors and officers are expected to avoid any action, position or interest that conflicts with the interests of the Group or gives the appearance of a conflict. Our directors and officers have an obligation under the Code of Business Conduct and Ethics to advance the Group’s interests when the opportunity to do so arises. We expect that any amendment to this code, or any waivers of its requirements, will be disclosed on our website. Information contained on, or that can be accessed through, our website is not incorporated by reference into this document, and you should not consider information on the website to be part of this document.

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

The following table sets forth by category of service the total fees for services provided to us by BDO LLP, our independent registered public accounting firm, during the fiscal years ended December 31, 2019 and 2018.

 

    2019     2018  
  (£ in thousands)  
Audit Fees(1)     368       337  
Audit-Related Fees(2)     -       -  
Tax Fees(3)     -       -  
All Other Fees(4)     -       -  
Total     368       337  

 

______________

 

(1) Audit fees consist of the aggregate fees billed in connection with the audit and United Kingdom statutory audit of our annual consolidated financial statements included in this annual report, the issuance of comfort letters, interim reviews of our half-yearly financial information and other services related to SEC filings.

 

(2) Audit-related fees are fees for services that are traditionally performed by the independent accountants, including consultations concerning financial accounting and reporting, and employee benefit plan audits, and due diligence on mergers or acquisitions.

 

(3) Represents the aggregate fees billed for tax compliance, tax advice and tax consulting services.

 

(4) Represents the aggregate fees billed for all products and services provided that are not included under “audit fees”, “audit related fees or “tax fees,” including, but not limited to, fees billed for services relating to mergers and acquisitions.

 

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Audit Committee Pre-Approval Policies and Procedures

 

The pre-approval of the Audit Committee or member thereof, to whom pre-approval authority has been delegated, is required for the engagement of our independent auditors to render audit or non-audit services. Audit Committee pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the Audit Committee regarding our engagement of the independent auditor, provided the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service provided and such policies and procedures do not include delegation of the Audit Committee’s responsibilities under the Exchange Act to management. Audit Committee pre-approval of non-audit services (other than review and attest services) also will not be required if such services fall within available exceptions established by the SEC.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

 

Not applicable.

 

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

 

Not applicable.

  

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTS.

 

Not applicable.

 

ITEM 16G. CORPORATE GOVERNANCE.

 

Companies with securities listed on NASDAQ are required to comply with United States federal securities laws, including the Sarbanes-Oxley Act of 2002, as well as certain NASDAQ rules and corporate governance requirements. As a foreign private issuer, however, we are entitled to follow our home country practice in lieu of the NASDAQ corporate governance standards, subject to certain exceptions and except to the extent that such exemptions would be contrary to United States federal securities laws. The United Kingdom laws and practices followed by the Company in lieu of NASDAQ rules are described below:

 

· We do not follow NASDAQ’s requirement that the Board of Directors be comprised of a majority of Independent Directors, as defined under Rule 5605(a)(2). In accordance with United Kingdom law and practice, we do not require a majority of our Board of Directors to be considered independent.

 

· We do not follow NASDAQ’s requirements applicable to independent director oversight of director nominations, which require that director nominees either be selected or recommended by independent directors. In accordance with United Kingdom law and practice, our directors are nominated by the Nominations Committee, which is comprised of all of the directors of the Company.

 

· We do not follow NASDAQ’s requirement that the compensation committee be comprised of Independent Directors, as defined under Rule 5605(a)(2). One of the members of our compensation committee, Mr. Stahel, is not considered independent under the applicable NASDAQ rule. He is, however, considered to be independent under United Kingdom law and practice.

 

· We do not require that the compensation committee consider the specific factors affecting consultant independence that are set forth in NASDAQ Rule 5605(d)(3)(D). Our compensation committee may engage independent compensation consultants at its discretion.

 

· We do not follow NASDAQ’s requirements that non-executive directors meet on a regular basis without management present. Our Board of Directors may choose to meet in executive session at their discretion.

 

· We do not follow NASDAQ’s quorum requirements for stockholder meetings. In accordance with United Kingdom law and practice, our Articles of Association provide alternative quorum requirements that are generally applicable to meetings of shareholders.

 

· We do not follow NASDAQ’s requirements to seek shareholder approval for the implementation of certain equity compensation plans and issuances of Ordinary Shares. In accordance with the AIM Rules, we are not required to seek shareholder approval in such circumstances.

 

ITEM 16H. MINE SAFETY DISCLOSURE.

 

Not applicable.

 

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PART III

 

 

ITEM 17. FINANCIAL STATEMENTS.

 

We have elected to provide financial statements pursuant to Item 18.

 

ITEM 18. FINANCIAL STATEMENTS.

 

The financial statements are filed as part of this Annual Report on Form 20-F beginning on page F-1.

 

The financial statements of the Company included in this Annual Report on Form 20-F do not constitute statutory financial statements within the meaning of the United Kingdom Companies Act 2006. The Company’s statutory financial statements have been reported on by BDO LLP, independent auditors, under applicable law and the International Standards on Auditing (United Kingdom and Ireland). The Independent Auditors’ Report of BDO LLP on the statutory financial statements for each of the years ended December 31, 2019, 2018 and 2017 was unqualified. The Independent Auditors’ Report of BDO LLP on the statutory financial statements for each of the years ended December 31, 2019 and 2017 included an emphasis of matter regarding material uncertainty over going concern.

 

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ITEM 19. EXHIBITS.  

 

Exhibit

Number

 

Title

   
1.1 Articles of Association of Midatech Pharma PLC (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
2.1* Description of Securities Registered Under Section 12 of the Exchange Act.
2.2 Specimen certificate representing ordinary shares of Midatech Pharma PLC (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
2.3 Form of Deposit Agreement by and among Midatech Pharma PLC, Deutsche Bank Trust Company Americas, as depositary, and all owners and holders from time to time of American Depositary Shares thereunder (incorporated by reference to Exhibit 99A to the Company’s Registration Statement on Form F-6/A (File No. 333-207186), filed with the SEC on October 27, 2015).
2.4 Form of Amendment to Deposit Agreement among Midatech Pharma PLC, Deutsche Bank Trust Company Americas, as depositary, all owners and holders from time to time of American Depositary Shares thereunder (incorporated by reference to Exhibit (a)(2) to the Company’s Registration Statement on Form F-6 POS (File No. 333-207186), filed with the SEC on April 8, 2019).
2.5 Form of Amendment No. 2 to Deposit Agreement among Midatech Pharma PLC, Deutsche Bank Trust Company Americas, as depositary, all owners and holders from time to time of American Depositary Shares thereunder (incorporated by reference to Exhibit (a)(3) to the Company’s Registration Statement on Form F-6 POS (File No. 333-207186), filed with the SEC on October 11, 2019).
2.6 Form of Amendment No. 3 to Deposit Agreement among Midatech Pharma PLC, Deutsche Bank Trust Company Americas, as depositary, all owners and holders from time to time of American Depositary Shares thereunder (incorporated by reference to Exhibit (a)(3) to the Company’s Registration Statement on Form F-6 POS (File No. 333-207186), filed with the SEC on March 3, 2020).
2.7 Form of American Depositary Receipt (included in Exhibit 2.6 as Exhibit A thereto). 
2.8* Deposit Agreement for Restricted Securities, dated as of December 23, 2019, by and among Midatech Pharma PLC, Deutsche Bank Trust Company Americas, as depositary, and all holders and beneficial owners from time to time of restricted American Depositary Shares issued thereunder .
2.9* Form of restricted American Depositary Receipt (included in Exhibit 2.8).
2.10 Form of Warrant Assumption Agreement by and between Midatech Pharma PLC and DARA BioSciences, Inc. (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
2.11 Form of “Phase 2b” Common Stock Purchase Warrant issued to General Hospital Corporation d/b/a Massachusetts General Hospital (incorporated by reference to Exhibit 4.1 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on December 15, 2014).
2.12 Form of “FDA Approval” Common Stock Purchase Warrant issued to General Hospital Corporation d/b/a Massachusetts General Hospital (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on December 15, 2014).
2.13 Warrant Instrument, dated as of February 24, 2017 (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2017, filed with the SEC on April 24, 2018).
2.14 Form of Warrant Instrument, dated as of January 29, 2019, constituting warrants to subscribe for ordinary shares in Midatech Pharma PLC (incorporated by reference to Exhibit 2.11 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on April 30, 2019).
2.15 Form of Warrant issued on October 25, 2019 (incorporated by reference to Exhibit 4.1 of the Company’s Report on Form 6-K, filed with the SEC on October 24, 2019).
2.16 Form of Placement Agent Warrant issued on October 25, 2019 (incorporated by reference to Exhibit 4.2 of the Company’s Report on Form 6-K, filed with the SEC on October 24, 2019).
2.17 Form of Warrant issued on May 20, 2020 (incorporated by reference to Exhibit 4.1 of the Company’s Report on Form 6-K, filed with the SEC on May 19, 2020).
2.18 Form of Placement Agent Warrant issued on May 20, 2020 (incorporated by reference to Exhibit 4.2 of the Company’s Report on Form 6-K, filed with the SEC on May 19, 2020).
2.19 Form of Warrant Instrument issued on May 22, 2020 (incorporated by reference to Exhibit 4.3 of the Company’s Report on Form 6-K, filed with the SEC on May 19, 2020).
4.1# Midatech Pharma PLC 2016 United States Option Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-214969), filed with the SEC on December 8, 2016).

 

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4.2# Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.3# Form of Option Agreement (included in Exhibit 4.2).
 4.4 Nominated Advisor and Broker Agreement, dated as of December 2, 2014, by and between Midatech Pharma PLC and Panmure Gordon (UK) Limited (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.5 Patent and Know-How Agreement, dated June 21, 2002, as amended on October 14, 2004, by and between Consejo Superior de Investigaciones Cientificas and Midatech Limited (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.6 Consortium Agreement, dated as of June 25, 2012, by and among Midatech Limited, Cardiff University, Inserm-Transfert SA, Nanopass Technologies Ltd., Leiden University Medical Center, Kings College London, Institut National de la Sante et de la Recherche Medicale, Marseille and Linkopings University (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.7# Consultancy Agreement, dated as of April 15, 2014, by and between Midatech Limited and Chesyl Pharma Limited (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.8# Service Agreement date as of June 1, 2018, by and between Midatech Pharma PLC and Craig Cook (incorporated by reference to Exhibit 4.9 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on April 30, 2019).
4.9# Service Agreement dated as of December 3, 2014, by and between Midatech Pharma PLC and Nicholas Robbins-Cherry (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.10# Appointment Agreement, dated as of April 15, 2014, by and between Midatech Limited and Rolf Stahel (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.11# Revised Appointment Agreement, dated as of December 2, 2014, by and between Midatech Pharma PLC and Rolf Stahel (incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.12# Form of Appointment Letter between Midatech Pharma PLC and certain directors of Midatech Pharma PLC (incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.13# Deed of Indemnity dated August 5, 2015 (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.14† License Agreement, executed on or about June 6, 2017, by and between Novartis Pharma AG and Midatech Limited (incorporated by reference to Exhibit 99.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed with the SEC on July 19, 2017).
4.15†† License, Collaboration and Distribution Agreement, dated as of January 29, 2019, by and between Midatech Pharma PLC, CMS Bridging Limited, CMS Medical Hong Kong Limited and China Medical System Holdings Limited (incorporated by reference to Exhibit 4.17 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, as amended, filed with the SEC on May 28, 2019).
4.16 Relationship Agreement, dated January 29, 2019, by and among the Company, certain CMS Concert Party Members and Panmure Gordon (UK) Limited (incorporated by reference to Exhibit 4.18 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on April 30, 2019).
4.17 Subscription Letter, dated January 29, 2019, between the Company and A&B (HK) Company Limited (incorporated by reference to Exhibit 4.19 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on April 30, 2019).
4.18 Subscription Letter, dated January 29, 2019, between the Company and CMS Medical Venture Investment (HK) Limited (incorporated by reference to Exhibit 4.20 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on April 30, 2019).
4.19 Form of Lock-in Agreement by and among the Company, Panmure Gordon (UK) Limited and certain stockholders of the Company (incorporated by reference to Exhibit 4.21 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on April 30, 2019).
4.20# The Midatech Pharma Share Incentive Plan (incorporated by reference to Exhibit 4.27 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018, filed with the SEC on April 24, 2018).
4.21 Stock Purchase Agreement, dated as of September 26, 2018, by and among the Company, Midatech Pharma US Inc. and Kanwa Holdings, LP (incorporated by reference to Exhibit 2.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed with the SEC on September 27, 2018).

 

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4.22 Transition Services Agreement, dated as of September 26, 2018, by and between the Company, Midatech Pharma US Inc. and Kanwa Holdings, LP (incorporated by reference to Exhibit 10.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed with the SEC on November 8, 2018).
4.23††+ Service Agreement date as of September 9, 2019, by and between Midatech Pharma PLC and Stephen Stamp (incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 6-K, filed with the SEC on September 19, 2019).
4.24††* Service Agreement dated as of April 23, 2015, by and between Midatech Limited and Stephen Damment.
4.25 Form of Securities Purchase Agreement, dated as of October 22, 2019, by and between Midatech Pharma PLC and the purchaser identified on the signature page thereto (incorporated by reference to the Company’s Report on Form 6-K, filed with the SEC on October 24, 2019).
4.26* English Translation of REINDUS Loan, dated as of September 11, 2019, by and between Midatech Pharma España S.L. and Spanish Ministry of Industry, Commerce and Tourism (incorporated by reference to Exhibit 10.26 of the Company Registration Statement on Form F-1, filed with the SEC on March 17, 2020).
4.27*+ Settlement Agreement, dated as of April 17, 2020, by and between Midatech Pharma PLC and Dr. Craig Cook.
4.28 Form of Securities Purchase Agreement, dated as of May 18, 2020, by and between Midatech Pharma PLC and the purchasers identified on the signature page thereto (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 6-K, filed with the SEC on May 20, 2020.
8.1* Subsidiaries of Midatech Pharma PLC.
12.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
13.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
15.1* Consent of BDO LLP, independent registered public accounting firm.

___________

* Filed herewith.

+ Management contract or compensatory plan or arrangement.
Confidential treatment has been granted as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.
†† Certain portions of this exhibit (indicated by asterisks) have been omitted because they are not material and would likely cause competitive harm to Midatech Pharma PLC if publicly disclosed.

 

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SIGNATURES

 

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

  MIDATECH PHARMA PLC  
  (Registrant)  
       
  By: /s/ Stephen Stamp  
  Name: Stephen Stamp  
  Title: Chief Executive Officer and Chief Financial Officer  

 

 

Date: June 15, 2020

 

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MIDATECH PHARMA PLC

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

  Page
Report of Independent Registered Public Accounting Firm F-1
Consolidated statements of comprehensive income for the years ended 31 December 2019, 2018 and 2017 F-2
Consolidated statements of financial position at 31 December 2019, 2018 and 2017 F-3
Consolidated statements of cash flows for the years ended 31 December 2019, 2018 and 2017 F-5
Consolidated statements of changes in equity for the years ended 31 December 2019, 2018 and 2017 F-7
Notes forming part of the consolidated financial statements F-9

 

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Report of Independent Registered Public Accounting Firm

 

Shareholders and Board of Directors

Midatech Pharma plc

Cardiff, United Kingdom

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated statements of financial position of Midatech Pharma plc (the “Company”) as of 31 December 2019, 2018 and 2017, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the three years in the period ended 31 December 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at 31 December 2019, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended 31 December 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Going Concern Uncertainty

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Adoption of New Accounting Standard

 

As discussed in Note 1 to the consolidated financial statements, effective on 1 January 2019, the Company changed its method of accounting for leases due to the adoption of IFRS 16, Leases.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ BDO LLP

 

BDO LLP

We have served as the Company's auditor since 2014.

 

Reading, United Kingdom

15 June 2020

 

  F-1  
Table of Contents 

 

Consolidated StatementS of Comprehensive Income

 

For the year ended 31 December

 

    Note    

2019

£’000

   

2018

£’000

   

2017

£’000

 
Revenue     3       312       149       149  
Grant revenue             362       1,789       840  
Total revenue             674       1,938       989  
Other income             15              
Research and development costs             (7,843 )     (9,359 )     (8,329 )
Distribution costs, sales and marketing             (323 )           (170 )
Administrative costs             (3,841 )     (4,394 )     (4,266 )
Impairment of intangible assets     12,13       -             (1,500 )
Loss from operations     5       (11,318 )     (11,815 )     (13,276 )
Finance income     7       492       2       415  
Finance expense     7       (97 )     (587 )     (109 )
Loss before tax             (10,923 )     (12,400 )     (12,970 )
Taxation     8       1,785       2,032       1,265  
Loss from continuing operations             (9,138 )     (10,368 )     (11,705 )
Loss from discontinued operations net of tax     4       (947 )     (4,662 )     (4,359 )
Loss for the year attributable to the owners of the parent             (10,085 )     (15,030 )     (16,064 )
Other comprehensive income:                                
Items that will or may be reclassified subsequently to profit or loss:                                
Exchange (losses)/gains arising on translation of foreign operations             (207 )     1,156       (1,233 )
Exchange losses realised on disposal of subsidiaries     4             (3,842 )      
Total other comprehensive loss net of tax             (207 )     (2,686 )     (1,233 )
Total comprehensive loss attributable to the owners of the parent             (10,292 )     (17,716 )     (17,297 )
Loss per share                                
Continuing operations                                
Basic and diluted loss per ordinary share - pence     9       (50 )p     (339 )p     (456 )p
Discontinued operations                                
Basic and diluted loss per ordinary share - pence     9       (5 )p     (153 )p     (170 )p

The notes form an integral part of these consolidated financial statements.

 

  F-2  
Table of Contents 

 

Consolidated statementS of financial position

 

At 31 December

 

Company number 09216368   Note    

2019

£’000

   

2018

£’000

   

2017

£’000

 
Assets                                
Non-current assets                                
Property, plant and equipment     10       2,154       1,983       2,529  
Intangible assets     12       12,379       12,374       27,647  
Other receivables due in greater than one year     15       2,625       469       465  
              17,158       14,826       30,641  
Current assets                                
Inventories     17       -             941  
Trade and other receivables     15       992       1,323       3,242  
Taxation             1,817       1,952       1,196  
Cash and cash equivalents     16       10,928       2,343       13,204  
              13,737       5,618       18,583  
Total assets             30,895       20,444       49,224  
Liabilities                                
Non-current liabilities                                
Borrowings     19       5,670       884       6,185  
Provisions     20       -       165        
              5,670       1,049       6,185  
Current liabilities                                
Trade and other payables     18       4,494       2,103       8,002  
Borrowings     19       412       368       361  
Provisions     20       97              
Derivative financial liability     21       664              
              5,667       2,471       8,363  
Total liabilities             11,337       3,520       14,548  

 

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Table of Contents 

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(continued)

 

At 31 December

 

    Note    

2019

£’000

   

2018

£’000

   

2017

£’000

 
Issued capital and reserves attributable to owners of the parent                                
Share capital     24       1,023       1,003       1,003  
Share premium     25       65,879       52,939       52,939  
Merger reserve     25       53,003       53,003       53,003  
Foreign exchange reserve     25       (508 )     (301 )     2,385  
Accumulated deficit     25       (99,839 )     (89,720 )     (74,654 )
Total equity             19,558       16,924       34,676  
Total equity and liabilities             30,895       20,444       49,224  

The notes form an integral part of these consolidated financial statements.

 

  F-4  
Table of Contents 

 

Consolidated statementS of cash flows

 

For the year ended 31 December

 

    Note    

2019

£’000

   

2018

£’000

   

2017

£’000

 
Cash flows from operating activities                                
Loss for the year             (10,085 )     (15,030 )     (16,064 )
Adjustments for:                                
Depreciation of property, plant and equipment     10       979       1,016       983  
Depreciation of right of use asset     10       303              
Amortisation of intangible fixed assets     12       3       434       1,577  
Loss on disposal of fixed assets                   165       27  
Impairment of intangible assets     12,13       -             1,500  
Finance income     7       (492 )     (2 )     (415 )
Finance expense     7       97       587       166  
Share-based payment expense     5       (34 )     (36 )     520  
Taxation     8       (1,785 )     (2,032 )     (1,265 )
Loss on sale of subsidiary     4             1,407        
Loss from discontinued operations, net of tax     4       947              
Foreign exchange (gains)/losses             (140 )     130        
Cash flows from operating activities before changes in working
capital
            (10,207 )     (13,361 )     (12,971 )
Decrease/(Increase) in inventories             -       347       (202 )
Decrease/(Increase) in trade and other receivables             725       1,030       (968 )
Increase/(Decrease) in trade and other payables             1,141       (2,995 )     (267 )
(Decrease)/Increase in provisions             (68 )     165        
Cash used in operations             (8,409 )     (14,814 )     (14,408 )
Taxes received             1,920       1,364       1,455  
Net cash used in operating activities             (6,489 )     (13,450 )     (12,953 )

 

  F-5  
Table of Contents 

 

Consolidated statementS of cash flows(continued)

 

For the year ended 31 December

 

    Note    

2019

£’000

   

2018

£’000

   

2017

£’000

 
Investing activities                                
Purchases of property, plant and equipment     10       (310 )     (244 )     (707 )
Proceeds from disposal of fixed assets                   25        
Purchase of intangibles     12       (9 )           (778 )
Long term deposit for guarantee for Government loan             (2,549 )     -       -  
Disposal of discontinued operation, net of cash disposed of     4             9,259        
Deposit paid in connection with disposed subsidiary     4       (947 )            
Interest received             8       2       15  
Net cash (used in)/ generated from investing activities             (3,807 )     9,042       (1,470 )
Financing activities                                
Interest paid             (30 )     (587 )     (111 )
 Receipts from sub-lessors             107       -       -  
 Amounts paid on lease liabilities (2018, 2017: Amounts paid on finance
leases)
            (450 )     (64 )     (25 )
Repayment of borrowings             (577 )     (5,821 )     (552 )
Proceeds from bank borrowings                         5,237  
Proceeds from Government loan             4,436       -       -  
Proceeds from Government subsidy             1,139       -       -  
Share issues including warrants, net of costs     16       14,108             5,728  
Net cash generated from/(used in) financing activities             18,733       (6,472 )     10,277  
Net increase/(decrease) in cash and cash equivalents             8,437       (10,880 )     (4,146 )
Cash and cash equivalents at beginning of year             2,343       13,204       17,608  
Exchange gains/(losses) on cash and cash equivalents             148       19       (258 )
Cash and cash equivalents at end of year     16       10,928       2,343       13,204  

 

The notes form an integral part of these consolidated financial statements.


  F-6  
Table of Contents 

 

Consolidated statements of changes in equity

 

For the year ended 31 December

 

   

Share

capital

£’000

   

Share

premium

£’000

   

Merger
reserve

£’000

   

Foreign

exchange

reserve

£’000

   

Accumulated

deficit

£’000

   

Total

equity

£’000

 
At 1 January 2019     1,003       52,939       53,003       (301 )     (89,720 )     16,924  
Loss for the year                             (10,085 )     (10,085 )
Foreign exchange translation                       (207 )           (207 )
Total comprehensive loss     1,003       52,939       53,003       (508 )     (99,805 )     6,632  
Transactions with owners                                                
Shares issued on 26 February 2019 – note 16     17       13,388                         13,405  
Costs associated with share issue on 26
February 2019 – note 16
          (1,120 )                       (1,120 )
Shares issued on 29 October 2019 – note 16     3       1,211                         1,214  
Costs associated with share issue on 29
October 2019 – note 16
          (539 )                       (539 )
Share-based payment charge                             (34 )     (34 )
Total contribution by and distributions to
owners
    20       12,940                   (34 )     12,926  
At 31 December 2019     1,023       65,879       53,003       (508 )     (99,839 )     19,558  

 

   

Share

capital

£’000

   

Share

premium

£’000

   

Merger
reserve

£’000

   

Foreign

exchange

reserve

£’000

   

Accumulated

deficit

£’000

   

Total

equity

£’000

 
At 1 January 2018     1,003       52,939       53,003       2,385       (74,654 )     34,676  
Loss for the year                             (15,030 )     (15,030 )
Reclassification of foreign exchange on
disposal
                      (3,842 )           (3,842 )
Foreign exchange translation                       1,156             1,156  
Total comprehensive loss                       (2,686 )     (15,030 )     (17,716 )
Share-based payment charge                             (36 )     (36 )
Total contribution by and distributions to
owners
                            (36 )     (36 )
At 31 December 2018     1,003       52,939       53,003       (301 )     (89,720 )     16,924  

 

  F-7  
Table of Contents 

 

Consolidated statements of changes in equity(cONTINUED)

 

   

Share

capital

£’000

   

Share

premium

£’000

   

Merger
reserve

£’000

   

Foreign

exchange

reserve

£’000

   

Accumulated

deficit

£’000

   

Total

equity

£’000

 
At 1 January 2017     1,002       47,211       53,003       3,618       (59,110 )     45,724  
Loss for the year                             (16,064 )     (16,064 )
Foreign exchange translation                       (1,233 )           (1,233 )
Total comprehensive loss                       (1,233 )     (16,064 )     (17,297 )
Transactions with owners                                                
Shares issued on 16 October 2017 –
note 16
    1       6,157                         6,158  
Costs associated with share issue –
note 16
          (429 )                       (429 )
Share option charge                             520       520  
Total contribution by and
distributions to owners
    1       5,728                   520       6,249  
At 31 December 2017     1,003       52,939       53,003       2,385       (74,654 )     34,676  

 

The notes form an integral part of these consolidated financial statements.

 

  F-8  
Table of Contents 


Notes forming part of the financial statements

 

For the year ended 31 December 2019, 2018 and 2017

 

1 Accounting policies

 

General information

 

Midatech Pharma plc (the ‘Company’) is a company registered and domiciled in England and Wales. The Company was incorporated on 12 September 2014.

 

The Company is a public limited company, which has been listed on the Alternative Investment Market (‘AIM’), which is a submarket of the London Stock Exchange, since 8 December 2014.

 

In addition, since 4 December 2015 the Company has American Depository Receipts (‘ADRs’) registered with the US Securities and Exchange Commission (‘SEC’) and is listed on the NASDAQ Capital Market.

 

The financial statements were approved and authorised for issue by the Board of Directors on 12 June 2020.

 

Basis of preparation

 

The Group was formed on 31 October 2014 when Midatech Pharma plc entered into an agreement to acquire the entire share capital of Midatech Limited and its wholly owned subsidiaries through the issue equivalent of shares in the Company which took place on 13 November 2014.

 

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (‘adopted IFRSs’) and are presented in £’000’s Sterling, unless stated otherwise.

 

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the periods presented.

 

On 2 March 2020 a resolution was passed at a general meeting of shareholders of the Company to consolidate its ordinary shares on a one for 20 basis into new ordinary shares of 0.1p each in the capital of the Company. At the same meeting a resolution was passed to change the ratio of the Company's American Depositary Receipts ("ADRs"). This will change from one ADR representing 20 Existing Ordinary Shares to one ADR representing five new ordinary shares. The financial statements reflect the effects of the reverse stock split/share resolutions for all periods presented.

 

The consolidated financial statements have been prepared on a historical cost basis, except for the following item (refer to individual accounting policies for details):

 

- Financial instruments – fair value through profit or loss.

 

Adoption of new and revised standards

 

New standards, interpretations and amendments effective from 1 January 2019

 

New standards impacting the Group that were adopted in the annual financial statements for the year ended 31 December 2019, and which have given rise to changes in the Group’s accounting policies are:

 

· IFRS 16 Leases (IFRS 16); and
· IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23)

 

Details of the impact these two standards have had are given in note 32 below. Other new and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group’s activities or require accounting which is consistent with the Group’s current accounting policies.

 

New standards, interpretations and amendments not yet effective

 

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2020:

 

· IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment – Definition of Material)
· IFRS 3 Business Combinations (Amendment – Definition of Business)
· Revised Conceptual Framework for Financial Reporting

 

These new accounting standard amendments are not expected to have a material impact on the group.

 

In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that ‘settlement’ includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2022.

 

  F-9  
Table of Contents 

 

1 Accounting policies (continued)

 

The Group is currently assessing the impact of this new accounting standard amendment.

 

The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the group.

 

Basis for consolidation

 

The Group financial statements consolidate those of the parent company and all of its subsidiaries. The parent controls a subsidiary if it has power over the investee to significantly direct the activities, exposure, or rights to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investor’s returns. All subsidiaries have a reporting date of 31 December.

 

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-Group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

 

The loss and other comprehensive income of Midatech Pharma US, Inc. (formerly DARA Biosciences, Inc) acquired in December 2015 is recognised from the effective date of acquisition i.e. 4 December 2015 through to the date of sale on 1 November 2018. Similarly, the loss and other comprehensive income of Zuplenz®, acquired as a business by Midatech Pharma plc, is recognised from 24 December 2015 until 31 October 2018 (up to the formal completion of the sale of MPUS on 1 November 2018).

 

Discontinued operations are presented in the consolidated statement of comprehensive income as a single line which comprises the post-tax profit or loss of the discontinued operation along with the post-tax gain or loss recognised on the re-measurement to fair value less costs to sell or on disposal of the assets or disposal groups constituting discontinued operations.

 

The consolidated financial statements consist of the results of the following entities:

 

Entity Summary description
Midatech Pharma plc Ultimate holding company
Midatech Limited Trading company
Midatech Pharma (Espana) SL (formerly Midatech Biogune SL) Trading company
PharMida AG Dormant
Midatech Pharma (Wales) Limited (formerly Q Chip Limited) Trading company
Midatech Pharma Pty Trading company
Midatech Pharma US, Inc. (formerly DARA Biosciences, Inc.) (until 1
November 2018)
Trading company
Dara Therapeutics, Inc. (until 1 November 2018) Dormant

 

Going concern

 

The Group and parent company are subject to a number of risks similar to those of other development and early-commercial stage pharmaceutical companies. These risks include, amongst others, generation of revenue from the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of profitable operations is dependent on future uncertain events which include obtaining adequate financing to fulfil the Group’s commercial and development activities and generating a level of revenue adequate to support the Group’s cost structure.

 

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. As of the date of these Financial Statements, the Group’s operations have been significantly curtailed temporarily due to restrictions imposed by governments.

 

The Group cannot reasonably estimate the length or severity of this pandemic and related restrictions. Some factors from the COVID-19 outbreak that the company believe will adversely affect current and planned drug development activities include:

 

· the diversion of healthcare resources away from the conduct of clinical trial matters to focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

· limitations on travel that interrupt key trial activities, such as clinical trial site initiations and monitoring;

 

· interruption in global shipping affecting the transport of clinical trial materials, such as investigational drug product used in our trials; and

 

· employee absences that delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

 

  F-10  
Table of Contents 

 

1 Accounting policies (continued)

 

Going concern (continued)

 

We have experienced net losses and significant cash outflows from cash used in operating activities over the past years as we develop our portfolio. For the year ended December 31, 2019, the Company incurred a consolidated loss from operations of £10.1 million and negative cash flows from operations of £6.5 million. As of December 31, 2019, the Group had an accumulated deficit of £99.8 million.

 

The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

As at December 31, 2019, we had cash and cash equivalents of £10.93 million. In May 2020, we completed an equity offering, raising £3.7m net of costs. We believe we currently have enough cash to fund our planned operations into the second quarter of 2021.

 

Our future viability is dependent on our ability to generate cash from operating activities, to raise additional capital to finance our operations and to successfully obtain regulatory approval to allow marketing of our development products. Our failure to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue its business strategies. For example, due to our current and forecasted cash position, on 31 March 2020, we made the decision to abandon certain of our research and development programs, close our Spanish operations and make certain terminations within our UK operations. In connection with our strategic review announced on the same date, we are in the process of seeking to license or assign one or more of our technologies to a partner or, alternatively, to seek a buyer for our Company. Any or all of these transactions may be on unfavorable terms.

 

We have prepared cash flow forecasts and considered the cash flow requirement for the Company for the next five years including the period twelve months from the date of approval of the consolidated financial statements.  These forecasts show that further financing will be required before the second quarter of 2021 assuming, inter alia, that all development programs and other operating activities continue as currently planned.  This requirement for additional financing in the short term represents a material uncertainty that raises substantial doubt about our ability to continue as a going concern. 

 

In addition, the global spread of the pandemic COVID-19 virus places increased uncertainty over our forecasts. The restrictions placed and being placed on the movement of people will likely cause delays to some of our plans. The scale of the impact of COVID-19 is evolving and it is difficult to assess to what extent, and for how long, it will cause delays to our operations. We have established a COVID-19 task force internally to monitor the impact of COVID-19 on our business and prioritize activities to minimize its effect.

 

In addition to utilizing the existing cash reserves, as part of our ongoing strategic review, we and our advisors are evaluating a number of near-term funding options potentially available to us, including fundraising, the partnering of assets and technologies or the sale of the Company. After considering the uncertainties, we consider it is appropriate to continue to adopt the going concern basis in preparing the financial information. Our ability to continue as a going concern is dependent upon our ability to obtain additional capital and/or dispose of assets, for which there can be no assurance we will be able to do on a timely basis, on favorable terms or at all.

 

Revenue

 

Revenue is accounted for in line with principles of IFRS 15 ‘Revenue from contracts with customers’

 

Revenue from licensing agreements

 

The Group entered into a Licence Agreement during 2019. The licence consists of two distinct performance conditions, which is the grant of the license to use of its intellectual property (“IP”) and the supply of Product. After the Company has granted the license, and the Product is granted applicable marketing authorizations in the EU, the US, or the UK, France, Germany or Switzerland and China, there are no further obligations to participate in, or provide additional services to its customer. The transaction price for the grant of the license to use the Company’s IP comprises of fixed and variable payment streams and the grant of the license is considered to be a right to use IP. Upfront fees earned, are recognised as revenue at a point in time, upon transfer of control over the license to the licensee and the grant of the applicable marketing authorisation by the relevant statutory authority. Revenue from variable consideration, which is contingent on achievements of future milestones is recognised as revenue when it is highly probable the revenue will not reverse, that is when the underlying contingencies have been resolved. For future royalty payments associated with a license, the Company applies the IFRS 15 exception for sales-based royalties and recognises the revenue only when the subsequent sale occurs.

 

Supply of Goods

 

Revenue from sales of goods to customer are recognised when all performance obligations are met. These criteria are considered to be met when the goods are delivered to the customer. Revenue represents the full list price of products shipped to wholesalers and other customers less product returns, discounts, rebates and other incentives based on the sales price.

 

Supply of Services

 

Revenue from the supply of services is subject to specific agreement. This is recognised over the contract term, proportionate to the progress in overall satisfaction of the performance obligations (the services performed by the Group), measured by cost incurred to date out of total estimate of costs.

 

Milestones

 

The Group’s revenue also include milestone income from research and development contracts. Milestone income is recognised as revenue in the accounting period in which the milestones are achieved. Milestones are agreed on a project by project basis and will be evidenced by set deliverables.

 

  F-11  
Table of Contents 

 

1 Accounting policies (continued)

 

Grant revenue

 

Where grant income is received, which is not a direct re-imbursement of related costs and at the point at which the conditions have been met for recognition as income, this has been shown within grant revenue.

 

Government grants and government loans

 

Where government grants are received as a re-imbursement of directly related costs they are credited to research and development expense in the same period as the expenditure towards which they are intended to contribute.

 

The Group receives government loans that have a below-market rate of interest. These loans are recognised and measured in accordance with IFRS 9. The benefit of the below-market rate of interest is measured as the difference between the initial carrying value of the loan discounted at a market rate of interest and the proceeds received.

 

The difference is held within deferred revenue as a government grant and is released as a credit to grant income or to research and development expense in line with the expenditure to which it relates. In a situation where the proceeds were invested in plant and equipment, the deferred revenue is credited to research and development within the income statement in line with the depreciation of the acquired asset.

 

Business combinations and externally acquired intangible assets

 

Business combinations are accounted for using the acquisition method at the acquisition date, which is the date at which the Group obtains control over the entity. The cost of an acquisition is measured as the amount of the consideration transferred to the seller, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree. The Group measures goodwill initially at cost at the acquisition date, being:

 

· the fair value of the consideration transferred to the seller, plus;

 

· the amount of any non-controlling interest in the acquiree, plus;

 

· if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree re-measured at the acquisition date, less;

 

· the fair value of the net identifiable assets acquired and assumed liabilities.

 

Acquisition costs incurred are expensed and included in administrative costs. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration, whether it is an asset or liability, will be recognised either as a profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not re-measured.

 

An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights.

 

Externally acquired intangible assets other than goodwill are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives where they are in use. The amortisation expense is included within the distribution costs, sales and marketing in the consolidated statement of comprehensive income. Goodwill is stated at cost less any accumulated impairment losses.

 

The amounts ascribed to intangibles recognised on business combinations are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below).

 

In-process research and development (‘IPRD’) programmes acquired in business combinations are recognised as assets even if subsequent expenditure is written off because the criteria specified in the policy for development costs below are not met. IPRD is subject to annual impairment testing until the completion or abandonment of the related project. No further costs are capitalised in respect of this IPRD unless they meet the criteria for research and development capitalisation as set out below.

 

As per IFRS 3, once the research and development of each defined project is completed, the carrying value of the acquired IPRD is reclassified as a finite-lived asset and amortised over its useful life.

 

The product and marketing rights recognised in 2017 related to various licenses, the Group held via its US subsidiary. These rights were disposed of with the sale of the subsidiary.

 

The significant intangibles recognised by the Group and their useful economic lives are as follows:

 

Goodwill – Indefinite life
   
IPRD – In process, not yet amortising
   
IT and website costs – 4 years
   
Product and marketing rights – Between 2 and 12 years

 

The useful economic life of IPRD will be determined when the in-process research projects are completed. Amortisation of product and marketing rights ceased in June 2018 when the US entity was classified as held for sale.

 

  F-12  
Table of Contents 

 

1 Accounting policies (continued)

 

Internally generated intangible assets (development costs)

 

Expenditure on the research phase of an internal project is recognised as an expense in the period in which it is incurred. Development costs incurred on specific projects are capitalised when all the following conditions are satisfied:

 

· completion of the asset is technically feasible so that it will be available for use or sale;

 

· the Group intends to complete the asset and use or sell it;

 

· the Group has the ability to use or sell the asset and the asset will generate probable future economic benefits (over and above cost);

 

· there are adequate technical, financial and other resources to complete the development and to use or sell the asset; and

 

· the expenditure attributable to the asset during its development can be measured reliably.

 

Judgement is applied when deciding whether the recognition criteria are met. Judgements are based on the information available. In addition, all internal activities related to the research and development of new projects are continuously monitored by the Directors. The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product receiving regulatory approval in at least one country.

 

Development expenditure not satisfying the above criteria, and expenditure on the research phase of internal projects are included in research and development costs recognised in the Consolidated Statement of Comprehensive Income as incurred. No projects have yet reached the point of capitalisation.

 

Impairment of non-financial assets

 

Assets that have an indefinite useful life, for example goodwill, or intangible assets not ready for use, such as IPRD, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. An impairment charge of £1.5m was recognised in 2017 against the IPRD of the Midatech Pharma (Wales) Ltd cash generating unit within continuing operations. Please refer to Note 33 Post Balance Sheet Events, for potential impairment charges during 2020.

 

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). After the disposal of the US operation on 1 November 2018, the Group at 31 December 2019 had only one cash generating unit (2018: one, 2017: two), as set out in note 13. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of impairment at each reporting date.

 

Impairment charges are included in profit or loss, except, where applicable, to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

 

Patents and trademarks

 

The costs incurred in establishing patents and trademarks are either expensed in accordance with the corresponding treatment of the development expenditure for the product to which they relate or capitalised if the development expenditure to which they relate has reached the point of capitalisation as an intangible asset.

 

Joint arrangements

 

The Group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

 

The Group classifies its interests in joint arrangements as either:

 

· Joint ventures: where the Group has rights to only the net assets of the joint arrangement; or

 

· Joint operations: where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.

 

In assessing the classification of interests in joint arrangements, the Group considers:

 

· the structure of the joint arrangement;

 

· the legal form of joint arrangements structured through a separate vehicle;

 

· the contractual terms of the joint arrangement agreement; and

 

· any other facts and circumstances (including any other contractual arrangements).

 

The results and assets and liabilities of joint ventures are incorporated in the financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5. Under the equity method, an investment in a joint venture is recognised initially in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the joint venture. When the Group’s share of losses of a joint venture exceeds the Group’s interest in that joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

 

  F-13  
Table of Contents 

 

1 Accounting policies (continued)

 

Foreign currency

 

Transactions entered into by subsidiary entities in a currency other than the currency of the primary economic environment, in which they operate, are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.

 

The presentational currency of the Group is Pounds Sterling, and the reporting currency is also Pounds Sterling. Foreign subsidiaries use the local currencies of the country where they operate. On consolidation, the results of overseas operations are translated into Pounds Sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

 

Exchange differences recognised in the profit or loss of Group entities on the translation of long-term monetary items forming part of the Group’s net investment in the overseas operation concerned are reclassified to other comprehensive income and accumulated in the foreign exchange reserve on consolidation.

 

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the gain or loss on disposal.

 

Financial assets and liabilities

 

Assets at amortised cost

The Group does not have any financial assets which it would classify as fair value through profit or loss. Therefore, all financial assets are classed as assets at amortised cost as defined below.

 

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

 

For impairment provisions, the Group applies the IFRS 9 simplified approach to measure expected credit losses using a lifetime expected credit loss provision for trade receivables to measure expected credit losses on a collective basis. Trade receivables are grouped based on a similar credit risk and ageing. Based on the scale of this area, our historic treatment is not materially different to the simplified approach under IFRS 9.

 

The expected loss rates are based on the Group’s historic credit losses experienced over the three-year period prior to the period end. The historic loss rates are then adjusted for current and forward-looking information on macroeconomic factors.

 

The Group’s assets at amortised costs comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.

 

Cash and cash equivalents include cash in hand, deposits held at call with original maturities of three months or less.

 

Financial liabilities

 

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired.

 

Fair value through profit and loss (‘FVTPL’)

The Group has outstanding warrants in the ordinary share capital of the company. The number of ordinary shares to be issued when exercised is fixed, however the exercise price is denominated in US Dollars being different to the functional currency of the parent company. Therefore, the warrants are classified as equity settled derivative financial liabilities recognised at fair value through the profit and loss account.

 

The financial liability is valued using the either the Monte Carlo model or the Black-Scholes option pricing model. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘finance income’ or ‘finance expense’ lines item in the income statement. Fair value is determined in the manner described in note 22.

 

Other financial liabilities include the following items:

 

· Borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

 

· Government loans received on favourable terms below market rate are discounted at a market rate of interest. The difference between the present value of the loan and the proceeds is held as a government grant within deferred revenue and is released to research and development expenditure or grant income in line with when the asset or expenditure is recognised in the income statement.

 

  F-14  
Table of Contents 

 

1 Accounting policies (continued)

 

Financial liabilities (continued)

 

· Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

 

Share capital

 

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Group has two classes of share in existence:

 

· ordinary shares of £0.00005 each are classified as equity instruments;

 

· deferred shares of £1 each are classified as equity instruments.

 

On 2 March 2020 a resolution was passed at a general meeting of shareholders of the Company to consolidate it’s ordinary shares on a one for 20 basis into new ordinary shares of £0.001 each in the capital of the Company.

 

The change in the number of shares resulting from the reverse stock split and change in the number of Depositary Shares resulting from the change in ratio has been applied retroactively to all share and per share amounts presented in this annual report, to the extent applicable.

 

Retirement benefits: defined contribution schemes

 

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

 

Provisions

 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

 

Share-based payments

 

The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

 

· including any market performance conditions (including the share price);

 

· excluding the impact of any service and non-market performance vesting conditions (for example, remaining an employee of the entity over a specified time period); and

 

· including the impact of any non-vesting conditions (for example, the requirement for employees to save).

 

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. Where vesting conditions are accelerated on the occurrence of a specified event, such as a change in control or initial public offering, such remaining unvested charge is accelerated
to the income statement.

 

In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.

 

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

 

Leases

 

The majority of the Group’s accounting policies for leases are set out in note 11.

 

Identifying Leases

 

The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of time in exchange for consideration. Leases are those contracts that satisfy the following criteria:

 

(a) There is an identified asset;

 

(b) The Group obtains substantially all the economic benefits from use of the asset; and

 

(c) The Group has the right to direct use of the asset.

 

The Group considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease.

 

In determining whether the Group obtains substantially all the economic benefits from use of the asset, the Group considers only the economic benefits that arise use of the asset, not those incidental to legal ownership or other potential benefits.

 

  F-15  
Table of Contents 

 

1 Accounting policies (continued)

 

Leases (continued)

 

In determining whether the Group has the right to direct use of the asset, the Group considers whether it directs how and for what purpose the asset is used throughout the period of use. If there are no significant decisions to be made because they are pre-determined due to the nature of the asset, the Group considers whether it was involved in the design of the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Group applies other applicable IFRSs rather than IFRS 16.

 

Deferred taxation

 

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

 

· the initial recognition of goodwill;

 

· the initial recognition of an asset or liability in a transaction which is not a business combination and at the time
of the transaction affects neither accounting or taxable profit; and

 

· investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

 

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

 

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax assets or liabilities are recovered or settled.

 

Property, plant and equipment

 

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs.

 

Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:

 

Fixtures and fittings – 25% per annum straight line
   
Leasehold improvements – the shorter of 10% per annum straight line or over the lease term
   
Computer equipment – 25% per annum straight line
   
Laboratory equipment – 15% – 25% per annum straight line
   
Right of use asset – Economic life of contractual relationship

 

Inventories

 

Inventories are stated at the lower of cost or net realisable value. Net realisable value is the market value. In evaluating whether inventories are stated at the lower of cost or net realisable value, management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time required to sell such inventory, remaining shelf life, and current and expected market conditions, including levels of competition.

 

If net realisable value is lower than the carrying amount a write down provision is recognised for the amount by which the carrying value exceeds its net realisable value.

 

Inventory is valued at the lower of cost or market value using the FIFO method. Inventory is charged to the income statement as cost of sales as it is sold.

 

2 Critical accounting estimates and judgements

 

The preparation of these consolidated financial statements requires the Group to make estimates, assumptions and judgments that can have a significant impact on the reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities, at the respective dates of our financial statements. The Group bases its estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management evaluates estimates, assumptions and judgments on a regular basis and makes changes accordingly, and discusses critical accounting estimates with the board of Directors.

 

The following are considered to be critical accounting estimates:

 

Impairment of goodwill and intangible assets not yet ready for use

 

Goodwill and intangibles not yet ready for use are tested for impairment at the cash generating unit level on an annual basis at the year end and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a cash generating unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

 

  F-16  
Table of Contents 

 

2 Critical accounting estimates and judgements (continued)

 

Impairment of goodwill and intangible assets not yet ready for use(continued)

 

Application of the goodwill impairment test requires judgment, including the identification of cash generating units, assignment of assets and liabilities to such units, assignment of goodwill to such units and determination of the fair value of a unit and for intangible assets not yet ready for use, the fair value of the asset. The fair value of each cash generating unit or asset is estimated using the income approach, on a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, including for revenues and development costs, estimation of the long term rate of growth for the business, estimation of the useful life over which cash flows will occur and determination of our weighted-average cost of capital.

 

The carrying value of goodwill was £2.3m and intangibles not yet ready for use was £10.1m as at 31 December 2019 (note 12).

 

The estimates used to calculate the fair value of a cash generating unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each such unit. Based on the analysis performed, there was no impairment of the goodwill in the years ended 31 December 2019, 2018 or 2017, and there was no impairment charge against the IPRD of the Midatech Pharma (Wales) Ltd cash generating unit (2018: £Nil; 2017: £1.5m ). See note 12 and 13. Please refer to Note 33 Post Balance Sheet Events, for potential impairment charges during 2020.

 

Share-based payments

 

The Group accounts for share-based payment transactions for employees in accordance with IFRS 2 Share-based Payment, which requires the measurement of the cost of employee services received in exchange for the options on our ordinary shares, based on the fair value of the award on the grant date.

 

The Directors selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of our share-based awards without market conditions. For performance-based options that include vesting conditions relating to the market performance of our ordinary shares, a Monte Carlo pricing model was used in order to reflect the valuation impact of price hurdles that have to be met as conditions to vesting.

 

The resulting cost of an equity incentive award is recognised as expense over the requisite service period of the award, which is usually the vesting period. Compensation expense is recognised over the vesting period using the straight-line method and classified in the consolidated statements of comprehensive income.

 

The assumptions used for estimating fair value for share-based payment transactions are disclosed in note 27 to our consolidated financial statements and are estimated as follows:

 

· volatility is estimated based on the average annualised volatility of a number of publicly traded peer companies in the biotech sector;

 

· the estimated life of the option is estimated to be until the first exercise period, which is typically the month after the option vests; and

 

· the dividend return is estimated by reference to our historical dividend payments. Currently, this is estimated to be zero as no dividend has been paid in the prior periods.

 

The following are considered to be critical accounting judgments:

 

Income taxes

 

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

 

In 2019, there were approximately £49.6m of gross unutilised tax losses carried forward (2018: £40.7m, 2017: £38.4m). No deferred tax asset has been provided in respect of these losses as there was insufficient evidence to support their recoverability in future periods.

 

Research and development costs

 

Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical and preclinical activities, drug development and manufacturing costs, and third-party service fees, including for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are periodically recognised as intangible assets based on an evaluation of the progress to completion of specific tasks using data such as patient enrolment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses.

 

Leases

IFRS 16 defines the lease term as the non-cancellable period of a lease together with the options to extend or terminate a lease, if the lessee were reasonably certain to exercise that option. This will take into account the length of time remaining before the option is exercisable, current trading, future trading forecasts as to the ongoing profitability of the organisation and the level and type of planned future capital investment. The judgement is reassessed at each reporting period. A reassessment of the remaining life of the lease could result in a recalculation of the lease liability and a material adjustment to the associated balances.

 

The discount rate used in the calculation of the lease liability involves estimation. The discount rate used is the incremental borrowing rate. This rates represents the rate the Group would have had to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment.

 

  F-17  
Table of Contents 

 

2 Critical accounting estimates and judgements (continued)

 

Leases (continued)

During 2019 Management considered the appropriate life of a new property lease entered into in Spain. The lease is for an initial period of 5 years, however the lease allows the Group to break the lease at any-time with one-month notice, provided it returns the property to its original condition. At 31 December 2019, Management assessed it was reasonably certain the expected life of the lease would be 5 years.

 

Discontinued Operations

Under the terms of the Sale Agreement the Group agreed to indemnify the Purchaser against, inter alia, any liability related to any prescription drug user fee amounts owed to the United States Food and Drug Administration (“FDA”) under the Prescription Drug Fee User Act (“PDUFA”) by MPUS for the United States government’s fiscal year ended 30 September 2018.

 

MPUS had successfully obtained waivers for user fees for all prior fiscal periods in which it was liable under PDUFA and entered into the Sale Agreement with the Purchaser confident that a further waiver would be obtained. However, during 2019 MPUS sought approval from the FDA for a filing relating to one of its commercial products and was informed by the FDA that the approval would not be forthcoming whilst the PDUFA fee remained unpaid. Consequently, MPUS paid the PDUFA fee of £0.95m and then, in accordance with the terms of the SPA, Midatech deposited the same amount with MPUS, pending completion of the waiver application process.

 

At 30 June 2019 Management considered the amount recoverable from MPUS, this was based on the waiver application process being on-going and the historical success MPUS have had in obtaining the waiver.

 

At 31 December 2019 Management reconsidered the recoverability of the sum paid under the warranty, and although the waiver process is still on-going, Management concluded, based on third party advice, that the probability of successfully achieving the waiver had diminished and therefore have taken the decision to expense the cost of the warranty claim in the second half of 2019.

 

Going Concern

 

We have experienced net losses and significant cash outflows from cash used in operating activities over the past years as we develop our portfolio. For the year ended December 31, 2019, the Company incurred a consolidated loss from operations of £10.1 million and negative cash flows from operations of £6.5 million. As of December 31, 2019, the Group had an accumulated deficit of £99.8 million.

 

The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

As at December 31, 2019, we had cash and cash equivalents of £10.93 million. In May 2020, we completed an equity offering, raising £3.7m net of costs. We believe we currently have enough cash to fund our planned operations into the second quarter of 2021.

 

Our future viability is dependent on our ability to generate cash from operating activities, to raise additional capital to finance our operations and to successfully obtain regulatory approval to allow marketing of our development products. Our failure to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue its business strategies. For example, due to our current and forecasted cash position, on 31 March 2020, we made the decision to abandon certain of our research and development programs, close our Spanish operations and make certain terminations within our UK operations. In connection with our strategic review announced on the same date, we are in the process of seeking to license or assign one or more of our technologies to a partner or, alternatively, to seek a buyer for our Company. Any or all of these transactions may be on unfavorable terms.

 

We have prepared cash flow forecasts and considered the cash flow requirement for the Company for the next five years including the period twelve months from the date of approval of the consolidated financial statements.  These forecasts show that further financing will be required before the second quarter of 2021 assuming, inter alia, that all development programs and other operating activities continue as currently planned.  This requirement for additional financing in the short term represents a material uncertainty that raises substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2019 with respect to this uncertainty.

 

In addition, the global spread of the pandemic COVID-19 virus places increased uncertainty over our forecasts. The restrictions placed and being placed on the movement of people will likely cause delays to some of our plans. The scale of the impact of COVID-19 is evolving and it is difficult to assess to what extent, and for how long, it will cause delays to our operations. We have established a COVID-19 task force internally to monitor the impact of COVID-19 on our business and prioritize activities to minimize its effect.

 

In addition to utilizing the existing cash reserves, as part of our ongoing strategic review, we and our advisors are evaluating a number of near-term funding options potentially available to us, including fundraising, the partnering of assets and technologies or the sale of the Company. After considering the uncertainties, we consider it is appropriate to continue to adopt the going concern basis in preparing the financial information. Our ability to continue as a going concern is dependent upon our ability to obtain additional capital and/or dispose of assets, for which there can be no assurance we will be able to do on a timely basis, on favorable terms or at all.

 

  F-18  
Table of Contents 

 

3 Segment Information

 

Revenue from contracts with customers

 

Geographical analysis of revenue by destination of customer

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Revenue from continuing operations:                        
United Kingdom     197       149       79  
Rest of Europe     55             70  
Rest of the World     60              
      312       149       149  
Revenue from discontinued operations                        
United States           3,882       6,609  

 

  

In 2019, all revenue from continuing operations came from 3 customers (2018: 1 customer; 2017: 3 customers). Within revenue from discontinued operations for 2018, reported in the consolidated statement of comprehensive income under loss from discontinued operations, four customers each accounted for at least 10% of revenue from discontinued operations (2017: three customers):

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Customer A     63 %     100 %     55 %
Customer B     19 %     -       -  
Customer C     18 %     -       -  

 

  

Following the disposal of the US commercial business, the Group contains one reportable operating segment, Pipeline Research and Development (‘Pipeline R&D’). This segment seeks to develop products using the Group’s nanomedicine and sustained release technology platforms.

 

The accounting policies of the reportable segments are consistent with the Group’s accounting policies described in note 1. Segment results represent the result of each segment without the allocation of head office expenses, interest expense, interest income and tax.

 

No measures of segment assets and segment liabilities are reported to the Group’s Board of Directors in order to assess performance and allocate resources. There is no intersegment activity and all revenue is generated from external customers.

 

Both the UK and Spanish entities meet the aggregation criteria and have therefore been presented as a single reportable segment under Pipeline R&D. The research and development activities involve the discovery and development of pharmaceutical products in the field of nanomedicine and sustained release technology. The US operating company was engaged in the sale and marketing of cancer supportive care products and was reported historically under the Commercial segment.

 

In the following segmented results tables, depreciation and amortisation allocated to research and development costs, and administrative costs in the consolidated statements of comprehensive income, are presented separately.

 

  F-19  
Table of Contents 

 

3 Segment Information (continued)

 

Segmented results for the year ended 31 December 2019

   

Pipeline R&D

£’000

   

Commercial
(discontinued)

£’000

   

Consolidated
(including
discontinued
operations)

£’000

 
Revenue     312             312  
Grant revenue     362             362  
Total revenue     674             674  
Other income     15             15  
Cost of sales                 -  
Research and development costs     (6,624 )           (6,624 )
Distribution costs, sales and marketing     (323 )           (323 )
Administrative costs     (3,775 )           (3,775 )
Loss from discontinued operations, net of tax           (947 )     (947 )
Depreciation     (1,282 )           (1,282 )
Amortisation     (3 )           (3 )
Loss from operations     (11,318 )     (947 )     (12,265 )
Finance income     492             492  
Finance expense     (97 )           (97 )
Loss before tax     (10,923 )     (947 )     (11,870 )
Taxation     1,785             1,785  
Loss for the year     (9,138 )     (947 )     (10,085 )
Loss from continuing operations                     (9,138 )
Loss from discontinued operations                     (947 )

 

  F-20  
Table of Contents 

 

3 Segment Information (continued)

 

Segmented results for the year ended 31 December 2018

   

Pipeline R&D

£’000

   

Commercial
(discontinued)

£’000

   

Consolidated
(including
discontinued
operations)

£’000

 
Revenue     149       3,882       4,031  
Grant revenue     1,789             1,789  
Total revenue     1,938       3,882       5,820  
Cost of sales           (1,286 )     (1,286 )
Research and development costs     (8,555 )     (283 )     (8,838 )
Distribution costs, sales and marketing           (4,357 )     (4,357 )
Administrative costs     (4,087 )     (872 )     (4,959 )
Loss on disposal of discontinued operations           (1,407 )     (1,407 )
Depreciation     (1,011 )     (5 )     (1,016 )
Amortisation     (100 )     (334 )     (434 )
Loss from operations     (11,815 )     (4,662 )     (16,477 )
Finance income     2             2  
Finance expense     (587 )           (587 )
Loss before tax     (12,400 )     (4,662 )     (17,062 )
Taxation     2,032             2,032  
Loss for the year     (10,368 )     (4,662 )     (15,030 )
Loss from continuing operations                     (10,368 )
Loss from discontinued operations                     (4,662 )

 

  F-21  
Table of Contents 

 

3 Segment Information (continued)

 

Segmented results for the year ended 31 December 2017

   

Pipeline R&D

£’000

   

Commercial
(discontinued)

£’000

   

Consolidated
(including
discontinued
operations)

£’000

 
Revenue     149       6,609       6,758  
Grant revenue     840             840  
Total revenue     989       6,609       7,598  
Cost of sales           (926 )     (926 )
Research and development costs     (7,355 )     (356 )     (7,711 )
Distribution costs, sales and marketing     (170 )     (7,477 )     (7,647 )
Administrative costs     (4,266 )     (566 )     (4,832 )
Depreciation     (974 )     (9 )     (983 )
Amortisation           (1,577 )     (1,577 )
Impairment of intangible assets     (1,500 )           (1,500 )
Loss from operations     (13,276 )     (4,302 )     (17,578 )
Finance income     415             415  
Finance expense     (109 )     (57 )     (166 )
Loss before tax     (12,970 )     (4,359 )     (17,329 )
Taxation     1,265             1,265  
Loss for the year     (11,705 )     (4,359 )     (16,064 )
Loss from continuing operations                     (11,705 )
Loss from discontinued operations                     (4,359 )

 

Non-current assets by location of assets

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Spain     4,383       1,860       2,154  
United Kingdom     12,775       12,966       15,331  
United States                 13,156  
      17,158       14,826       30,641  

 

All material additions to non-current assets in 2019, 2018 and 2017 were in the Pipeline R&D segment.

 

  F-22  
Table of Contents 

 

4 Discontinued operations

 

During 2018 the group made the decision to sell its Commercial business based in the US. The sale completed on 1 November 2018 to Barings LLC, a member of the MassMutual Financial Group, for total consideration of up to $19m. This included $6m of consideration contingent payable on the achievement of various net revenue milestones for the MPUS business for the financial years 2018 and 2019. MPUS did not achieve the net revenue milestones in either 2018 or 2019, as a result no contingent consideration was received during 2019.

 

During 2019 a claim was made by MPUS under the warranties provided by Midatech under the disposal agreement, see note 2. The statement of cash flows includes the following amounts relating to discontinued operations:

 

   

2019

£’000

   

2018

£’000

 
Cash consideration received           9,350  
Other consideration received            
Total consideration received           9,350  
Cash disposed of           (91 )
Net cash inflow on disposal of discontinued operation           9,259  
Net assets disposed (other than cash):           3  
Property, plant and equipment           15,662  
Intangibles           948  
Inventory           629  
Trade and other payables           (2,734 )
Total net assets disposed of (other than cash)           (14,508 )
Loss on disposal of discontinued operation before and after tax           (5,249 )
Foreign exchange gain realised on disposal           3,842  
Loss on disposal           (1,407 )

 

 

The post-tax loss on disposal of discontinued operations was determined as follows:

 

Result of discontinued operations  

2019

£’000

   

2018

£’000

   

2017

£’000

 
Revenue           3,882       6,609  
Expenses other than finance costs     (947 )     (7,137 )     (10,911 )
Finance costs                 (57 )
Impairment                  
Loss from discontinued operations before tax     (947 )     (3,255 )     (4,359 )
Taxation                  
Loss on disposal of discontinued operations           (1,407 )      
Loss for the year from discontinued operations after tax     (947 )     (4,662 )     (4,359 )

 

  F-23  
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4 Discontinued operations (continued)

 

Statement of cash flows  

2019

£’000

   

2018

£’000

   

2017

£’000

 
The statement of cash flows includes the following amounts relating to
discontinued operations:
                       
Operating activities           (5,368 )     (1,654 )
Investing activities     (947 )            
Financing activities           (7 )     (34 )
Net cash flow from discontinued operations     (947 )     (5,375 )     (1,688 )

 

  F-24  
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5 Loss from operations

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Loss from operations is stated after charging/(crediting):                        
Changes in inventories of finished goods and work in progress           (976 )     202  
Depreciation of property, plant and equipment                        
– From continuing operations     979       1,011       974  
– From discontinued operations           5       9  
Depreciation of right of use asset                        
– From continuing operations     303              
– From discontinued operations                  
Amortisation of intangible assets – product and marketing rights                        
– From continuing operations     3       100       193  
– From discontinued operations           334       1,384  
Impairment of intangible assets                 1,500  
Fees payable to the Company’s auditor for the audit of the parent
Company
    110       111       110  
Fees payable to the Company’s subsidiary auditors for the audits of the
subsidiary accounts
    48       143       140  
Fees payable to the Company’s auditor for:                        
– Other services     66       83       100  
Operating lease expense:                        
– Property           386       277  
– Plant and machinery                  
Arrangement/penalty fees for loan facility           469       57  
Foreign exchange(gain)/loss     131       212       (39 )
Loss on disposal of property, plant and equipment           165       27  
Equity settled share-based payment     (34 )     (36 )     520  

 

 

Amortisation of product and marketing rights are included with distribution costs, sales and marketing expenses. Amortisation ceased when the assets were reclassified as held for sale on 30 June 2018 and were sold on 1 November 2018.

 

  F-25  
Table of Contents 

 

6 Staff costs

 

Staff costs (including Directors), for continuing and discontinued operations, comprise:

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Staff costs (including Directors) comprise:                        
Wages and salaries     2,762       5,393       5,278  
Defined contribution pension cost (note 26)     90       149       158  
Social security contributions and similar taxes     565       639       643  
Share-based payment     (34 )     (36 )     520  
      3,383       6,145       6,599  
Continuing operations     3,383       4,352       4,578  
Discontinued operations           1,793       2,021  
      3,383       6,145       6,599  

 

Employee numbers

 

The average number of staff employed by the Group during the financial year, for continuing and discontinued operations, amounted to:

 

    2019     2018     2017  
Research and development     52       63       62  
General and administration     13       16       17  
Sales and marketing           6       6  
      65       85       85  

 

 

Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the Directors of the Company, and the Chief Operating Officer.

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Wages and salaries     656       900       811  
Defined contribution pension cost     42       39       68  
Payments made to third parties     82       142       142  
Social security contributions and similar taxes     72       77       97  
Benefits in kind     2       3       3  
Share-based payment     (58 )     (92 )     388  
      796       1,069       1,509  

 

  F-26  
Table of Contents 

 

6 Staff costs (continued)

 

Emoluments disclosed above include the following amounts in respect of the highest paid Director.

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Salary     266       110       299  
Total pension and other post-employment benefit costs     22       4       10  
Benefits in kind     1       1       1  
Termination benefits     -       99        
      289       214       310  

 

 

None of the Directors have exercised share options during the year (2018: nil, 2017: nil).

 

During the year 3 Directors (2018: 3, 2017: 2) participated in a defined contribution pension scheme.

 

7 Finance income and expense

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Finance income                        
Interest received on bank deposits     8       2       15  
Gain on equity settled derivative financial liability     484             400  
Total finance income     492       2       415  

 

 

The gain on the equity settled derivative financial liability in 2019 arose as a result of the reduction in share price. The gain in 2017 arose due to the reduction in the share price and the lapsing of associated warrants and options as set out in note 21.

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Finance expense                        
Bank loans     6       587       18  
Other loans     91             91  
Total finance expense     97       587       109  

 

  F-27  
Table of Contents 

 

8 Taxation

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Current tax credit                        
Current tax credited to the income statement     1,782       1,952       1,253  
Taxation payable in respect of foreign subsidiary           (67 )      
Adjustment in respect of prior year     3       128        
      1,785       2,013       1,253  
Deferred tax credit                        
Reversal of temporary differences           19       12  
Total tax credit     1,785       2,032       1,265  

 

 

There was no tax charge relating to discontinued operations for 2018 and 2017.

 

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to losses for the year are as follows:

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Loss for the year, continuing and discontinued operations     (10,085 )     (15,030 )     (16,064 )
Income tax credit – continuing operations     (1,785 )     (2,032 )     (1,265 )
Loss before tax     (11,870 )     (17,062 )     (17,329 )
Expected tax credit based on the standard rate of United Kingdom
corporation tax at the domestic rate of 19% (2018: 19%, 2017: 19.25%)
    (2,255 )     (3,241 )     (3,336 )
Expenses not deductible for tax purposes     1,087       2,492       412  
Unrelieved tax losses and other deductions     (114 )            
Adjustment in respect of prior period     (3 )     (129 )      
Surrender of tax losses for R&D tax refund     (1,810 )     (1,955 )     (1,196 )
Unrelieved tax losses and other deductions arising in the period           (220 )     (156 )
Foreign exchange differences     1       (26 )     (84 )
Deferred tax not recognised     1,309       1,047       3,095  
Total tax credited to the income statement     (1,785 )     (2,032 )     (1,265 )

 

 

The taxation credit arises on the enhanced research and development tax credits accrued for the respective periods.

 

  F-28  
Table of Contents 

 

9 Loss per share

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Numerator                        
Loss used in basic EPS and diluted EPS:                        
Continuing operations     (9,138 )     (10,368 )     (11,705 )
Discontinued operations     (947 )     (4,662 )     (4,359 )
Denominator                        
Weighted average number of ordinary shares used in basic EPS:     18,330,588       3,056,303       2,565,866  
Basic and diluted loss per share:                        
Continuing operations – pence     (50 )p     (339 )p     (456 )p
Discontinued operations – pence     (5 )p     (153 )p     (170 )p

 

 

On 2 March 2020 a resolution was passed at a general meeting of shareholders of the Company to consolidate its ordinary shares on a one for 20 basis into new ordinary shares of 0.1p each in the capital of the Company. The denominator has been calculated to reflect the share consolidation.

 

The Group has made a loss in the current and previous years presented, and therefore the options and warrants are anti-dilutive. As a result, diluted earnings per share is presented on the same basis for all periods shown.

 

  F-29  
Table of Contents 

 

10 Property, plant and equipment

 

   

Fixtures

and fittings

£’000

   

Leasehold

improvements

£’000

   

Computer

equipment

£’000

   

Laboratory

equipment

£’000

   

Right of use

asset

£’000

   

 

Total

£’000

 
Cost                                                
At 1 January 2017     228       1,999       281       3,050             5,558  
Additions     18       41       57       591             707  
Disposal                       (41 )           (41 )
Exchange differences     6       72       4       69             151  
At 31 December 2017     252       2,112       342       3,669             6,375  
Additions     4       106       40       353             503  
Disposal     (5 )     (229 )           (401 )           (635 )
Exchange differences     2       24       1       30             57  
At 31 December 2018     253       2,013       383       3,651             6,300  
Adoption of IFRS 16 Leases                             395       395  
Additions     4       137       23       223       822       1,209  
Effect of modification to lease
terms
                            (82 )     (82 )
Exchange differences     (9 )     (112 )     (3 )     (136 )     (11 )     (271 )
At 31 December 2019     248       2,038       403       3,738       1,124       7,551  

 

   

Fixtures

and fittings

£’000

   

Leasehold

improvements

£’000

   

Computer

equipment

£’000

   

Laboratory

equipment

£’000

   

Right of use

asset

£’000

   

Total

£’000

 
Accumulated depreciation                                                
At 1 January 2017     149       872       122       1,649             2,792  
Charge for the year     43       330       68       542             983  
Disposals                       (14 )           (14 )
Exchange differences     4       36       2       43             85  
At 31 December 2017     196       1,238       192       2,220             3,846  
Charge for the year     43       403       72       499             1,016  
Disposals           (175 )     (3 )     (421 )           (599 )
Exchange differences     2       19       4       28             53  
At 31 December 2018     241       1,485       265       2,326             4,317  
Charge for the year     2       400       70       507       303       1,282  
Exchange differences     (8 )     (91 )     (3 )     (93 )     (7 )     (202 )
At 31 December 2019     235       1,794       332       2,740       296       5,397  
Net book value                                                
At 31 December 2019     13       244       71       998       828       2,154  
At 31 December 2018     12       528       118       1,325             1,983  
At 31 December 2017     56       874       150       1,449             2,529  

 

  F-30  
Table of Contents 

 

11 Leases

 

All leases are accounted for by recognising a right-of-use asset and a lease liability except for:

 

· Leases of low value assets; and

 

· Leases with a duration of 12 months or less.

 

IFRS 16 was adopted 1 January 2019 without restatement of comparative figures. For an explanation of the transitional requirements that were applied as at 1 January 2019, see Note 32. The following policies apply subsequent to the date of initial application, 1 January 2019.

 

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the group’s incremental borrowing rate on commencement of the lease is used.

 

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for lease payments made at or before commencement of the lease.

 

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease.

 

When the group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. An equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

 

The Group had previously entered into a sublease agreement to mitigate the impact of an otherwise onerous lease on the closure of its Abingdon site. This has been recognised as a lease receivable as the Group determined that the sublease meets the definition of a finance lease under the transitional provisions of IFRS16 and therefore, no right-of-use asset is recognised.

 

Nature of leasing activities (in the capacity as lessee)

 

The group leases a number of properties in the jurisdictions from which it operates. In some jurisdictions it is customary for lease contracts to provide for payments to increase each year by inflation or and in others to be reset periodically to market rental rates. 

 

 

Right of Use Asset  

Land and
Buildings

£’000

 
At 1 January 2019     395  
Additions     822  
Effect of modification to lease terms     (82 )
Depreciation     (303 )
Exchange differences     (4 )
At 31 December 2019     828  

 

 

Lease Liabilities    

Land and

Buildings

£’000

 
At 1 January 2019     546  
Additions     822  
Effect of modification to lease terms     (82 )
Interest expenses     24  
Lease payments     (391 )
Exchange differences     (12 )
At 31 December 2019     907  

 

  F-31  
Table of Contents 

 

11 Leases (continued)

 

The group had commitments under non-cancellable operating leases as set out below, from 1 January 2019, the group has recognised right-of-use assets for these leases, exception for low value leases, see note 32 for further information.

 

             
   

Land and Buildings

£’000

   

Other

£’000

 
2019            
Expiring In one year or less   -     -  
Expiring between one and five years   -     -  
    -     -  
2018                
Expiring In one year or less     383       1  
Expiring between one and five years     189       4  
      572       5  
2017                
Expiring In one year or less     449       8  
Expiring between one and five years     359       32  
      808       40  

 

  F-32  
Table of Contents 

 

12 Intangible assets

 

   

In-process
research and
development

£’000

   

Product and
marketing rights

£’000

   

Goodwill

£’000

   

IT/Website
costs

£’000

   

Total

£’000

 
Cost                                        
At 1 January 2017     12,600       21,481       14,488       26       48,595  
Additions     778                         778  
Foreign exchange           (1,625 )     (1,044 )     1       (2,668 )
At 31 December 2017     13,378       19,856       13,444       27       46,705  
Disposals           (21,022 )     (11,808 )           (32,830 )
Foreign exchange           1,166       655       1       1,822  
At 31 December 2018     13,378             2,291       28       15,697  
Additions                       9       9  
Foreign exchange                       (2 )     (2 )
At 31 December 2019     13,378             2,291       35       15,704  

 

 

   

In-process

research and

development

£’000

   

Product and

marketing

rights

£’000

   

Goodwill

£’000

   

IT/Website

Costs

£’000

   

Total

£’000

 
Accumulated amortisation                                        
At 1 January 2017     1,800       15,608             15       17,423  
Amortisation charge for the year           1,574             3       1,577  
Impairment     1,500                         1,500  
Foreign exchange           (1,443 )           1       (1,442 )
At 31 December 2017     3,300       15,739             19       19,058  
Amortisation charge for the year           431             3       434  
Disposals           (17,103 )                 (17,103 )
Foreign exchange           933             1       934  
At 31 December 2018     3,300                   23       3,323  
Amortisation charge for the year                       3       3  
Foreign exchange                       (1 )     (1 )
At 31 December 2019     3,300                   25       3,325  
Net book value                                        
At 31 December 2019     10,078             2,291       10       12,379  
At 31 December 2018     10,078             2,291       5       12,374  
At 31 December 2017     10,078       4,117       13,444       8       27,647  

 

  F-33  
Table of Contents 

 

12 Intangible assets (continued)

 

The individual intangible assets, excluding goodwill, which are material to the financial statements are:

 

  Carrying amount     Remaining amortisation
period
 
   

2019

£’000

   

2018

£’000

   

2017

£’000

   

2019

(years)

   

2018

(years)

   

2017

(years)

 
Midatech Pharma (Wales) Limited acquired IPRD   9,300     9,300     9,300     n/a in
process
    n/a in
process
    n/a in
process
 
Midatech Pharma US, Inc., product and marketing
rights
                1,995       n/a       n/a      

Between

1 and 3

 
Zuplenz® product and marketing rights                 2,122       n/a       n/a       11  
MTX110 acquired IPRD     778       778       778      

n/a in

process

     

n/a in

process

     

n/a in

process

 
      10,078       10,078       14,195                          

 

 

13 Impairment testing

 

Midatech Pharma (Wales) Ltd

 

Details of goodwill and IPRD allocated to the acquired cash generating unit and the valuation basis are as follows:

 

  Indefinite lived      
  IPRD carrying amount     Goodwill carrying amount      
Name  

2019

£’000

   

2018

£’000

   

2017

£’000

   

2019

£’000

   

2018

£’000

   

2017

£’000

    Valuation Basis
CGU – Midatech Pharma (Wales) Ltd     9,300       9,300       9,300       2,291       2,291       2,291     Value in use

 

 

The assets of the Midatech Pharma Wales Ltd (‘MPW’) CGU were valued as at 31 December 2019, 2018 and 2017 and were found to support the IPRD and goodwill carrying amounts set out above. The IPRD was valued using 12-13 year (2018: 12–13 year; 2018: 13-14 year), risk adjusted cash flow forecasts, in line with patent life, that have been approved by the Board. A period longer than 5 years is appropriate on the basis that the investment is long term and the development and commercialisation process is typically in excess of 5 years. Beyond the period from product launch and initial market penetration, a long term growth rate of Nil was used.

 

In 2017 an impairment charge of £1.5m was recorded in the MPW CGU as a result of the impairment of the Opsisporin IPRD, primarily due to a strategic review concluding that the product is outside of Midatech’s strategic focus and as a result the decision was made not to continue with the programme at this point. At the same time the carrying value of a component of IPRD was reduced from £1.5m to nil. The resulting charge was shown separately within the consolidated statement of income.

 

The key assumptions used in the valuation model examining the MPW Ltd cash generating unit include the following:

 

Assumptions   2019     2018     2017  
Pre-tax discount rate     18.4 %     17.7 %     17.9 %
Cumulative probability of success of projects     81 %     81 %     81 %

 

 

The discount rate is an estimated market-based weighted average cost of capital for the MPW business, determined at the date of acquisition. Cumulative probability of success of projects is the product of the probability of success of each remaining major phase of development for each individual IPRD component. These phase probabilities were determined by management with reference to the risks associated with each remaining development stage.

 

  F-34  
Table of Contents 

 

13 Impairment testing (continued)

 

Sensitivity analysis

If any one of the following changes were made to the above key assumptions, the carrying value and recoverable amount would be equal.

 

Assumptions   2019     2018     2017  
Pre-tax discount rate for all projects    

increase to 21%

     

increase to 29.8%

     

increase to 21.0%

 
Cumulative probability of success of project     59 %     34 %     57 %

 

Refer to note 33 for post balance sheet event.

 

14 Subsidiaries

 

The subsidiaries of Midatech Pharma plc, all of which are 100% owned, either directly or through subsidiaries where indicated, and have been included in these financial statements in accordance with the details set out in the basis of preparation and basis of consolidation note 1, are as follows:

 

Name  

Registered

Office

 

Nature of

Business

  Notes
Midatech Limited   Oddfellows House, 19 Newport Road, Cardiff,
CF24 0AA
  Trading company    
Midatech Pharma (España) SL   Parque Tecnológico de Vizcaya, Edificio 800 Planta 2, Derio, 48160, Vizcaya, Spain   Trading company   (a)
PharMida AG   c/o Kellerhals, Hirschgässlein 11, 4051 Basel, Switzerland   Dormant   (a) (b)
Midatech Pharma (Wales)
Limited
  Oddfellows House, 19 Newport Road, Cardiff,
CF24 0AA
  Trading company    
Midatech Pharma PTY   c/o Griffith Hack Consulting, 300 Queen Street, Brisbane, QLD 4000, Australia   Trading company   (c)

 

 

Notes:

 

(a) Wholly owned subsidiary of Midatech Limited.

 

(b) PharMida AG became dormant in January 2016.

 

(c) Midatech Pharma PTY was incorporated on 16 February 2015.

 

15 Trade and other receivables

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Trade receivables     22       89       2,232  
Prepayments     151       139       627  
Other receivables     3,444       1,564       848  
Total trade and other receivables     3,617       1,792       3,707  
Less: non-current portion (rental deposit and on bond)     (2,625 )     (469 )     (465 )
Current portion     992       1,323       3,242  

 

 

Trade and other receivables do not contain any impaired assets. The Group does not hold any collateral as security and the maximum exposure to credit risk at the consolidated statement of financial position date is the fair value of each class of receivable.

 

Book values approximate to fair value at 31 December 2019, 2018 and 2017.

 

During 2019 a cash-backed guarantee was provided to the Spanish Government in relation to a loan provided to the Group under its Reindustrialization programme, see note 19. The value of the guarantee will be reduced over the life of the loan once the value outstanding on the loan is equal to or less than the guarantee. The reductions will be in line with the repayments made.

 

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16 Cash and cash equivalents and cash flow supporting notes

 

Cash and cash equivalents for purposes of the consolidated statement of cash flows comprises:

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Cash at bank available on demand     10,928       2,343       13,204  

 

 

During 2019 and 2017, cash inflows arose from equity financing transactions, included within financing activities on the face of the cash flow statement. As part of the equity transaction in October 2019 warrants to the value of £1.1m were issued as disclosed in note 21.

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Gross proceeds     15,767             6,157  
Transaction costs     (1,659 )           (429 )
      14,108             5,728  

 

 

The following changes in loans and borrowings arose as a result of financing activities during the year:

 

 

Non-current
liabilities

£’000

   

Current
liabilities

£’000

   

Total

£’000

 
At 1 January 2019     884       368       1,252  
Cash flows     5,575       (1,027 )     4,548  
Non-cashflows:                        
Foreign Exchange     (42 )     (29 )     (71 )
Fair value changes     (1,139 )           (1,139 )
Adoption of IFRS16 leases     163       383       546  
Effect of modification to lease term – IFRS 16           (82 )     (82 )
New leases     805       95       900  
Loans and borrowings classified as non-current 31 December 2018
becoming current in 2019
    (685 )     685        
Transfer to grant income           (14 )     (14 )
Interest accruing in period     108       34       142  
At 31 December 2019     5,670       412       6,082  

 

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16 Cash and cash equivalents and cash flow supporting notes (continued)

 

 

Non-current
liabilities, bank
loans

£’000

   

Current
liabilities, bank
loans

£’000

   

Total

£’000

 
At 1 January 2018     6,185       361       6,546  
Cash flows     (5,580 )     (305 )     (5,885 )
Non- cashflows:                        
Foreign Exchange     296       4       300  
New leases     168       76       244  
Loans and borrowings classified as non-current 31 December 2018
becoming current in 2019
    (232 )     232        
Interest accruing in period     47             47  
At 31 December 2018     884       368       1,252  

 

17 Inventories

 

 

2019

£’000

   

2018

£’000

   

2017

£’000

 
Finished goods                 941  
Total inventories                 941  

 

 

There was no stock held at 31 December 2019. In 2017 a reserve was maintained against inventory that was not expected to be sold before its sell by date. The resulting charge to the discontinued element of the comprehensive statement of income in 2017 was £151k.

 

18 Trade and other payables

 

Current  

2019

£’000

   

2018

£’000

   

2017

£’000

 
Trade payables     725       286       2,271  
Other payables     13             1,141  
Accruals     1,765       1,025       3,090  
Total financial liabilities, excluding loans and borrowings,
classified as financial liabilities measured at amortised cost
    2,503       1,311       6,502  
Tax and social security     86       347       359  
Deferred revenue and government grants     1,905       445       1,141  
Total trade and other payables     4,494       2,103       8,002  

Book values approximate to fair value at 31 December 2019, 2018 and 2017.

 

All current trade and other payables are payable within 3 months of the period end date shown above.

 

Government grants

 

The Group received development grant funding from the European Union under the Horizon 2020 ‘Nanofacturing’ project, a European Union funded programme to develop a scalable manufacturing platform for the production of nanopharmaceutical products. Midatech participated in this programme, along with seven other entities, through two Group companies, Midatech Pharma España SL (‘MPE’), which acted as project coordinator, and Midatech Limited (‘MTL’). The project commenced in February 2015 and completed in January 2019. £124k (2018: £1,610k, 2017: £840k) of revenue has been recognised during the year in relation to this project and £nil (2018:£124k, 2017: £1.11m) of the deferred revenue balance relates to funds received but not yet recognised.

  F-37  
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19 Borrowings

 

 

2019

£’000

   

2018

£’000

   

2017

£’000

 
Current                        
Bank loans     -–       4       11  
Lease liabilities     233       80       39  
Government and research loans     179       284       311  
Total     412       368       361  
Non-current                        
Bank loans                 5,207  
Lease liabilities     912       170       29  
Government and research loans     4,758       714       949  
Total     5,670       884       6,185  

 

 

Book values approximate to fair value at 31 December 2019, 2018 and 2017.

 

Obligations under finance leases are secured by a fixed charge over the fixed assets to which they relate.

 

Government loans in Spain

 

In September 2019, Midatech Pharma España SL received €6.6m of funding awarded under the Spanish Government Reindustrialization programme, following it providing a €2.9 million cash-backed guarantee. The funds are to be used to support Midatech’s manufacturing scale-up facilities construction. The loan is a term loan which carries an interest rate below the market rate and is repayable over periods through to 2029. The loan carries a default interest rate in the event of scheduled repayments not being met. On initial recognition, the loan is discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognised.

 

There are three other outstanding government loans which have been received by Midatech Pharma España SL for the finance of research, technical innovation and the construction of their laboratory. The loans are term loans which carry an interest rate below the market rate, and are repayable over periods through to 2024. The loans carry default interest rates in the event of scheduled repayments not being met. On initial recognition, the loans are discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognised.

 

The deferred revenue element of the government loans is designated within note 18 as deferred revenue and Government grants, the gross contractual repayment of the loans is disclosed in note 22.

 

Midcap Loan Facility

 

In December 2017, Midatech Pharma entered into a secured loan agreement with Midcap Financial Trust (MidCap). The total facility was for $15m to be drawn down in three separate tranches. Interest was charged on the outstanding balance of the loan at an annual rate of LIBOR plus 7.5% subject to a LIBOR floor of 1.25%. MidCap was granted 12,394 warrants to purchase shares which was equal to 2% of the amount funded divided by the Exercise Price of £8.40. The Exercise Price was calculated as the average closing price for the 30-day period prior to the date of grant. The loan was secured against the assets of the Group.

 

The first tranche of $7m was drawn down on 28 December 2017 and is disclosed under bank loans. This loan was repaid on 31 October 2018.

 

  F-38  
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20 Provisions

 

 

2019

£’000

   

2018

£’000

   

2017

£’000

 
Opening provision at 1 January     165              
Provision (released)/recognised in the year     (68 )     165        
At 31 December     97       165        
Less: non-current portion (rental deposit and bond)           (165 )      
Current portion     97              

 

 

The provision relates to the ‘making good’ clause on the Abingdon office which was vacated in December 2018. The office has been sub-let for the remaining period of the lease, which terminated in February 2020.

 

21 Derivative financial liability – current

 

 

2019

£’000

   

2018

£’000

   

2017

£’000

 
Equity settled derivative financial liability            
At 1 January                 400  
Warrants issued     1,148              
Gain recognised in finance income within the consolidated statement
of comprehensive income
    (484 )           (400 )
At 31 December     664              

 

 

Equity settled derivative financial liability is a liability that is not to be settled for cash.

 

In October 2019 the Group issued 3,150,000 warrants in the ordinary share capital of the company as part of a Registered Direct Offering. The number of ordinary shares to be issued when exercised is fixed, however the exercise price is denominated in US Dollars being different to the functional currency of the parent company. Therefore, the warrants are classified as equity settled derivative financial liabilities recognised at fair value through the profit and loss account (‘FVTPL’). The financial liability is valued using the Monte Carlo model. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘finance income’ or ‘finance expense’ lines item in the income statement. Fair value is determined in the manner described in note 22. A key input in the valuation of the instrument is the Company share price.

 

At 31 December 2019 3,150,000 warrants were outstanding.

 

The Group also assumed fully vested warrants and share options on the acquisition of DARA Biosciences, Inc. (which took place in 2015). The number of ordinary shares to be issued when exercised is fixed, however the exercise prices are denominated in US Dollars. The warrants are classified equity settled derivative financial liabilities and accounted for in the same way as those issued in October 2019. The financial liability is valued using the Black-Scholes option pricing model.

 

At 31 December 2017 a further 8,302 options and 24,465 warrants had lapsed and the share price had fallen to £7.20 which results in a gain of £0.40m on re-measurement which was credited to finance income during 2017.

 

At 31 December 2018 a further 8,846 options and 38,844 warrants had lapsed and the share price had fallen to £1.20. As the liability had already been reduced to zero there was no movement on re-measurement.

 

At 31 December 2019 a further 3,332 options and 111,582 warrants had lapsed and the share price had fallen to £0.56. As the liability had already been reduced to zero there was no movement on re-measurement.

 

  F-39  
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22 Financial instruments – risk management

 

The Group is exposed through its operations to the following financial risks:

 

· Credit risk

 

· Foreign exchange risk

 

· Liquidity risk

 

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. The Board does not believe that its risk exposure to financial instruments, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note has changed in the past year.

 

Principal financial instruments

 

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

 

· Trade and other receivables

 

· Cash and cash equivalents

 

· Trade and other payables

 

· Accruals

 

· Loans and borrowings

 

· Derivative financial liability

 

A summary of the financial instruments held by category is provided below:

 

Financial assets – amortised cost

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Cash and cash equivalents     10,928       2,343       13,204  
Trade receivables     22       89       2,232  
Other receivables     2,625       469       465  
Total financial assets     13,575       2,901       15,901  

 

 

Financial liabilities – amortised cost

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Trade payables     725       286       2,271  
Other payables     13             1,141  
Accruals     1,765       1,025       3,090  
Borrowings     6,082       1,252       6,546  
Total financial liabilities – amortised cost     8,585       2,563       13,048  

 

 

Financial liabilities – fair value through profit and loss – current

 

   

2019

£’000

   

2018

£’000

   

2017

£’000

 
Equity settled derivative financial liability     664              

 

 

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s management.

 

  F-40  
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22 Financial instruments – risk management (continued)

 

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below:

 

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

 

· Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;

 

· Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

 

· Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

 

The fair value of the Group’s derivative financial liability is measured at fair value on a recurring basis. The following table gives information about how the fair value of this financial liability is determined, additional disclosure is given in note 21:

 

Financial
liabilities
Fair
value as
at
31/12/2
019
Fair value
hierarchy
Valuation
technique(s)
and key
input(s)
Significant unobservable
input(s)
  Relationship of
unobservable inputs
to fair value
Equity settled
financial
derivative
liability
£664,000 Level 3 Monte Carlo simulation model Volatility rate of 78.4% determined using historical volatility of comparable companies.   The higher the volatility the higher the fair value.
       

Expected life between a range of 0.1 and 5.68 years determined using the remaining life of the share options.

 

  The shorter the expected life the lower the fair value.
        Risk-free rate between a range of 0.59% and 1.69 % determined using the expected life assumptions.   The higher the risk-free rate
the higher the fair value.
Equity settled
financial
derivative
liability
Level 3 Black-Scholes option pricing model Volatility rate of 78.3% determined using historical volatility of comparable companies.   The higher the volatility the higher the fair value.
        Expected life between a range of 2.0 and 2.9 years determined using the remaining life of the share options.   The shorter the expected life
the lower the fair value.
        Risk-free rate between a range of 0.0% and 0.26 % determined using the expected life assumptions.   The higher the risk-free rate
the higher the fair value.

 

  F-41  
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22 Financial instruments – risk management (continued)

 

Financial
liabilities
Fair
value as
at
31/12/2
018
Fair value
hierarchy
Valuation
technique (s)
and key
input(s)
Significant unobservable
input(s)
  Relationship of
unobservable inputs
to fair value
Equity settled
financial
derivative
liability
Level 3 Black-Scholes option pricing model Volatility rate of 42.5% determined using historical volatility of comparable companies.   The higher the volatility the higher the fair value.
        Expected life between a range of 0.1 and 7.6 years determined using the remaining life of the share options.   The shorter the expected life the
lower the fair value.
        Risk-free rate between a range of 0.0% and 1.14% determined using the expected life assumptions.   The higher the
risk-free rate the
higher the fair value.

 

 

Financial
liabilities
Fair
value as
at
31/12/2
017
Fair value
hierarchy
Valuation
technique (s)
and key
input(s)
Significant unobservable
input(s)
  Relationship of
unobservable inputs
to fair value
Equity settled
financial
derivative
liability
Level 3 Black-Scholes option pricing model Volatility rate of 42.5% determined using historical volatility of comparable companies.   The higher the volatility the higher the fair value.
        Expected life between a range of 0.1 and 8.6 years determined using the remaining life of the share options.   The shorter the expected life the
lower the fair value.
        Risk-free rate between a range of 0.0% and 1.14% determined using the expected life assumptions.   The higher the
risk-free rate the
higher the fair value.

 

 

Changing the unobservable risk free rate input to the valuation model by 10% higher while all other variables were held constant, would not impact the carrying amount of shares (2018: nil, 2017: nil).

 

There were no transfers between Level 1 and 2 in the period.

 

The financial liability measured at fair value on Level 3 fair value measurement represents consideration relating to warrants issued in October 2019 as part of a Registered Direct offering and also a business combination. In 2018 and 2017 this only related to consideration relating to a business combination.

 

Credit risk

Credit risk is the risk of financial loss to the Group if a development partner or a counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from amounts due from collaborative partners which is deemed to be low.

 

  F-42  
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22 Financial instruments – risk management (continued)

 

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with high credit status are accepted.

 

The Group does not enter into derivatives to manage credit risk.

 

The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

 

Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss.

 

Quantitative disclosures of the credit risk exposure in relation to financial assets are set out in note 15. This includes details regarding trade and other receivables, which are neither past due nor impaired.

 

The total exposure to credit risk of the Group is equal to the total value of the financial assets held at each year end as noted above.

 

Cash in bank

The Group is continually reviewing the credit risk associated with holding money on deposit in banks and seeks to mitigate this risk by holding deposits with banks with high credit status.

 

Foreign exchange risk

Foreign exchange risk arises because the Group has a material operation located in Bilbao, Spain, whose functional currency is not the same as the functional currency of the Group. The Group’s net assets arising from the overseas operation is exposed to currency risk resulting in gains or losses on retranslation into sterling. Given the levels of materiality, the Group does not hedge its net investments in overseas operations as the cost of doing so is disproportionate to the exposure.

 

Foreign exchange risk also arises when individual Group entities enter into transactions denominated in a currency other than their functional currency; the Group’s transactions outside the UK to the US, Europe and Australia drive foreign exchange movements where suppliers invoice in currency other than sterling. These transactions are not hedged because the cost of doing so is disproportionate to the risk.

 

The table below shows analysis of the Pounds Sterling equivalent of year-end cash and cash equivalent balances by currency:

 

 

2019

£’000

   

2018

£’000

   

2017

£’000

 
Cash and cash equivalents:                        
Pounds Sterling     3,153       457       6,116  
US Dollar     2,021       1,421       5,362  
Euro     5,750       459       1,632  
Other     4       6       94  
Total     10,928       2,343       13,204  

 

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22 Financial instruments – risk management (continued)

 

The table below shows the foreign currency exposure that gives rise to net currency gains and losses recognised in the consolidated statement of comprehensive income. Such exposures comprise the net monetary assets and monetary liabilities of the Group that are not denominated in the functional currency of the relevant Group entity. As at 31 December, these exposures were as follows:

 

 

2019

£’000

   

2018

£’000

   

2017

£’000

 
Net Foreign Currency Assets/(Liabilities):                        
US Dollar     2,021       1,421       4,459  
Euro     1,460       552       (362 )
Other     7       8       95  
Total     3,488       1,981       4,192  

 

 

Foreign currency sensitivity analysis

The most significant currencies in which the Group transacts, other than Pounds Sterling, are the US Dollar and the Euro. The Group also trades in other currencies in small amounts as necessary.

 

The following table details the Group’s sensitivity to a 10% change in year-end exchange rates, which the Group feels is the maximum likely change in rate based upon recent currency movements, in the key foreign currency exchange rates against Pounds Sterling:

 

Year ended 31 December 2019  

US Dollar

£’000

   

Euro

£’000

   

Other

£’000

 
Loss before tax     202       54        
Total equity     202       31       1  

 

 

Year ended 31 December 2018  

US Dollar

£’000

   

Euro

£’000

   

Other

£’000

 
Loss before tax           168        
Total equity     142       168        

 

 

Year ended 31 December 2017  

US Dollar

£’000

   

Euro

£’000

   

Other

£’000

 
Loss before tax     307       (89 )      
Total equity     307       (89 )      

 

 

The sale of the Midatech Pharma US, Inc. operation prior to 31 December 2018 resulted in there not being any US Dollar denominated assets or liabilities to report on other than a US Dollar cash balance held by Midatech Pharma PLC. In management’s opinion, the sensitivity analysis for the year ended 31 December 2018 is unrepresentative of the inherent foreign exchange risk as the year-end exposure does not reflect the exposure during the year.

 

Liquidity risk

Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. It is the Group’s aim to settle balances as they become due.

 

In February 2019, the Company completed a Subscription, Placing and Open Offer which raised £13.4m before costs. In October 2019, the Company completed a Registered Direct Offering which raised £2.4m before costs. We have prepared cash flow forecasts and considered the cash flow requirement for the Company for the next five years including the period twelve months from the date of approval of the consolidated financial information. These forecasts show that further financing will be required during the course of the next four months assuming, inter alia, that all development programs and other operating activities continue as currently planned. This requirement for additional financing in the short term represents a material uncertainty that raises substantial doubt about our ability to continue as a going concern. In addition, the global spread of the pandemic COVID-19 virus places increased uncertainty over our forecasts. The restrictions placed and being placed on the movement of people will likely cause delays to some of our plans. The scale of the impact of COVID-19 is evolving and it is difficult to assess to what extent, and for how long, it will cause

 

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22 Financial instruments – risk management (continued)

 

delays to our operations. We have established a COVID-19 task force internally to monitor the impact of COVID-19 on our business and prioritize activities to minimize its effect.

 

In addition to utilizing the existing cash reserves, as part of our ongoing strategic review, we and our advisors are evaluating a number of near-term funding options potentially available to us, including fundraising, the partnering of assets and technologies or the sale of the Company. Therefore, after considering the uncertainties, we consider it is appropriate to continue to adopt the going concern basis in preparing the financial information. Our ability to continue as a going concern is dependent upon our ability to obtain additional capital and/or dispose of assets, for which there can be no assurance we will be able to do on a timely basis, on favourable terms or at all.

 

The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities:

 

2019  

Up to 3
months

£’000

   

Between

3 and 12

months

£’000

   

Between
1 and 2

years

£’000

   

Between
2 and 5
years

£’000

   

Over
5 years

£’000

 
Trade and other payables     2,503                          
Bank loans                              
Lease liabilities     79       165       317       735        
Government research loans           272       238       2,851       3,317  
Total     2,582       437       555       3,586       3,317  

 

 

2018  

Up to 3
months

£’000

   

Between

3 and 12

months

£’000

   

Between
1 and 2

years

£’000

   

Between
2 and 5
years

£’000

   

Over
5 years

£’000

 
Trade and other payables     1,311                          
Bank loans     3       2                    
Finance lease     22       65       79       117        
Government research loans     44       240       406       414        
Total     1,380       307       485       531        

 

 

2017  

Up to 3
months

£’000

   

Between

3 and 12

months

£’000

   

Between
1 and 2

years

£’000

   

Between
2 and 5
years

£’000

   

Over
5 years

£’000

 
Trade and other payables     6,502                          
Bank loans     120       359       2,201       3,926        
Finance lease     16       25       30              
Government research loans     43       268       467       545       47  
Total     6,681       649       2,698       4,471       47  

 

 

More details with regard to the line items above are included in the respective notes:

 

· Trade and other payables – note 18

 

· Borrowings – note 19

 

As a result of the Strategic Review undertaken in March 2020 as disclosed in note 33 the Group intends to repay the Government Research loans during 2020.

 

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22 Financial instruments – risk management (continued)

 

Capital risk management

The Group monitors capital which comprises all components of equity (i.e. share capital, share premium, foreign exchange reserve and accumulated deficit).

 

The Group’s objectives when maintaining capital are:

 

· to safeguard the entity’s ability to continue as a going concern; and

 

· to have sufficient resource to take development projects forward towards commercialisation.

 

The Group continues to incur substantial operating expenses. Until the Group generates positive net cash inflows from the commercialisation of its products it remains dependent upon additional funding through the injection of equity capital and government funding. The Group may not be able to generate positive net cash inflows in the future or to attract such additional required funding at all, or on suitable terms. In such circumstances the development programmes may be delayed or cancelled, and business operations cut back.

 

The Group seeks to reduce this risk by keeping a tight control on expenditure, avoiding long term supplier contracts (other than clinical trials), prioritising development spend on products closest to potential revenue generation, obtaining government grants (where applicable), maintaining a focussed portfolio of products under development and keeping shareholders informed of progress.

 

There have been no changes to the Group’s objectives, policies and processes for managing capital and what the Group manages as capital, unless otherwise stated in this note, since the previous year.

 

23 Deferred tax

 

Deferred tax is calculated in full on temporary differences under the liability method using tax rates applicable in the tax jurisdictions where the tax asset or liability would arise.

 

The movement on the deferred tax account is as shown below:

 

   

2019

£’000

     

2018

£’000

     

2017

£’000

 
Liability at 1 January                  
Arising on business combination                  
Credited to income on impairment and amortisation of intangibles                  
Credited to income statement                  
Foreign exchange gain                  
Liability at 31 December                  

 

 

The movement on the deferred tax account in 2019 is nil (2018: nil, 2017: nil) as the net credit arising on the amortisation of intangible assets and other timing differences has been matched by a reduction in the deferred tax asset recognised on the losses offsetting the liability remaining.

 

Unused tax losses carried forward, subject to agreement with local tax authorities, were as follows:

 

   

Gross losses

£’000

   

Potential
deferred tax
asset

£’000

 
31 December 2019       49,565       8,426  
31 December 2018       40,741       6,926  
31 December 2017       38,377       6,639  

 

 

With the exception of the £1.6m (2018: £1.7m, 2017: £2.6m) deferred tax asset which qualifies for offset against the deferred tax liability, mainly arising on the acquisitions of Midatech Pharma (Wales) Limited, the remaining potential deferred tax asset of £9.0m (2018 £7.3m, 2017: £9.5m) has not been provided in these accounts due to uncertainty as to whether the asset would be recovered.

 

  F-46  
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23 Deferred tax (continued)

 

Details of the deferred tax liability are as follows:

 

2019    

Asset

£’000

   

Liability

£’000

   

Net

£’000

 
  Business Combinations       1,581       (1,581 )      

 

 

2018    

Asset

£’000

   

Liability

£’000

   

Net

£’000

 
  Business Combinations       1,690       (1,690 )      

 

 

2017    

Asset

£’000

   

Liability

£’000

   

Net

£’000

 
  Business Combinations       2,599       (2,599 )      

 

24 Share capital

 

Authorised, allotted and
fully
paid – classified as equity
 

2019

Number

   

2019

£

   

2018

Number

   

2018

£

   

2017

Number

   

2017

£

 
At 31 December                                                
Ordinary shares of
£0.00005 each
    23,494,981       23,495       3,059,207       3,059       3,054,207       3,054  
Deferred shares of £1 each     1,000,001       1,000,001       1,000,001       1,000,001       1,000,001       1,000,001  
Total             1,023,496                 1,003,060               

1,003,055

 

 

 

On 2 March 2020 a resolution was passed at a general meeting of shareholders of the Company to consolidate it’s ordinary shares on a one for 20 basis into new ordinary shares of 0.1p each in the capital of the Company.

 

In accordance with the Articles of Association for the Company adopted on 13 November 2014, the share capital of the Company consists of an unlimited number of ordinary shares of nominal value 0.005 pence each. Ordinary and deferred shares were recorded as equity.

 

Rights attaching to the shares following the incorporation of Midatech Pharma plc

 

Shares classified as equity

The holders of ordinary shares in the capital of the Company have the following rights:

 

(a) to receive notice of, to attend and to vote at all general meetings of the Company, in which case shareholders shall have one vote for each share of which he is the holder; and,

 

(b) to receive such dividend as is declared by the Board on each share held.

 

The holders of deferred shares in the capital of the Company:

 

(a) shall not be entitled to receive notice of or to attend or speak at any general meeting of the Company or to vote on any resolution to be proposed at any general meeting of the Company; and

 

(b) shall not be entitled to receive any dividend or other distribution of out of the profits of the Company.

 

 

In the event of a distribution of assets, the deferred shareholders shall receive the nominal amount paid up on such share after the holder of each ordinary share shall have received (in cash or specie) the amount paid up or credited as paid up on such ordinary share together with an additional payment of £100 per share. The Company has the authority to purchase the deferred shares and may require the holder of the deferred shares to sell them for a price not exceeding 1p for all the deferred shares.

 

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24 Share capital (continued)

 

     

Ordinary Shares

Number

   

Deferred Shares

Number

   

Share
Price

£

   

Total
consideration

£’000

 
At 1 January 2017           2,434,973       1,000,001               63,713  
2017                                      
19 May 2017     Share issue to SIPP trustee (see note 27)       1,000             0.001        
16 October 2017     Placing and Open Offer (see note 16)       615,734             10.0       6,157  
7 November 2017     Share issue to SIPP trustee (see note 27)       2,500             0.001        
At 31 December 2017             3,054,207       1,000,001               69,870  
2018                                      
1 August 2018     Share issue to SIPP trustee (see note 27)       5,000             0.001        
At 31 December 2018             3,059,207       1,000,001               69,870  
2019                                      
26 February 2019     Subscription, Placing and Open Offer       17,410,774             0.77       13,406  
8 October 2019     Share issue to SIPP trustee (see note 27)       25,000             0.001        
29 October 2019     Registered Direct Offering       3,000,000             0.7874       2,362  
At 31 December 2019           23,494,981       1,000,001               85,638  

 

25 Reserves

 

The following describes the nature and purpose of each reserve within equity:

 

Reserve Description and purpose
Share premium Amount subscribed for share capital in excess of nominal value.
Merger reserve Represents the difference between the fair value and nominal value of shares issued on the acquisition of subsidiary companies where the Company has elected to take advantage of merger relief.
Foreign exchange reserve Gains/losses arising on retranslating the net assets of overseas operations into sterling.
Accumulated deficit All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

 

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26 Retirement benefits

 

The Group operates a defined contribution pension scheme for the benefit of its employees. The assets of the scheme are administered by trustees in funds independent from those of the Group.

 

27 Share-based payments

 

Share Options

 

The Group has issued options over ordinary shares under the 2014 Midatech Pharma plc Enterprise Management Incentive Scheme, the Midatech Pharma plc 2016 U.S. Option Plan, which is a sub-plan of the approved UK plan, and unapproved share options awarded to non-UK or non-US staff. In addition, certain share options originally issued over shares in Midatech Limited under the Midatech Limited 2008 unapproved share option scheme or Midatech Limited 2013 approved Enterprise Incentive scheme were reissued in 2015 over shares in Midatech Pharma plc under the 2014 Midatech Pharma plc Enterprise Management Incentive Scheme. Exercise of an option is subject to continued employment.

 

Details of all share options granted under the Schemes are set out below:

 

Date of grant     At 1 January
2019
    Granted in 2019     Exercised in
2019
    Forfeited in
2019
   

At

31 December
2019

   

Exercise

Price

 
1 April 2010       1,255                         1,255     £ 80.00  
20 August 2010       2,088                         2,088     £ 83.80  
13 September 2011       150                         150     £ 83.80  
20 April 2012       1,589                         1,589     £ 83.80  
9 May 2014       10,000                         10,000     £ 1.50  
30 June 2014       21,500                   (3,000 )     18,500     £ 1.50  
11 July 2014       100                         100     £ 1.50  
31 October 2016       2,500                   (2,500 )         £ 34.20  
31 October 2016       23,411                   (7,140 )     16,271     £ 53.60  
14 December 2016       400                         400     £ 31.00  
14 December 2016       500                         500     £ 34.00  
14 December 2016       2,000                         2,000     £ 37.40  
14 December 2016       1,625                         1,625     £ 37.60  
15 December 2016       4,600                         4,600     £ 24.20  
19 December 2016       35,866                   (13,475 )     22,391     £ 24.20  
15 December 2017       45,885                   (16,325 )     29,560     £ 9.20  
2 April 2018       997                         997     £ 16.60  
2 April 2018       4,500                         4,500     £ 24.20  
24 April 2019             219,000             (49,500 )     169,500     £ 1.46  
2 October 2019             50,000                   50,000     £ 1.05  
        158,966       269,000             (91,940 )     336,026      

 

  F-49  
Table of Contents 

 

27 Share-based payments (continued)

 

Options exercisable at 31 December 2019     131,094  
Weighted average exercise price of outstanding options at 31 December 2019   £ 8.48  
Weighted average exercise price of options exercised in 2019     n/a  
Weighted average exercise price of options forfeited in 2019   £ 13.26  
Weighted average exercise price of options granted in 2019   £ 1.38  
Weighted average remaining contractual life of outstanding options at 31 December 2019     7.9 years  

 

 

On 2 March 2020 a resolution was passed at a general meeting of shareholders of the Company to consolidate it ordinary shares on a one for 20 basis into new ordinary shares of 0.1p each in the capital of the Company.

 

Date of grant     At 1 January
2018
    Granted in 2018     Exercised in
2018
    Forfeited in
2018
   

At

31 December
2018

   

Exercise

Price

 
31 December 2008       1,306                   (1,306 )         £ 28.50  
31 December 2008       150                   (150 )         £ 79.70  
1 April 2010       1,255                         1,255     £ 80.00  
20 August 2010       2,088                         2,088     £ 83.80  
13 September 2011       150                         150     £ 83.80  
20 April 2012       1,789                   (200 )     1,589     £ 83.80  
9 May 2014       10,000                         10,000     £ 1.50  
30 June 2014       44,000                   (22,500 )     21,500     £ 1.50  
11 July 2014       100                         100     £ 1.50  
31 October 2016       2,500                         2,500     £ 34.20  
31 October 2016       30,380                   (6,969 )     23,411     £ 53.60  
14 December 2016       400                         400     £ 31.00  
14 December 2016       500                         500     £ 34.00  
14 December 2016       2,000                         2,000     £ 37.40  
14 December 2016       2,000                   (375 )     1,625     £ 37.60  
15 December 2016       5,100                   (500 )     4,600     £ 24.20  
19 December 2016       55,210                   (19,344 )     35,866     £ 24.20  
15 December 2017       67,560                   (21,675 )     45,885     £ 9.20  
2 April 2018             997                   997     £ 16.60  
2 April 2018             4,500                   4,500     £ 24.20  
        226,488       5,497             (73,019 )     158,966      

 

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Table of Contents 

 

27 Share-based payments (continued)

 

 

Options exercisable at 31 December 2018     112,393  
Weighted average exercise price of outstanding options at 31 December 2018   £ 22.02  
Weighted average exercise price of options exercised in 2018     n/a  
Weighted average exercise price of options forfeited in 2018   £ 15.98  
Weighted average exercise price of options granted in 2018   £ 16.60  
Weighted average remaining contractual life of outstanding options at 31 December 2018     5.7 years  

 

Date of grant     At 1 January
2017
    Granted in 2017     Exercised in
2017
    Forfeited in
2017
   

At

31 December
2017

   

Exercise

Price

 
31 December 2008       1,306                         1,306     £ 28.50  
31 December 2008       150                         150     £ 79.70  
1 April 2010       1,255                         1,255     £ 80.00  
20 August 2010       2,088                           2,088     £ 83.80  
13 September 2011       150                         150     £ 83.80  
20 April 2012       1,789                         1,789     £ 83.80  
9 May 2014       10,000                         10,000     £ 1.50  
30 June 2014       44,000                         44,000     £ 1.50  
11 July 2014       150                   50       100     £ 1.50  
31 October 2016       2,500                         2,500     £ 34.20  
31 October 2016       30,380                         30,380     £ 53.60  
14 December 2016       400                         400     £ 31.00  
14 December 2016       500                         500     £ 34.00  
14 December 2016       150                   150           £ 34.20  
14 December 2016       150                   150           £ 34.60  
14 December 2016       150                   150           £ 34.80  
14 December 2016       2,000                         2,000     £ 37.40  
14 December 2016       2,000                         2,000     £ 37.60  
15 December 2016       9,850                   4,750       5,100     £ 24.20  
19 December 2016       55,497                   287       55,210     £ 24.20  
15 December 2017             67,560                   67,560     £ 9.20  
        164,465       67,560             (5,537 )     226,488        

 

  F-51  
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27 Share-based payments (continued)

 

Options exercisable at 31 December 2017     50,023  
Weighted average exercise price of outstanding options at 31 December 2017   £ 20.06  
Weighted average exercise price of options exercised in 2017     n/a  
Weighted average exercise price of options forfeited in 2017   £ 24.84  
Weighted average exercise price of options granted in 2017   £ 9.20  
Weighted average remaining contractual life of outstanding options at 31 December 2017     8.3 years  

 

 

The following information is relevant in the determination of the fair value of options granted during the year 2019 under the equity share based remuneration schemes operated by the Group.

 

  April 2019     October 2019  
Number of options     219,000       50,000  
Option pricing models used     Black-Scholes       Black-Scholes  
Share price   £ 2.30 *   £ 1.126 *
Exercise price of options issued in year   £ 1.46     £ 1.05  
Contractual life     10 years       10 years  
Expected life     5 years       5 years  
Volatility     75.3 %**     78.3 %**
Expected dividend yield     0 %     0 %
Risk free rate     0.85 %     0.26 %

 

 

* The share price used in the determination of the fair value of the options granted in 2018 was the share price on the date of grant.

 

** Volatility was calculated with reference to the historic share price volatility of comparable companies measured over a five-year period.

 

The following information is relevant in the determination of the fair value of options granted during the year 2018 under the equity share based remuneration schemes operated by the Group.

 

  2018  
Number of options     5,500  
Option pricing models used     Monte-Carlo  
Share price   £ 5.40 *
Exercise price of options issued in year     £16.60–£24.40  
Contractual life     10 years  
Expected life     5 years  
Volatility     45.2 %**
Expected dividend yield     0 %
Risk free rate     1.03 %

 

 

* The share price used in the determination of the fair value of the options granted in 2018 was the share price on the date of grant.

 

** Volatility was calculated with reference to the historic share price volatility of comparable companies measured over a five-year period.

 

  F-52  
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27 Share-based payments (continued)

 

The following information is relevant in the determination of the fair value of options granted during the year 2017 under the equity share based remuneration schemes operated by the Group.

 

  2017  
Number of options     67,562  
Option pricing models used     Monte-Carlo  
Share price   £ 8.20 *
Exercise price of options issued in year   £ 9.20  
Contractual life     10 years  
Expected life     5 years  
Volatility     42.5 %**
Expected dividend yield     0 %
Risk free rate     0.73 %

 

 

* The share price used in the determination of the fair value of the options granted in 2017 was the share price on the date of grant.

 

** Volatility was calculated with reference to the historic share price volatility of comparable companies measured over a five-year period.

 

 

 

All other share options relate to the Midatech Limited 2008 unapproved share option scheme.

 

Share Incentive Plan

 

In April 2017 the Group set up the Midatech Pharma Share Incentive Plan (MPSIP). Under the MPSIP, Group employees and Directors can acquire ordinary shares in the Company via a salary sacrifice arrangement. Midatech grants matching shares for every share bought. In order to retain these shares, scheme participants must remain employed by the Group for three years from the date of acquisition. All shares purchased by the MPSIP are held by an Employee Benefit Trust that is not under the control of Midatech. Shares must be left in the plan for 5 years to qualify for full income tax and NIC relief.

 

28 Capital commitments

 

The Group had no capital commitments at 31 December 2019, 31 December 2018 and 31 December 2017.

 

29 Related party transactions

 

Transactions with BioConnection BV

 

The Directors consider BioConnection BV (‘BioConnection’) to be a related party by virtue of the fact that there is a common Director with the Company. 2019 is the first year where this relationship existed.

 

During the year, BioConnection invoiced the Company €17,800. As at 31 December 2019 €8,400 was due to BioConnection.

 

Transactions with Preci-Health

 

The Directors previously considered Preci-Health SA (‘Preci-Health) to be a related party up to 31 May 2018 by virtue of the fact that there was a common Director with the Company up to that point in time. Preci-Health ceased to be considered a related party on 31 May 2018 after the Director left the Company.

 

During 2018 there were no transactions with Preci-Health. During 2017, £44k was invoiced to Preci-Health for research services and credited to revenue.

 

The Group has not made any allowances for bad or doubtful debts in respect of related party debtors nor has any guarantee been given or received during 2018 or 2017 regarding related party transactions.

 

30 Contingent liabilities

 

The Group are currently party to a claim by the estate of a former employee for unfair dismissal. The claim comprises various elements totalling up to €258,000. The case has already been dismissed by an Employment Court in Spain and has been re-filed by the state in a Civil Court in Spain. The Group consider the claim is without foundation and intend to vigorously defend the claim. It is anticipated the case will be concluded by the end of 2020. The directors note that in the event of an unfavourable judgement the Group would not be able to recoup the loss from another party.

 

The Group had no contingent liabilities at 31 December 2018 and 31 December 2017.

 

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31 Ultimate controlling party

 

In February 2019, China Medical Systems Holdings Limited and A&B (HK) Company Ltd (collectively, “CMS”) invested a total of £8m in return for 10,389,610 new ordinary shares, which following admission on 26 February 2019, represented 51% of the issued share capital of the Company. As a result of this transaction CMS was able to exert control over Midatech during part of 2019. However subsequent to the Registered Direct Offering on 29 October 2019 CMS were no longer able to exert control as their shareholding was diluted, from this date the group does not consider there to be a controlling party.

 

32 Effects of changes in accounting policies

 

The Group adopted IFRS 16 and IFRIC 23 with a transition date of 1 January 2019. The Group has chosen not to restate comparatives on adoption of both standards, and therefore, the revised requirements are not reflected in the prior year financial statements. Rather, these changes have been processed at the date of initial application (i.e. 1 January 2019) and recognised in the opening equity balances. Details of the impact these two standards have had are given below. Other new and amended standards and Interpretations issued by the IASB did not impact the Group as they are either not relevant to the Group’s activities or require accounting which is consistent with the Group’s current accounting policies.

 

IFRS 16 Leases

 

Effective 1 January 2019, IFRS 16 has replaced IAS 17 Leases and IFRIC 4 Determining whether an Arrangement Contains a Lease.

 

IFRS 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, together with options to exclude leases where the lease term is 12 months or less, or where the underlying asset is of low value. IFRS 16 substantially carries forward the lessor accounting in IAS 17, with the distinction between operating leases and finance leases being retained. The Group does not have significant leasing activities acting as a lessor.

 

Transition Method and Practical Expedients Utilised

 

The Group adopted IFRS 16 using the modified retrospective approach, with recognition of transitional adjustments on the date of initial application (1 January 2019), without restatement of comparative figures, to all contracts in existence on or after 1 January 2019, except for leases of low value based on the value of the underlying asset when new or for short-term leases with a lease term of 12 months or less.

 

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognizes right-of-use assets and lease liabilities for most leases. However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset when new or for short-term leases with a lease term of 12 months or less.

 

On adoption of IFRS 16, the Group recognised right-of-use assets and lease liabilities in relation to leases of property, which had previously been classified as operating leases.

 

On adoption of IFRS 16, the Group recognised right-of-use assets and lease liabilities as follows:

 

Classification Under IAS17 Right-of-use assets Lease liabilities
All other operating leases

Property leases: Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

 

Lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as at 1 January 2019. The Group’s incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted-average rate applied was 3%.
Finance leases Measured based on the carrying values for the lease assets and liabilities immediately before the date of initial application (i.e. carrying values brought forward, unadjusted).

 

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32 Effects of changes in accounting policies (continued)

 

 

The following table presents the impact of adopting IFRS 16 on the statement of financial position as at 1 January 2019:

 

  Adjustments    

31 December 2018

As originally presented

£’000

   

IFRS 16

 

 

£’000

   

1 January 2019

 

 

£’000

 
Assets                                
Right-of-use asset     (a)             395       395  
Other receivables     (b)       1,564       152       1,716  
Liabilities                                
Lease liabilities     (c)       (250 )     (547 )     (796 )

The adjustments to right-of-use asset is as follows:

 

  £’000
a)    Right-of-use assets 395
b)    Lease receivable on sub-let property 152
c)    The following table reconciles the minimum lease commitments disclosed in the Group’s 31 December 2018 annual financial statements to the amount of lease liabilities recognised on 1 January 2019:  
 

1 January 2019

£’000

Minimum operating lease commitment as 31 December 2018 577
Less: low value leases not recognised under IFRS16 (5)
Less: effect of discounting using incremental borrowing rate as at the date of initial application (25)
Lease liabilities recognised at 1 January 2019 547

 

IFRIC 23 Uncertainty over Income Tax Treatments

 

IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation requires:

 

· The Group to contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;
· The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
· If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty.

 

The Group elected to apply IFRIC 23 retrospectively with any cumulative effect to be recorded in retained earnings as at the date of initial application, 1 January 2019. The adoption of IFRIC 23 did not result in a change in corporate tax liabilities or assets.

33 Post balance sheet events

 

In January 2020, a study of subcutaneous administration of MTD201 compared with traditional intramuscular administration in healthy volunteers showed similar pharmacokinetics and bioavailability, offering the potential for a differentiated, more patient-friendly product profile.

 

In March 2020, an exploratory study was initiated by Columbia University in five patients with DIPG using an alternative convection enhanced delivery system.

 

On 2 March 2020 a resolution was passed at a general meeting of shareholders of the Company to consolidate its ordinary shares on a one for 20 basis into new ordinary shares of 0.1p each in the capital of the Company. At the same meeting a resolution was passed to change the ratio of the Company's

 

  F-55  
Table of Contents 

 

33 Post balance sheet events (continued)

 

American Depositary Receipts ("ADRs"). This will change from one ADR representing 20 Existing Ordinary Shares to one ADR representing five new ordinary shares.

 

The share consolidation will have an impact on the ordinary shares, any employee share option plans as well as warrants. As a result of share consolidation:

 

    Pre-Split Post-Split
Weighted average number of shares outstanding - basic and diluted   366,611,759 18,330,588
Ordinary shares outstanding   469,899,613 23,494,981
Outstanding employee share options   6,720,722 336,036
Outstanding DARA options   57,150 2,857
Outstanding DARA warrants   92,480 4,624

 

 

The financial statements reflect the effects of the reverse stock split (share consolidation) for all periods presented.

 

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. As of the date of these Accounts, the Group’s operations have been significantly curtailed temporarily due to restrictions imposed by governments.

 

We cannot reasonably estimate the length or severity of this pandemic and related restrictions. Some factors from the COVID-19 outbreak that we believe will adversely affect our current and planned drug development activities include:

 

· the diversion of healthcare resources away from the conduct of clinical trial matters to focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

· limitations on travel that interrupt key trial activities, such as clinical trial site initiations and monitoring;

 

· interruption in global shipping affecting the transport of clinical trial materials, such as investigational drug product used in our trials; and

 

· employee absences that delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

 

On 31 March 2020 the Company announced that the Board had concluded, in the context of its current cash runway, that the Company was unlikely to conclude a license transaction or raise sufficient funds to continue the required remaining investment in MTD201 on a timely basis. The Board therefore decided to terminate further inhouse development of the MTD201 programme with immediate effect. The Company will continue to seek licensing partners for this asset.

 

In line with the decision to terminate MTD201, the Board also took the difficult decision to close the Company’s MTD201 dedicated manufacturing facilities in Bilbao and offer redundancy to all 42 employees. In addition, a further five UK-based employees in clinical research and administrative roles are being offered redundancy.

 

Following these changes, Midatech’s remaining 20 employees and operations are concentrated in Cardiff. The Company’s near term goal is to deploy its proprietary drug delivery technologies to formulate a compelling portfolio of novel first-in-class sustained release formulations of products with significant commercial potential for licensing to pharmaceutical company partners at proof of concept stage. With the exception of our ongoing commitments with respect to MTX110 clinical trials, the Company has no plans to undertake additional trials in humans unless a license partner or grant funding has been secured.

 

The Board continues to consider options for extracting value from the Company’s technologies including providing formulation services to biopharmaceutical partners and partnering its existing and upcoming proof of concept formulations and/or partnering a technology.

 

  F-56  
Table of Contents 

 

33 Post balance sheet events (continued)

 

The provisional estimated one-time cash outflows and non-cash costs of these actions are expected to be as follows:

 

 

Estimated cash
outflow

£’000

 
Staff redundancy     933  
Repayment of loans, net of deposit returned     3,569  
Property lease termination costs      
Settlement of lease liabilities     131  
Repayment of grant funding     230  
Other     70  
      4,933  
         

   

Estimated non-cash
costs

£’000

 
Impairment of acquired IPRD     9,300  
Impairment of goodwill     2,291  
Write down of tangible assets to net realisable value     975  
Right of use asset adjustment     (61 )
Other     (186 )
      12,319  

 

The above table includes 100% impairment of acquired IPRD and goodwill, in a worst case scenario. The final outcome will depend on the Directors progress with the strategic options which commenced in April 2020.

 

The cash outflows and non-cash costs will be reflected in the Company’s financial statements for 2020.

 

On 20 April 2020, the Company announced an update to the strategic review including the appointment of an adviser and start of a ‘formal sale process’ under the Takeover Code.

 

On 18 May 2020, the Company announced that it had raised gross proceeds of £1.8 million (before expenses) by way of a placing to investors in the UK ("UK Placing") of 6,666,666 Units (each Unit comprising one new ordinary share of 0.1p each ("Placing Share") and one warrant ("UK Warrant")) at an issue price of £0.27 per Unit. Concurrently with the UK Placing, the Company announced the pricing of a registered direct offering and concurrent private placement in the United States (the "U.S. Registered Direct Offering") for 1,818,182 American Depositary Shares ("ADSs") (each ADS representing five of the Company's Ordinary Shares) and unregistered warrant to purchase ADS's ("ADS Warrants").

 

The pricing of the UK Placing was aligned to the pricing of the US Registered Direct Offering after adjusting for the one-for-five ratio of ordinary shares to ADS and the GBP: USD exchange rate.

 

The Placing Shares and the 9,090,910 Ordinary Shares representing the ADS's represent approximately 40 per cent. of the issued share capital of the Company as enlarged by the UK Placing and the US Registered Direct Offering.

 

On 8 June 2020, the Company received a letter sent on behalf of Secura Bio, Inc. (“Secura Bio”), dated 1 June 2020, purporting to terminate a License Agreement, executed on or about 6 June 2017 (the “Secura License Agreement”), by and between Midatech Limited and Novartis AG, which Novartis AG subsequently transferred to Secura Bio. Pursuant to the Secura License Agreement, Midatech Limited was granted a non-exclusive worldwide, sublicenseable license to certain patents of panobinostat, the active pharmaceutical ingredient of the Company’s development product MTX110. Midatech Limited’s rights are limited to the treatment of brain cancer in humans, administered by convection-enhanced delivery.

 

The Company plans to continue to pursue development of MTX110 and the strategic review process previously disclosed. The Company is also reviewing with its outside counsel remedies it may have if Secura Bio does not withdraw the notice and otherwise cease to interfere with its ongoing business and strategic review process, which the Company has formally requested. The Company is evaluating available actions to protect its rights under the Secura License Agreement and its assets.

 

 

F-57

 

 

 

 

 

 

 

 

 

 

Exhibit 2.1      

 

DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT

 

The following description of the ordinary shares, nominal value 0.1 pence per share (“Ordinary Shares”), and American Depositary Shares, each representing five Ordinary Shares (“Depositary Shares”), of Midatech Pharma PLC (“us,” “our,” “we”, the “Group” or the “Company”), which are the only securities of the Company registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), summarizes certain information regarding the Ordinary Shares in our articles of association (the “Articles”), the deposit agreement among us, Deutsche Bank Trust Company Americas, as depositary, Depositary Share holders and all other persons indirectly or beneficially holding Depositary Shares, as amended or supplemented from time to time (the “Deposit Agreement”), and applicable provisions of corporate law in the United Kingdom, and is qualified by reference to our Articles and the form of Deposit Agreement, as amended and supplemented, which are incorporated by reference as Exhibits 1.1 and 2.2, respectively, to the Annual Report on Form 20-F of which this Exhibit 2.1 is a part.

 

DESCRIPTION OF SHARE CAPITAL

 

General

 

We are a public limited company organized under the laws of England and Wales under registered number 09216368. Our registered office is Oddfellows House, 19 Newport Road, Cardiff, United Kingdom, CF24 0AA. The principal legislation under which we operate and our shares are issued is the United Kingdom Companies Act of 2006 (the “Companies Act”).

 

Issued Share Capital

 

Our issued share capital as of December 31, 2019 was 23,464,981 Ordinary Shares. Each Ordinary Share has a nominal value 0.1 pence per share. Each issued Ordinary Share is fully paid. We currently have 1,000,001 deferred shares and no preference shares in our issued share capital.

 

There is no limit to the number of Ordinary Shares or preference shares that we are authorized to issue, as the concept of authorized capital is no longer applicable under the provisions of the Companies Act. There are no conversion rights, redemption provisions or sinking fund provisions relating to any Ordinary Shares.

 

We are not permitted under English law to hold our own Ordinary Shares unless they are repurchased by us and held in treasury. We do not currently hold any of our own Ordinary Shares.

 

Articles of Association

 

Shares and Rights Attaching to Them

 

Objects

 

The objects of our Company are unrestricted.

 

Share Rights

 

Subject to any special rights attaching to shares already in issue, our shares may be issued with or have attached to them any preferred, deferred or other special rights or privileges or be subject to such restrictions as we may resolve by ordinary resolution of the shareholders or decision of our Board of Director (the “Board”).

 

Voting Rights

 

Without prejudice to any rights or restrictions as to voting rights attached to any shares forming part of our share capital from time to time, the voting rights attaching to shares are as follows:

 

     
 

 

· on a show of hands every shareholder who is present in person and each duly authorized representative present in person of a shareholder that is a corporation shall have one vote;

 

· on a show of hands, each proxy present in person has one vote for and one vote against a resolution if the proxy has been duly appointed by more than one shareholder and the proxy has been instructed by one or more of those shareholders to vote for the resolution and by one or more other of those shareholders to vote against it;

 

· on a show of hands, each proxy present in person has one vote for and one vote against a resolution if the proxy has been duly appointed by more than one shareholder entitled to vote on the resolution and either: (1) the proxy has been instructed by one or more of those shareholders to vote for the resolution and has been given any discretion by one or more other of those shareholders to vote and the proxy exercises that discretion to vote against it; or (2) the proxy has been instructed by one or more of those shareholders to vote against the resolution and has been given any discretion by one or more other of those shareholders to vote and the proxy exercises that discretion to vote for it; and

 

· on a poll every shareholder who is present in person or by proxy shall have one vote for each share of which he is the holder.

 

At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is demanded. Subject to the provisions of the Companies Act, as described in “Differences in Corporate Law - Voting Rights” herein, a poll may be demanded by:

 

· the chairman of the meeting;

 

· at least five shareholders present in person or by proxy and entitled to vote;

 

· any shareholder(s) present in person or by proxy and representing in the aggregate not less than 10% of the total voting rights of all shareholders having the right to vote on the resolution; or

 

· any shareholder(s) present in person or by proxy and holding shares conferring a right to vote on the resolution on which there have been paid up sums in the aggregate equal to not less than 10% of the total sums paid up on all shares conferring that right.

 

Restrictions on Voting

 

No shareholder shall be entitled to vote at any general meeting or at any separate class meeting in respect of any share held by him unless all calls or other sums payable by him in respect of that share have been paid.

 

The Board may from time to time make calls upon the shareholders in respect of any money unpaid on their shares and each shareholder shall (subject to at least 14 days’ notice specifying the time or times and place of payment) pay at the time or times so specified the amount called on his shares. If a call remains unpaid after it has become due and payable, and the fourteen days’ notice provided by the Board has not been complied with, any share in respect of which such notice was given may be forfeited by a resolution of the Board.

 

A shareholder’s right to attend general or class meetings of the Company or to vote in respect of his or her shares may be suspended by the Board in accordance with our Articles if he or she fails to comply with a proper request for the disclosure of interests regarding the shares. See “Other United Kingdom Law Considerations—Disclosure of Interest in Shares” herein.

 

Dividends

 

We may, by ordinary resolution, declare a dividend to be paid to the share owners according to their respective rights and interests in profits, and may fix the time for payment of such dividend. No dividend may be declared in excess of the amount recommended by the directors. The Board may from time to time declare and pay to our share owners such interim dividends as appear to the directors to be justified by our profits available for distribution. There are no fixed dates on which entitlement to dividends arises on our Ordinary Shares.

 

     
 

 

The share owners may pass, on the recommendation of the directors, an ordinary resolution to direct that all or any part of a dividend to be paid by distributing specific assets, in particular paid up shares or debentures of any other body corporate. Our Articles also permit, with the prior authority of an ordinary resolution of shareholders, a scrip dividend scheme under which share owners may be given the opportunity to elect to receive fully paid Ordinary Shares instead of cash, or a combination of shares and cash, with respect to future dividends.

 

By the way of the exercise of a lien, if a share owner owes us any money relating in any way to shares, the Board may deduct any of this money from any dividend on any shares held by the share owner, or from other money payable by us in respect of the shares. Money deducted in this way may be used to pay the amount owed to us.

 

Unclaimed dividends and other money payable in respect of a share can be invested or otherwise used by directors for our benefit until they are claimed. A dividend or other money remaining unclaimed 12 years after it first became due for payment will be forfeited and shall revert to the Company.

 

A shareholder’s right to receive dividends on his shares may, if they represent more than 0.25% of the issued shares of that class, be suspended by the directors if he fails to comply with a proper request for the disclosure of interests regarding the shares. See “Other United Kingdom Law Considerations—Disclosure of Interests in Shares” herein.

 

Change of Control

 

There is no specific provision in our Articles that would have the effect of delaying, deferring or preventing a change of control. We are, however, subject to the provisions of the United Kingdom City Code on Takeovers and Mergers (the “City Code”), which contains detailed provisions regulating the timing and manner of any takeover offer for those of the Company’s shares which confer voting rights. See “Other United Kingdom Law Considerations—City Code on Takeovers and Mergers” herein.

 

Variation of Rights

 

Whenever our share capital is divided into different classes of shares, all or any of the rights attached to any class may be varied or abrogated in such manner (if any) as may be provided by those rights or (in the absence of any such provision) either with the consent in writing of the holders of at least 75% of the issued shares of that class or with the authority of a special resolution passed at a separate general meeting of the holders of the shares of that class.

 

Alteration of Share Capital and Repurchases

 

Subject to the provisions of the Companies Act, and without prejudice to any relevant special rights attached to any class of shares, we may, from time to time:

 

· increase our share capital by allotting and issuing new shares in accordance with the our Articles and any relevant shareholder resolution;

 

· consolidate all or any of our share capital into shares of a larger nominal amount (i.e., par value) than the existing shares;

 

· subdivide any of our shares into shares of a smaller nominal amount (i.e., par value) than our existing shares; or

 

· redenominate our share capital or any class of share capital.

 

     
 

 

Preemptive Rights and New Issuance of Shares

 

Under the Companies Act, the issuance of equity securities (except shares held under an employees’ share scheme) that are to be paid for wholly in cash must be offered first to the existing holders of equity securities in proportion to the respective nominal amounts (i.e., par values) of their holdings on the same or more favorable terms, unless a special resolution to the contrary has been passed or the articles of association otherwise provide an exclusion from this requirement (which exclusion can be for a maximum of five years after which our shareholders’ approval would be required to renew the exclusion). In this context, “equity securities” means Ordinary Shares (and would exclude shares that, with respect to dividends or capital, carry a right to participate only up to a specified amount in a distribution), and any and all rights to subscribe for or convert securities into such Ordinary Shares. This differs from U.S. law, under which shareholders generally do not have pre-emptive rights unless specifically granted in the certificate of incorporation or otherwise.

 

By way of resolutions passed at our general meeting held on March 2, 2020, authorities were given to the directors to allot shares in the Company, or to grant rights to subscribe for or to convert or exchange any security into shares in the Company, up to an aggregate nominal amount representing 396% of our issued share capital for a period up to the earlier of the conclusion of our 2021 annual general meeting or 18 months from the date of passing of the resolutions at the general meeting referenced above. Pre-emptive rights under the Companies Act will not apply in respect of allotment of shares for cash made pursuant to such authorityl. Renewal of such authorization is expected to be sought at each of our annual general meetings.

 

In circumstances where we allot further Ordinary Shares, we must apply for such new Ordinary Shares to be admitted to trading on AIM, a market operated by the London Stock Exchange plc (“AIM”) which in some instances requires the publication of an admission document.

 

Transfer of Shares

 

Any certificated shareholder may transfer all or any of his shares by an instrument of transfer in the usual common form or in any other manner which is permitted by the Companies Act and approved by the Board. Any written instrument of transfer shall be signed by or on behalf of the transferor and (in the case of a partly paid share) the transferee.

 

All transfers of uncertificated shares shall be made in accordance with and subject to the provisions of the Uncertificated Securities Regulations 2001 and the facilities and requirements of its relevant system. The Uncertificated Securities Regulations 2001 permit shares to be issued and held in uncertificated form and transferred by means of a computer-based system.

 

The Board may decline to register any transfer of any share unless it is:

 

· a fully paid share;

 

· a share on which the Company has no lien;

 

· in respect of only one class of shares;

 

· in favor of a single transferee or not more than four transferees;

 

· duly stamped or duly certificated or otherwise shown the satisfaction of the Board to be exempt from any required stamp duty; or

 

· delivered for registration at our registered office or such other place as the Board may decide, accompanied by the certificate for the shares to which it relates (other than uncertificated shares) and any other evidence the Board may reasonably require to provide the title to such share of the transferor.

 

     
 

 

If the Board declines to register a transfer it shall, as soon as practicable and in any event within two months after the date on which the transfer is lodged, send to the transferee notice of the refusal, together with reasons for the refusal.

 

CREST

 

To be traded on AIM, securities must be able to be transferred and settled through the CREST system. CREST is a computerized paperless share transfer and settlement system which allows securities to be transferred by electronic means, without the need for a written instrument of transfer. The Articles are consistent with CREST membership and, among other things, allow for the holding and transfer of shares in uncertificated form.

 

Shareholder Meetings

 

Annual General Meetings

 

In accordance with the Companies Act, we are required in each year to hold an annual general meeting in addition to any other general meetings in that year and to specify the meeting as such in the notice convening it. The annual general meeting shall be convened whenever and wherever the board sees fit, subject to the requirements of the Companies Act, as described in “Differences in Corporate Law—Annual General Meeting” and “Differences in Corporate Law—Notice of General Meetings” herein.

 

Notice of General Meetings

 

The arrangements for the calling of general meetings are described in “Differences in Corporate Law—Notice of General Meetings” herein.

 

Subject to certain conditions, holders of Depositary Shares are entitled to receive notices under the terms of the Deposit Agreement relating to the Depositary Shares. See “Description of American Depositary Shares—Voting Rights” herein.

 

Quorum of General Meetings

 

No business shall be transacted at any general meeting unless a quorum is present, but the absence of a quorum shall not preclude the appointment, choice or election of a chairman which shall not be treated as part of the business of the meeting. At least two shareholders present in person or by proxy and entitled to vote shall be a quorum for all purposes.

 

Class Meetings

 

The provisions in the Articles relating to general meetings apply to every separate general meeting of the holders of a class of shares except that:

 

· no member, other than a member of the Board, shall be entitled to notice of it or attend such meeting unless he is a holder of shares of that class;

 

· the quorum for such class meeting shall be two holders in person or by proxy representing not less than one-third in nominal value of the issued shares of the class;

 

· at the class meeting, a holder of shares of the class present in person or by proxy may demand a poll and shall on a poll be entitled to one vote for every shares of the class held by him;

 

· if at any adjourned meeting of such holders a quorum is not present at the meeting, one holder of shares of the class present in person or by proxy at an adjourned meeting constitutes a quorum.

 

     
 

 

Directors

 

Number of Directors

 

We may not have less than two directors on our Board. We have no maximum number of directors, though we may fix a maximum number by ordinary resolution of the shareholders. We may, by ordinary resolution of the shareholders, vary the minimum and any maximum number of directors from time to time.

 

Appointment of Directors

 

Subject to the provisions of the Articles, we may, by ordinary resolution of the shareholders, elect any person to be a director, either to fill a casual vacancy or as an addition to the existing board.

 

Without prejudice to the power to appoint any person to be a director by shareholder resolution, the Board has the power to appoint any person to be a director, either to fill a casual vacancy or as an addition to the existing Board. Any director appointed by the Board will hold office only until the earlier to occur of the close of the next following annual general meeting and someone being appointed in his stead at that meeting. Such a director is eligible for re-election at that meeting but shall not be taken into account in determining the directors or the number of directors who are to retire by rotation at such meeting.

 

Rotation of Directors

 

At every annual general meeting, one-third of the directors or, if their number is not a multiple of three, then the number nearest to and not exceeding one-third, shall retire from office and each director must retire from office at least once every three years. If there are fewer than three directors, one director shall make himself or herself available for re-election

 

The directors to retire on each occasion shall be those subject to retirement by rotation who have been longest in office since their last election, but as between persons who became or were re-elected directors on the same day those to retire shall (unless they otherwise agree amongst themselves) be determined by lot.

 

A director who retires at the annual general meeting shall be eligible for re-election.

 

The shareholders may, at the meeting at which a director retires, fill the vacated office by electing a person and in default the retiring director shall, if willing to continue to act, be deemed to have been re-elected, unless at such meeting it is expressly resolved not to fill such vacated office or unless a resolution for the re-election of such director shall have been put to the meeting and lost or such director has given notice in writing to us that he is unwilling to be re-elected or such director has attained the retirement age applicable to him as director pursuant to the Companies Act.

 

Director’s Interests

 

The Board of Directors may authorize, to the fullest extent permitted by law, any matter proposed to them which would otherwise result in a director infringing his duty to avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with our interests and which may reasonably be regarded as likely to give rise to a conflict of interest. A director shall not, save as otherwise agreed by him, be accountable to us for any benefit which he (or a person connected with him) derives from any matter authorized by the directors and any contract, transaction or arrangement relating thereto shall not be liable to be avoided on the grounds of any such benefit.

 

Subject to the requirements under Sections 175, 177 and 182 of the Companies Act (which require a director to avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly conflicts, with our interests, and to declare any interest that he has, whether directly or indirectly, in a proposed or existing transaction or arrangement with us), and provided that he has disclosed to the Board of Directors the nature and extent of any interest of his in accordance with the Companies Act and the Articles, a director notwithstanding his office:

 

     
 

 

· may be a party to, or otherwise interested in, any transaction or arrangement with us or in which we are otherwise interested;

 

· may be a director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by us or in which we are otherwise interested; and

 

· shall not, by reason of his office, be accountable to us for any benefit which he derives from any such office or employment or from any such transaction or arrangement or from any interest in any such body corporate and no such transaction or arrangement shall be liable to be avoided on the ground of any such interest or benefit.

 

In the case of interests arising where a director is in any way, directly or indirectly, interested in (a) a proposed transaction or arrangement with us or (b) a transaction or arrangement that has been entered into by us and save as otherwise provided by the Articles, such director shall not vote at a meeting of the Board or of a committee of the Board on any resolution concerning such matter in which he has a material interest (otherwise than by virtue of his interest in shares, debentures or other securities of, or otherwise in or through, us) unless his interest or duty arises only because the case falls within one or more of the following paragraphs:

 

· the resolution relates to the giving to him or a person connected with him of a guarantee, security or indemnity in respect of money lent to, or an obligation incurred by him or such a person at the request of or for the benefit of, us or any of our subsidiaries;

 

· the resolution relates to the giving of a guarantee, security or indemnity in respect of a debt or obligation of ours or any of our subsidiaries for which the director or a person connected with him has assumed responsibility in whole or part under a guarantee or indemnity or by the giving of security;

 

· the resolution relates in any way to any other company in which he is interested, directly or indirectly and whether as an officer or shareholder or otherwise howsoever, provided that he and any persons connected with him do not to his knowledge hold an interest in shares representing one per cent or more of any class of the equity share capital of such company or of the voting rights available to shareholder of such company;

 

· the resolution relates in any way to an arrangement for the benefit of our employees or any employees of our subsidiaries which does not award him as such any privilege or benefit not generally awarded to the employees to whom such arrangement relates;

 

· the resolution relates in any way to the purchase or maintenance for the directors of insurance; or

 

· the resolution is in respect of any matter in which the interest of the director cannot reasonably be regarded as conflicting.

 

A director shall not be counted in the quorum present at a meeting in relation to a resolution on which he is not entitled to vote.

 

If a question arises at a meeting of the Board or of a committee of the Board as to the right of a director to vote or be counted in the quorum, and such question is not resolved by his voluntarily agreeing to abstain from voting or not to be counted in the quorum, the question may, before the conclusion of the meeting, be referred to the chairman of the meeting and his ruling in relation to any director other than himself shall be final and conclusive except in a case where the nature or extent of the interest of the director concerned has not been fairly disclosed.

 

An interest of a person connected with a director shall be treated as an interest of the director and Section 252 of the Companies Act shall determine whether a person is connected with a director.

 

     
 

 

Directors’ Fees and Remuneration

 

Each of the directors shall be paid a fee at such rate as may from time to time be determined by the Board (or for the avoidance of doubt any duly authorized committee of the Board) provided that the aggregate of all such fees so paid to directors shall not exceed £300,000 per annum, or such higher amount as may from time to time be determined by ordinary resolution of shareholders.

 

Each director may be paid his reasonable traveling, hotel and other expenses of attending and returning from meetings of the Board or committees thereof of or general meetings or separate meetings of the holders class of shares or of debentures and shall be paid all expenses properly and reasonably incurred by him in the conduct of the Company’s business or in the discharge of his duties as a director. Any director who, by request, goes or resides abroad for any purposes required by us or who performs services which in the opinion of the Board go beyond the ordinary duties of a director may be paid such extra remuneration as the Board may determine.

 

An executive director shall receive such remuneration as the Board may determine, and either in addition to or in lieu of his remuneration as a director as detailed above.

 

Age Limitations and Share Ownership

 

We do not have any age limitations for our directors, nor do we have mandatory retirement as a result of reaching a certain age. Our directors are not required to hold any shares in the Company.

 

Borrowing Power

 

Our directors may exercise all the powers of the Company to borrow or raise money and mortgage or charge all or any part of our undertaking, property and assets (present and future), and uncalled capital. Subject to the Companies Act, the directors may also create and issue debentures, other loan stock and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. Our directors are required to restrict the borrowings of the Company to ensure that the aggregate principal amount of borrowings at any one time outstanding and all of its subsidiary undertakings (other than intra-Group borrowing) shall not at any time, without the previous sanction of an ordinary resolution of the Company, exceed two times the gross asset value of the Company and our subsidiaries.

 

Liability of Midatech and its Directors and Officers

 

Subject to the provisions on indemnities set out in Companies Act, every director, alternate director or former director (and of any associated company) shall be entitled to be indemnified out of our assets against all costs and liabilities incurred by him or her in relation to any proceedings or any regulatory investigation or action which relate to anything done or omitted or alleged to have been done or omitted by him or her as a director so long as the indemnities do not cover liability for breach of duty to the Company or cover any fine, costs or related expense in connection with any proceedings for default on the part of the director. Lawful indemnities extend to the provision of funds to him or her by the Company to meet expenditure incurred or to be incurred by him in defending himself in any proceedings (whether civil or criminal) or in connection with an application for statutory relief or in an investigation by a regulatory authority which must however be repaid where such proceedings, application, investigation or action are in connection with any alleged negligence, default, breach of duty or breach of trust by him or her in relation to the Company (or any associated company of ours) and he or she is convicted or found in default thereof. Under English law, any provision that purports to exempt a director of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company is void.

 

Under a deed poll declared by us on August 5, 2015, or a Deed of Indemnity, our Board and our Company Secretary are indemnified against costs and liabilities incurred in connection with their office, other than any liability owed by such person to the Company itself (or any of our associated entities) and other than indemnification for liabilities in certain circumstances, which are prohibited by virtue of the Companies Act. The Deed of Indemnity provides that a director may also be lent sums to finance any relevant defense costs, provided that, in the event such proceedings involve criminal or civil matters in which the person is convicted or has a judgment made against him or her, then such loan must be repaid. Our total aggregate liability of Midatech under the Deed of Indemnity is £5 million.

 

     
 

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to our directors, officers and controlling persons pursuant to a charter provision, by-law, contract, arrangements, statute or otherwise, we acknowledge that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

Other United Kingdom Law Considerations

 

Notification of Voting Rights

 

A shareholder in a public company incorporated in the United Kingdom whose shares are admitted to trading on AIM is required pursuant to Rule 5 of the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority to notify us of the percentage of his voting rights if the percentage of voting rights which he holds as a shareholder or through his direct or indirect holding of financial instruments (or a combination of such holdings) reaches, exceeds or falls below 3%, 4%, 5%, and each 1% threshold thereafter up to 100% as a result of an acquisition or disposal of shares.

 

Mandatory Purchases and Acquisitions

 

Pursuant to Sections 979 to 991 of the Companies Act, where a takeover offer has been made for us and the offeror has acquired or unconditionally contracted to acquire not less than 90% in value of the shares to which the offer relates and not less than 90% of the voting rights carried by those shares, the offeror may give notice to the holder of any shares to which the offer relates which the offeror has not acquired or unconditionally contracted to acquire that he wishes to acquire, and is entitled to so acquire, those shares on the same terms as the general offer. The offeror would do so by sending a notice to the outstanding minority shareholders telling them that it will compulsorily acquire their shares. Such notice must be sent within three months of the last day on which the offer can be accepted in the prescribed manner. The squeeze-out of the minority shareholders can be completed at the end of six weeks from the date the notice has been given, following which the offeror can execute a transfer of the outstanding shares in its favor and pay the consideration to us, and we would hold the consideration on trust for the outstanding minority shareholders. The consideration offered to the outstanding minority shareholders whose shares are compulsorily acquired under the Companies Act must, in general, be the same as the consideration that was available under the takeover offer.

 

Sell Out

 

The Companies Act also gives our minority shareholders a right to be bought out in certain circumstances by an offeror who has made a takeover offer for all of our shares. The holder of shares to which the offer relates, and who has not otherwise accepted the offer, may require the offeror to acquire his shares if, prior to the expiry of the acceptance period for such offer, (i) the offeror has acquired or agreed to acquire not less than 90% in value of the voting shares, and (ii) not less than 90% of the voting rights carried by those shares. The offeror may impose a time limit on the rights of minority shareholders to be bought out that is not less than three months after the end of the acceptance period. If a shareholder exercises his rights to be bought out, the offeror is required to acquire those shares on the terms of this offer or on such other terms as may be agreed.

 

Disclosure of Interest in Shares

 

Pursuant to Part 22 of the Companies Act, we are empowered by notice in writing to any person whom we know or have reasonable cause to believe to be interested in our shares, or at any time during the three years immediately preceding the date on which the notice is issued has been so interested, requiring such person within a reasonable time to disclose to us particulars of that person’s interest and (so far as is within his knowledge) particulars of any other interest that subsists or subsisted in those shares. The Articles specify that a response is required from such person within 14 days after service of any such notice.

 

     
 

 

Under the Articles, if a person defaults in supplying us with the required particulars in relation to the shares in question (“Default Shares”) the directors may by notice direct that:

 

· in respect of the Default Shares, the relevant member shall not be entitled to attend or vote (either in person or by proxy) at any general meeting or of a general meeting of the holders of a class of shares or upon any poll or to exercise any right conferred by the Default Shares; and/or

 

· where the Default Shares represent at least 0.25% of their class, (a) any dividend (or any part of a dividend) payable in respect of the Default Shares shall be retained by us without liability to pay interest, (b) the shareholder may not be entitled to elect to receive shares instead of a dividend, and (c) no transfers by the relevant member of any Default Shares may be registered (unless the member himself is not in default and the transfer does not relate to Default Shares, the transfer is exempt or that the transfer is permitted under the U.K. Uncertificated Securities Regulations 2001).

 

Purchase of Own Shares

 

Under English law, a limited company may only purchase or redeem its own shares out of the distributable profits of the company or the proceeds of a fresh issue of shares made for the purpose of financing the purchase, provided that they are not restricted from doing so by their articles. A limited company may not purchase or redeem its own shares if, as a result of the purchase, there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury shares. Shares must be fully paid in order to be repurchased.

 

Subject to the above, we may purchase our own shares in the manner prescribed below. We may make a market purchase of our own fully paid shares pursuant to an ordinary resolution of shareholders. The resolution authorizing the purchase must:

 

· specify the maximum number of shares authorized to be acquired;

 

· determine the maximum and minimum prices that may be paid for the shares; and

 

· specify a date, not being later than five years after the passing of the resolution, on which the authority to purchase is to expire.

 

We may purchase our own fully paid shares otherwise than on a recognized investment exchange pursuant to a purchase contract authorized by resolution of shareholders before the purchase takes place. Any authority will not be effective if any shareholder from whom we propose to purchase shares votes on the resolution and the resolution would not have been passed if he had not done so. The resolution authorizing the purchase must specify a date, not being later than five years after the passing of the resolution, on which the authority to purchase is to expire.

 

We currently have authority from a resolution passed at our 2019 annual general meeting to purchase a maximum of 2,046,998 shares valid for a period up to the earlier of the conclusion of our 2020 annual general meeting or 15 months from the date of passing such resolution, although we do not currently have any distributable profits out of which such a purchase or redemption of shares may be made. 

 

Distributions and Dividends

 

Under the Companies Act, before a company can lawfully make a distribution or dividend, it must ensure that it has sufficient distributable reserves (on a non-consolidated basis). The basic rule is that a company’s profits available for the purpose of making a distribution are its accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less its accumulated, realized losses, so far as not previously written off in a reduction or reorganization of capital duly made. The requirement to have sufficient distributable reserves before a distribution or dividend can be paid applies to us and to each of our subsidiaries that has been incorporated under English law.

 

     
 

 

It is not sufficient that we, as a public company, have made a distributable profit for the purpose of making a distribution. An additional capital maintenance requirement is imposed on us to ensure that the net worth of the company is at least equal to the amount of its capital. A public company can only make a distribution:

 

· if, at the time that the distribution is made, the amount of its net assets (that is, the total excess of assets over liabilities) is not less than the total of its called up share capital and undistributable reserves; and

 

· if, and to the extent that, the distribution itself, at the time that it is made, does not reduce the amount of the net assets to less than that total.

 

City Code on Takeovers and Mergers

 

As a United Kingdom incorporated public company with our registered office in the United Kingdom which is admitted to AIM, we are subject to the City Code, which is issued and administered by the United Kingdom Panel on Takeovers and Mergers (the “Panel”). The City Code provides a framework within which takeovers of companies subject to it are conducted. In particular, the City Code contains certain rules in respect of mandatory offers. Under Rule 9 of the City Code, if a person:

 

· acquires an interest in our shares which, when taken together with shares in which he or persons acting in concert with him are interested, carries 30% or more of the voting rights of our shares; or

 

· who, together with persons acting in concert with him, is interested in shares that in the aggregate carry not less than 30% and not more than 50% of the voting rights in us, acquires additional interests in shares that increase the percentage of shares carrying voting rights in which that person is interested,

 

the acquirer, and depending on the circumstances, its concert parties would be required (except with the consent of the Panel) to make a cash offer for our outstanding shares at a price not less than the highest price paid for any interests in the shares by the acquirer or its concert parties during the previous 12 months.

 

Exchange Controls

 

There are no governmental laws, decrees, regulations or other legislation in the United Kingdom that may affect the import or export of capital, including the availability of cash and cash equivalents for use by us, or that may affect the remittance of dividends, interest, or other payments by us to non-resident holders of our Ordinary Shares or Depositary Shares, other than withholding tax requirements. There is no limitation imposed by English law or in the Articles on the right of non-residents to hold or vote shares. 

 

Differences in Corporate Law

 

The applicable provisions of the Companies Act 2006 differ from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain differences between the provisions of the Companies Act applicable to us and the Delaware General Corporation Law relating to shareholders’ rights and protections. This summary is not intended to be a complete discussion of the respective rights and it is qualified in its entirety by reference to English law and Delaware Law.

 

     
 

 

   

England and Wales

 

 

Delaware

 

Number of Directors   Under the Companies Act, a public limited company must have at least two directors and the number of directors may be fixed by or in the manner provided in a company’s articles of association.   Under Delaware law, a corporation must have at least one director and the number of directors shall be fixed by or in the manner provided in the bylaws.
         
Removal of Directors   Under the Companies Act, shareholders may remove a director without cause by an ordinary resolution (which is passed by a simple majority of those voting in person or by proxy at a general meeting) irrespective of any provisions of any service contract the director has with the company, provided 28 clear days’ notice of the resolution has been given to the company and its shareholders. On receipt of notice of an intended resolution to remove a director, the company must forthwith send a copy of the notice to the director concerned. Certain other procedural requirements under the Companies Act must also be followed such as allowing the director to make representations against his or her removal either at the meeting or in writing.   Under Delaware law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except (a) unless the certificate of incorporation provides otherwise, in the case of a corporation whose board of directors is classified, shareholders may effect such removal only for cause, or (b) in the case of a corporation having cumulative voting, if less than the entire board of directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire board of directors, or, if there are classes of directors, at an election of the class of directors of which he is a part.
         
Vacancies on Board
of
Directors
  Under English law, the procedure by which directors, other than a company’s initial directors, are appointed is generally set out in a company’s articles of association, provided that where two or more persons are appointed as directors of a public limited company by resolution of the shareholders, resolutions appointing each director must be voted on individually.   Under Delaware law, vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director unless (a) otherwise provided in the certificate of incorporation or by-laws of the corporation or (b) the certificate of incorporation directs that a particular class of stock is to elect such director, in which case a majority of the other directors elected by such class, or a sole remaining director elected by such class, will fill such vacancy.
         
         
         
Pre-emptive Rights   Under the Companies Act, “equity securities”, being (i) shares in the company other than shares that, with respect to dividends and capital, carry a right to participate only up to a specified amount in a distribution (“ordinary shares”) or (ii) rights to subscribe for, or to convert securities into, ordinary shares, proposed to be allotted for cash must be offered first to the existing equity shareholders in the company in proportion to the respective nominal value of their holdings, unless an exception applies or a special resolution to the contrary has been passed by shareholders in a general meeting or the articles of association provide otherwise in each case in accordance with the provisions of the Companies Act.   Under Delaware law, shareholders have no preemptive rights to subscribe to additional issues of stock or to any security convertible into such stock unless, and except to the extent that, such rights are expressly provided for in the certificate of incorporation.

 

     
 

 

Authority to Allot   Under the Companies Act, the directors of a company must not allot shares or grant of rights to subscribe for or to convert any security into shares unless an exception applies or an ordinary resolution to the contrary has been passed by shareholders in a general meeting or the articles of association provide otherwise in each case in accordance with the provisions of the Companies Act.   Under Delaware law, if the corporation’s charter or certificate of incorporation so provides, the board of directors has the power to authorize the issuance of stock. It may authorize capital stock to be issued for consideration consisting of cash, any tangible or intangible property or any benefit to the corporation or any combination thereof. It may determine the amount of such consideration by approving a formula. In the absence of actual fraud in the transaction, the judgment of the directors as to the value of such consideration is conclusive.

 

Voting Rights  

Under English law, unless a poll is demanded by the shareholders of a company or is required by the chairman of the meeting or the company’s articles of association, shareholders shall vote on all resolutions on a show of hands. Under the Companies Act, a poll may be demanded by (a) not fewer than five shareholders having the right to vote on the resolution; (b) any shareholder(s) representing not less than 10% of the total voting rights of all the shareholders having the right to vote on the resolution; or (c) any shareholder(s) holding shares in the company conferring a right to vote on the resolution being shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right. A company’s articles of association may provide more extensive rights for shareholders to call a poll, and in our case the number in clause (a) above is reduced from five to three.

 

Under English law, an ordinary resolution is passed on a show of hands if it is approved by a simple majority (more than 50%) of the votes cast by shareholders present (in person or by proxy) and entitled to vote. If a poll is demanded, an ordinary resolution is passed if it is approved by holders representing a simple majority of the total voting rights of shareholders present, in person or by proxy, who, being entitled to vote, vote on the resolution. Special resolutions require the affirmative vote of not less than 75% of the votes cast by shareholders present, in person or by proxy, at the meeting.

  Delaware law provides that, unless otherwise provided in the certificate of incorporation, each stockholder is entitled to one vote for each share of capital stock held by such stockholder.

 

     
 

 

Shareholder Vote on Certain
Transactions
 

The Companies Act provides for schemes of arrangement, which are arrangements or compromises between a company and any class of shareholders or creditors and used in certain types of reconstructions, amalgamations, capital reorganizations or takeovers. These arrangements require:

 

·     the approval at a shareholders’ or creditors’ meeting convened by order of the court, of a majority in number of shareholders or creditors representing 75% in value of the capital held by, or debt owed to, the class of shareholders or creditors, or class thereof present and voting, either in person or by proxy; and

 

·     the approval of the court.

 

Generally, under Delaware law, unless the certificate of incorporation provides for the vote of a larger portion of the stock, completion of a merger, consolidation, sale, lease or exchange of all or substantially all of a corporation’s assets or dissolution requires:

 

·     the approval of the board of directors; and

 

·     approval by the vote of the holders of a majority of the outstanding stock or, if the certificate of incorporation provides for more or less than one vote per share, a majority of the votes of the outstanding stock of a corporation entitled to vote on the matter.

 

Stockholder Suits   Under English law, generally, the company, rather than its shareholders, is the proper claimant in an action in respect of a wrong done to the company or where there is an irregularity in the company’s internal management. Notwithstanding this general position, the Companies Act provides that (i) a court may allow a shareholder to bring a derivative claim (that is, an action in respect of and on behalf of the company) in respect of a cause of action arising from a director’s negligence, default, breach of duty or breach of trust and (ii) a shareholder may bring a claim for a court order where the company’s affairs have been or are being conducted in a manner that is unfairly prejudicial to some of its shareholders  

Under Delaware law, a stockholder may initiate a derivative action to enforce a right of a corporation if the corporation fails to enforce the right itself. The complaint must:

 

·     state that the plaintiff was a stockholder at the time of the transaction of which the plaintiff complains or that the plaintiffs shares thereafter devolved on the plaintiff by operation of law; and

 

·     allege with particularity the efforts made by the plaintiff to obtain the action the plaintiff desires from the directors and the reasons for the plaintiff’s failure to obtain the action; or

 

·     state the reasons for not making the effort.

 

Additionally, the plaintiff must remain a stockholder through the duration of the derivative suit. The action will not be dismissed or compromised without the approval of the Delaware Court of Chancery.

 

     
 

 

DESCRIPTION OF AMERICAN DEPOSITARY

 

General

 

Our Depositary Shares are listed on the NASDAQ Capital Market under the symbol “MTP.” Deutsche Bank Trust Company Americas is the depositary for the Depositary Shares. Each Depositary Share represents ownership of five Ordinary Shares deposited with the London Branch of Deutsche Bank AG, as custodian for the depositary. Each Depositary Share also represents ownership of any other securities, cash or other property which may be held by the depositary. The depositary’s principal office at which the Depositary Shares will be administered is located at 60 Wall Street, New York, New York 10005, United States of America. The principal executive office of the depositary is located at 60 Wall Street, New York, New York 10005, United States of America.

 

The Direct Registration System (“DRS”) is a system administered by The Depository Trust Company (“DTC”) pursuant to which the depositary may register the ownership of uncertificated Depositary Shares, which ownership shall be evidenced by periodic statements issued by the depositary to the Depositary Share holders entitled thereto.

 

We will not treat Depositary Share holders as our stockholders and accordingly, Depositary Shares holders will not have stockholder rights. English law governs shareholder rights. The depositary will be the holder of the Ordinary Shares underlying the Depositary Shares. Holders of Depositary Shares will have the rights of Depositary Share holders. A Deposit Agreement sets out Depositary Share holder rights as well as the rights and obligations of the depositary. The laws of the State of New York govern the Deposit Agreement and the Depositary Shares.

 

The following is a summary of the material provisions of the Deposit Agreement. For more complete information, you should read the entire Deposit Agreement and the form of American Depositary Receipt (“ADR”).

  

Dividends and Other Distributions

 

How will you receive dividends and other distributions on the ordinary shares?

 

The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Ordinary Shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your Depositary Shares represent as of the record date (which will be as close as practicable to the record date for Ordinary Shares) set by the depositary with respect to the Depositary Shares.

 

Cash. The depositary will convert any cash dividend or other cash distribution we pay on the Ordinary Shares or any net proceeds from the sale of any Ordinary Shares, rights, securities or other entitlements into U.S. dollars if it can do so on a practicable basis, and can transfer the U.S. dollars to the United States. If that is not practical or lawful or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary either to distribute the foreign currency to the Depositary Share holders, or to hold the foreign currency for the account of the Depositary Share holders, in which case it will not invest the foreign currency and it will not be liable for any interest.

 

Before making a distribution, any taxes or other governmental charges, together with fees and expenses of the depositary, that must be paid, will be deducted. It will distribute only whole U.S. dollars and cents and will round fractional cents down to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution.

 

     
 

 

Shares. The depositary may distribute additional Depositary Shares representing any Ordinary Shares it distributes as a dividend or free distribution to the extent reasonably practicable and permissible under law. The depositary will only distribute whole Depositary Shares. It will sell Ordinary Shares which would require it to deliver a fractional Depositary Share and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional Depositary Shares, the outstanding Depositary Shares will, to the extent permissible by law, also represent the new Ordinary Shares. The depositary may also sell all or a portion of the Ordinary Shares that is has not distributed, and distribute the net proceeds in the same way as it does with cash. Additionally, the depositary may sell a portion of the distributed Ordinary Shares sufficient to pay its fees and expenses, and any taxes and governmental charges, in connection with that distribution.

 

Elective Distributions in Cash or Shares. If we offer holders of our Ordinary Shares the option to receive dividends in either cash or Ordinary Shares, the depositary, after consultation with us and having received timely notice as described in the deposit agreement of such elective distribution by us, has discretion to determine to what extent such elective distribution will be made available to you as a holder of the Depositary Shares. We must first instruct the depositary to make such elective distribution available to you and furnish it with satisfactory evidence that it is legal to do so. The depositary could decide it is not legal or reasonably practical to make such elective distribution available to you. In such case, the depositary shall, on the basis of the same determination as is made in respect of the ordinary shares for which no election is made, distribute either cash in the same way as it does in a cash distribution, or additional Depositary Shares representing Ordinary Shares in the same way as it does in a share distribution. The depositary is not obligated to make available to you a method to receive the elective dividend in Ordinary Shares rather than in Depositary Shares. There can be no assurance that you will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Ordinary Shares.

 

Rights to Purchase Additional Shares. If we offer holders of our Ordinary Shares any rights to subscribe for additional Ordinary Shares or any other rights, the depositary may after consultation with us and having received timely notice as described in the deposit agreement of such distribution by us, make these rights available to you. We must first instruct the depositary to make such rights available to you and furnish the depositary with satisfactory evidence that it is legal to do so. If the depositary decides it is not legal and reasonably practicable to make the rights available, or if rights have been made available but have not been exercised and appear to be about to lapse, the depositary may, if it determines it is lawful and reasonably practicable to do so, endeavor to sell the rights and distribute the net proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

 

If the depositary makes rights available to you, it will establish procedures to distribute such rights and enable you to exercise the rights upon your payment of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. The depositary shall not be obliged to make available to you a method to exercise such rights to subscribe for Ordinary Shares (rather than Depositary Shares).

 

The depositary may sell a portion of the distributed rights sufficient to pay its fees and expenses, and any taxes and governmental charges, in connection with that distribution.

 

There can be no assurance that you will be given the opportunity to exercise rights on the same terms and conditions as the holders of Ordinary Shares, or be able to exercise such rights.

 

U.S. securities laws may restrict transfers and cancellation of the Depositary Shares represented by shares purchased upon exercise of rights. For example, you may not be able to trade these Depositary Shares freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the Depositary Shares described in this section, except for changes needed to put the necessary restrictions in place.

 

Other Distributions. Subject to receipt of timely notice, as described in the Deposit Agreement, from us with the request to make any such distribution available to you, and provided the depositary has determined such distribution is lawful and reasonably practicable and in accordance with the terms of the deposit agreement, the depositary will send to you anything else we distribute on deposited securities by any means it thinks is practicable, upon your payment of applicable fees, charges and expenses incurred by the depositary and taxes and/or other governmental charges. If the depositary cannot make a distribution in this way, it may endeavor to sell what we distributed and distribute the net proceeds in the same way as it does with cash. If the depositary is unable to sell what we distributed, it may dispose of such property in any way it deems reasonably practicable under the circumstances for nominal or no consideration. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses and any taxes and governmental charges in connection with that distribution.

 

     
 

 

The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any Depositary Share holders. We have no obligation to register Depositary Shares, Ordinary Shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of Depositary Shares, Ordinary Shares, rights or anything else to Depositary Share holders. This means that you may not receive the distributions we make on our Ordinary Shares or any value for them if it is illegal or impractical for us or the depositary to make them available to you.

 

Deposit, Withdrawal and Cancellation

 

How are Depositary Shares issued?

 

The depositary will deliver Depositary Shares if you or your broker deposit Ordinary Shares or evidence of rights to receive Ordinary Shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of Depositary Shares in the names you request and will deliver the Depositary Shares to or upon the order of the person or persons entitled thereto.

 

 How do Depositary Share holders cancel an American Depositary Share?

 

You may turn in your Depositary Shares at the depositary’s principal office or by providing appropriate instructions to your broker. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the Ordinary Shares and any other deposited securities underlying the Depositary Shares to you or a person you designate at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its principal office, to the extent permitted by law.

 

How do Depositary Share holders interchange between Certificated Depositary Shares and Uncertificated Depositary Shares?

 

You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated Depositary Shares. The depositary will cancel that ADR and will send you a statement confirming that you are the owner of uncertificated Depositary Shares. Alternatively, upon receipt by the depositary of a proper instruction from a holder of uncertificated Depositary Shares requesting the exchange of uncertificated Depositary Shares for certificated Depositary Shares, the depositary will execute and deliver to you an ADR evidencing those Depositary Shares.

 

Voting Rights

 

How do you vote?

 

You may instruct the depositary to vote the Ordinary Shares or other deposited securities underlying your Depositary Shares. Otherwise, you could exercise your right to vote directly if you withdraw the Ordinary Shares. However, you may not know about the meeting sufficiently enough in advance to withdraw the Ordinary Shares.

 

If we ask for your instructions and upon timely notice from us as described in the deposit agreement, the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you by regular, ordinary mail delivery, or by electronic transmission. The materials will (i) describe the matters to be voted on and (ii) explain how you may instruct the depositary to vote the ordinary shares or other deposited securities underlying your Depositary Shares as you direct. For your voting instructions to be valid, the depositary must receive them in writing on or before the date specified. The depositary will try, as far as practical, subject to applicable law and the provisions of the deposit agreement, the deposited securities and our articles of association, to vote or to have its agents vote the Ordinary Shares or other deposited securities as you instruct. The depositary will only vote or attempt to vote as you instruct.

 

     
 

 

We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the Ordinary Shares underlying your Depositary Shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner in which any vote is cast. This means that you may not be able to exercise your right to vote and you may have no recourse if the Ordinary Shares underlying your Depositary Shares are not voted as you requested.

 

In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the depositary to act, we will give the depositary notice of any such meeting and details concerning the matters to be voted at least 30 days in advance of the meeting date.

  

Reclassifications, Recapitalizations and Mergers, etc.

 

Upon any change in our par value, split-up, subdivision cancellation, consolidation or any other reclassification of our Ordinary Shares, or upon any recapitalization, reorganization, merger, amalgamation or consolidation or sale of assets affecting us or to which we otherwise are a party, any securities which shall be received by the depositary or a custodian in exchange for, or in conversion of or replacement or otherwise in respect of, our ordinary shares shall, to the extent permitted by law, be treated as new deposited securities under the deposit agreement, and the ADRs shall, subject to the provisions of the deposit agreement and applicable law, evidence Depositary Shares representing the right to receive such additional securities. Alternatively, the depositary may, with our approval, and shall, if we request, subject to the terms of the deposit agreement and receipt of an opinion of our counsel satisfactory to the depositary that such distributions are not in violation of any applicable laws or regulations, execute and deliver additional ADRs as in the case of a stock dividend on our ordinary shares, or call for the surrender of outstanding ADRs to be exchanged for new ADRs, in either case, as well as in the event of newly deposited ordinary shares, with necessary modifications to the form of ADR specifically describing such new deposited securities and/or corporate change. Notwithstanding the foregoing, in the event that any security so received may not be lawfully distributed to some or all Depositary Share holders, the depositary may, with our approval, and shall if we request, subject to receipt of an opinion from our counsel satisfactory to the depositary that such distributions are not in violation of any applicable laws or regulations, sell such securities at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of fees and charges of, and expenses incurred by, the depositary and taxes and governmental charges) for the account of the Depositary Share holders otherwise entitled to such securities upon an averaged or other practicable basis without regard to any distinctions among such Depositary Share holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to the deposit agreement. In accordance with the provisions of the deposit agreement, the depositary is not responsible for (i) any failure to determine that it may be lawful or feasible to make such securities available to Depositary Share holders in general or any Depositary Share holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such securities.

 

Amendment and Termination

 

How may the deposit agreement be amended?

 

We may agree with the depositary to amend the deposit agreement and the form of ADR without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, including expenses incurred in connection with foreign exchange control regulations and other charges specifically payable by Depositary Share holders under the deposit agreement, or materially prejudices a substantial existing right of Depositary Share holders, it will not become effective for outstanding Depositary Shares until 30 days after the depositary notifies Depositary Share holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your Depositary Shares, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended. If any new laws are adopted which would require the deposit agreement to be amended in order to comply therewith, we and the depositary may amend the deposit agreement in accordance with such laws and such amendment may become effective before notice thereof is given to Depositary Share holders.

 

     
 

 

How may the deposit agreement be terminated?

 

The depositary will terminate the deposit agreement if we ask it to do so, in which case the depositary will give notice to you at least 90 days prior to termination. The depositary may also terminate the deposit agreement if the depositary has told us that it would like to resign, or if we have removed the depositary, and in either case we have not appointed a new depositary within 90 days. In either such case, the depositary must notify you at least 30 days before termination.

 

After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property and deliver ordinary shares and other deposited securities upon cancellation of Depositary Shares after payment of any fees, charges, taxes or other governmental charges. Six months or more after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement, for the pro rata benefit of the Depositary Share holders that have not surrendered their Depositary Shares. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination, our only obligations under the deposit agreement will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.

 

Books of Depositary

 

The depositary will maintain Depositary Share holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of our business or matters relating to the Depositary Shares or the deposit agreement.

 

The depositary will maintain facilities in New York to record and process the issuance, cancellation, combination, split-up and transfer of ADRs.

 

These facilities may be closed from time to time, to the extent not prohibited by law or if any such action is deemed necessary or advisable by the depositary, in good faith, at any time or from time to time because of any requirement of law, any government or governmental body or commission or any securities exchange on which the ADRs or Depositary Shares are listed, or under any provision of the deposit agreement or provisions of, or governing, the deposited securities, or any meeting of our shareholders or for any other reason.

 

Limitations on Obligations and Liability

 

Limits on Our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of Depositary Shares

 

The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary and its directors, officers, affiliates, employees and agents.

 

We and the depositary, and each of our and their respective directors, officers, affiliates, employees and agents:

 

· are only obligated to take the actions specifically set forth in the deposit agreement without gross negligence or willful misconduct;

 

· are not liable to Depositary Share holders, beneficial owners or any third parties if prevented or forbidden from, or subjected to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement or the ADRs, by reason of any provision of any present or future law or regulation of the United States or any state thereof, the United Kingdom or any other country, or of any other governmental authority or regulatory authority or stock exchange, or on account of the possible criminal or civil penalties or restraints or by reason of any provision, present or future of our constituent documents or any provision of or governing any deposited securities, or by reason of any act of God or war or other circumstances beyond their control, (including, without limitation, nationalization, expropriation, currency restrictions, work stoppage, strikes, civil unrest, revolutions, rebellions, explosions and computer failure beyond such party’s control);

 

     
 

 

· are not liable to Depositary Share holders, beneficial owners or any third parties by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in Midatech’s constituent documents or provisions of or governing deposited securities;

 

· are not liable to Depositary Share holders, beneficial owners or any third parties for the inability of any holder of Depositary Shares to benefit from any distribution, offering, right or other benefit made available to holders of deposited securities that is not made available to holders of Depositary Shares under the terms of the deposit agreement;

 

· have no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the ADRs, or the deposit agreement, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expenses (including fees and disbursements of counsel) and liabilities be furnished as often as may be required (and no custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the custodian being solely to the depositary);

 

· may rely and shall be protected in acting upon any written notice, request, opinion or other document believed by it to be genuine and to have been signed or presented by the proper party or parties;

 

· disclaim any liability for any action/inaction in reliance on the advice or information of legal counsel, accountants, any person presenting Ordinary Shares for deposit, holders and beneficial owners (or authorized representatives) of Depositary Shares, or any other person believed in good faith to be competent to give such advice or information; and

 

· disclaim any liability to Depositary Share holders, beneficial owners or any third parties for any indirect, special, punitive or consequential damages for any breach of the terms of the deposit agreement or otherwise.

 

Neither the depositary nor the custodian shall be liable under the deposit agreement or otherwise for the failure by any Depositary Share holder or beneficial owner to obtain the benefits of credits on the basis of non-U.S. tax paid against such Depositary Share holder’s or beneficial owner’s income tax liability. The depositary and any of its agents also disclaim any liability for any failure to carry out any instructions to vote, the manner in which any vote is cast or the effect of any vote or failure to determine that any distribution or action may be lawful or reasonably practicable or for allowing any rights to lapse in accordance with the provisions of the deposit agreement, the failure or timeliness of any notice from us, the content of any information submitted to it by us for distribution to you or for any inaccuracy of any translation thereof, any investment risk associated with the acquisition of an interest in the deposited securities, the validity or worth of the deposited securities, the credit-worthiness of any third party, or for any tax consequences that may result from ownership of Depositary Shares, ordinary shares or deposited securities. The depositary and its agents shall not be liable for any acts or omissions made by a successor depositary.

 

In connection with the sale of securities, including, without limitation, deposited securities, the deposit agreement provides that the depositary shall not have any liability for the price received in connection with any such sale, the timing thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale.

 

     
 

 

The depositary will have the right, in its sole discretion, to refer any claim or dispute arising directly or indirectly from the relationship created by the deposit agreement to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration proceeding shall be conducted by three arbitrators, one nominated by the Depositary, one nominated by the Company, and one nominated by the two party-appointed arbitrators. Any judgment, rendered by the arbitrators may be enforced in any court having jurisdiction thereof. The arbitration shall occur in New York, New York, and the procedural law of such arbitration shall be New York law. The arbitration provisions of the deposit agreement do not preclude you from pursuing claims under the Securities Act or the Exchange Act in federal courts. In addition, the deposit agreement provides that each party to the deposit agreement (including each holder, beneficial owner and holder of interests in the ADRs) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any lawsuit or proceeding against the depositary or us related to our ordinary shares, the Depositary Shares or the deposit agreement.

 

In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

 

Requirements for Depositary Actions

 

Before the depositary will issue, deliver or register a transfer of a Depositary Share, split-up, subdivide or combine Depositary Shares, make a distribution on a Depositary Share, or permit withdrawal of ordinary shares, the depositary may require:

 

· payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any Ordinary Shares or other deposited securities and payment of the applicable fees, expenses and charges of the depositary;

 

· satisfactory proof of the identity and genuineness of any signature or any other matters contemplated in the deposit agreement; and

 

· compliance with applicable laws and governmental regulations, and such reasonable regulations and procedures as the depositary may establish, from time to time, consistent with the deposit agreement and applicable law, including presentation of transfer documents.

 

The depositary may refuse to issue and deliver Depositary Shares or register transfers of Depositary Shares generally when the register of the depositary or our transfer books are closed or at any time if the depositary determines that it is necessary or advisable to do so.

 

Your Right to Receive the Shares Underlying Your Depositary Shares

 

You have the right to cancel your Depositary Shares and withdraw the underlying Ordinary Shares at any time except:

 

· when temporary delays arise because: (i) the depositary has closed its transfer books or we have closed its transfer books; (ii) the transfer of ordinary shares is blocked to permit voting at a stockholders’ meeting; or (iii) we are paying a dividend on its ordinary shares;

 

· when you owe money to pay fees, taxes and similar charges;

 

· when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to Depositary Shares or to the withdrawal of ordinary shares or other deposited securities;

  

· other circumstances specifically contemplated by Section I.A.(l) of the General Instructions to Form F-6 (as such General Instructions may be amended from time to time); or

 

· for any other reason if the depositary determines, in good faith, that it is necessary or advisable to prohibit withdrawals.

 

This right of withdrawal may not be limited by any other provision of the deposit agreement.

 

     
 

 

Pre-release of Depositary Shares

 

The deposit agreement permits the depositary to deliver Depositary Shares before deposit of the underlying ordinary shares. This is called a pre-release of the Depositary Shares. The depositary may also deliver Ordinary Shares upon cancellation of pre-released Depositary Shares (even if the Depositary Shares are cancelled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying Ordinary Shares are delivered to the depositary. The depositary may receive Depositary Shares instead of Ordinary Shares to close out a pre-release. The depositary may pre-release Depositary Shares only under the following conditions: (i) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer (a) beneficially owns the Ordinary Shares or Depositary Shares to be deposited, (b) agrees to indicate the depositary as owner of such Ordinary Shares or Depositary Shares in its records and to hold such Ordinary Shares or Depositary Shares in trust for the depositary until such ordinary shares or Depositary Shares are delivered to the depositary or the custodian, (c) unconditionally guarantees to deliver such Ordinary Shares or Depositary Shares to the depositary or the custodian, as the case may be, and (d) agrees to any additional restrictions or requirements that the depositary deems appropriate; (ii) the pre-release is fully collateralized with cash, United States government securities or other collateral that the depositary considers appropriate; and (iii) the depositary must be able to close out the pre-release on not more than five business days’ notice. Each pre-release is subject to further indemnities and credit regulations as the depositary considers appropriate. In addition, the depositary will normally limit the number of Depositary Shares that may be outstanding at any time as a result of pre-release to 30% of the aggregate number of Depositary Shares then outstanding, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.

 

Direct Registration System

 

The deposit agreement provides that, to the extent available by the depositary, Depositary Shares shall be evidenced by ADRs issued through DRS/Profile unless certificated ADRs are specifically requested by the Depositary Share holder. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated Depositary Shares, which ownership shall be evidenced by periodic statements issued by the depositary to the Depositary Share holders entitled thereto. The Profile Modification System (“Profile”) is a required feature of DRS which allows a DTC participant, claiming to act on behalf of a Depositary Share holder, to direct the depositary to register a transfer of those Depositary Shares to DTC or its nominee and to deliver those Depositary Shares to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the Depositary Share holder to register such transfer.

 

In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not verify, determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf of a Depositary Share holder in requesting registration of transfer and delivery described in the paragraph above has the actual authority to act on behalf of the Depositary Share holder (notwithstanding any requirements under the Uniform Commercial Code).

 

 

 

 

 

 

 

Exhibit 2.8

 

DEPOSIT AGREEMENT FOR RESTRICTED SECURITIES

 

DEPOSIT AGREEMENT FOR RESTRICTED SECURITIES dated as of December 23, 2019 (the “Agreement”) among Midatech Pharma PLC, a company organized under the laws of England and Wales (the “Company”), Deutsche Bank Trust Company Americas as depositary (the “Depositary”), and all Holders and Beneficial Owners from time to time of restricted American Depositary Shares (“Restricted ADSs”) issued hereunder.

 

W I T N E S S E T H:

 

WHEREAS, the Company and the Depositary entered into a Deposit Agreement dated as of December 4, 2015, as amended by Amendment No. 1 to Deposit Agreement on April 8, 2019 and Amendment No. 2 to Deposit Agreement on October 11, 2019 (the “Deposit Agreement”) for the purposes set forth therein;

 

WHEREAS, notwithstanding Section 3.3 and Section 5.10 of the Deposit Agreement and Article (7) of the form of American Depositary Receipt attached thereto, the Company has requested that the Depositary accept one or more deposits of ordinary shares of the Company (the “Shares”) which are not freely transferrable under the Securities Act at the time of deposit (such securities, the “Limited Transfer Securities”) into the restricted American Depositary Receipt program (the “Restricted Program”) established under this Agreement but incorporating certain of the provisions of the Deposit Agreement;

 

WHEREAS, the Company desires that, upon a deposit of any Limited Transfer Securities, Restricted ADSs representing such Limited Transfer Securities be issued to or upon the order of the Depositor (as defined below) upon compliance with the provisions of this Agreement; and

 

WHEREAS, the Company and the Depositary desire to enter into this Agreement in order to permit the issuance of such Restricted ADSs from time to time under the Restricted Program and the delivery thereof to or upon the order of the depositor of the relevant Limited Transfer Securities (such person or entity being the “Depositor” and each such issuance being a “Transaction”).

 

     
   

 

NOW, THEREFORE, in consideration of the premises and mutual agreements herein set forth and for other good and valuable consideration, the Company and the Depositary hereby agree as follows:

 

Section 1. Definitions. Unless otherwise defined in this Agreement, terms which are defined in the Deposit Agreement are used herein as therein defined.

 

Section 2. Incorporation by Reference. Except to the extent modified hereby, the provisions of Articles I through VII of the Deposit Agreement are incorporated herein by reference and deemed to be a part hereof. For the avoidance of doubt, Exhibit A to the Deposit Agreement shall not be incorporated herein by reference nor deemed to be a part hereof. All references in such sections of the Deposit Agreement to American Depositary Shares shall be deemed to refer to Restricted ADSs and all references to Receipts shall be deemed to refer to restricted American Depositary Receipts (“Restricted Receipts”) evidencing Restricted ADSs. References in the Deposit Agreement to specified Articles of the form of Receipt shall be deemed to be references to the corresponding Article in the form of Restricted Receipt attached hereto. References in the Deposit Agreement to DRS/Profile, and to the issuance of American Depositary Shares or Receipts through DRS/Profile, are not incorporated herein by reference.

 

  2   
   

 

Section 3. Issuance and Transfer of Restricted ADSs (a) The Depositary shall issue Restricted ADSs hereunder upon (i) the deposit by the Depositor of Limited Transfer Securities with the Custodian in accordance with the provisions hereof, (ii) receipt by the Depositary of a certification and issuance instructions from the Company in form and substance as the Depositary may reasonably request, (iii) receipt by the Depositary of a certification and issuance instructions from the Depositor in form and substance as the Depositary may reasonably request, which may be combined with the certification and issuance instructions delivered by the Company pursuant to the foregoing clause (ii) provided that the Depositor is the Company, (iv) receipt by the Depositary of appropriate legal opinions of United Kingdom and U.S. counsel, each in form and substance acceptable to the Depositary, with respect to the Company, Shares being deposited and/or this Agreement, and (v) compliance with any other applicable provisions of this Agreement (including compliance with the provisions of the Deposit Agreement as incorporated herein and revised hereby) and the form of Restricted Receipt.

 

(b) As a condition to any offer, sale, pledge or other distribution, disposition or transfer of any Restricted ADSs, the transferor of such Restricted ADSs shall provide at the Depositary’s request a legal opinion of U.S. counsel (including the related back-up certificates), in form and substance reasonably satisfactory to the Depositary, to the effect that (i) the Shares represented by the Restricted ADSs have been registered under the Securities Act or (ii) such Restricted ADSs and the Shares represented thereby may be offered and sold without registration under the Securities Act pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements thereof. In the case of a transfer under clause (ii), any transferee of the Restricted ADSs will be required to become a party to, agree to, and be bound by the provisions of this Agreement by providing a certification in form and substance as the Depositary may reasonably request.

 

  3   
   

 

Section 4. Legends. Until such time as the Depositary has received the Opinion (as defined in Section 5 hereof), the Restricted ADSs and any account on the books of the Depositary reflecting the Restricted ADSs issued in connection with a Transaction or on the transfer, split-up or combination thereof shall contain a restrictive legend/notation substantially to the following effect:

 

THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE DISTRIBUTED OR TRANSFERRED EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144 UNDER THE ACT OR PURSUANT TO ANOTHER EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO REGISTRATION UNDER THE ACT, AND, IN THE CASE OF (ii) ABOVE, UNLESS THE COMPANY AND DEPOSITARY HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EACH OF THEM THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE ACT. 

 

In addition to the legend set forth above, Restricted ADSs may bear such additional legends as the Company and the Depositary may agree from time to time.

 

  4   
   

 

Section 5. Cancellation of Restricted ADSs and Withdrawal of Shares. The Depositary shall cancel surrendered Restricted ADSs, and the Shares formerly represented by Restricted ADSs deposited hereunder may be withdrawn, only in compliance with the provisions of this Agreement and the Restricted Receipt. A Holder may not surrender Restricted ADSs for cancellation and request the issuance of unrestricted American Depositary Shares representing the Shares formerly represented by such Restricted ADSs, unless such cancellation is (a) in connection with a saleafter a holding period of six months has elapsed with regard to the Restricted ADSs or (b) after a holding period of one year has elapsed with regard to the Restricted ADSs, and in the case of (a) and (b) the cancellation is preceded or accompanied by delivery of a legal opinion of U.S. counsel to the Company reasonably acceptable to the Depositary (or, at the option of the Depositary, counsel to the Holder), which opinion (including the related back-up certificates, the “Opinion”) shall be in form and substance reasonably satisfactory to the Depositary, to the effect that (i) such Restricted ADSs and the Shares represented thereby may be freely offered and sold without registration under the Securities Act pursuant to an applicable exemption from the registration requirements thereof, without limitation on the amount of those subject securities sold, (ii) any purchaser of such Restricted ADSs or Shares will receive securities that are not “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, (iii) the Depositary may, under the Securities Act, issue to any purchaser new American Depositary Shares representing the Shares without any restrictive legends thereon, and any stop-transfer instruction with respect to such new American Depositary Shares may be removed from the Depositary’s records, and (iv) such other matters as the Depositary may reasonably request. Upon receipt of the Opinion and cancellation of the Restricted ADSs, the Depositary shall move the Shares formerly represented by the Restricted ADSs to the general pool of Shares represented by the unrestricted American Depositary Shares, and shall take all other steps reasonably required to make the applicable Restricted ADSs fungible with the unrestricted American Depositary Shares issued under the Deposit Agreement. Notwithstanding the foregoing, if a Holder surrenders Restricted ADSs for cancellation and wishes to receive the Deposited Securities represented by the Restricted ADSs, the Depositary shall cancel the surrendered Restricted ADSs and deliver the Deposited Securities under such Restricted ADSs only upon (i) receipt of (a) a certification in such form and substance as the Depositary may reasonably request, signed by or on behalf of the person or entity that will be the beneficial owner of the Deposited Securities upon withdrawal, or, at the Depositary’s election, (b) an opinion of U.S. counsel reasonably acceptable to the Depositary substantially to the effect of clauses (i), (ii) and (iv) above in relation to the Opinion, and (ii) compliance with the provisions of this Agreement and the form of Restricted Receipt.

 

  5   
   

 

Section 6. Form of Restricted ADSs. Any Restricted ADSs to be issued in accordance herewith may be issued through a book-entry registration system maintained by the Depositary specifically for such Restricted ADSs pursuant to this Section 6. The Restricted ADSs shall not be eligible for inclusion in any other book-entry settlement system, including, without limitation, the facilities of The Depository Trust Company, and shall not in any way be fungible with the American Depositary Shares issued under the terms of the Deposit Agreement or any other agreement. The terms “deliver,” “execute,” “issue,” “register,” “surrender,” “transfer” or “cancel,” when used with respect to book-entry Restricted Receipts, shall refer to an entry or entries or an electronic transfer or transfers on the books of the Depositary.

 

Section 7. Terms and Conditions Applicable to Restricted ADSs. Except to the extent modified hereby, the provisions of this Agreement shall not amend, modify, impact or impair any of the provisions of the Deposit Agreement. Restricted Receipts evidencing Restricted ADSs shall be in the form of Exhibit A and Exhibit B attached hereto.

 

Section 8. Inconsistent Provisions. To the extent that any term or provision of this Agreement or the Restricted Receipts (as the case may be) shall be inconsistent with a term or provision of the Deposit Agreement (as incorporated herein and revised hereby), the terms and conditions of this Agreement shall take precedence.

 

Section 9. Assignment and Transfer. Subject to the provisions of Section 5.4 the Deposit Agreement, this Agreement may not be assigned by either the Company or the Depositary.

 

  6   
   

 

Section 10. Fees and Expenses. Holders of Restricted Receipts shall be subject to the fees and expenses set forth in Article (9) of the form of Restricted Receipt set forth in Exhibit A and Exhibit B hereof. In connection with the establishment and maintenance of the program covered by this Agreement, the Company agrees to reimburse the Depositary for any and all reasonable legal fees and expenses incurred in connection with this Agreement and the Restricted Program covered hereby.

 

  7   
   

 

IN WITNESS WHEREOF, Midatech Pharma PLC and Deutsche Bank Trust Company Americas have duly executed and delivered this Agreement as of December 23, 2020 and all Holders and Beneficial Owners shall become parties hereto upon acceptance by them of Restricted ADSs evidenced by Restricted Receipts issued in accordance with the terms hereof.

 

 

  MIDATECH PHARMA PLC  
       
       
  By   /s/ Craig Cook  
  Name: Craig Cook  
  Title: Chief Executive Officer  
       
       
  DEUTSCHE BANK TRUST COMPANY  
  AMERICAS    
       
       
       
  By   /s/ Michael Fitzpatrick  
  Name: Michael Fitzpatrick  
  Title: Vice President  
       
       
       
  By   /s/ Michael Curran  
  Name: Michael Curran  
  Title: Vice President  

 

  8   
   

 

EXHIBIT A 

 

CUSIP _________ 

 

ISIN________

 

 

RESTRICTED AMERICAN

DEPOSITARY SHARES

 

(Each Restricted American

Depositary Share represents

twenty Fully Paid Ordinary

Shares)

 

 

 

[FORM OF FACE OF RESTRICTED AMERICAN DEPOSITARY RECEIPT]

 

 

 

THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSER UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE DISTRIBUTED OR TRANSFERRED EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144 UNDER THE ACT OR PURSUANT TO AN ANOTHER EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT, AND, IN THE CASE OF (ii) ABOVE, UNLESS THE COMPANY AND DEPOSITARY HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EACH OF THEM THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE ACT. 

 

 

 

DEUTSCHE BANK TRUST COMPANY AMERICAS 

 

 

 

RESTRICTED AMERICAN DEPOSITARY RECEIPT
EVIDENCING RESTRICTED AMERICAN DEPOSITARY SHARES
REPRESENTING ORDINARY SHARES OF
NOMINAL VALUE £0.00005 EACH 

 

Of

 

MIDATECH PHARMA PLC
(INCORPORATED UNDER THE LAWS OF ENGLAND AND WALES)

 

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DEUTSCHE BANK TRUST COMPANY AMERICAS, as depositary (herein called the “Depositary”), hereby certifies that ________________ is the owner of ______________ Restricted American Depositary Shares (hereinafter “Restricted ADSs”), representing deposited ordinary shares, each of nominal value £0.00005 per share, including evidence of rights to receive such ordinary shares (the “Shares”) of Midatech Pharma PLC, a company incorporated under the laws of England and Wales (the “Company”). As of the date hereof, each Restricted ADS represents twenty Shares deposited under the Deposit Agreement with the Custodian which at the date hereof is Deutsche Bank AG, London Branch (the “Custodian”). The ratio of Restricted ADSs to Shares is subject to subsequent amendment as provided in Article IV of the Deposit Agreement. The Depositary’s Principal Office is located at 60 Wall Street, New York, New York 10005, U.S.A. References herein to the laws of England and Wales shall include references to all laws, rules and regulations in force or applicable in the United Kingdom. 

 

(1)       The Deposit Agreement. This Restricted American Depositary Receipt is one of an issue of Restricted American Depositary Receipts (“Receipts”), all issued or to be issued upon the provisions set forth in the Deposit Agreement, dated as of December 4, 2015 by and among the Company, the Depositary, and all Holders and Beneficial Owners from time to time of American Depositary Receipts issued thereunder (as amended from time to time, the “Unrestricted Deposit Agreement”), and as supplemented by the Deposit Agreement for Restricted Securities, dated as of December __, 2019 (as so supplemented, the “Deposit Agreement”) by and among the Company, the Depositary, and all Holders and Beneficial Owners from time to time of Receipts issued thereunder (each of whom by accepting a Receipt evidencing Restricted ADSs agrees to become a party thereto and becomes bound by all the terms and conditions thereof. The Deposit Agreement sets forth the rights and obligations of Holders and Beneficial Owners of Receipts and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other securities, property and cash from time to time, received in respect of such Shares and held thereunder (such Shares, other securities, property and cash are herein called “Deposited Securities”). Copies of the Deposit Agreement are on file at the Principal Office of the Depositary and the Custodian. Each Holder and each Beneficial Owner, upon acceptance of any Restricted ADSs (or any interest therein) issued in accordance with the terms and conditions of the Deposit Agreement, shall be deemed for all purposes to (a) be a party to and bound by the terms of the Deposit Agreement and applicable Receipt(s), and (b) appoint the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the Deposit Agreement and the applicable Receipt(s), to adopt any and all procedures necessary to comply with applicable law and to take such action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the Deposit Agreement and the applicable Receipt(s) (the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof).

 

The statements made on the face and reverse of this Receipt are summaries of certain provisions of the Deposit Agreement and the Company's articles of association (as in effect on the date of the Deposit Agreement, the “Articles of Association”)) and are qualified by and subject to the detailed provisions of the Deposit Agreement, to which reference is hereby made. All capitalized terms used herein which are not otherwise defined herein shall have the meanings ascribed thereto in the Deposit Agreement. To the extent there is any inconsistency between the terms of this Receipt and the terms of the Deposit Agreement, the terms of the Deposit Agreement shall prevail. Prospective and actual Holders and Beneficial Owners are encouraged to read the terms of the Deposit Agreement. The Depositary makes no representation or warranty as to the validity or worth of the Deposited Securities.

 

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(2)       Surrender of Receipts and Withdrawal of Deposited Securities. Upon surrender, at the Principal Office of the Depositary, of Restricted ADSs evidenced by this Receipt for the purpose of withdrawal of the Deposited Securities represented thereby, and upon payment of (i) the fees and charges of the Depositary for the making of withdrawals and cancellations of Deposited Securities and cancellation of Receipts (as set forth in Section 5.9 of the Unrestricted Deposit Agreement and Article (9) hereof) and (ii) all fees, taxes and/or governmental charges payable in connection with such surrender and withdrawal, and, subject to the terms and conditions of the Deposit Agreement, including the conditions set forth in Section 5 of the Deposit Agreement for Restricted Securities, the Articles of Association, Section 7.10 of the Unrestricted Deposit Agreement, Article (22) hereof and the provisions of or governing the Deposited Securities and other applicable laws, the Holder of the American Depositary Shares evidenced hereby is entitled to Delivery, to him or upon his order, of the Deposited Securities represented by the Restricted ADSs so surrendered. Restricted ADSs may be surrendered for the purpose of withdrawing Deposited Securities by Delivery of a Receipt evidencing such Restricted ADSs (if held in registered form) or by book-entry delivery of such Restricted ADSs to the Depositary. 

 

A Receipt surrendered for such purposes shall, if so required by the Depositary, be properly endorsed in blank or accompanied by proper instruments of transfer in blank, and if the Depositary so requires, the Holder thereof shall execute and deliver to the Depositary a written order directing the Depositary to cause the Deposited Securities being withdrawn to be Delivered to or upon the written order of a person or persons designated in such order. Thereupon, the Depositary shall direct the Custodian to Deliver (without unreasonable delay) at the designated office of the Custodian or through a book-entry delivery of the Shares (in either case subject to the terms and conditions of the Deposit Agreement, to the Articles of Association, and to the provisions of or governing the Deposited Securities and applicable laws, now or hereafter in effect), to or upon the written order of the person or persons designated in the order delivered to the Depositary as provided above, the Deposited Securities represented by such Restricted ADSs, together with any certificate or other proper documents of or relating to title for the Deposited Securities or evidence of the electronic transfer thereof (if available) as the case may be to or for the account of such person. Subject to Article (4) hereof, in the case of surrender of a Receipt evidencing a number of Restricted ADSs representing other than a whole number of Shares, the Depositary shall cause ownership of the appropriate whole number of Shares to be Delivered in accordance with the terms hereof, and shall, at the discretion of the Depositary, either (i) issue and Deliver to the person surrendering such Receipt a new Receipt evidencing American Depositary Shares representing any remaining fractional Share, or (ii) sell or cause to be sold the fractional Shares represented by the Receipt so surrendered and remit the proceeds thereof (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and (b) taxes and/or governmental charges) to the person surrendering the Receipt. At the request, risk and expense of any Holder so surrendering a Receipt, and for the account of such Holder, the Depositary shall direct the Custodian to forward (to the extent permitted by law) any cash or other property (other than securities) held in respect of, and any certificate or certificates and other proper documents of or relating to title to, the Deposited Securities represented by such Receipt to the Depositary for Delivery at the Principal Office of the Depositary, and for further Delivery to such Holder. Such direction shall be given by letter or, at the request, risk and expense of such Holder, by cable, telex or facsimile transmission. Upon receipt by the Depositary, the Depositary may make delivery to such person or persons entitled thereto at the Principal Office of the Depositary of any dividends or cash distributions with respect to the Deposited Securities represented by such Receipt, or of any proceeds of sale of any dividends, distributions or rights, which may at the time be held by the Depositary.

 

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A Holder may not surrender Restricted ADSs for cancellation and request the issuance of unrestricted American Depositary Shares representing the Shares formerly represented by such Restricted ADSs, unless such cancellation is (a) in connection with a sale after a holding period of six months has elapsed with regard to the Restricted ADSs or (b) after a holding period of one year has elapsed with regard to the Restricted ADSs, and in the case of (a) and (b) the cancellation is preceded or accompanied by delivery of a legal opinion of U.S. counsel to the Company reasonably acceptable to the Depositary (or, at the option of the Depositary, counsel to the Holder), which opinion (including the related back-up certificates, the “Opinion”) shall be in form and substance reasonably satisfactory to the Depositary, to the effect that (i) such Restricted ADSs and the Shares represented thereby may be freely offered and sold without registration under the Securities Act pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements thereof, without limitation on the amount of those subject securities sold, (ii) any purchaser of such Restricted ADSs or Shares will receive securities that are not “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, (iii) the Depositary may, under the Securities Act, issue to any purchaser new American Depositary Shares representing the Shares without any restrictive legends thereon, and any stop-transfer instruction with respect to such new American Depositary Shares may be removed from the Depositary’s records, and (iv) such other matters as the Depositary may reasonably request. Upon receipt of the Opinion and cancellation of the Restricted ADSs, the Depositary shall move the Shares formerly represented by the Restricted ADSs to the general pool of Shares represented by the unrestricted American Depositary Shares, and shall take all other steps reasonably required to make the applicable Restricted ADSs fungible with the unrestricted American Depositary Shares issued under the Unrestricted Deposit Agreement. Notwithstanding the foregoing, if a Holder surrenders Restricted ADSs for cancellation and, in lieu of receiving unrestricted American Depositary Shares, wishes to receive the Deposited Securities represented by the Restricted ADSs, the Depositary shall cancel the surrendered Restricted ADSs and deliver the Deposited Securities underlying such Restricted ADSs only upon (i) receipt of (a) a certification and agreement in form and substance as the Depositary may reasonably request, signed by or on behalf of the person or entity that will be the beneficial owner of the Deposited Securities upon withdrawal, or, at the Depositary’s election, (b) an opinion of U.S. counsel reasonably acceptable to the Depositary substantially in the form of clauses (i), (ii) and (iv) of the Opinion, and (ii) compliance with the provisions of the Deposit Agreement and this Receipt.

 

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(3)       Transfers, Split-Ups and Combinations of Receipts. Subject to the terms and conditions of the Deposit Agreement, the Registrar shall register transfers of Receipts on its books, upon surrender at the Principal Office of the Depositary of a Receipt by the Holder thereof in person or by duly authorized attorney, properly endorsed in the case of a certificated Receipt or accompanied by, or in the case of Receipts issued through the book-entry system maintained by the Depositary pursuant to Section 6 of the Deposit Agreement for Restricted Securities, receipt by the Depositary of proper instruments of transfer (including signature guarantees in accordance with standard industry practice) and duly stamped as may be required by the laws of the State of New York and of the United States of America and of any other applicable jurisdiction. Subject to the terms and conditions of the Deposit Agreement, including payment of the applicable fees and expenses incurred by, and charges of, the Depositary, the Depositary shall execute and Deliver a new Receipt(s) (and if necessary, cause the Registrar to countersign such Receipt(s)) and deliver same to or upon the order of the person entitled to such Receipts evidencing the same aggregate number of Restricted ADSs as those evidenced by the Receipts surrendered. Upon surrender of a Receipt or Receipts for the purpose of effecting a split-up or combination of such Receipt or Receipts upon payment of the applicable fees and charges of the Depositary, and subject to the terms and conditions of the Deposit Agreement, the Depositary shall execute and deliver a new Receipt or Receipts for any authorized number of Restricted ADSs requested, evidencing the same aggregate number of Restricted ADSs as the Receipt or Receipts surrendered.

 

(4)       Pre-Conditions to Registration, Transfer, Etc. As a condition precedent to the execution and Delivery, registration, registration of transfer, split-up, subdivision, combination or surrender of any Receipt, the delivery of any distribution thereon (whether in cash or shares) or withdrawal of any Deposited Securities, the Depositary or the Custodian may require (i) payment from the depositor of Shares or presenter of the Receipt of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax or charge and fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees and charges of the Depositary as provided in the Deposit Agreement and in this Receipt, (ii) the production of proof satisfactory to it as to the identity and genuineness of any signature or any other matter and (iii) compliance with (A) any laws or governmental regulations relating to the execution and Delivery of Receipts and Restricted ADSs or to the withdrawal of Deposited Securities and (B) such reasonable regulations of the Depositary or the Company consistent with the Deposit Agreement and applicable law. 

 

The issuance of Restricted ADSs against deposits of Shares generally or against deposits of particular Shares may be suspended, or the issuance of Restricted ADSs against the deposit of particular Shares may be withheld, or the registration of transfer of Receipts in particular instances may be refused, or the registration of transfer of Receipts generally may be suspended, during any period when the transfer books of the Depositary are closed or if any such action is deemed necessary or advisable by the Depositary or the Company, in good faith, at any time or from time to time because of any requirement of law, any government or governmental body or commission, or under any provision of the Deposit Agreement or provisions of, or governing, the Deposited Securities or any meeting of shareholders of the Company or for any other reason, subject in all cases to Article (22) hereof. 

 

The Depositary shall not issue Restricted ADSs prior to the receipt of Shares or deliver Shares prior to the receipt and cancellation of Restricted ADSs.

 

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(5)       Compliance With Information Requests Notwithstanding any other provision of the Deposit Agreement, this Receipt, the Articles of Association and applicable law, each Holder and Beneficial Owner agrees to (a) provide such information as the Company or the Depositary may request pursuant to law (including, without limitation, the relevant laws of England and Wales, any applicable law of the United States, the Articles of Association, any resolutions of the Company's Board of Directors adopted pursuant to such  Articles of Association, the requirements of any markets or exchanges upon which the Shares, ADSs or Receipts are listed or traded, or to any requirements of any electronic book-entry system by which the ADSs or Receipts may be transferred) regarding the capacity in which they own or owned Receipts, the identity of any other persons then or previously interested in such Receipts and the nature of such interest, and any other applicable matters, and (b) be bound by and subject to applicable provisions of the laws of England and Wales, the Articles of Association and the requirements of any markets or exchanges upon which the ADSs, Receipts or Shares are listed or traded, or pursuant to any requirements of any electronic book-entry system by which the ADSs, Receipts or Shares may be transferred, to the same extent as if such Holder and Beneficial Owner held Shares directly, in each case irrespective of whether or not they are Holders or Beneficial Owners at the time such request is made and (c) without limiting the generality of the foregoing, comply with all applicable provisions of the laws of England and Wales, the Disclosure Regulations, the rules and requirements of any stock exchange on which the Shares are, or will be registered, traded or listed and the Company's Articles of Association regarding any such Holder or Beneficial Owner's interest in Shares (including the aggregate of ADSs and Shares held by each such Holder or Beneficial Owner) and/or any other requirement for the disclosure of interests therein, whether or not the same may be enforceable against such Holder or Beneficial Owner.  Each Holder and Beneficial Owner of ADSs further agrees to furnish the Company and the Depositary with any such notification made in accordance with this Article (5) and the Deposit Agreement and to comply with requests for information from the Company or the Depositary pursuant to the laws of England and Wales, the rules and requirements of any stock exchange on which the Shares are, or will be registered, traded or listed, and the Company's Articles of Association, whether or not they are Holders and/or Beneficial Owners at the time of such request. The Depositary agrees to use its reasonable efforts to forward upon the request of the Company, and at the Company's expense, any such request from the Company to the Holders and to forward to the Company any such responses to such requests received by the Depositary. 

 

(6)       Liability of Holder for Taxes, Duties and Other Charges. If any present or future tax or other governmental charge shall become payable by the Depositary or the Custodian with respect to any Shares, Receipt or any Deposited Securities or Restricted ADSs, such tax, or other governmental charge shall be payable by the Holders and Beneficial Owners to the Depositary and such Holders and Beneficial Owners shall be deemed liable therefor. The Company, the Custodian and/or the Depositary may withhold or deduct from any distributions made in respect of Deposited Securities and may sell for the account of the Holder and/or Beneficial Owner any or all of the Deposited Securities and apply such distributions and sale proceeds in payment of such taxes (including applicable interest and penalties) or charges, with the Holder and the Beneficial Owner hereof remaining fully liable for any deficiency. The Custodian may refuse the deposit of Shares, and the Depositary may refuse to issue Restricted ADSs, to deliver Receipts, register the transfer, split-up or combination of Restricted ADSs and (subject to Article (22) hereof) the withdrawal of Deposited Securities, until payment in full of such tax, charge, penalty or interest is received. Holders and Beneficial Owners of American Depositary Shares may be required from time to time, and in a timely manner, to file such proof of taxpayer status, residence and beneficial ownership (as applicable), to execute such certificates and to make such representations and warranties, or to provide any other information or documents, as the Depositary or the Custodian may deem necessary or proper to fulfill the Depositary's or the Custodian's obligations under applicable law.

 

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The liability of Holders and Beneficial Owners under the Deposit Agreement shall survive any transfer of Receipts, any surrender of Receipts and withdrawal of Deposited Securities or the termination of the Deposit Agreement. 

 

Holders understand that in converting Foreign Currency, amounts received on conversion are calculated at a rate which may exceed the number of decimal places used by the Depositary to report distribution rates (which in any case will not be less than two decimal places). Any excess amount may be retained by the Depositary as an additional cost of conversion, irrespective of any other fees and expenses payable or owing hereunder and shall not be subject to escheatment. 

 

(7)       Representations and Warranties of Depositors. Each person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares (and the certificates therefor) are duly authorized, validly issued, fully paid, non-assessable and were legally obtained by such person, (ii) all preemptive (and similar) rights, if any, with respect to such Shares, have been validly waived or exercised, (iii) the person making such deposit is duly authorized so to do, (iv) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim (v) the Shares presented for deposit have not been stripped of any rights or entitlements and (vi) the Shares are not subject to any lock-up agreement with the Company or other party, or the Shares are subject to a lock-up agreement but such lock-up agreement has terminated or the lock-up restrictions imposed thereunder have expired or been validly waived. Such representations and warranties shall survive the deposit and withdrawal of Shares and the issuance, cancellation and transfer of Restricted ADSs. If any such representations or warranties are false in any way, the Company and Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof. 

 

(8)       Filing Proofs, Certificates and Other Information. Any person presenting Shares for deposit shall provide, any Holder and any Beneficial Owner may be required to provide, and every Holder and Beneficial Owner agrees, from time to time to provide to the Depositary such proof of citizenship or residence, taxpayer status, payment of all applicable taxes and/or other governmental charges, exchange control approval, legal or beneficial ownership of Restricted ADSs and Deposited Securities, compliance with applicable laws and the terms of the Deposit Agreement and the provisions of, or governing, the Deposited Securities or other information, to execute such certifications and to make such representations and warranties, and to provide such other information and documentation, in all cases as the Depositary deems necessary or proper or as the Company may reasonably require by written request to the Depositary consistent with its obligations under the Deposit Agreement. The Depositary and the Registrar, as applicable, may withhold the execution or Delivery or registration of transfer of any Receipt or the distribution or sale of any dividend or other distribution of rights or of the proceeds thereof, or to the extent not limited by the terms of Article (22) hereof or the terms of the Deposit Agreement, the Delivery of any Deposited Securities, until such proof or other information is filed or such certifications are executed, or such representations and warranties are made, or such other documentation or information provided, in each case to the Depositary’s and the Company’s satisfaction. The Depositary shall from time to time on the written request of the Company advise the Company of the availability of any such proofs, certificates or other information and shall, at the Company’s sole expense, provide or otherwise make available copies thereof to the Company upon written request therefor by the Company, unless such disclosure is prohibited by law. Each Holder and Beneficial Owner agrees to provide any information requested by the Company or the Depositary pursuant to this paragraph. Nothing herein shall obligate the Depositary to (i) obtain any information for the Company if not provided by the Holders or Beneficial Owners or (ii) verify or vouch for the accuracy of the information so provided by the Holders or Beneficial Owners.

 

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The obligations of Holders and Beneficial Owners under the Deposit Agreement shall survive any transfer of Receipts, any surrender of Receipts and withdrawal of Deposited Securities or the termination of this Deposit Agreement. 

 

(9)       Charges of Depositary. The Depositary reserves the right to charge the following fees for the services performed under the terms of the Deposit Agreement; provided, however, that no fees shall be payable upon distribution of cash dividends so long as the charging of such fee is prohibited by the exchange, if any, upon which the ADSs are listed: 

 

(i)       to any person to whom Restricted ADSs are issued or to any person to whom a distribution is made in respect of Restricted ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash), a fee not in excess of U.S. $ [0.05] per Restricted ADSs so issued under the terms of the Deposit Agreement to be determined by the Depositary; 

 

(ii)       to any person surrendering Restricted ADSs for withdrawal of Deposited Securities or whose Restricted ADSs are cancelled or reduced for any other reason including, inter alia, cash distributions made pursuant to a cancellation or withdrawal, a fee not in excess of U.S. $ 0.05 per Restricted ADSs reduced, cancelled or surrendered (as the case may be); 

 

(iii)      to any holder of Restricted ADSs (including, without limitation, Holders), a fee not in excess of U.S. $ 0.05 per Restricted ADSs held for the distribution of cash dividends; 

 

(iv)      to any holder of Restricted ADSs (including, without limitation, Holders), a fee not in excess of U.S. $ 0.05 per Restricted ADSs held for the distribution of cash entitlements (other than cash dividends) and/or cash proceeds, including proceeds from the sale of rights, securities and other entitlements; 

 

(v)       to any holder of Restricted ADSs (including, without limitation, Holders), a fee not in excess of U.S. $ 0.05 per Restricted ADSs issued upon the exercise of rights; and 

 

(vi)      for the operation and maintenance costs in administering the Restricted ADSs an annual fee of U.S. $ 0.05 per Restricted ADSs, such fee to be assessed against Holders of record as of the date or dates set by the Depositary as it sees fit and collected at the sole discretion of the Depositary by billing such Holders for such fee or by deducting such fee from one or more cash dividends or other cash distributions.

 

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In addition, Holders, Beneficial Owners, any person depositing Shares for deposit and any person surrendering Restricted ADSs for cancellation and withdrawal of Deposited Securities will be required to pay the following charges: 

 

(i)        taxes (including applicable interest and penalties) and other governmental charges; 

 

(ii)       such registration fees as may from time to time be in effect for the registration of Shares or other Deposited Securities with the Foreign Registrar and applicable to transfers of Shares or other Deposited Securities to or from the name of the Custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively; 

 

(iii)      such cable, telex, facsimile and electronic transmission and delivery expenses as are expressly provided in the Deposit Agreement to be at the expense of the depositor depositing or person withdrawing Shares or Holders and Beneficial Owners of Restricted ADSs; 

 

(iv)       the expenses and charges incurred by the Depositary and/or a division or Affiliate(s) of the Depositary in the conversion of Foreign Currency, including, without limitation, the expenses, fees and other charges imposed by any Affiliate (which may, in its sole discretion, act in a principal capacity in such transaction) that may be utilized in connection therewith; 

 

(v)       such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Shares, Deposited Securities, Restricted ADSs and Receipts; 

 

(vi)      the fees and expenses incurred by the Depositary in connection with the delivery of Deposited Securities, including any fees of a central depository for securities in the local market, where applicable; and 

 

(vii)     any fees, charges, costs or expenses that may be incurred from time to time by the Depositary and/or any of the Depositary's agents (including, without limitation, Agents), including the Custodian, and/or agents of the Depositary's agents (including, without limitation, Agents) in connection with the servicing of Shares, Deposited Securities and/or American Depositary Shares, the sale of securities (including, without limitation, Deposited Securities), the delivery of Deposited Securities or otherwise in connection with the Depositary's or its Custodian's compliance with applicable law, rule or regulation  (such fees, charges, costs or expenses to be assessed against Holders of record as at the date or dates set by the Depositary as it sees fit and collected at the sole discretion of the Depositary by billing such Holders for such fee or by deducting such fee from one or more cash dividends or other cash distributions).

 

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Any other charges and expenses of the Depositary under the Deposit Agreement will be paid by the Company upon agreement between the Depositary and the Company.  The Depositary reserves the right to utilize and retain a division or Affiliate(s) of the Depositary to direct, manage and/or execute any public and/or private sale of securities under the Deposit Agreement and to engage in the conversion of Foreign Currency thereunder.    It is anticipated that such division and/or Affiliate(s) will charge the Depositary a fee and/or commission in connection with each such transaction, and seek reimbursement of its costs and expenses related thereto.  Such fees/commissions, costs and expenses, shall be deducted from amounts distributed and shall not be deemed to be fees of the Depositary under Article (9) of this Receipt or otherwise. All fees and charges may, at any time and from time to time, be changed by agreement between the Depositary and Company but, in the case of fees and charges payable by Holders or Beneficial Owners, only in the manner contemplated by Article (20) hereof. 

 

The Depositary may make payments to the Company and/or may share revenue with the Company derived from fees collected from Holders and Beneficial Owners, upon such terms and conditions as the Company and the Depositary may agree from time to time. 

 

(10)       Title to Receipts. It is a condition of this Receipt, and every successive Holder of this Receipt by accepting or holding the same consents and agrees, that, subject to the requirements of the Deposit Agreement, title to this Receipt (and to each Restricted ADS evidenced hereby) is transferable by delivery of the Receipt, provided it has been properly endorsed or accompanied by proper instruments of transfer, such Receipt being a certificated security under the laws of the State of New York. Notwithstanding any notice to the contrary, the Depositary may deem and treat the Holder of this Receipt (that is, the person in whose name this Receipt is registered on the books of the Depositary) as the absolute owner hereof for all purposes. The Depositary shall have no obligation or be subject to any liability under the Deposit Agreement or this Receipt to any holder of this Receipt or any Beneficial Owner unless such holder is the Holder of this Receipt registered on the books of the Depositary or, in the case of a Beneficial Owner, such Beneficial Owner or the Beneficial Owner’s representative is the Holder registered on the books of the Depositary. 

 

(11)       Validity of Receipt. This Receipt shall not be entitled to any benefits under the Deposit Agreement or be valid or enforceable for any purpose, unless this Receipt has been (i) dated, (ii) signed by the manual or facsimile signature of a duly authorized signatory of the Depositary, (iii) if a Registrar for the Receipts shall have been appointed, countersigned by the manual or facsimile signature of a duly authorized signatory of the Registrar and (iv) registered in the books maintained by the Depositary or the Registrar, as applicable, for the issuance and transfer of Receipts. Receipts bearing the facsimile signature of a duly-authorized signatory of the Depositary or the Registrar, who at the time of signature was a duly-authorized signatory of the Depositary or the Registrar, as the case may be, shall bind the Depositary, notwithstanding the fact that such signatory has ceased to be so authorized prior to the execution and delivery of such Receipt by the Depositary or did not hold such office on the date of issuance of such Receipts. 

 

(12)       Available Information; Reports; Inspection of Transfer Books. The Company is subject to the periodic reporting requirements of the Exchange Act and accordingly files certain information with the Commission. These reports and documents can be inspected and copied through the Commission’s EDGAR system at www.sec.gov.

 

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The Depositary shall make available during normal business hours on any Business Day for inspection by Holders at its Principal Office any reports and communications, including any proxy soliciting materials, received from the Company which are both (a) received by the Depositary, the Custodian, or the nominee of either of them as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Company. 

 

The Depositary or the Registrar, as applicable, shall keep books for the registration of Receipts and transfers of Receipts which at all reasonable times shall be open for inspection by the Company and by the Holders of such Receipts, provided that such inspection shall not be, to the Depositary’s or the Registrar’s knowledge, for the purpose of communicating with Holders of such Receipts in the interest of a business or object other than the business of the Company or other than a matter related to the Deposit Agreement or the Receipts. 

 

The Depositary or the Registrar, as applicable, may close the transfer books with respect to the Receipts, at any time or from time to time, when deemed necessary or advisable by it in good faith in connection with the performance of its duties hereunder, subject, in all cases, to Article (22) hereof. 

 

Dated:

DEUTSCHE BANK TRUST

COMPANY AMERICAS, as Depositary

 
     
  By:    
       
  By:    

 

The address of the Principal Office of the Depositary is 60 Wall Street, New York, New York 10005, U.S.A.

 

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[FORM OF REVERSE OF RESTRICTED AMERICAN DEPOSITARY RECEIPT] 

 

SUMMARY OF CERTAIN ADDITIONAL PROVISIONS
OF THE DEPOSIT AGREEMENT 

 

(13)       Dividends and Distributions in Cash, Shares, etc. Whenever the Depositary receives confirmation from the Custodian of receipt of any cash dividend or other cash distribution on any Deposited Securities, or receives proceeds from the sale of any Shares, rights securities or other entitlements under the Deposit Agreement, the Depositary will, if at the time of receipt thereof any amounts received in a Foreign Currency can, in the judgment of the Depositary (upon the terms of the Deposit Agreement), be converted on a practicable basis, into Dollars transferable to the United States, promptly convert or cause to be converted such dividend, distribution or proceeds into Dollars and will distribute promptly the amount thus received (net of applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) to the Holders of record as of the Restricted ADS Record Date in proportion to the number of Restricted ADSs representing such Deposited Securities held by such Holders respectively as of the Restricted ADS Record Date. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Holder a fraction of one cent. Any such fractional amounts shall be rounded down to the nearest whole cent and so distributed to Holders entitled thereto. If the Company, the Custodian or the Depositary is required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities an amount on account of taxes, duties or other governmental charges, the amount distributed to Holders on the Restricted ADSs representing such Deposited Securities shall be reduced accordingly. Such withheld amounts shall be forwarded by the Company, the Custodian or the Depositary to the relevant governmental authority. Evidence of payment thereof by the Company shall be forwarded by the Company to the Depositary upon request. The Depositary shall forward to the Company or its agent such information from its records as the Company may reasonably request to enable the Company or its agent to file with governmental agencies such reports as are necessary to obtain benefits under the applicable tax treaties for the Holders and Beneficial Owners of Receipts. Any Foreign Currency received by the Depositary shall be converted upon the terms and conditions set forth in the Deposit Agreement. 

 

If any distribution upon any Deposited Securities consists of a dividend in, or free distribution of, Shares, the Company shall cause such Shares to be deposited with the Custodian and registered, as the case may be, in the name of the Depositary, the Custodian or their nominees. Upon receipt of confirmation of such deposit, the Depositary shall, subject to and in accordance with the Deposit Agreement, establish the Restricted ADS Record Date and either (i) distribute to the Holders as of the Restricted ADS Record Date in proportion to the number of Restricted ADSs held by such Holders of the Restricted ADS Record Date, additional Restricted ADSs, which represent in aggregate the number of Shares received as such dividend, or free distribution, subject to the terms of the Deposit Agreement (including, without limitation, the applicable fees and charges of, and expenses incurred by, the Depositary, and taxes and/or governmental charges), or (ii) if additional Restricted ADSs are not so distributed, each Restricted ADS issued and outstanding after the Restricted ADS Record Date shall, to the extent permissible by law, thenceforth also represent rights and interests in the additional Shares distributed upon the Deposited Securities represented thereby (net of the applicable fees and charges of, and the expenses incurred by, the Depositary, and taxes and/or governmental charges). In lieu of delivering fractional Restricted ADSs, the Depositary shall sell the number of Shares represented by the aggregate of such fractions and distribute the proceeds upon the terms set forth in the Deposit Agreement.

 

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In the event that (x) the Depositary determines that any distribution in property (including Shares) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, or, (y) if the Company, in the fulfilment of its obligations under the Deposit Agreement, has either (a) furnished an opinion of U.S. counsel determining that Shares must be registered under the Securities Act or other laws in order to be distributed to Holders (and no such registration statement has been declared effective), or (b) fails to timely deliver the documentation contemplated in the Deposit Agreement, the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable, and the Depositary shall distribute the net proceeds of any such sale (after deduction of taxes and/or governmental charges, and fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary) to Holders entitled thereto upon the terms of the Deposit Agreement. The Depositary shall hold and/or distribute any unsold balance of such property in accordance with the provisions of the Deposit Agreement. 

 

Whenever the Company intends to distribute a dividend payable at the election of the holders of Shares in cash or in additional Shares, the Company shall give notice thereof to the Depositary at least 30 days prior to the proposed distribution stating whether or not it wishes such elective distribution to be made available to Holders. Upon timely receipt of a notice indicating that the Company wishes an elective distribution to be made available to Holders upon the terms described in the Deposit Agreement, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such elective distribution available to the Holders.  The Depositary shall make such elective distribution available to Holders only if (i) the Company shall have timely requested that the elective distribution is available to Holders of ADRs, (ii) the Depositary shall have determined that such distribution is reasonably practicable and (iii) the Depositary shall have received satisfactory documentation within the terms of Section 5.7 of the Deposit Agreement including, without limitation, any legal opinions of counsel to the Company in any applicable jurisdiction that the Depositary, in its discretion, may reasonably request, at the expense of the Company.  If the above conditions are not satisfied, the Depositary shall, to the extent permitted by law, distribute to the Holders, on the basis of the same determination as is made in the local market in respect of the Shares for which no election is made, either cash or additional Restricted ADSs representing such additional Shares, in each case upon the terms described in the Deposit Agreement. If the above conditions are satisfied, the Depositary shall, subject to the terms and conditions of the Deposit Agreement, establish a Restricted ADS Record Date according to Article (14) hereof and establish procedures to enable the Holder hereof to elect to receive the proposed distribution in cash or in additional Restricted ADSs. The Company shall assist the Depositary in establishing such procedures to the extent necessary.  Subject to the Deposit Agreement, if a Holder elects to receive the distribution in cash, the dividend shall be distributed as in the case of a distribution in cash. If the Holder hereof elects to receive the distribution in additional Restricted ADSs, the distribution shall be distributed as in the case of a distribution in Shares upon the terms described in the Deposit Agreement. Nothing herein shall obligate the Depositary to make available to the Holder hereof a method to receive the elective dividend in Shares (rather than Restricted ADSs). There can be no assurance that the Holder hereof will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares.

 

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Whenever the Company intends to distribute to the holders of the Deposited Securities rights to subscribe for additional Shares, the Company shall give notice thereof to the Depositary at least 60 days prior to the proposed distribution stating whether or not it wishes such rights to be made available to Holders of Restricted ADSs. Upon timely receipt by the Depositary of a notice indicating that the Company wishes such rights to be made available to Holders of Restricted ADSs, the Company shall determine whether it is lawful and reasonably practicable to make such rights available to the Holders. The Depositary shall make such rights available to any Holders only if the Company shall have timely requested that such rights be made available to Holders, the Depositary shall have received the documentation required by the Deposit Agreement, and the Depositary shall have determined that such distribution of rights is lawful and reasonably practicable. If such conditions are not satisfied, the Depositary shall sell the rights as described below. In the event all conditions set forth above are satisfied, the Depositary shall establish a Restricted ADS Record Date and establish procedures (x) to distribute such rights (by means of warrants or otherwise) and (y) to enable the Holders to exercise the rights (upon payment of the applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges). Nothing herein or in the Deposit Agreement shall obligate the Depositary to make available to the Holders a method to exercise such rights to subscribe for Shares (rather than Restricted ADSs). If (i) the Company does not timely request the Depositary to make the rights available to Holders or if the Company requests that the rights not be made available to Holders, (ii) the Depositary fails to receive the documentation required by the Deposit Agreement or determines it is not lawful or reasonably practicable to make the rights available to Holders, or (iii) any rights made available are not exercised and appear to be about to lapse, the Depositary shall determine whether it is lawful and reasonably practicable to sell such rights, and if it so determines that it is lawful and reasonably practicable, endeavour to sell such rights in a riskless principal capacity or otherwise, at such place and upon such terms (including public and/or private sale) as it may deem proper. The Depositary shall, upon such sale, convert and distribute proceeds of such sale (net of applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) upon the terms hereof and in the Deposit Agreement. If the Depositary is unable to make any rights available to Holders or to arrange for the sale of the rights upon the terms described above, the Depositary shall allow such rights to lapse. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or exercise, or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.

 

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Notwithstanding anything herein to the contrary, if registration (under the Securities Act and/or any other applicable law) of the rights or the securities to which any rights relate may be required in order for the Company to offer such rights or such securities to Holders and to sell the securities represented by such rights, the Depositary will not distribute such rights to the Holders (i) unless and until a registration statement under the Securities Act (and/or such other applicable law) covering such offering is in effect or (ii) unless the Company furnishes to the Depositary at the Company’s own expense opinion(s) of counsel for the Company in the United States and counsel to the Company in any other applicable country in which rights would be distributed, in each case satisfactorily to the Depositary, to the effect that the offering and sale of such securities to Holders and Beneficial Owners are exempt from, or do not require registration under, the provisions of the Securities Act or any other applicable laws. In the event that the Company, the Depositary or the Custodian shall be required to withhold and does withhold from any distribution of property (including rights) an amount on account of taxes and/or other governmental charges, the amount distributed to the Holders shall be reduced accordingly. In the event that the Depositary determines that any distribution in property (including Shares and rights to subscribe therefor) is subject to any tax or other governmental charges which the Depositary is obligated to withhold, the Depositary may dispose of all or a portion of such property (including Shares and rights to subscribe therefor) in such amounts and in such manner, including by public or private sale, as the Depositary deems necessary and practicable to pay any such taxes and/or charges. 

 

There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to exercise rights on the same terms and conditions as the holders of Shares or to exercise such rights. Nothing herein shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights or otherwise to register or qualify the offer or sale of such rights or securities under the applicable law of any other jurisdiction for any purpose. 

 

Whenever the Company intends to distribute to the holders of Deposited Securities property other than cash, Shares or rights to purchase additional Shares, the Company shall give notice thereof to the Depositary at least 30 days prior to the proposed distribution and shall indicate whether or not it wishes such distribution to be made to Holders.  Upon receipt of a notice indicating that the Company wishes such distribution be made to Holders of Restricted ADSs, the Depositary shall determine, after consultation with the Company, whether such distribution to Holders is lawful and reasonably practicable. The Depositary shall not make such distribution unless (i) the Company shall have timely requested the Depositary to make such distribution to Holders, (ii) the Depositary shall have received the documentation required by the Deposit Agreement, and (iii) the Depositary shall have determined that such distribution is lawful and reasonably practicable. Upon satisfaction of such conditions, the Depositary shall distribute the property so received to the Holders of record as of the Restricted ADS Record Date, in proportion to the number of Restricted ADSs held by such Holders respectively and in such manner as the Depositary may deem practicable for accomplishing such distribution (i) upon receipt of payment or net of the applicable fees and charges of, and expenses incurred by, the Depositary, and (ii) net of any taxes and/or governmental charges. The Depositary may dispose of all or a portion of the property so distributed and deposited, in such amounts and in such manner (including public or private sale) as the Depositary may deem practicable or necessary to satisfy any taxes (including applicable interest and penalties) or other governmental charges applicable to the distribution.

 

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If the conditions above are not satisfied, the Depositary shall sell or cause such property to be sold in a public or private sale, at such place or places and upon such terms as it may deem proper and shall distribute the proceeds of such sale received by the Depositary (net of (a) applicable fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and (b) taxes and/or governmental charges) to the Holders upon the terms hereof and of the Deposit Agreement. If the Depositary is unable to sell such property, the Depositary may dispose of such property in any way it deems reasonably practicable under the circumstances for nominal or no consideration and Holders and Beneficial Owners shall have no rights thereto or arising therefrom. 

 

(14)       Fixing of Record Date. Whenever necessary in connection with any distribution (whether in cash, Shares, rights or other distribution), or whenever for any reason the Depositary causes a change in the number of Shares that are represented by each Restricted ADS, or whenever the Depositary shall receive notice of any meeting of or solicitation of holders of Shares or other Deposited Securities, or whenever the Depositary shall find it necessary or convenient in connection with the giving of any notice, or any other matter, the Depositary shall fix a record date (the “Restricted ADS Record Date”), as close as practicable to the record date fixed by the Company with respect to the Shares (if applicable), for the determination of the Holders who shall be entitled to receive such distribution, to give instructions for the exercise of voting rights at any such meeting, or to give or withhold such consent, or to receive such notice or solicitation or to otherwise take action, or to exercise the rights of Holders with respect to such changed number of Shares represented by each Restricted ADS or for any other reason. Subject to applicable law and the terms and conditions of this Receipt and the Deposit Agreement, only the Holders of record at the close of business in New York on such Restricted ADS Record Date shall be entitled to receive such distributions, to give such voting instructions, to receive such notice or solicitation, or otherwise take action. 

 

(15)       Voting of Deposited Securities. Subject to the next sentence, as soon as practicable after receipt of notice of any meeting at which the holders of Deposited Securities are entitled to vote, or of solicitation of consents or proxies from holders of Deposited Securities, the Depositary shall fix the Restricted ADS Record Date in respect of such meeting or such solicitation of consents or proxies. The Depositary shall, if requested by the Company in writing in a timely manner (the Depositary having no obligation to take any further action if the request shall not have been received by the Depositary at least 30 Business Days prior to the date of such vote or meeting) and at the Company’s expense, and provided no U.S. legal prohibitions exist, mail by regular, ordinary mail delivery (or by electronic mail or as otherwise may be agreed between the Company and the Depositary in writing from time to time) or otherwise distribute as soon as practicable after receipt thereof to Holders as of the Restricted ADS Record Date: (a) such notice of meeting or solicitation of consent or proxy; (b) a statement that the Holders at the close of business on the Restricted ADS Record Date will be entitled, subject to any applicable law, the provisions of this Deposit Agreement, the Company’s Articles of Association and the provisions of or governing the Deposited Securities (which provisions, if any, shall be summarized in pertinent part by the Company), to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by such Holder’s American Depositary Shares; and (c) a brief statement as to the manner in which such voting instructions may be given. Voting instructions may be given only in respect of a number of American Depositary Shares representing an integral number of Deposited Securities. Upon the timely receipt of voting instructions of a Holder on the Restricted ADS Record Date in the manner specified by the Depositary, the Depositary shall endeavor, insofar as practicable and permitted under applicable law, the provisions of this Deposit Agreement, the Company’s Articles of Association and the provisions of or governing the Deposited Securities, to vote or cause the Custodian to vote the Deposited Securities (in person or by proxy) represented by American Depositary Shares evidenced by such Receipt in accordance with such voting instructions

 

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In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with the Articles of Association, the Depositary will refrain from voting and the voting instructions (or the deemed voting instructions, as set out above) received by the Depositary from Holders shall lapse. The Depositary will have no obligation to demand voting on a poll basis with respect to any resolution and shall have no liability to any Holder or Beneficial Owner for not having demanded voting on a poll basis. 

 

Neither the Depositary nor the Custodian shall, under any circumstances exercise any discretion as to voting, and neither the Depositary nor the Custodian shall vote, attempt to exercise the right to vote, or in any way make use of for purposes of establishing a quorum or otherwise, Deposited Securities represented by Restricted ADSs except pursuant to and in accordance with such written instructions from Holders. Shares or other Deposited Securities represented by Restricted ADSs for which no specific voting instructions are received by the Depositary from the Holder shall not be voted.. There can be no assurance that Holders or Beneficial Owners generally or any Holder or Beneficial Owner in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner. 

 

Notwithstanding the above, save for applicable provisions of the law of England and Wales, and in accordance with the terms of Section 5.3 of the Unrestricted Deposit Agreement, the Depositary shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities or the manner in which such vote is cast or the effect of such vote. 

 

There can be no assurance that Holders or Beneficial Owners generally or any Holder or Beneficial Owner in particular will receive the notice described above with sufficient time to enable the Holder to return voting instructions to the Depositary in a timely manner. 

 

(16)       Changes Affecting Deposited Securities. Upon any change in par or nominal value, split-up, subdivision, cancellation, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger, amalgamation or consolidation or sale of assets affecting the Company or to which it otherwise is a party, any securities which shall be received by the Depositary or a Custodian in exchange for, or in conversion of or replacement or otherwise in respect of, such Deposited Securities shall, to the extent permitted by law, be treated as new Deposited Securities under the Deposit Agreement and the Receipts shall, subject to the provisions of the Deposit Agreement and applicable law, evidence Restricted ADSs representing the right to receive such additional securities. Alternatively, the Depositary may, with the Company’s approval, and shall, if the Company shall so requests, subject to the terms of the Deposit Agreement and receipt of satisfactory documentation contemplated by the Deposit Agreement (including without limitation, any opinions of counsel (at the expense of the Company) satisfactory to the Depositary that such distributions are not in violation of any applicable laws or regulations) execute and deliver additional Receipts as in the case of a stock dividend on the Shares, or call for the surrender of outstanding Receipts to be exchanged for new Receipts, in either case, as well as in the event of newly deposited Shares, with necessary modifications to this form of Receipt specifically describing such new Deposited Securities and/or corporate change. Notwithstanding the foregoing, in the event that any security so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall if the Company requests, subject to receipt of satisfactory legal documentation contemplated in the Deposit Agreement, sell such securities at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of fees and charges of, and expenses incurred by, the Depositary and/or a division or Affiliate(s) of the Depositary and taxes and/or governmental charges) for the account of the Holders otherwise entitled to such securities and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash pursuant to the Deposit Agreement. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or feasible to make such securities available to Holders in general or any Holder in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or (iii) any liability to the purchaser of such securities.

 

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(17)       Exoneration. Neither of the Depositary, the Custodian or the Company shall be obligated to do or perform any act which is inconsistent with the provisions of the Deposit Agreement or shall incur any liability to Holders, Beneficial Owners or any third parties (i) if the Depositary, the Custodian or the Company or their respective controlling persons or agents (including, without limitation, Agents) shall be prevented or forbidden from, or subjected to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the Deposit Agreement and this Receipt, by reason of any provision of any present or future law or regulation of the United States, the United Kingdom or any other country, or of any other governmental authority or regulatory authority or stock exchange, or by reason of any provision, present or future of the Articles of Association or any provision of or governing any Deposited Securities, or by reason of any act of God, war, terrorism, nationalization, expropriation, currency restrictions, work stoppage, strike, civil unrest, revolutions, rebellions, explosions, computer failure or circumstance beyond its direct and immediate control,, (ii) by reason of any exercise of, or failure to exercise, any discretion provided for in the Deposit Agreement or in the Articles of Association or provisions of or governing Deposited Securities, (iii) for any action or inaction of the Depositary, the Custodian or the Company or their respective controlling persons or agents (including, without limitation, Agents) in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, any Beneficial Owner or authorized representative thereof, or any other person believed by it in good faith to be competent to give such advice or information, including, without limitation, in determining if a proposed distribution, action or transaction under Article IV of the Deposit Agreement is lawful, (iv) for any inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Holders of Restricted ADS or (v) for any special, consequential, indirect or punitive damages for any breach of the terms of the Deposit Agreement or otherwise. Every Holder and Beneficial Owner agrees to, and shall, indemnify the Depositary, the Company, the Custodian and each and every of their respective officers, directors, employees, agents (including, without limitation, Agents) and Affiliates against, and hold each of them harmless from, any claims with respect to taxes, additions to tax (including applicable interest and penalties thereon) arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained for or by such Holder and/or Beneficial Owner. The Depositary, its controlling persons, its agents (including without limitation, the Agents), any Custodian and the Company, its controlling persons and its agents may rely and shall be protected in acting upon any written notice, request, opinion or other document believed by it to be genuine and to have been signed or presented by the proper party or parties. Neither the Depositary nor the Custodian shall be liable for the failure by any Holder or Beneficial Owner to obtain the benefits of credits on the basis of non-U.S. tax paid against such Holder's or Beneficial Owner's income tax liability.  The Company shall not be liable to Holders or Beneficial Owners for the failure by any Holder or Beneficial Owner to obtain the benefits of credits on the basis of non-U.S. tax paid against such Holder's or Beneficial Owner's income tax liability.  No disclaimer of liability under the Securities Act is intended by any provision of the Deposit Agreement.

 

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(18)       Standard of Care. The Company and the Depositary and their respective directors, officers, Affiliates, employees and agents (including without limitation, the Agents) assume no obligation and shall not be subject to any liability under the Deposit Agreement or the Receipts to Holders or Beneficial Owners or other persons, except in accordance with Section 5.8 of the Unrestricted Deposit Agreement, provided, that the Company and the Depositary and their respective directors, officers, Affiliates, employees and agents (including without limitation, the Agents) agree to perform their respective obligations specifically set forth in the Deposit Agreement without gross negligence or wilful misconduct. Without limitation of the foregoing, neither the Depositary, nor the Company, nor any of their respective controlling persons, directors, officers, Affiliates, employees or agents (including, without limitation, Agents), shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or in respect of this Receipt, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expenses (including fees and disbursements of counsel) and liabilities be furnished as often as may be required (and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodian being solely to the Depositary).  The Depositary and its agents (including, without limitation, Agents) shall not be liable for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any vote is cast (provided that any such action or omission is in good faith) or the effect of any vote.   The Depositary shall not incur any liability for any failure to determine that any distribution or action may be lawful or reasonably practicable, for the content of any information submitted to it by the Company for distribution to the Holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the Deposited Securities, for the validity or worth of the Deposited Securities or for any tax consequences that may result from the ownership of Restricted ADSs, Shares or Deposited Securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the Deposit Agreement or for the failure or timeliness of any notice from the Company. In connection with the sale of securities, including, without limitation, Deposited Securities, the Depositary shall not have any liability for the price received in connection with any such sale, the timing thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale.  The Depositary shall not incur any liability for any action or non action by it in reliance upon the opinion, advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder or any other person believed by it in good faith to be competent to give such advice or information.  The Depositary and its agents (including without limitation, the Agents) shall not be liable for any acts or omissions made by a successor depositary. The Depositary is under no obligation to provide the Holders and Beneficial Owners with any information about the tax status of the Company. The Depositary shall not incur any liability for any tax consequences that may be incurred by Holders and Beneficial Owners on account of their ownership of the American Depositary Shares, including without limitation, tax consequences resulting from the Company (or any of its subsidiaries) being treated as a "Passive Foreign Investment Company" (as defined in the U.S. Internal Revenue Code of 1986, as amended and the regulations issued thereunder) or otherwise.  In no event shall the Depositary or any of their respective directors, officers, employees, agents (including, without limitation, Agents) and/or Affiliates, or any of them, be liable for any indirect, special, punitive or consequential damages to the Company, Holders, Beneficial Owners or any other person.

 

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(19)       Resignation and Removal of the Depositary; Appointment of Successor Depositary. The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of resignation delivered to the Company, such resignation to be effective on the earlier of (i) the 90th day after delivery thereof to the Company (whereupon the Depositary shall, in the event no successor depositary has been appointed by the Company, be entitled to take the actions contemplated in the Deposit Agreement), or (ii) the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement, save that, any amounts, fees, costs or expenses owed to the Depositary under the Deposit Agreement or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such resignation. The Company shall use reasonable efforts to appoint such successor depositary, and give notice to the Depositary of such appointment, not more than 90 days after delivery by the Depositary of written notice of resignation as provided in the Deposit Agreement. The Depositary may at any time be removed by the Company by written notice of such removal which notice shall be effective on the later of (i) the 90th day after delivery thereof to the Depositary (whereupon the Depositary shall be entitled to take the actions contemplated in the Deposit Agreement), or (ii) the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement save that, any amounts, fees, costs or expenses owed to the Depositary under the Deposit Agreement or in accordance with any other agreements otherwise agreed in writing between the Company and the Depositary from time to time shall be paid to the Depositary prior to such removal. In case at any time the Depositary acting hereunder shall resign or be removed, the Company shall use its best efforts to appoint a successor depositary which shall be a bank or trust company having an office in the Borough of Manhattan, the City of New York. The Company shall give notice to the Depositary of the appointment of a successor depositary not more than 90 days after delivery by the Depositary of written notice of resignation or by the Company of removal, each as provided in this Article (19) and the Deposit Agreement. In the event that a successor depositary is not appointed or notice of the appointment of a successor depositary is not provided by the Company in accordance with the preceding sentence, the Depositary shall be entitled to terminate the Deposit Agreement as contemplated under the provisions of the Deposit Agreement. Every successor depositary shall be required by the Company to execute and deliver to its predecessor and to the Company an instrument in writing accepting its appointment hereunder, and thereupon such successor depositary, without any further act or deed, shall become fully vested with all the rights, powers, duties and obligations of its predecessor. The predecessor depositary, upon payment of all sums due to it and on the written request of the Company, shall (i) execute and deliver an instrument transferring to such successor all rights and powers of such predecessor hereunder (other than as contemplated in the Deposit Agreement), (ii) duly assign, transfer and deliver all right, title and interest to the Deposited Securities to such successor, and (iii) deliver to such successor a list of the Holders of all outstanding Receipts and such other information relating to Receipts and Holders thereof as the successor may reasonably request. Any such successor depositary shall promptly mail notice of its appointment to such Holders. Any corporation into or with which the Depositary may be merged or consolidated shall be the successor of the Depositary without the execution or filing of any document or any further act

 

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(20)       Amendment/Supplement. Subject to the terms and conditions of this Article (20), and applicable law, this Receipt and any provisions of the Deposit Agreement may at any time and from time to time be amended or supplemented by written agreement between the Company and the Depositary in any respect which they may deem necessary or desirable without the consent of the Holders or Beneficial Owners. Any amendment or supplement which shall impose or increase any fees or charges (other than the charges of the Depositary in connection with foreign exchange control regulations, and taxes and/or other governmental charges, delivery and other such expenses), or which shall otherwise materially prejudice any substantial existing right of Holders or Beneficial Owners, shall not, however, become effective as to outstanding Receipts until 30 days after notice of such amendment or supplement shall have been given to the Holders of outstanding Receipts. Notice of any amendment to the Deposit Agreement or form of Receipts shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the Holders identifies a means for Holders and Beneficial Owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the Commission’s, the Depositary’s or the Company’s website or upon request from the Depositary). The parties hereto agree that any amendments or supplements which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for the Restricted ADSs or Shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial rights of Holders or Beneficial Owners. Every Holder and Beneficial Owner at the time any amendment or supplement so becomes effective shall be deemed, by continuing to hold such Restricted ADS, to consent and agree to such amendment or supplement and to be bound by the Deposit Agreement as amended or supplemented thereby. In no event shall any amendment or supplement impair the right of the Holder to surrender such Receipt and receive therefor the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require amendment or supplement of the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and the Receipt at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, or rules or regulations.

 

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(21)       Termination. The Depositary shall, at any time at the written direction of the Company, terminate the Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 90 days prior to the date fixed in such notice for such termination provided that, the Depositary shall be reimbursed for any amounts, fees, costs or expenses owed to it in accordance with the terms of the Deposit Agreement and in accordance with any other agreements as otherwise agreed in writing between the Company and the Depositary from time to time, prior to such termination shall take effect. If 90 days shall have expired after (i) the Depositary shall have delivered to the Company a written notice of its election to resign, or (ii) the Company shall have delivered to the Depositary a written notice of the removal of the Depositary, and in either case a successor depositary shall not have been appointed and accepted its appointment as provided herein and in the Deposit Agreement, the Depositary may terminate the Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 30 days prior to the date fixed for such termination. On and after the date of termination of the Deposit Agreement, each Holder will, upon surrender of such Holder’s Receipt at the Principal Office of the Depositary, upon the payment of the charges of the Depositary for the surrender of Receipts referred to in Article (2) hereof and in the Deposit Agreement and subject to the conditions and restrictions therein set forth, and upon payment of any applicable taxes and/or governmental charges, be entitled to delivery, to him or upon his order, of the amount of Deposited Securities represented by such Receipt. If any Receipts shall remain outstanding after the date of termination of the Deposit Agreement, the Registrar thereafter shall discontinue the registration of transfers of Receipts, and the Depositary shall suspend the distribution of dividends to the Holders thereof, and shall not give any further notices or perform any further acts under the Deposit Agreement, except that the Depositary shall continue to collect dividends and other distributions pertaining to Deposited Securities, shall sell rights or other property as provided in the Deposit Agreement, and shall continue to deliver Deposited Securities, subject to the conditions and restrictions set forth in the Deposit Agreement, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for Receipts surrendered to the Depositary (after deducting, or charging, as the case may be, in each case the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of the Deposit Agreement and any applicable taxes and/or governmental charges or assessments). At any time after the expiration of six months from the date of termination of the Deposit Agreement, the Depositary may sell the Deposited Securities then held hereunder and may thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it hereunder, in an unsegregated account, without liability for interest for the pro rata benefit of the Holders of Receipts whose Receipts have not theretofore been surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement with respect to the Receipts and the Shares, Deposited Securities and Restricted ADSs, except to account for such net proceeds and other cash (after deducting, or charging, as the case may be, in each case the charges of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of the Deposit Agreement and any applicable taxes and/or governmental charges or assessments). Upon the termination of the Deposit Agreement, the Company shall be discharged from all obligations under the Deposit Agreement except as set forth in the Deposit Agreement. The obligations under the terms of the Deposit Agreement and Receipts of Holders and Beneficial Owners of Restricted ADSs outstanding as of the effective date of any termination shall survive such effective date of termination and shall be discharged only when the applicable Restricted ADSs are presented by their Holders to the Depositary for cancellation under the terms of the Deposit Agreement and the Holders have each satisfied any and all of their obligations hereunder (including, but not limited to, any payment and/or reimbursement obligations which relate to prior to the effective date of termination but which payment and/or reimbursement is claimed after such effective date of termination).

 

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Notwithstanding anything contained in the Deposit Agreement or any Receipt, in connection with the termination of the Deposit Agreement, the Depositary may, independently and without the need for any action by the Company, make available to Holders of Restricted ADSs a means to withdraw the Deposited Securities represented by their Restricted ADSs and to direct the deposit of such Deposited Securities into an unsponsored American depositary shares program established by the Depositary, upon such terms and conditions as the Depositary may deem reasonably appropriate, subject however, in each case, to satisfaction of the applicable registration requirements by the unsponsored American depositary shares program under the Securities Act, and to receipt by the Depositary of payment of the applicable fees and charges of, and reimbursement of the applicable expenses incurred by, the Depositary. 

 

(22)       Certain Rights of the Depositary. The Depositary, its Affiliates and their agents, on their own behalf, may own and deal in any class of securities of the Company and its Affiliates and in Restricted ADSs. The Depositary may issue Restricted ADSs against evidence of rights to receive Shares from the Company, any agent of the Company or any custodian, registrar, transfer agent, clearing agency or other entity involved in ownership or transaction records in respect of the Shares. Persons are advised that in converting foreign currency into U.S. dollars the Depositary may utilize Deutsche Bank AG or its affiliates (collectively, “DBAG”) to effect such conversion by seeking to enter into a foreign exchange (“FX”) transaction with DBAG. When converting currency, the Depositary is not acting as a fiduciary for the holders or beneficial owners of depositary receipts or any other person. Moreover, in executing FX transactions, DBAG will be acting in a principal capacity, and not as agent, fiduciary or broker, and may hold positions for its own account that are the same, similar, different or opposite to the positions of its customers, including the Depositary. When the Depositary seeks to execute an FX transaction to accomplish such conversion, customers should be aware that DBAG is a global dealer in FX for a full range of FX products and, as a result, the rate obtained in connection with any requested foreign currency conversion may be impacted by DBAG executing FX transactions for its own account or with another customer. In addition, in order to source liquidity for any FX transaction relating to any foreign currency conversion, DBAG may internally share economic terms relating to the relevant FX transaction with persons acting in a sales or trading capacity for DBAG or one of its agents. DBAG may charge fees and/or commissions to the Depositary or add a mark-up in connection with such conversions, which are reflected in the rate at which the foreign currency will be converted into U.S. dollars. The Depositary, its Affiliates and their agents, on their own behalf, may own and deal in any class of securities of the Company and its Affiliates and in ADSs. 

 

(23)       Ownership Restrictions. Holders and Beneficial Owners shall comply with any limitations on ownership of Shares under the Articles of Association or applicable English law as if they held the number of Shares their American Depositary Shares represent. The Company shall inform the Owners, Beneficial Owners and the Depositary of any such ownership restrictions in place from time to time.

 

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To the extent that the provisions of or governing any Deposited Securities may require disclosure of or impose limits on beneficial or other ownership of Deposited Securities, other Shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, Holders and all persons holding ADRs agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable Company instructions in respect thereof. The Company reserves the right to instruct Holders to deliver their ADSs for cancellation and withdrawal of the Deposited Securities so as to permit the Company to deal directly with the Holder thereof as a holder of Shares and Holders agree to comply with such instructions.   The Depositary agrees to cooperate with the Company in its efforts to inform Holders of the Company's exercise of its rights under this paragraph and agrees to consult with, and provide reasonable assistance without risk, liability or expense on the part of the Depositary, to the Company on the manner or manners in which it may enforce such rights with respect to any Holder.  

 

Notwithstanding any provision of the Deposit Agreement or of the ADRs and without limiting the foregoing, by being a Holder, each such Holder agrees to provide such information as the Company may request in a disclosure notice (a "Disclosure Notice") given pursuant to the United Kingdom Companies Act 2006 (as amended from time to time and including any statutory modification or re-enactment thereof and regulations issued thereunder, the "Companies Act") or the Articles of Association of the Company.  By accepting or holding an ADR, each Holder acknowledges that it understands that failure to comply with a Disclosure Notice may result in the imposition of sanctions against the holder of the Shares in respect of which the non-complying person is or was, or appears to be or has been, interested as provided in the Companies Act and the Articles of Association which currently include, the withdrawal of the voting rights of such Shares and the imposition of restrictions on the rights to receive dividends on and to transfer such Shares. In addition, by accepting or holding an ADR each Holder agrees to comply with the provisions of the AIM Rules for Companies issued by the London Stock Exchange plc and the United Kingdom Disclosure and Transparency Rules (as the case may be and each as amended from time to time, the "Disclosure Regulations") with regard to the notification to the Company of interests in Shares and certain financial instruments, which currently provide, inter alia, that a Holder must notify the Company of the percentage of its voting rights he holds as shareholder or holds or is deemed to hold through his direct or indirect holding of certain financial instruments (or a combination of such holdings) if the percentage of those voting rights (i) reaches, exceeds or falls below 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10% and each 1% threshold thereafter up to 100% as a result of an acquisition or disposal of Shares or certain financial instruments, or (ii) reaches, exceeds or falls below such applicable thresholds as a result of events changing the breakdown of voting rights and on the basis of information disclosed by the Company in accordance with the Disclosure Regulations. Any notification under the Disclosure Regulations must be effected as soon as possible, but not later than two trading days after the Holder (a) learns of the acquisition or disposal or of the possibility of exercising voting rights, or on which, having regard to the circumstances, should have learned of it, regardless of the date on which the acquisition, disposal or possibility of exercising voting rights takes effect, or (b) is informed of the event mentioned in (ii) above.

 

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(25)       Waiver. EACH PARTY TO THE DEPOSIT AGREEMENT (INCLUDING, FOR AVOIDANCE OF DOUBT, EACH HOLDER AND BENEFICIAL OWNER AND/OR HOLDER OF INTERESTS IN ANY RESTRICTED ADSs) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING AGAINST THE DEPOSITARY AND/OR THE COMPANY DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SHARES OR OTHER DEPOSITED SECURITIES, THE RESTRICTED ADSs OR THE RECEIPTS, THE DEPOSIT AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN OR THEREIN, OR THE BREACH HEREOF OR THEREOF (WHETHER BASED ON CONTRACT, TORT, COMMON LAW OR ANY OTHER THEORY). 

 

Holders and Beneficial Owners understand, and holding an American Depositary Share or an interest therein, such Holders and Beneficial Owners each irrevocably agree that any legal suit, action or proceeding against or involving the Company or the Depositary, arising out of or based upon the Deposit Agreement, American Depositary Shares, Receipts or the transactions contemplated hereby or thereby or by virtue of ownership thereof, may only be instituted in a state or federal court in New York, New York, and by holding an American Depositary Share or an interest therein each irrevocably waives any objection which it may now or hereafter have to the laying of venue of any such proceeding, and irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding.   Holders and Beneficial Owners agree that the provisions of this paragraph shall survive such Holders' and Beneficial Owners' ownership of American Depositary Shares or interests therein. 

 

The Company, the Depositary and by holding an American Depositary Share (or interest therein) Holders and Beneficial Owners each agree that, notwithstanding the foregoing, with regard to any claim or dispute or difference of whatever nature between or involving the parties hereto arising directly or indirectly from the relationship created by this Deposit Agreement, the Depositary, in its sole discretion, shall be entitled to refer such dispute or difference for final settlement by arbitration (“Arbitration”) in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “Rules”) then in force  The arbitration shall be conducted by three arbitrators, one nominated by the Depositary, one nominated by the Company, and one nominated by the two party-appointed arbitrators within thirty (30) calendar days of the confirmation of the nomination of the second arbitrator.  If any arbitrator has not been nominated within the time limits specified herein and in the Rules, then such arbitrator shall be appointed by the American Arbitration Association in accordance with the Rules.  Judgment upon the award rendered by the arbitrators may be enforced in any court having jurisdiction thereof.  The seat and place of any reference to arbitration shall be New York, New York, and the procedural law of such arbitration shall be New York law.  The language to be used in the arbitration shall be English. The fees of the arbitrator and other costs incurred by the parties in connection with such Arbitration shall be paid by the party or parties that is (are) unsuccessful in such Arbitration. For the avoidance of doubt this paragraph does not preclude Holders and Beneficial Owners from pursuing claims under the Securities Act or the Exchange Act in federal courts.

 

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(ASSIGNMENT AND TRANSFER SIGNATURE LINES) 

 

FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and transfer(s) unto ______________________________ whose taxpayer identification number is _______________________ and whose address including postal zip code is ____________________________, the within Receipt and all rights thereunder, hereby irrevocably constituting and appointing ________________________ attorney-in-fact to transfer said Receipt on the books of the Depositary with full power of substitution in the premises.

 

Dated: Name:    
    By:
    Title:
     

 

 

NOTICE: The signature of the Holder to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatsoever.

 

If the endorsement be executed by an attorney, executor, administrator, trustee or guardian, the person executing the endorsement must give his/her full title in such capacity and proper evidence of authority to act in such capacity, if not on file with the Depositary, must be forwarded with this Receipt.

   

 

SIGNATURE GUARANTEED  
       
     

 

 

34

 

 

 

Exhibit 4.24

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dated 23 April 2015 MIDATECH LIMITED AND STEPHEN DAMMENT CONTRACT OF EMPLOYMENT CONTRACT OF EMPLOYMENT THIS CONTRACT is made on the 23rd day of April 2015 between: (1) MIDATECH LIMITED whose registered office is at 65 Innovation Drive, Milton Park, Abingdon, OX14 4RQ ("the Company"); and (2) STEPHEN DAMMENT of The Old Rectory, Southampton Road, Landford, Salisbury, SP5 2ED ("you"). . START DATE AND PROBATIONARY PERIOD .1 Your employment with the Company will start on 11th May 2015 (the Employment). .2 Your period of continuous employment with the Company will begin on 11th May . . PROBATIONARY PERIOD .1 The first six months of your Employment will be a probationary period during which time your performance will be assessed. Your employment will be confirmed following satisfactory completion of the probationary period. 2.2 The Company reserves the right in its sole and absolute discretion to extend the probationary period until such date (or dates) as it considers appropriate being no later than the first anniversary of the commencement of your employment. The Company may exercise that right by serving notice in writing at any time or times during any probationary period. .3 During the probationary period: .3.1 your Employment may be terminated by either party giving not less than one month's written notice served at any time during the probationary period; 2.3.2 you will not be entitled to any benefits other than your basic salary payable under clause 6.1. . JOB TITLE/DUTIES .1 You are employed as Head of Pre-Clinical or in another similar capacity, as determined by the Company. A non-exhaustive description of your duties is set out in Schedule 4. 3.2 You will report to Craig Cook, Chief Operating / Medical Officer, or such other person as is nominated from time to time to be your manager (your Manager). You will at all times act in the best interests of the Company and Group Company. .3 Your duties may be amended by the Company from time to time or you may be required to undertake different and/or additional duties in order to meet the Company's business needs. .4 The Company reserves the right to appoint other persons to act jointly with you. . PLACE OF WORK .1 Your normal place of work will be Midatech's offices at 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire, OX14 4RQ. You will be required to travel to and work at Midatech's premises in Bilbao, Spain, and Cardiff, as required. 4.2 The Company may from time to time require you to travel to and work at other places within the United Kingdom and overseas. . HOURS OF WORK .1 You will be expected to work a minimum of 37.5 hours per week Normal hours of work are from 9.00 am to 5.30 pm Monday to Friday with one hour for lunch, but you may choose to start earlier or finish later, with your line manager's agreement, provided that you work a minimum of 37.5 hours. The nature of your duties is such that you may also be required to work different and/or additional hours to meet the Company's business needs. 5.2 You will not be paid for overtime. You have no right to time off in lieu of additional hours worked. However, the CEO of the Company may from time to time in his sole and absolute discretion grant time off in lieu but which shall not give rise to any right, expectation or entitlement to any future or further time off in lieu. .3 You agree that the limit on working time in Regulation 4(1) of the Working Time Regulations 1998 will not apply to your Employment. You may give three months' written notice to the Company if you wish to revoke your agreement to this opt-out. . REMUNERATION AND BENEFITS .1 Your base salary will be £90,000 per annum. You will be paid monthly in arrears by credit transfer to your bank account. Your base salary is reviewable annually. .2 You will be eligible to participate in the Company's discretionary bonus scheme, subject to the rules of that Scheme, as amended from time to time, with a target of 20% of salary. It is a condition of eligibility for any bonus that you are in employment and not subject to notice (whether served by you or by the Company) or any disciplinary proceedings at the date upon which payment is due to be made, which is normally on such date as the Company shall determine following the end of the end of the bonus year. 6.3 Neither eligibility to participate nor payment of bonus in respect of any previous period gives rise to any right, expectation or entitlement for you to receive any future payment or as to the amount of any such payment and you acknowledge and agree that the Company may exercise its discretion to award you a nil bonus. The Company reserves the right to amend the terms of such scheme at any time, including during any bonus scheme year. 6.4 Any bonus paid will not be taken into account in calculating pension contributions under clause 10. . BENEFITS .1 Subject to clause 2 (Probationary Period) you will be entitled to participate in the Company's private medical insurance scheme subject always to the terms of the relevant scheme (including but not limited to eligibility for benefits) in force from time to time. .2 You acknowledge that: 7.2.1 the decision on whether, and if so, to what extent, benefits may be provided to you will be taken by any scheme insurer and that you will have no claim against the Company relating to the provision of such benefits. 7.2.2 You will not be eligible for such benefits in respect of which cover is not available from the Company's chosen insurer or is only available from such insurer subject to additional premiums or conditions. 7.2.3 For the avoidance of doubt, the Company may dismiss you at any time, and for any reason in accordance with the terms of this Agreement, even if this results in you losing any current or prospective entitlement to any benefits. .2.4 The Company may vary or replace or withdraw the provision of such benefit schemes at its absolute discretion. . SICKNESS .1 You have no entitlement to contractual sick pay. 8.2 You must you comply with the Company's sickness reporting procedures from time to time in force, including to: 8.2.1 contact your Manager before 10am on the first day of your absence to inform him of the fact and reason for your absence; 8.2.2 thereafter keep your Manager updated as to the nature and estimated length of your absence and provide such further details as reasonably requested from time to time; .2.3 provide a statement of fitness for work if you are absent from work for any period of 8 consecutive days or more .3 Your qualifying days of employment for the purposes of Statutory Sick Pay (SSP) are Monday to Friday. .4 Any further payments will be at the Company's sole and absolute discretion. . HOLIDAYS .1 You are entitled to 25 days paid holiday in each holiday year, in addition to bank and public holidays. 9.2 The holiday year runs from January to December and holiday accrues at the rate of 2.083 days per month. 9.3 All holidays must be approved in advance by your Manager. You will not normally be entitled to take more than 10 working days consecutive holiday. 9.4 Unused holiday entitlement may only be carried over into the next holiday year with the express written consent of the Company and no payment will be made in lieu of unused holiday entitlement. 9.5 In the holiday year in which your Employment starts and ends your holiday entitlement will be reduced to reflect the number of complete months which you work. 9.6 When your Employment ends, you will be paid for any holiday which has accrued during the holiday year in which your Employment terminates but which you have not taken by the termination of your Employment. The Company reserves the right to deduct from any payments due to you an amount in respect of holidays taken in excess of your accrued entitlement. Holiday pay will be calculated at the rate of 1/260ths of your annual salary per day. 9.7 The Company may require you to take any unused holiday during your notice period. . PENSION .1 Subject to successful completion of the probationary period, the Company will contribute on your behalf to an HMRC approved personal pension plan an amount equal to 6% per annum of your basic annual salary for the time being subject to you providing all relevant details to the Company. That contribution will accrue monthly in arrears. 10.2 A contracting out certificate pursuant to the Pension Schemes Act 1993 is not in force in relation to your Employment. . TERMINATION OF EMPLOYMENT Subject to clause 2 (Probationary Period) your Employment may be terminated by the Company giving you three months' written notice or you giving three months' written notice to the Company. 11.2 At any time after either you or the Company give notice to terminate your Employment (or if you resign without giving the required notice and the Company does not accept your resignation) then the Company may exercise all or any of the following rights: 11.2.1 totally withdraw all of your powers and responsibilities and prohibit you from undertaking any work on behalf of the Company or any Group Company; 11.2.2 require you change your duties in whatever way it considers appropriate; 11.2.3 require you not to contact or communicate with any clients, suppliers or employees of the Company about the Company's business or affairs; .2.4 prohibit you from entering any of the Company's premises; .2.5 require you to comply with your obligations under clause (Return of Property); for a maximum period of your contractual notice period (the Garden Leave Period). .3 If the Company exercises the right in clause .2 you will continue to be paid your normal contractual salary and benefits as long as you comply with your obligations under this Contract. 11.4 During any Garden Leave Period you remain bound by your obligations under this Contract and in particular your duties of good faith and confidentiality and you will not: 11.4.1 do any work, whether paid or unpaid on your own behalf or for any third party during this time, without the express written consent of the Company; 11.4.2 make any comment to any person about the change to your duties, except to confirm that you are on garden leave. 11.5 The Company reserves the right to pay you base salary in lieu of all or part of your notice entitlement. 11.6 Nothing in this Contract prevents the Company from terminating your employment summarily and without notice or payment in lieu of notice if you are guilty of any fundamental or repudiatory breach of contract or of any breach set out in the disciplinary rules applicable to you from time to time as justifying summary termination. . NORMAL RETIREMENT AGE There is no official retirement age in force. . CONFIDENTIALITY, INTELLECTUAL PROPERTY [AND RESTRICTIONS] .1 You will not, during your Employment or after it ends, use or disclose, directly or indirectly, to anyone other than in the proper course of your duties any Confidential Information. For the purposes of this clause .1 and this Agreement, Confidential Information includes any confidential information relating to actual or potential clients, employees, officers, shareholders or agents of the Company, prices, pricing structures or policies, marketing information, intellectual property, business plans or dealings, technical data, financial information and plans, designs, formulae, product lines, research activities, advisors' reports, lists of actual or potential clients of the Company any document marked "Confidential" or "Secret", or any information which you have been told is confidential or which you might reasonably expect the Company to regard as confidential, or any information which has been given to the Company in confidence by potential clients or other persons. 13.3 The provisions of Schedule 4 (Restrictions) will apply to you after your Employment ends. . SUSPENSION .1 The Company may suspend you on base salary and benefits for a reasonable period to investigate any allegations of misconduct or breach of the terms of your Employment. .2 During any period of suspension, you will provide whatever assistance the Company may require to allow it to complete its investigations and you must not take holiday during this time without the prior written consent of the Company. . WORKPLACE RULES .1 In addition to the terms of this Contract, you are bound by such of the Company's employment policies and procedures, notified to you from time to time, to the extent that these impose obligations on you. . OTHER ACTIVITIES DURING EMPLOYMENT .1 During your Employment, you will not be involved, in any capacity, in providing services, directly or indirectly, to any other person in respect of any other trade, business or occupation unless you have first obtained the prior written consent of the Company. . RETURN OF PROPERTY .1 At any time during the Employment, including during any Garden Leave Period, the Company may require you to return promptly to the Company: .1.1 all original and copy documents, software, data, Confidential Information or other material belonging to or relating to the business of the Company held in whatever medium (including electronically) which is your power, possession or control whether or not stored or held on equipment (including but not limited to any personal digital assistant (PDA), Blackberry, and/or mobile telephones) and whether or not such equipment belongs to the Company; and 17.1.2 any other property or material belonging to or relating to the business of the Company or any Group Company or belonging to any third party who has provided the property to the Company, which is in your possession or under your control. .2 During or at any time after the Employment ends, you will co-operate with any request from the Company to provide access (including passwords) to any computer, organiser or other equipment in your possession or under your control which contains information or materials relating to the Company or any of its clients, employees or suppliers. This obligation applies to equipment owned by the Company, by you or anyone else. You will permit the Company to inspect, copy or remove any material relating to the business of the Company. . STATUTORY PARTICULARS The statutory particulars of employment to which you are entitled under the Employment Rights Act 1996 are contained in this Contract and the attached Schedule 1. . DATA PROTECTION .1 You consent to the Company and any Group Company holding and processing (both electronically and manually) personal data, including sensitive personal data (Data), relating to you for the purposes of business, personnel and pensions administration and management and for compliance with any laws and regulations applicable to the Company or any Group Company. .2 For the purposes of the Data Protection Act 1998 (DPA), the Company is not yet a Data Controller. Should it become one the Company may process personal data during the course of your Employment to enable it to carry out its function properly. You authorise the Company in accordance with the provisions of the DPA and any regulations made under it to process Data relating to you and, where appropriate, to transfer process and store such Data outside the European Economic Area (as defined from time to time). . MONITORING OF OFFICE EQUIPMENT .1 You acknowledge and agree that the Company may monitor and /or record your use of office equipment, including your use of computer systems (including email and internet), telephones, mobile phones, facsimile machines and photocopiers. 20.2 You will only access and use the Company's computer and electronic equipment for the purposes of the Company's business. . THIRD PARTIES .1 Only the parties to this Contract and any Group Company may enforce this Contract, subject to the terms of this Contract. .2 Pursuant to the Contracts (Rights of Third Parties) Act 1999, no other person may enforce the terms of this Contract against the Company. . PRIOR AGREEMENTS .1 This Contract cancels and is in substitution for all previous agreements, understandings and arrangements (whether oral or in writing) in relation to any of the matters dealt with in it between you and the Company, all of which shall be deemed to have been terminated by mutual consent. .2 This Contract, and the documents specifically referred to in it, constitute the entire terms and conditions of your Employment with the Company. . GROUP COMPANIES .1 In this Agreement Group Company means, in relation to the Company, any subsidiary or holding company, or any subsidiary of such a holding company ("holding company" and "subsidiary" having the meanings set out in section 1159 of the Companies Act 2006) or any subsidiary undertaking or parent undertaking or any subsidiary undertaking of such a parent undertaking ("parent undertaking", "subsidiary undertaking" and "undertaking" having the meanings set out in sections 1161 and 1162 of the Companies Act 2006) and any reference to the Group shall be construed accordingly. . GOVERNING LAW This Agreement will be governed by and construed in accordance with the laws of England and each of the parties submits to the exclusive jurisdiction of the English courts. IN WITNESS whereof the parties hereto have executed this Agreement as a Deed on the day and year first written above. EXECUTED as a Deed by ) MIDATECH LIMITED ) ) Director/Secretary; and Signature Director/Secretary EXECUTED as a Deed by ) Stephen Damment ) in the presence of: ) Signature Name Address I .4\4:IVO() M Z4-. 2 PA Occupation Trt.K. Schedule 1 Statutory particulars In addition to your terms of employment, the Company is required to notify you of the following particulars. These do not form part of your terms of employment. 1. Disciplinary Rules, Dismissal and Disciplinary Procedures The disciplinary rules and the disciplinary and dismissals procedures applicable to you are contained in the Employee Handbook and specify to whom you can apply if dissatisfied with any disciplinary decision relating to you or any decision to dismiss you and the manner in which any such an application should be made. The disciplinary rules have contractual force and effect but the disciplinary and dismissals procedures do not have contractual force and effect unless otherwise stated. . Grievance Procedures The grievance procedure applicable to you is contained in the Employee Handbook and specifies to whom you can apply for the purpose of seeking redress of any grievance relating to your employment and the manner in which any such application should be made. The grievance procedures do not have contractual force and effect unless otherwise stated. . Collective Agreements There are no collective agreements affecting your employment. Schedule 2 Duties The following is a non-exhaustive summary of your job description and duties, subject to the provisions of clause 3 of your contract of employment: Purpose Management of all aspects of Pre-clinical Development including the design, development direction, and execution of animal efficacy, toxicology, pharmacology and pharmacokinetics studies. Strategically contribute to translation of programs from pre-clinical through to early human studies. Key responsibilities • Manage and drive nonclinical studies and overall NDA enabling program. • Initiate and manage contracts, coordinate activities with select Contract Research Organizations (CROs) and academic collaborators for preclinical development in areas including toxicology, pharmacology, pharmacokinetics as well as animal models, and be accountable for their delivery • Prepare protocols, reports & relevant regulatory documents for studies, INDs & other regulatory submissions. • Ensure compliance with GCP, GMP, and regulatory guidelines for all preclinical / nonclinical work. Maintain and organise all necessary documentation for studies and experiments. • Work closely with other functional areas and colleagues to ensure that all studies are performed in a quality, timely, effective and scientific manner. • Provide preclinical expertise and opinion to multi-functional project teams as the preclinical representative. • Provide toxicology expertise and opinion to studies and development programs • Research, define, and propose pre-clinical and translational medicine strategies and goals at all stages of pre-clinical and early development (target identification to POC) for therapeutic areas as necessary • Engage external thought leaders to optimize pre-clinical and early development plans • Assesses external opportunities for Midatech technology platforms, therapeutic areas and interventions Schedule 3 Intellectual Property & Assignment THIS AGREEMENT dated is made between:- (1) MIDATECH LIMITED whose registered office is at 65 Innovation Drive, Milton Park, Abingdon, OX14 4RQ (the Company); and (2) STEPHEN DAMMENT of The Old Rectory, Southampton Road, Landford, Salisbury, SP5 2ED (You). RECITALS: A You are an employee of the Company and you carry out research and development in relation to Technology and have and/or will make Technology. B You wish to comply with the obligations set out in this Agreement and to assign to the Company all of your rights, title and interest in the Technology, and the Company wishes to take an assignment of the Technology, subject to and in accordance with the terms of this Agreement. THIS ASSIGNMENT WITNESSES as follows: . ASSIGNMENT .1 In consideration of the payment of the sum of £1 (one pound sterling) now paid by the Company to you (receipt of which is acknowledged), and without prejudice to the other provisions of this Agreement you hereby assign and transfer to the Company absolutely all of your right, title and interest in and to the Technology. .2 The assignment effected by this clause 1 shall include, without limitation, the assignment and transfer of: 1.2.1 all patents and other Intellectual Property that may be granted pursuant to any applications listed in the Schedule, as well as all patents or other intellectual property that may derive priority from or have equivalent claims to or be based upon the Technology in any country of the world (and including supplementary protection certificates, divisions, continuations, continuations in part, reissues and extensions), and the Technology shall be deemed to include all such items of property; and 1.2.2 all rights of action, powers and benefits arising from ownership of the Technology, including without limitation the right to apply for, prosecute and/or obtain patent and other intellectual property rights or protection throughout the world in respect of the Technology and the right to sue for damages and other legal and equitable remedies in respect of all causes of action arising prior to, on or after the date of this Assignment; and .2.3 all rights of ownership of any materials that form part of the Technology. 1.3 You shall execute such documents and give such assistance as the Company may require: .3.1 to secure the vesting in the Company of all rights in the Technology; .3.2 to uphold the Company's rights in the Technology; and .3.3 to defeat any challenge to the validity of, and resolve any questions concerning, the Technology. . WARRANTIES, REPRESENTATIONS AND UNDERTAKINGS .1 You warrant, represent and undertake that:- 2.1.1 immediately prior to the assignment in clause 1 above, you have not been and you are not currently a party to any agreement or understanding, whether oral or written, which would in any manner be inconsistent with the assignment of rights provided for in this Assignment; and 2.1.2 during the term of this Assignment you shall not enter into any agreement or understanding, oral or written, nor engage in any activity, which would in any manner be inconsistent with the provisions of this Assignment. . INTELLECTUAL PROPERTY RIGHTS .1 You acknowledge that in the course of your employment and as part of your duties you may conceive or make, individually or with others, certain Inventions and you may develop or produce, individually or with others, certain works in which copyright and/or unregistered design right will subsist in various media, including but not limited to electronic materials (collectively, Creative Works), and you agree that you will promptly disclose in writing to the Company all Inventions and Creative Works. 3.2 You acknowledge that any Inventions or Creative Works and any and all Intellectual Property subsisting or which may in the future subsist in such Inventions or Creative Works whether or not conceived or made during working hours, including, without limitation, those which: 3.2.1 relate in any manner to the business of the Company or any Group Company or to its actual or demonstrably anticipated activities; or 3.2.2 result from or are made in the course of your employment by the Company; or .2.3 involve the use of any equipment, supplies, facilities, confidential information, documents, Intellectual Property or time of the Company or any other Group Company, will on creation vest in and be the exclusive property of the Company in the United Kingdom or any other part of the universe and where the same does not automatically vest as aforesaid you agree to assign the same to the Company (or as it may direct) or in the case of any future copyright in the same you hereby assign such copyright to the Company. .3 You agree that, without limitation to the foregoing: .3.1 any Invention disclosed by you to a third person or described in a patent or registered design application filed by you or on your behalf; and 3.3.2 any Creative Work disclosed to a third person, published or the subject of an application for copyright or other registration filed by you or on your behalf, during or within six months following termination of your employment will be presumed to have been written, developed, produced, conceived or made by you during the Employment, unless proved by you to have been written, developed, produced, conceived or made by you following the termination of the Employment. 3.4 You hereby irrevocably waive any rights which you may have in the Inventions or the Creative Works which are or have been conferred on you by chapter IV of Part I of the Copyright, Designs and Patents Act 1988 headed "Moral Rights" and by any other laws of a similar or equivalent nature in any of the countries of the world. 3.5 You will also, at the Company's request and expense, execute specific assignments of any Inventions or Creative Work and execute, acknowledge and deliver such other documents and take such further action as the Company may require, at any time during or subsequent to the period of your employment, to vest or evidence title in Inventions or Creative Works in the Company (or as it may direct) and to obtain, maintain and defend the Intellectual Property in the Inventions or Creative Works in any and all countries or to otherwise give effect to the provisions of this agreement. 3.6 You hereby irrevocably appoint the Company to be your attorney in your name and on your behalf to execute and do any such instrument or thing and generally to use your name for the purpose of giving to the Company or its nominee the full benefit of the provisions of this clause 3 and you acknowledge in favour of any third party that a certificate in writing signed by any Director or the Secretary of the Company that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case. 3.7 You shall not knowingly do or permit to be done any act or omit to do any thing which might imperil, jeopardise or prejudice any of the rights referred to in this clause 3 or which might invalidate or prejudice any application made by the Company for Intellectual Property. . DEFINITIONS .1 In this Assignment, the following definitions apply: .1.1 Intellectual Property shall include: all patents, rights to inventions, copyright and related rights, trade marks and service marks, trade names and domain names, rights in get-up, rights to goodwill and to sue for passing off and unfair competition, rights in designs, rights in computer software, database rights, rights in confidential information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered or unregistered and including all applications (and rights to apply) for, and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist, now or in the future, in any part of the world; 4.1.2 Inventions shall include any inventions, ideas, discoveries, developments, writings, designs, drawings, improvements or innovations, whether or not patentable or capable of registration, and whether or not recorded in any medium; 4.1.3 Technology means Inventions and developed technology, material and know-how relating to the exploitation of gold nanoparticle technology. . GENERAL .1 This Agreement and undertaking shall be binding upon your heirs, executors, administrators, successors and/or shall ensure to the benefit of any heirs, executors, administrators, successors and/or assigns of the Company. 5.2 Your obligations under clauses 1.2, 1.3, 2, 3 and 5.1 shall continue in force without limit of time. 5.3 This Agreement shall be governed by English Law, and you and the Company submit to the jurisdiction of the English Courts in respect of any dispute arising in connection therewith. IN WITNESS whereof the parties hereto have executed this Agreement as a Deed on the day and year first written above. EXECUTED as a Deed by MIDATECH LIMITED Director/Secretary; and Director/Secretary EXECUTED as a Deed by rpt,-41,7LC41 / ' STEPHEN DAMMENT in the presence of: Name A0oe,„..) Address /triLi-496'0 p , nAt-142h0 At12_4 2/4 Occupation it: Frrrtil- Schedule 4 Restrictions after employment ends . You agree that, during the Restricted Period, you will not act in competition with the Company or any Group Company, directly or indirectly, in any capacity by: 1.1 soliciting or enticing away from the Company or any Group Company any Customer or Prospective Customer; 1.2 doing business with, or otherwise dealing with, any Customer or Prospective Customer; 1.3 soliciting or enticing away from the Company or any Group Company any Key Employee; 1.4 interfering with the arrangements between the Company or any Group Company and any Supplier. 2. The Company accepts, as trustee for each Group Company, the benefit of all undertakings given by you in this Schedule to any Group Company. 3. The provisions of this Schedule shall apply only in respect of services with which you were either materially involved or in respect of which you had access to Confidential Information or for which you were responsible at any time during the Relevant Period. 4. The provisions of this Schedule are severable and if any provision or identifiable part is held to be unenforceable by any court of competent jurisdiction, then such unenforceability shall not affect the enforceability of the remaining provisions or identifiable parts of this Schedule. 5. For the purposes of this Schedule, the following words have the meanings set out below: Confidential Information includes the material described in clause (Confidentiality) of the Agreement; Customer means any person with whom the Company or any Group Company (a) has, at the Termination Date, arrangements in place pursuant to which the Company or any Group Company supplies goods or services; or (b) with whom the Company or any Group Company has been in the habit of dealing at any time during the Relevant Period; or (c) in relation to whom you had access to Confidential Information at any time during the Relevant Period; and, in any event (d) with whom you had personal contact or dealings in the course of your Employment at any time during the Relevant Period; Key Employee means any person who is employed or engaged to provide services personally at the Termination Date by the Company or any Group Company, and who, during the Relevant Period, had material contact with you; and (a) who reported to you; or (b) who had material contact with customers or suppliers of the Company or any Group Company in the course of your Employment; or (c) who was a member of the Board or reported directly to a member of the Board; or who was a member of the senior management team of the Company or any Group Company; or (d) whose job duties involved research and development to a material extent. Prospective Customer means any person to whom, at the Termination Date, the Company or any Group Company has offered to supply goods or services, or to whom the Company or any Group Company has provided details of the terms on which it would or might be willing to supply goods or services, or with whom the Company or any Group Company has had any negotiations or discussions regarding the possible supply of goods or ser✓ices; and in each case: (a) with whom you had personal contact or dealings in the course of the Employment at any time during the Relevant Period; or (b) in relation to whom you had access to Confidential Information at any time during the Relevant Period. Relevant Period means, where you are prohibited from undertaking any work on behalf of the Company or any Group Company in accordance with clause .2.1 (Garden Leave), the period of two years immediately before the start of the Garden Leave Period (as defined in the Agreement); and otherwise, the period of two years ending on the Termination Date, [and in either case, the period of the your Employment if you have been employed by the Company for less than two years.] Restricted Period means the period of 6 months immediately following the Termination Date, reduced by a period equal to the length of any Garden Leave Period imposed in accordance with clause .2.1 (Garden Leave). Supplier means any person with whom the Company or any Group Company has, at the Termination Date, arrangements in place for the supply of goods or services to the Company or any Group Company on preferential terms. Termination Date means the date on which the Employment ends for whatever reason, whether lawful or not. L •

 

 

 

 

Exhibit 4.26

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

Mterpretes Jurados de Vizcaya TO ALL TO WHOM THESE PRESENTS SHALL COME, I, Rafael Aparicio Aldazabal, LLL, LLM, SWORN INTERPRETER for the Certificacion: Don Rafael Aparicio Aldazabal, interprete Jurado de Ingles, certifica English Language for the province of Biscay by appointment of the que la que antecede es una traduccion fief y completa al ingles de Ministry of Foreign Affairs, and in faithful performance of my un documento redactado en caste' la no. En Bilbao, a 17 de diciembre de 2019 competencies as such Sworn Interpreter, DO HEREBY CERTIFY that the instrument hereunto annexed is an accurate and true translation, to the best of my belief of a document in Spanish Language, whose aei Aparicio Aldazabal contents and authenticity are not assessed, and of which a copy is also interpreteJurado de Ingles Ma Diaz de Haro 21 - 48013 Bilbao Tel/fax: 94-4412621 annexed, countersigned by me. And that the said instrument, given under my hand and bearing my official seal, is duly executed as a SWORN TRANSLATION in accordance with the provisions of the Spanish Law. IN FAITH AND TESTIMONY WHEREOF, I, the said SWORN INTERPRETER, have hereunto subscribed my name and set and affixed my seal of office at Bilbao, this seventeenth day of December two thousand nineteen Rafael Aparicio Aldazabal Idoia Bengoechea Aira Interpretes Jurados de Vizcaya Rafael Aparicio Aldazabal - Idoia Bengoechea Aira •.) Under the Letterhead of MINISTRY OF INDUSTRY, COMMERCE AND TOURISM GENERAL SECRETARIAT FOR INDUSTRY AND SMALL AND MEDIUM ENTERPRISE GENERAL DIRECTORATE FOR INDUSTRY AND SMALL AND MEDIUM ENTERPRISE RESOLUTION GRANTING FINANCIAL AID FOR INDUSTRIAL COMPETITIVENESS PROMOTION AND REDEVELOPMENT Name of the entity: MIDATECH PHARMA ESPAISIA S.L. TIN: B84185008 Registered address: ZAMUDIO INDUSTRIAL AND TECHNOLOGICAL ESTATE, 800, 2 A City or Town: DERIO Province: BISCAY POST CODE: 48160 Case number: RCI-040000-2018-309 Place of activity: Derio Name of activity: Manufacturing and marketing of Q-Octreotide The General Directorate for Industry and Small and Medium Enterprise: Pursuant to the provisions of Order ICT/1100/2018, dated 18 October, establishing the terms of reference for granting financial aid for industrial investments in the framework of the public policy for industrial redevelopment and strengthening of industrial competitiveness (Spanish Official Gazette No. 254, dated 20th October 2018), the Assessment Committee, having due regard to the applications submitted to the Announcement of the Financial Aid Scheme for the year 2018, made by means of an Order dated 14 December 2018, convening applications for financial aid for industrial investments in the framework of the public policy for industrial redevelopment and strengthening of industrial competitiveness of the year 2018 (published in the BDNS (Identifier): 429285, and posted on the Spanish Official Gazette No. 306, dated 20 December 2018), and after due examination of the representations filed against the provisional resolution, has resolved to admit the Case hereinabove referred and to draft a Resolution for Granting Financial Aid. Therefore, and after having completed in due form the requisites established in Article 18 of ICT/1100/2018, dated 18 October, and the approval procedure of the Expense File, the Minister of Industry, Commerce and Tourism, RESOLVES HEREBY First. To grant the loan hereinafter specified, for carrying out the activities set forth in the application filed by the applying entity with this Aid Scheme: Eligible Budget (EUR) Loan Granted (EUR) ,979,793.00 ,553,476.00 This loan is partially collateralized by means of guarantees established with the Government Depositary: Receipt number: Amount on the Date of the Resolution (EUR): 00048 0000094 0 ,419.00 00048 0000093 0 ,839.00 00048 0000092 0 ,258.00 00048 0000091 0 ,678.00 00048 0000090 0 ,097.00 00048 0000089 0 ,485.00 00048 0000088 0 ,211.00 00048 0000087 0 ,211.00 00048 0000086 0 ,504.00 huerpretes Jurados de Vizcaya Rafael Aparicio Aldazabal - Idoia Bengoechea Aira An itemised breakdown of the eligible budget is shown in Annex 1: . The loan granted is subject to the TECHNICAL AND FINANCIAL TERMS and to the SPECIFIC TERMS that are set forth in Annex Land to the following General Terms: a) Completion of investments and expenditures. The investments and financial expenses foreseen must be completed in the term that goes from the 1st January 2018 to the date resulting after the lapse of 18 months beginning on the 31st July 2019. However, payment documents issued by the beneficiary may have a later due date, provided said date takes place within the term established for filing the supporting documents (a three-month term following the end of the term for completing investments and expenditures). b) Rules applying to expenses eligible for funding. Investments and funded expenses provided for must meet the eligibility criteria set forth in Article 4 of the ICT Order ICT/1100/2018, dated 18 October. c) Accounting. Financial activities must be accounted as established in the provisions of Article 21 of the ICT Order ICT/1100/2018, dated 18 October. The accounting of the expenses incurred must comply with the technical and financial criteria detailed in Annex I of this Notice, and there shall be no cross-compensation of expenses of any heading with expenses of any other heading. The documents supporting the effective execution of the financially aided investments, as well as the reports set forth in Article 21 of the ICT Order ICT/1100/2018, dated 18 October, must be f i lled-in as established in the Instructions and forms available at the Ministry of Industry, Trade and Tourism Ayudatec web-portal: (http://wwvy.mincotur. b.esiporialay udas). ). d) Non-completion. Should the final effective cost of the investment be less than the budget eligible for funding, either by acknowledgement by the beneficiary of by resolution of the relevant monitoring body upon examination of the supporting documentation, the financial aid shall be partially refunded, in an amount proportional to the non-invested part, provided that in the opinion of said monitoring body, the purpose for granting the financial aid has been essentially achieved; in any other case, the aid shall be refunded in full, in compliance with Article 37.1b) of Act 38/2003, dated 17 November, General Act on Public Aid. In both instances, the amount to be refunded shall be increased by late payment interests, from the date on which the financial aid was paid to the date on which a refund is considered to be applicable. Non-payment of two consecutive principal repayment instalments or of interest charges for two consecutive periods shall be deemed to be an infringement of the requirements established and it shall be grounds for the aid to become immediately repayable. If the capital of the firm receiving the aid is drawn-down or if the contributions of its members are reduced during the accounting periods corresponding to the year of payment of the loan and the two immediately following ones, in a way that causes the loan so granted to be in breach of the limits established in Article 9 of Order ICT/1100/2018, dated 18 October, a refund for the excess amount of the loan granted shall be required, in order to comply with the abovementioned financial aid limits. e) Payment. Pursuant to Article 19 of Order ICT/1199/2018, dated 18 October, the payment of the financial aid shall be conditional to the managing body being fully satisfied that the beneficiary of the aid is fully compliant with the requirements laid down in Article 34 of Act 38/2003, dated 17 November, General Act on Public Aid. Interpretes Jurados de Vizcaya Rafael Aparicio Aldazabal - Idoia Bengoechea Aira e Cr Guarantees. The guarantees shall be divided in two tranches: one covering the principal amount of the loan, that shall be lifted by tranches, as the outstanding principal amount is equal or less to the amount of the guarantee; and another one covering financial interests, that shall be lifted by tranches, as the outstanding interest amount is equal or less to the amount of the guarantee. Each tranche of the guarantees shall be charged from the first instance of default of the payment of the principal or financial interest of the loan, and they shall be charged as any applicable payments are defaulted, until the guarantee for the tranche in question is fully drawn down. g) Accrual of financial interests. Interest shall accrue on loans from the date of delivery of the principal amount, i.e., from the date on Which the State Treasury transfers the amount granted to the beneficiary. Ii) Compatibility. Other sources of public funding are compatible herewith, subject to compliance with the provisions of Article 8.3 of Order ICT/2018, dated 18 October, in the understanding that they shall be immediately notified to the managing body. i) Communication and published information. Any publication and other results that may arise from the funded investments shall mention that the investments have been funded by the Ministry of Industry, Trade and Tourism, in accordance with the provisions of Article 18 of Act 38/2003, dated 17 November, General Act on Public Aid. Third.- This Resolution brings to an end the administrative stage of the procedure and it may be appealed against by means of an application for reconsideration addressed to the body that issued it, within a one-month term, beginning on the day after the notification hereof, in accordance with Articles 123 and 124 of Act 39/2015, dated 1 October, on Ordinary Administrative Proceedings of Public Administrations, or else, by means of a request for judicial review, filed within a two-month term, beginning on the day after the notification hereof, with the relevant body of the administrative judicial branch, pursuant to the provisions of Act 29/1998, dated 13 July, on the Contentious-Administrative Jurisdiction. Note: In order to apply for an internal administrative appeal for reconsideration, you must follow this link: le.minetur.gob.esles-es/procedi mientoselectronicos/Pauin Idetal le d ientos.aspx?IdProcedimiento= 1 58 The Secretary General for Industry and Small and Medium Enterprise, P.P. The Minister of Industry, Trade and Tourism (Order ICT/42/2019, dated 21 January, Spanish Official Gazette 24 January). Signed: Raul Blanco Diaz $`i.k.kee Interpretes Jurados de Vizcaya Rafael Aparicio Aldazabal - Idoia Bengoechea Aira ANNEX I TECHNICAL AND FINANCIAL CONDITIONS Breakdown of the budget eligible for funding by items eligible for funding: ELIGIBLE ELIGIBLE ITEMS LOAN BUDGET Building and Facilities ,526,534.00 ,629,134.00 Manufacturing Devices and Equipment ,45,3,259.00 ,924,342.00 TOTAL ACTIVITIES ,979,793.00 ,553,476.00 LOAN TERMS REPAYMENT TERM: 10 YEARS GRACE PERIOD 3 years INTEREST RATE: 1.647% NOTE: Financial data are expressed in EUR to two decimal places. hnerpretes Jurados de Vizcaya Rafael Aparicio Aldazabal - Idoia Bengoechea Aira Breakdown of funded items: Eligible item: Building and Facilities BREAKDOWN BUDGET FILED ELIGIBLE BUDGET WORKS TO UPGRADE FACILITIES ,924.00 ,924.00 ENCLOSURES, MANUFACTURING AREAS AND WAREHOUSES ,861,846.00 ,861,846.00 ACCESS TO GENERAL SUPPLIES ,054.00 ,054.00 FACILITIES FOR AIR COMPRESSORS ,423.00 ,423.00 FACILITIES FOR BACK-UP GENERATORS ,187.00 ,187.00 FACILITIES FOR THE UPS ,132.00 ,132.00 FACILITIES FOR THE TRANSFORMER ,423.00 ,423.00 SWITCH ,423.00 ,423.00 CONTROLLED AIR CABINETS IN C AND D DEGREES ,181.00 ,181.00 ROOM COOLING SYSTEMS ,710.00 ,710.00 ELECTRICAL AND MECHANICAL SYSTEMS FOR STEAM GENERATORS ,782.00 ,782.00 ELECTRICAL AND MECHANICAL SYSTEMS FOR AUTOCLAVE AND ,392.00 ,392.00 WATER PURIFYING SYSTEMS SUPPLYING ELECTRICITY AND ENABLING THE OPERATION OF SMOKE ,068.00 ,068.00 EXTRACTION SYSTEMS WASTE ROOMS ,989.00 ,989.00 TOTAL ,526,534.00 ,526,534.00 Eligible item: Physical equipment and devices BREAKDOWN BUDGET FILED ELIGIBLE BUDGET SKID 1: FLUID DELIVERY ,496.00 ,496.00 LIQUID AND VIAL BOTTLING AND CAPPING LINE ,845.00 ,845.00 'ENCLOSURE FOR THE BOTTLING LINE TO MAINTAIN AN "A GRADE" ,558.00 ,558.00 ENVIRONMENT HPLC /UPLC ,524.00 ,524.00 KAARL FISHER (MOISTURE ANALYZER) ,842.00 ,842.00 LC_MS MASS SPECTROMETER ,000.00 ,000.00 CO-MASSES ,132.00 ,132.00 DES ,300.00 ,300.00 FLOW CELL (SOLUTIONS) X2 ,200.00 ,200.00 RAMAN ,790.00 ,790.00 SKID 2: MICROSPHERE GENERATION ,050.00 ,050.00 CENTRIFUGAL X 2 ,378.00 ,378.00 SCALE + PRINTER ,765.00 ,765.00 MICRO INCUBATORS ,754.00 ,754.00 STABILITY CABINETS X2 ,241.00 ,241.00 LAMINAR AIR FLOW CABINET ,677.00 ,677.00 CFL SUPPORTING TABLE ,655.00 ,655.00 REFRIGERATOR X2 ,442.00 ,442.00 VISIBLE PARTICLE COUNTER ,519.00 ,519.00 VIAL INTEGRITY ,393.00 ,393.00 Interpretes Jurados de Vizcaya Rafael Aparicio Aldazabal - Idoia Bengoechea Aira BREAKDOWN - BUDGET FILED ELIGIBLE BUDGET l 1 OCLAVE FOR LABORATORY / STEAM STERILIZER ,662.00 ,662.00 SKID 3: DEWATERING SYSTEMS ,596.00 ,596.00 OSMOMETER ,938.00 ,938.00 LABORATORY THERMAL STERILIZER ,186.00 ,186.00 WEIGHTING CABINET + TABLE ,877.00 ,877.00 FILTRATION RAMP SYSTEM ,219.00 ,219.00 PUMP FOR RAMP ,219.00 ,219.00 STERITEST ,087.00 ,087.00 ENDOTOXINS ,344.00 ,344.00 AIR SAMPLERS X2 ,200.00 ,200.00 MILLIFLEX ,621.00 ,621.00 GPC ,211.00 ,211.00 SKID 4: WASHING SYSTEMS ,595.00 . 311,595.00 STERILIZATION OVEN ,018.00 ,018.00 UPLC ,900.00 ,900.00 ISOLATOR ,000.00 ,000.00 MICROBIOLOGY INCUBATORS ,000.00 ,000.00 SKID 5: CLEAN IN PLACE SYSTEM ,350.00 ,350.00 EQUIPMENT WASHING AND PREPARATION SYSTEMS ,000.00 ,000.00 PHARMACEUTICAL-GRADE STERILIZABLE FREEZE DRYER ,638.00 ,638.00 'SIP AUXILIARY UNIT TO CLEAN FIXED SYSTEMS USED IN PROCESSING ,937.00 ,937.00 POWDER FILLER FOR DISPENSING FINAL PRODUCT ,100.00 ,100.00 TOTAL ,453,259.00 ,453,259.00 Interpretes Jurados de Vizcaya Rafael Aparicio Aldazabal - Idoia Bengoechea Aira SPECIFIC TERMS AND CLARIFICATIONS REGARDING THE ELIGIBLE BUDGET The following items have been removed: "Engineering design, commissioning and validation" under "Buildings" as it is not eligible for funding in a project classified as "Creation of industrial facilities"; "BMS" as it does not specify to which asset it refers to; "Electrical equipment, pumps and materials to adapt the rooms where systems are stored", "Facilities to operate Laminar Air Flow in rooms", "Filters, filtering tubes, connectors, printing head, vessels, expendable materials, formulation reactors", and "Excel sheet validation" for lack of detail and quantification. LOAN REPAYMENT CHART Payments Annual Annual interest Annual repayment instalment .00 ,935.75 ,935.75 .00 ,935.75 ,935.75 .00 ,935.75 ,935.75 ,210.86 ,935.75 ,044,146.61 ,210.86 ,516.36 ,028,727.22 ,210.86 ,096.96 ,013,307.82 ,210.86 ,677.57 ,888.43 ,210.86 ,258.18 ,469.04 ,210.86 ,838.79 ,049.65 ,210.84 ,419.39 ,630.23 TOTALS ,553,476.00 ,550.25 ,309,026.25 Remark: Repayment deadlines shall be notified as soon as the date of the order to transfer loan funds from the State Treasury is established. Signed By: Raul Blanco Diaz, THE SECRETARY GENERAL FOR INDUSTRY AND SMALL AND MEDIUM ENTERPRISE, of the GENERAL SECRETARIAT FOR INDUSTRY AND SMALL AND MEDIUM ENTERPRISE, On: 01/08/2019 :24:01 This document may be accessed from .mincotur.i.lob.es;arce with Query and Verification Code -43035148PQ9BK7KQOGST. The original document has 7 pages. Page 1 of 7 V% Vvw.inincoitingob.es Paseo de la Castellana 160 rci(chnincotur.es Madrid cPP SECRETARIA GENERAL DE INDUSTRIA MINISTERIO DE LA PEQUERA Y MEDIANA EMPRESA t r.+ 'Z!t, DE INDUSTRIA, COMERCIO DIRECCION GENERAL DE INDUSTRIA y Y TURISMO GE LA PEQUERA Y MEDIANA EMPRESA RESOLUCION DE CONCESION DE APOYO FINANCIER° Segundo.- El prestamo concedido queda sujeto a las CONDICIONES TECNICO-ECONOMICAS REINDUSTRIALIZACION Y FOMENT° DE LA COMPETITIVIDAD INDUSTRIAL ESPECIFICAS que se detallan en el Anexo I, y a las siguientes conditions generale& Nombre de la entitled: MIDATECH PHARMA ESPANA S.L. NIF: B84185008 a) Realization de inversiones y gastos.- Las inversiones y gastos financiados previstos, deberdn realizarse Domicilio social: PARQUE TECNOLOGICO EMPRESARIAL DE ZAMUDIO, 800, 2 A en el plaza cornprendido entre el 1 de enero de 2018 y la fecha Clue resulte una vez transcurridos 18 mesas contados desde el 31 de jute de 2019. Sin embargo, los documentos de pago emitidos por el Localidad: Derlo Provincia: BIZKAIA CP: beneficiario, podren toner fecha de vencimiento posterior, siempre y cuando dicho fecha este N° Expedients: RCI-040000-2018-309 comprendida dentro del plazo concedido para presenter la documentacien justificative (los Tres mesas Municipio de la actuation: Dedo siguientes a la finalizaciOn del plaza pare realizar las inversiones y gastos). Titulo de la ectuacien. FabricaciOn y comercializacion de Q-Octreolide La DIreccidn General de Industrie y de la Pequena y Mediana Empress: b) Reglas aplicables a los conceptos de gasto financiable.-Las inversiones y gastos financiados previstos deberan cumplir las conditions establecidos en el articulo 4 de la Orden ICT/1100/2018, de 18 de En cumplimlento de lo dispuesto en la Orden ICT/1100/2018, de 18 de octubre, par la que se establecen octubre, las bases reguladoras pare la concesjOn de apoyo-financiero a la inversion industrial en el marco de la politica pitiblica de reindustrializacitin y fortalecimiento de la compelitividad industrial (BOE n° 254, de 20 c) Justificacion.- La justificacion de las actividades financieras se realizara de acuerdo con lo establecido de octubre de 2018), la Comision de Evaluacien, despues de evaluar las solicitudes presentadas a la en el articulo 21 de la Orden ICT/1100/2018, de 18 de octubre. Convocatoria de Apoyo Financiero correspondiente al ano 2018, efectuada mediante la Orden de 14 de En la justificacien de los gastos realizados deberan seguirse las conditions tecnico-econamicas diciembre de por la que se efectaa la convocatorie de concesitin de apple() financier° a la inversion detalladas en el Anexo de esta re:lifted& y no Se apficara compensation de los gastos de unas industrial en el marco de la politica pOblica de reindustdalizacitin y fortalecimiento de la competitividad partidas con otras. industrial en el ano 2018 (publicada en la BDNS (Identif.):429285. y anunciada en el BOE N° 306 con Los documentos acreditativos de que la inversion objeto del apoyo financiero ha sido efectivamente fecha de 20 de diciembre 2018), y Was examinar las alegaciones presentadas a la propuesta de resolution ejecutada y los informes senalados en el articulo 21 de la Orden ICT/1100/2018, de 18 de octubre, provisional, ha acordado estimar el expediente arriba indicado y proponer Resolution de Concesitin de deberan ser cumplimentados siguiendo las Instrucciones y modelos accesibles desde el portal Apoyo Ftnanciero. Ayudatec de la web del Ministerio de Industrie, Comercio y Turismo (http://www.mincotur.gob.es/portalayudas). Por ello, una vez realizados los tramites previstos en el articulo 18 de la ICT/1100/2018, de 18 de octubre, asi comp la autorizacion del expediente de gasto, la Ministra de Industrie, Comercio y Turismo, d) Incumplimientos.- Si el costa efectivo final de la inversion resulta inferior al presupuesto financiable, ya sea porque lo manifieste el beneticlario, a asi se considere por el organ° competente al examiner la RESUELVE documentaciOn justIfiCativa, se reintegrare parcialmente el apoyo financiero en la cantidad proportional a la pane no efectuada, siempre que a juicio de dicho 6rgano se hayan cumplido basicamente los Primero.- Conceder el prestamo que a continuation "se indica, para la realizaciOn de las actuaciones objetivos por los que se concedie el apoyo financiero, puss en case contrano, procedera el reintegro contenidas en la solicitud presentada por entidad solicitante a este convocatoriai total en aplicaciOn del articulo 37.1b) de la Ley 38/2003, de 17 de noviembre, General de Subvenciones. En ambos cases, procedera la devolution de la cantidad a reintegrar, mds los intereses de dernora, desde el memento del pago del apoyo financiero haste la fecha en que se acuerde la procedencia del Presupuesto Prestemo reintegro. Flnanciabte(E) Concadido(try .97 ,00 .551476,00 La no satisfaction de dos cuotas consecutivas amortizaciOn del principal o de los intereses debidos en dos periodos consecutivas se considerara incumplimiento de los requisitos establecidos y sere cause Este prestamor se encuentra garantizado parcialmente mediante garantlas constituidas ante la Caja de reintegro. General de Deptisitos. En caso de producirse descapitalizaciones disminuciones de aportaclones de socios de la empresa N°de Nesguardo I Import* a Techa resoluoldn(Q} heneficiana, durance los ejercicios correspondientes at ano del pago del prestamo y los dos siguientes, 00048 0000094 0 .41%0C que Kagan que el prestamo concedido incumpla los limbs establecidos en el articulo 9 de la Orden 00048 hise .63%00 con los citados limites de financiacion. ICT/1100/2018, de 18 de octubre, se exigira el reintegro del exceso de prestamo concedido pare cumplir 00048 0000092 0 .258.00 00048 0000091 0 .678,00 e) Pap: De acuerdo con el articulo 19 de la Orden ICT/1100/2018, de 18 de octubre, el pago de la cocas m oose o .097,05 ifnanciacion quedara condicionado a que exists constancia por parte del organ° gestor de que el 00048 0000089 0 .485,00 beneficiario cumple todos los requisitos senalados en et articulo 34 de la Ley 38/2003, de 17 de .00048 0000088 0 .211.00 ,,, noviembre, General de Subvenciones. 00048 0000087 0 .211,00 _ c2 f) Garantlas.- Las garantias se dividiran en dos tramos: uno que cubrira el principal del prestamo, y que se 00048 0000006 0 RAFMA.90A PARIC 10 - 11)0! A I ti OEC I I I:, „Vancelara por trams, una vez que el importe de capital pendiente de devolucion sea tg ual o inferior al importe garantizado; y otro que cubrira los intereses financieros, y que se cancelara por tramos una vez El desglose por conceptos del presupuesto financiable figura or nexo I. Inter Jura4 ;:.; qua el impute de interes financiero pendiente de devolucion sea igual o inferior al importe garantizado. : .-o Coda tramo de garantias se incautare desde el memento del primer impago del principal del prestamo 0 La pref:cnin fotocopia rr p,.,.-uluci 4.*Jocuiriento del irtIrtaemreos financiero, y se iron incautando segen impagos haslet que se agote la garantla constduida de — \ a parii (R.:i os,3: .,,.-. , . -. 4 1141:ion jurada Devencio de los intereses financieros.- Los prestamos devengarAn intereses desde la fecha de entrega www.mincotur.gob.es .7:,:Vi rci@mincolur.es I C 2019 r24i .. °e9 This is aztdiTprrof the docuriatf of ,.. MINISTLiIHDE INDU: IFul Y translated under the above refe,iik R.4.FAEL APARJCIO - IDOlA iffligGOECITP. A Sworn Translators z del principal, entendiendose coma tal la fecha en la que el Tesoro Ptirblice realize la transferencia del ANEXO I importe concedido al beneficiario. a n) Compatibilidad.- Se admite la concurrencia con cualquier otra financiacion publica, siempre que se CONDICIONES TECNICO-ECONDMICAS O cumpla con lo dispuesto en el articulo 8.3 de la Orden ICT/1100/2018, de 18 de octubre, y deberan ser . comunicadas inmediatamente al &gene instructor. Lu i) Information y publicided.- En las publicaciones y otros resurtados a los que puedan der lugar las inversions financiadas, debere mencionarse que las mismas han sido financiadas por et Ministerio de Distribution del presupuesto financiable por conceptos financiables: Industrie, Camercio y Turismo, de acuerdo con lo dispuesto en el arliculo 1a de la Ley 3812003, de 17 de noviembre, General de Subvenciones. or) CONCEPTOS FINANCIABLES PRESUPUESTORNANCIASLE PRESTAMO O Ethficaolon y sus Instalacionos .626,634,00 t .629,134,00 Tercero.- Contra la presente Rest:Auden, que pone fin n le v!s... administrative, mire interponerse Aparatcr-y Equippe de ProducciOn ,453.259,00 .824.342,00 potestativamente recurso de reposition ante el mismo organ° que la he dictado, en el plaza de un men TOTAL ACTUACIONES .979.793,00 .553.478,00 contado a partir del die siguiente al de su nollficaciOn, de conformidad con los articulos 123 y 124 de la Ley /2015, de 1 de octubre, del Procedimiento Administrativo Com& de las Administrations PUblicas, o bien, recurso contencioso-administrativo, en el plazo de dos meses, a canter desde el die siguiente al de sunotificacion, ante el Organ compelente del orden jurisdictional contenciosc-administrativo, de conformidac CONDICIONES DEL PRESTAMO .1 con lo dispuesto en la Lev 2911998, de 13 de lull°, reouladora de la Jurisdiction Contencioso Administrative. PLAZO DE AMORTIZACION: 10 ANDS Wui 5' Note: Para interponer recurso de reposition debere acceder al siguiente enlace: TIPO DE INTERES: PERIODO DE CARENCIA: 3 ASLOS ,647% hlIptifsedo.minEtLlr.g on.esios-es/procedirnionloselectronicos/Re insetdelel rocedimienlos43naldProcedimionloo156 NOTA: Todos los dates economical. en euros y con do. decImeles. i < u El Secretario General de Industrie y de la Pequella y Mediana Empress P.D. de la Ministra de Industria, Comerclo y Iurismo (Orden ICD42/2019, de 21 de enero, BOE 24 de enero) 0 Lir o. R.AFAEL APARIC1O - IDO1A BENGOECHEA O>L : Fdo.: Rail] Blanco Dlaz Interpretes Jurados g4 La presente fotocopia reproduce el document() z a partir del cual is traducciOn jurada DIC 2019 L/This is a true copy oi :ioournent officially translated under the above reference o F's,•\F: \ Et, APARICIO IDOIA BENGOEC.1-17 , s.. oorr n " E "AS _ . 7,37 Sc • § PAgina 3 ImNISTERIO ,e Pagina 4 MINISTERIO OF INDUSTRiA, COMERCIO gi DE INDUSTRIA, COMERCIO "LIPISMO TURISMO Desglose conceptos financiados: Concepto Financiable: Edification y sus instalaciones DESOLOSE PRESUPUESTOPRESENTADO PRESUPUESTOFINANCIABLE TERMODESINFECTADOR LABORATORIO ,186.00 .166,00 DESGLOSE PRESUPUESTO PRESUPUESTO St CABINA DE PESADA + MESA .877.00 .877.00 PRESENTADO FINANCIABLE liAMPA FiLtRACIN .219,00 .219,00 OBRAS PARA ADECUAR INSTALACIoNEs 924.00 .924,00 BOMBA PARR RAMPA .219,00 .219,00 • CERAMIENTOS. ZONAS DE PRODUCCION Y ALMACENES .046,00 a01.846,00 STERITEST .087,00 - 24.087,00 ACCESO A SUMINISTROS GENERALES .054,00 .054,00 ENDOTOXINAS .344,00 .344,00 INSTALACIONES PARA COMPRESORES DE AIRE 423,00 .423,00 IY MUESTREADORES AIRE X2 .06 ,200.49 INSTALACIONES PARA LOS GENERADORES DE APOY0 .187.00 .18700 -MILLIFLEX .00 .62109 INSTALACIONES PARA EL SAI .132,00 .132.00 z GPC .211,00 .211,00 INSTALACIONES PARA EL TRANSFORMADOR .423,00 ,2.423,00 O SKID 4: WASHING SYSTEMS ,00 .595,00 ' SWTTCH .423,00 .423.00 .foRNOESTERILIZACIoN .018,00 ,018,00 CAMARAS DE AIRE CONTROLADO EN GRADOS C Y D .18100 .181.00 UPLC .900,00 .900.00 i SISTEMAS DEREFRIGERACION DE SALAS 710 00 .710.00 I AISLADOR • .000,00 .000.00 SISTEMAS ELECTRICOS Y MECANICIDS PARA GENERADORES DE VAPOR .782,00 .782,00 `INCUBADORAS PARA MICROBIOLOGIA .000,00 .000.00 SISTEMAS ELECTRICOS Y MECANIC0S PARA EL AUTOCLAVE V LOS SISTEMAS DE .392,00 .392,00 SKID 5: CLEAN IN PLACE SYSTEM .350,00 .350,00 PURIEICACION DE AQUA • SISTEMAS DE LAVADO Y DE PREPARACION DE EQU1POS .000,00 EXTRACCION DE HUMOS SUMINISTRAR ELECTRICIDAD Y POSIBILITAR EL FUNCIONAMIENTO DE LOS SISTEMAS DE " 90.068 00 00r LIDFILIZAjok ESTERILIZABLE DEGRADE) FARMACEUTICID .638,00 .630,00 _ SALAS OE RESIDUOS .989 00 ,00 i.r3 UNLOAD AUXILIAR CIP PARA PROPORCIONAR LIMPIEZA PARA LOS SISTEMAS FIJOS DEL .937,00 .937,00 TOTAL .526.534,00 .5213:034,00 m PROCESO dN LLENADOR DE POLVO PARA LA DISPENSACION DEL PRODUCT° FINAL .100,00 .1130,00 W TOTAL .453.259,00 .453.259,00 Concepto Financiable: Aparatos y equipos materiaies LU DESOLOSE PRESUPUESTO PRESUPUESTO PRESENTADO FINANCIABLE SKID 1: FLUID DELIVERY (ENTREGA DE FLUIDO) .496;00 .496,00 - LINEA DE LLENADO Y LIOUIDO Y ENCAPSULADO DE VIALES .845.00 .84500 RECINTO CERRADO PARA LA LINEA DE LLENADO PARA MANTENER UN ENToHNO DE GRADS A .558,00 .558,00 HELD /UPLC .524,00 524.00 ,1---4ZAFAEL APARICIO IDOIA BENGOECHEA KAARL FISHER (ANALIZADOR DE HUMEDAD) .842.00 ,00 Interpretes Jurados ESPECTROMETRO DE MASAS LC MS .000,00 .000,00 - MASAS .132,00 ,00 La presente fotocopia reproduce el document° DES .300,00 ,00 CELDA DE FLUJO (DISOLUCIONES} X2 .200,00 .200,00 a partir del cual se rc-1; ?.6 la traduccian jurada RAMAN .790.00 .790,00 SKID 2, MICROSPHERE GENERATION .050.00 .050,00 DI C 2019 CENTRIEUGA X 2 .378.00 ,378,06 ,;?..:_iplent officially BALANZA IMPRESORA .765,00 .76500 aJ This is a true copy MICRO INCUBADORAS .754.30 .75400 LJ translated under the above reference CAMARAS DE ESTABILIDAD X2 .241.00 .241:00 c.7 CABINA DE FLUJO LAMINAR .00 .077.00 RAFAEL APARICIO - IDOL\ BENGOECIM MESA SOPORTE CFL i_65500 fi5500 < S4Flflrn Trans17stors NEVERA x.2 ,00 .442.00 ILI CONTADOR DE PARTICULAS VISIBLES .619,00 ,00 INTEGRIDAD DE VIALES .393,00 .393,00 N m AUTOCLAVE PARA LABORATORID/ESTERILIZADOR CE. VAPOR .662,00 -rg SKID 3.bEWATERING SYSTEMS .596,00 c SmoMETRO .938,00 .936 OD Zoo m4 . ,2 P4glna MINISTERIO DE T4 DE INDUSTRIA, COMERCIO TiR8.i. N Y TURISMO m8'8 L L Oww CONDICIONES ESPECIFICAS Y ACLARACIONES AL PRESUPUESTO PINANCIABLE Se han eliminado las siguientes partidas. "Ingenieria, puesta en marcha y validaciOn" dentro de "Edificacionee por no ser tinanciable en la clasificacidin de proyecto de "CreaciOn de Eslablecimientos Industrieles", "BAAS" por no concretar de que activo se data; "Valeriales, bombas y equipos electricos para la adecuacien de las diferentes salas donde se almacenan los sistemas", "Instalaciones para el tuncionamiento del Flujo Laminar en salas", "Filtros, tubos de filtration, conectores, cabeza de impresidn, bombonas, fungibles, reactores de formulacidn" y ''Validaci6n hojas excel" por insuficiencia nivel de detalle y cuantificaciOn. CUADRO DE AMORTIZACION DEL PRESTAMO Pastas Amortization Intereses Cuota anual anual anuales ,00 .935.75 .935.75 ,00 .925,75 .935,75 .00 .935.75 .935,75 21086 .935,75 .146,61 .210,86 .36 .028.727,22 -4" .21086 .096,96 .013.30762 .210,86 .677.57 .888.43 ,86 .258,18 .469,04 .210,86 .838,79 .049,65 .210,84 .419,39 .610,23 TOTALES .553.476,00 .550.25 .309.026,25 Nola: Las feehas Ilmitos de amorlizacion se cornonzaran cuando se determine la fecha de orden da transferencia del prastamo desde Tesoro rridoco RAFAEL APARICIO - IDOIA BENGOECHEA Interpretes Jurados La presente fotocopia reproduce el documento a par& del cual se realizo la traduccion jurada DIC 2019 This is a true copy of the document officially translated under the above reference RAFAEL APARICIO - 1DOIA BENGOECITEA Sworn Translators 0:: 7 MINISTERIO DE INDUSTREA, GC/MERCK) TURISMO

 

 

 

 

Exhibit 4.27

 

DATED                                      17 APRIL 2020

 

 

 

 

 

MIDATECH PHARMA PLC (1)
   
and  
   
DR CRAIG COOK (2)

 

 

 

 

 

 

 

SETTLEMENT AGREEMENT
WITHOUT PREJUDICE AND SUBJECT TO CONTRACT

 

 

   
 

 

Table of Contents

 

 

 

1. Definitions and Interpretation 1
2. Termination 5
3. Compensation 5
4. Indemnity 5
5. Company Property 6
6. Settlement and Waiver 7
7. Confidentiality and Restrictive Covenants 8
8. Warranties 9
9. Legal Fees 11
10. Share Option Scheme 11
11. Management Incentive Scheme 12
12. Previous Termination Arrangements 12
13. Rights of Third Parties 12
14. Counterparts 12
15. Governing Law and Jurisdiction 12
16. General 13
Schedule 1 Solicitor’s Certificate 14
Schedule 2 Announcement 15
Schedule 3 Handover Period Objectives 16
Schedule 4 Management Incentive Scheme (“MIS”) 17
Schedule 5 Letter of Resignation 20
ATTESTATION CLAUSES 21

 

   
 

 

THIS AGREEMENT is dated 17 April 2020

 

PARTIES

 

(1) MIDATECH PHARMA PLC (company number 09216368) whose registered office is at 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire OX14 4RQ (the “Company”); and

 

(2) DR CRAIG COOK of Flat 4, 61 Inverness Terrace, London W2 3JT (the “Employee”).

 

OPERATIVE PROVISIONS

 

1. DEFINITIONS AND INTERPRETATION

 

1.1 In this Agreement, except where a different interpretation is necessary in the context, the expressions set out below shall have the following meanings:

 

Adviser as set out in clause 6.4
   
Agreement this agreement and any schedules to this agreement as amended, modified or supplemented from time to time in accordance with the terms set out below
   
Certificate the certificate set out in Schedule 1 to this Agreement
   
Confidential Information all Information relating to:
   
  (a)          the business or prospective business, current or projected plans or internal affairs of the Company, any Group Company, or any of its or their clients, customers, suppliers and agents, including in particular, all know-how, trade secrets, products, operations, processes, product information and unpublished information relating to the intellectual property rights of the Company, any Group Company, or any of its or their clients, customers, suppliers and agents;
   
  (b)          any directors, officers, partners, members, agents, shareholders or employees (including, without limitation, details of terms and conditions of employment) of the Company or any Group Company; and
   
  (c)           any other commercial, financial or technical information relating to the business or prospective business of the Company or any Group Company;
   
  whether or not such Information is marked confidential and irrespective of when or how such Information was imparted or obtained
   

 

   
 

 

Contacts any contacts which the Employee has stored or recorded (including without limitation on any hard drive, system, network, hand-held or other electronic devices, or any social media websites) during the course of his employment with the Company (unless obviously personal to the Employee and not related in any way to his employment with the Company)
   
Deductions any income tax, employee’s national insurance contributions or any other sum that the Company is required to deduct at source by law, or otherwise entitled to deduct under the terms of this Agreement
   
Departure Date 30 April 2020        
   
Documents documents, books, correspondence, files, statistics, papers, materials, reports, minutes, plans, records, surveys, diagrams, computer printouts, computer disks, CDs, audio tapes, manuals, customer documentation or other medium, whether or not eye-readable, on which Information (whether Confidential Information or otherwise) belonging to or relating to the Company or any Group Company and received or created by the Employee in the course of his employment may from time to time be contained, written or recorded (including without limitation on any social media websites), and all copies, drafts, reproductions, notes, extracts or summaries of such Information in whatever form
   
EMI Option Agreement share option agreement to be entered into between the company and the Employee incorporating the terms applicable to the new share options to be issued to the Employee under the Share Option Scheme
   
Group Company the Company and its subsidiary undertakings from time to time and the ultimate parent undertaking (if any) of the Company from time to time and every other undertaking which from time to time is a subsidiary undertaking of the same ultimate parent undertaking (if any) (“parent undertaking” and “subsidiary undertaking” as defined by section 1162 and Schedule 7 and “undertaking” as defined by section 1161 of the Companies Act 2006), or an associated company as defined by section 449 Corporation Tax Act 2010
   
Information information whether in tangible or any other form, including specifications, reports, data, notes, documentation, drawings, software, computer outputs, designs, circuit diagrams, models, patterns, samples, inventions (whether capable of being patented or not) and know-how, and the media (if any) upon which such information is supplied
   

 

  2  
 

 

Pre-Contractual
Statement
any undertaking, promise, assurance, statement, representation, warranty or understanding (whether written, oral, or governed by a course of dealings) of any person (whether party to this Agreement or not) relating to the employment of the Employee and its termination, which is not expressly set out in this Agreement
   
Protected Disclosure a qualifying disclosure as defined by section 43B Employment Rights Act 1996 (“ERA”), which is made by the Employee in accordance with any of sections 43C to 43H ERA
   
Service Agreement contract of employment between the Employee and the Company dated 1 June 2018
   
Settlement Sum as set out in clause 3.1
   
Share Option Scheme   the Midatech Pharma PLC Enterprise Management Incentive Scheme adopted in December 2014
   
   
   
Statutory Claims the claims the Employee has or may have against the Company or any Group Company and/or its or their directors, officers, partners, members, employees, professional advisers, agents, and/or shareholders, for breaches of:
   
  ·             the Employment Rights Act 1996, including (but not limited to) claims of actual or constructive unfair dismissal, unlawful deductions from wages or unauthorised payments, claims arising from the making of a Protected Disclosure, detrimental treatment, rights to time off work, claims in relation to section 1 particulars, in relation to written reasons for dismissal and any other claims referred to in the Employment Tribunals Act 1996
   
  ·             the Employment Relations Act 1999, including (but not limited to) claims in relation to the right to be accompanied and detriment in relation to this right
   
  ·             the Working Time Regulations 1998, including (but not limited to) claims relating to working time and/or holiday pay
   
  ·             the Protection from Harassment Act 1997, including (but not limited to) claims of harassment
   

 

  3  
 

 

  ·             the Equality Act 2010, including (but not limited to):
   
  ·             claims for equality of terms, of instructing, causing, inducing or aiding contraventions, of direct or indirect discrimination, victimisation or harassment, because of, or in relation to, sex, marriage or civil partnership
   
 

·             claims of instructing, causing, inducing or aiding contraventions, of direct or indirect discrimination, victimisation or harassment, because of, or in relation to, race, colour, nationality, ethnic or national origin

·             claims of instructing, causing, inducing or aiding contraventions, of direct or indirect discrimination, discrimination arising in consequence of a disability, victimisation or harassment, because of, or in relation to, disability and/or in relation to any alleged failure to make adjustments

 
  ·             claims of instructing, causing, inducing or aiding contraventions, of direct or indirect discrimination, victimisation or harassment, because of, or in relation to age
 
  ·             claims of instructing, causing, inducing or aiding contraventions, of direct or indirect discrimination, victimisation or harassment, because of, or in relation to, religion or belief; and
 
  and breaches of the Employee’s rights and/or the Company’s (or any Group Company’s) obligations under the provisions of the legislation mentioned above, whether in existence as at the date of this Agreement or arising in the future because of facts subsequently coming to light or changes to the law
   
Statute the Acts and Regulations referred to in the definition of Statutory Claims above

 

1.2 References to the word “include” or “including” (or any similar term) are not to be construed as implying any limitation and general words introduced by the word “other” (or any similar term) shall not be given a restrictive meaning by reason of the fact that they are preceded or followed by words indicating a particular class of acts, matters or things.

 

1.3 References to any Statute or other enactment are to be construed as referring also to any enactment of, re-enactment of, extension to, or amendment to it (whether before or after the date of this Agreement), and to any previous enactment which such Statute or enactment has replaced (with or without amendment) and to any regulation, order, statutory instrument, or subordinate legislation made under such enactment.

 

  4  
 

 

2. TERMINATION

 

2.1 The appointment of the Employee as a director and Chief Executive Officer of the Company in accordance with the terms of the Service Agreement terminated with immediate effect on 31 March 2020. The parties have agreed to vary the terms of the Service Agreement, with retrospective effect from 31 March 2020, so that the notice period at clause 2.1 of the Service Agreement shall be reduced from six months to one month and that, in accordance with the terms of clauses 2.2 and 3.3 (a) of this Agreement, with effect from 1 April and continuing to 30 April 2020 ("Handover Period"), the Employee shall work out that one month notice period, to enable the Employee, as a temporary measure, and on a reduced salary, to complete a handover of his duties to Stephen Stamp, his successor Chief Executive Officer, in accordance with the terms of this Agreement. The Handover Period and the employment of the Employee with the Company will terminate on one month's notice with immediate effect on the Departure Date.

 

2.2 From the date of this Agreement up until 30 April 2020, the Employee agrees that he will co-operate fully with the board of the Company to ensure the smooth handover of his duties to Stephen Stamp. The Employee will be available during the Company's normal business hours to undertake any such duties as the Company may require and the Employee will undertake such duties, as more particularly described but not limited to the duties listed at Schedule 3, for not less than 25 hours a week during the Handover Period.

 

2.3 The Employee shall not hold himself out or conduct himself as a director of the Company, or any Group Company after 31 March 2020, or as an employee of the Company, or any Group Company after the Departure Date.

 

2.4 The Company will pay the Employee's outstanding salary and an agreed payment of £3,500 gross (less Deductions) in lieu of accrued but untaken holiday entitlement accrued up to the Departure Date within 14 days of the Departure Date.

 

2.5 Save as otherwise provided by this Agreement, the Employee’s contractual benefits provided by the Company ceased on 31 March 2020.

 

2.6 As soon as practicable after the Departure Date the Company will issue the Employee’s P45.

 

2.7 The Company announced the Employee’s resignation as a Director and Chief Executive Officer on 31 March 2020 in the terms set out in Schedule 2.

 

2.8 The Employee will immediately provide the Company with his written resignation from the offices which the Employee held in the Company or any other company and all other appointments, trusteeships, memberships and positions which he held as nominee or representative of the Company with effect from 31 March 2020 in the form attached at Schedule 5 to this Agreement.

 

3. COMPENSATION

 

3.1 Subject to the further provisions of this clause 3, in connection with the termination of the Employee’s employment and subject to and conditional on the Employee complying and continuing to comply fully with the terms of this Agreement, the Company shall pay the Employee without admission of liability the total gross sum of £40,000.00 (the “Settlement Sum”) less any Deductions.

 

  5  
 

 

3.2 The Settlement Sum, less any Deductions, shall be paid into the Employee’s nominated bank account within 14 days of the latest of the dates on which the following has occurred:

 

(a) receipt by the Company’s solicitors of an original version of this Agreement duly executed by the Employee, and the Certificate signed by the Adviser; and

 

(b) the return of the Company’s property in accordance with clause 5 below.

 

3.3 The Settlement Sum comprises the following:

 

(a) £10,000.00 (gross) as payment for the Employee's duties during the Handover Period in accordance with clause 2.2 of this Agreement (“Reduced Salary Payment”); and

 

(b) £30,000.00 (gross) paid as compensation to the Employee for the loss of his employment (“Compensatory Payment”).

 

3.4 The Settlement Sum will be paid less any Deductions. Specifically, the parties agree that the Company will make deductions at source for any income tax and employee’s national insurance contributions which may be required in respect of the Reduced Salary Payment.

 

3.5 The parties agree that the amount of the Reduced Salary Payment is equal to the amount given by the formula in section 402D (1) of Income Tax (Earnings and Pensions) Act 2003 ("ITEPA") and that, accordingly, the Employee's Post-Employment Notice Pay (as defined by ITEPA) is nil.

 

3.6 Accordingly, the parties' understanding is that no part of the Compensatory Payment is taxable as Post-Employment Notice Pay.

 

3.7 The Compensatory Payment will be paid tax free, as a termination award under the threshold within the meaning of sections 402A(1) and 403 of ITEPA.

 

3.8 The parties agree that the Settlement Sum is made in good faith and that the Compensatory Payment is paid by way of settlement or compromise of any claim arising in connection with the termination of the Employee’s offices and employment.

 

4. INDEMNITY

 

4.1 The Employee agrees that he is wholly liable for the amount of any tax (including without limitation, income tax and employee’s national insurance contributions), arising in connection with the Settlement Sum or any other payments or arrangements set out in this Agreement, other than any deductions for tax or employee’s national insurance contributions made at source by the Company pursuant to clause 3.4 or otherwise.

 

  6  
 

 

4.2 The Employee agrees fully and properly to indemnify and keep indemnified the Company or any Group Company against any demand for tax (including, without limitation, income tax and employee’s national insurance contributions) which may become payable arising from his employment, the Settlement Sum or any other payments or arrangements set out in this Agreement or arising in connection with the termination of his employment with the Company and any interest, penalties, costs, claims, damages or other expenses which the Company or any Group Company may incur in this regard (save for any liability which arises solely as a result of the default or delay of the Company, or any Group Company), including, without limitation, as a result of challenging such demand for tax provided that the Company may choose (in its sole discretion) to challenge any such demand following receipt of a reasonable written request from the Employee, and in the absence of such a request, the Company, or any Group Company, may challenge such tax demand or comply with any such tax demand (in its sole discretion) and, the Employee shall be liable to the Company, or any Group Company, under this indemnity or in relation to any such tax demand (including any liability resulting from a failure to deduct tax).

 

4.3 For the avoidance of doubt:

 

(a) the indemnity in clause 4.2 shall not apply to any tax or national insurance contributions which have already been deducted at source by the Company under clause 3.4 or otherwise; and

 

(b) the indemnity in clause 4.2 shall extend to any income tax or employee’s national insurance contributions, penalties and interest in respect of such arising on the Settlement Sum if HM Revenue & Customs do not accept the parties’ agreed treatment of the constituent parts of the Settlement Sum as taxable only under sections 401 and 403 Income Tax (Earnings and Pensions) Act 2003 or any other tax treatment of any other payment under this Agreement.

 

5. COMPANY PROPERTY

 

5.1 Subject to clause 5.2, the Employee agrees to return, within seven days of the Departure Date, in good condition and without modification all property (including but not limited to Documents, Confidential Information (and any copies or reproductions of it), Contacts, , credit or charge cards, personal computer or laptop, keys, security passes) belonging to the Company or any Group Company or relating to the business of the Company or any Group Company or any director, officer, partner, member, shareholder, employee, client, customer, supplier, banker, agent or professional adviser of the Company or any Group Company which is in the Employee’s possession or under his control.

 

5.2 Subject to the further provisions of this clause 5, the Company will transfer to the Employee on the Departure Date the mobile phone previously used by the Employee in the performance of his duties under the Service Agreement, provided that the Employee shall take over the mobile phone contract with the service provider with effect from the Departure Date and be responsible for all call and other charges in relation to the mobile phone with effect from the Departure Date. The Employee further agrees that he shall redirect to the Company any calls regarding the Company received by him on the mobile phone following the Departure Date at no cost to the Company.

 

5.3 The Employee shall by no later than the Departure Date :

 

(a) inform the Company in writing of the passwords used by him on all computers, laptops or other electronic devices which are the property of the Company or any Group Company; and

 

  7  
 

 

(b) delete irretrievably from his mobile phone and personal computer (including from the hard drive) and from any other computers, devices, systems or networks in his possession or control all and any Documents, Contacts and Information (including but not limited to Confidential Information) (and any copies or reproductions of such) belonging to, or prepared for, or obtained from, or relating to the business of, the Company, or any Group Company or any of its or their clients, customers, suppliers and agents which may remain in existence notwithstanding the Employee’s compliance with clause 5.1.

 

5.4 The Employee shall, if requested to do so by the Company, provide a signed statement that he has complied fully with his obligations under clauses 5.1, 5.3 and 5.3 and shall provide the Company with such reasonable evidence of compliance as may be requested.

 

6. SETTLEMENT AND WAIVER

 

6.1 The Employee agrees to accept the arrangements contained in this Agreement and any sums paid under its terms in full and final settlement of, and unconditionally and irrevocably waives, any and all present and future claims, rights of action, remedies, awards, damages, costs, fees and expenses however arising which he has or may have in any jurisdiction against the Company, any Group Company or any of its or their directors, officers, partners, members, employees, professional advisers, agents or shareholders arising directly or indirectly from or in connection with his employment with the Company and/or its termination or loss of any office, or any pre-termination negotiations or discussions in relation to the termination of employment, or any rights he has or may have under any existing or proposed bonus or incentive scheme or arrangement, or any pension provision, or Company pension contributions, or any other matter including any common law or statutory claims whether under English law, European law, any of the Statutes, or any other applicable law such as (but not limited to) compensation for breach of contract, wrongful dismissal, personal injury and any and all of the Statutory Claims. To the extent that such claims against the Company, any Group Company, or any of its or their directors, officers, partners, or members, employees, professional advisers, agents or shareholders, either do not exist at present, or cannot be identified by one or both parties, the Employee acknowledges that they may at some future date arise or be identified, either because of facts coming to light or because of changes to the law, and agrees to unconditionally and irrevocably waive all and any such claims.

 

6.2 The waiver in clause 6.1 above shall not affect the following:

 

(a) any claim for personal injury, the symptoms of which have not manifested themselves at the date of this Agreement; or

 

(b) any breach of contract claim arising from an actual or alleged breach of the terms of this Agreement;

 

although no admission of liability is made by the Company in relation to any such claims and the Employee warrants that, as at the date of this Agreement, he is not aware of any such claims or any facts or circumstances that may give rise to any such claims.

 

  8  
 

 

6.3 The Employee warrants that he:

 

(a) will refrain from instituting or continuing and will immediately and unconditionally withdraw, in writing, any legal proceedings of any nature to or before any Employment Tribunal or court in relation to any claim referred to in clause 6.1 and agrees that if any such proceedings are instituted or continued by him, or if he takes the benefit of any proceedings which may be commenced on his behalf, and that if not repaid to the Company pursuant to clause 8.2, the Settlement Sum paid to him will be accepted by him as being made on account of and applied towards any basic, compensatory, or any other award or damages or fees or costs or expenses award which may be made in his favour;

 

(b) shall not make any subject access request (pursuant to the provisions of the Data Protection Act 2018 or the General Data Protection Regulation (EU) 2016/679) after the date of this agreement (in relation to matters of which he was or ought reasonably to have been aware at the date of this agreement) and any subject access request made before the date of this agreement shall be treated as immediately and unconditionally withdrawn.

 

6.4 The Employee warrants and agrees that, before entering into this Agreement, he has received independent legal advice as to the terms and effect of this Agreement and in particular as to its effect on his ability to pursue his rights, complaints and claims (including in particular the Statutory Claims) before an Employment Tribunal from Peggy Barnard of Barnard & Webb Solicitors, who is a relevant independent adviser as may be defined or referred to in each relevant Statute and who held appropriate insurance or an appropriate indemnity (as may be defined or referred to in each relevant Statute) on the date that such advice was given (the “Adviser”).

 

6.5 The Employee will procure that the Adviser will complete the Certificate immediately following the Employee’s execution of this Agreement, and promptly deliver the completed certificate to the Company’s solicitors.

 

6.6 The conditions regulating compromise agreements and/or settlement agreements under or referred to in each Statute are satisfied. In particular, but without limitation, the conditions set out in section 147(3)(c) and (d) of the Equality Act 2010 are met.

 

7. CONFIDENTIALITY AND RESTRICTIVE COVENANTS

 

7.1 The Employee undertakes and agrees to honour and abide by the confidentiality and restrictive covenant provisions in the Service Agreement which shall therefore be binding on the Employee after the Departure Date as if they were repeated in full in this Agreement. The terms used in those provisions shall have the meanings given to them in the Service Agreement.

 

7.2 The Employee undertakes that except as required by law he will not at any time in the future, directly or indirectly, without the prior written consent of the Company:

 

(a) disclose to any person the existence or fact or contents of this Agreement, or the terms of settlement with the Company except to his professional advisers, HM Revenue & Customs and his spouse provided that disclosure to professional advisers and spouse shall be on the condition that they agree to honour this obligation save that the Employee may notify potential employers in any job interviews of the terms of clause 2.1 and the announcement at Schedule 2;

 

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(b) make or publish any public announcement, statement or comment whether in writing or otherwise concerning the Company, any Group Company or any of its or their current or former directors, officers, partners, members, shareholders or employees relating to her employment and/or termination of employment by the Company other than in the terms of the announcement at Schedule 2; or

 

(c) make or publish any derogatory, disparaging, false, or misleading statements or comments concerning the Company, any Group Company or any of its or their current or former directors, officers, partners, members, shareholders or employees.

 

7.3 The Company undertakes that, save as may be required by law, or to fulfil, establish, exercise, or defend, any legal right or obligation, or any accounting, or regulatory obligation, of the Company (or any Group Company), or to HM Revenue & Customs, or its professional advisers (having instructed them to honour the provisions of this clause), or in respect of any matter in the public domain otherwise than in breach of this clause, it will not instruct or authorise any of its current directors, officers, or employees to, directly or indirectly, without the prior written consent of the Employee:

 

(a) disclose to any person the contents of this Agreement, or the terms of settlement with the Employee;

 

(b) make or publish any public announcement, statement or comment relating to the Employee’s employment and/or termination of employment other than in the terms of the announcement at Schedule 2; and

 

(c) make or publish any derogatory, disparaging, false, or misleading statements or comments concerning the Employee.

 

7.4 The Employee agrees that if the Company becomes aware that he has breached any of his obligations under clauses 7.1, and 7.2 of this Agreement, on or after the Settlement Sum has been paid to him he will immediately repay all of such sums to the Company.

 

7.5 The Company’s right to repayment of the sums in accordance with clause 7.4 of this Agreement shall be without prejudice to its right to seek an injunction against or claim further damages or account of profits from the Employee.

 

7.6 For the avoidance of any doubt, all of the Employee’s obligations under clauses 2.3, 7.1, and 7.2 above apply including without limitation to any activities by the Employee in relation to any social media websites.

 

7.7 Nothing in this clause 7 shall prevent the Employee from making a Protected Disclosure.

 

  10  
 

 

8. WARRANTIES

 

8.1 The Employee represents and warrants to the Company as a strict condition of this Agreement and in particular, payment of the Settlement Sum pursuant to clause 3.1 that:

 

(a) as at the date of this Agreement or the Departure Date, whichever is the later, there have been no acts, omissions or defaults by him of which he is aware, or ought reasonably to be aware, which constitute a breach of his duties as an employee of the Company;

 

(b) as at 31 March 2020 he has not received (either orally or in writing), nor agreed to accept (either orally or in writing) any offer, conditional or unconditional, temporary or permanent, of a contract of service or for services, or any association with a partnership, or to hold any office, or of any form of deferred remuneration to take effect at any time after the Departure Date;

 

(c) before entering into this Agreement, he has raised with the Adviser all facts and issues relevant to his employment and its termination which have given rise to, or could give rise to, a claim, whether under common law, statute, or otherwise;

 

(d) he has taken advice from the Adviser in relation to the claims referred to in clause 6.1 (including, without limitation, the Statutory Claims) and the terms and effect of this Agreement on his ability to pursue such rights, complaints and claims as he may have against the Company, any Group Company or its or their employees, partners, directors, officers, members, or shareholders; and

 

(e) following the receipt of the advice given to him by the Adviser in relation to the termination of his employment, he is not aware of any other rights, complaints or claims (whether under common law, any Statute or statute, or otherwise) he may have in relation to his employment by the Company or its termination other than the Statutory Claims.

 

8.2 The Company enters into this Agreement in reliance upon the warranties given by the Employee in clauses 6.1 to 6.4 and 8. In the event of any breach of any of these warranties, the Settlement Sum shall become immediately repayable to the Company and shall be recoverable by the Company as a debt.

 

8.3 In addition to the rights and remedies of the Company referred to in clause 6.3(a) and 8.2, in the event of a breach of clauses 6.3(a), and/or 6.4 above, the Employee undertakes to indemnify the Company against any claims, losses, costs (including legal costs), fees, awards, damages, liabilities or expenses which the Company may suffer or incur in connection with any such allegation or breach.

 

8.4 Any failure or delay of the Company, or any Group Company, to insist upon or enforce any right, remedy or power conferred on it by this Agreement shall not be construed as a waiver of any such right, remedy or power.

 

9. LEGAL FEES

 

The Company will pay direct to the Adviser within 30 days of receipt of a satisfactory copy of their invoice to the Employee, their fees and disbursements properly, reasonably and exclusively incurred in advising the Employee in relation to the termination of his employment (including, without limitation, the negotiation and preparation of this Agreement up to a maximum of £500.00 plus VAT.

 

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10. SHARE OPTION SCHEME

 

The Company will grant the Employee 100,000 new share options under the Share Option Scheme. The new share options may be exercised in accordance with the terms of the EMI Option Agreement. Any existing share options previously granted to the Employee under the Share Option Scheme will lapse upon his ceasing to be an Employee on the Departure Date.

 

11. MANAGEMENT INCENTIVE SCHEME

 

The Employee will continue to be able to participate in the Company's Management Incentive Scheme in accordance with the terms of that Management Incentive Scheme, the terms of which are attached at Schedule 4.

 

12. PREVIOUS TERMINATION ARRANGEMENTS

 

The parties acknowledge and agree that this Agreement and any document referred to in it constitute the entire agreement and understanding between the Employee and the Company, in relation to the Employee’s employment with the Company and/or any Group Company and the termination of such employment and supersedes all previous drafts, agreements, arrangements and understandings between the Employee and the Company, and/or the Employee and any Group Company, and/or any related person (if any and whether written or oral or governed by a course of dealings) in relation to the Employee’s employment and its termination, which shall terminate with effect from the later of execution of this Agreement or the Departure Date; and in entering into this Agreement the Employee has not relied on any Pre-Contractual Statement and the Employee shall have no remedy in respect of any Pre-Contractual Statement, although (without admission of liability by the Company or any Group Company) nothing in this Agreement shall limit or exclude any liability for fraud.

 

13. RIGHTS OF THIRD PARTIES

 

Except in relation to any Group Companies, this Agreement does not confer any rights on any person or party (other than the parties to this Agreement) under the Contracts (Rights of Third Parties) Act 1999. The terms of this Agreement may be varied, or this Agreement may be suspended, cancelled or terminated, by agreement in writing between the parties, without the consent of any third party.

 

14. COUNTERPARTS

 

This Agreement may be executed in any number of counterparts, each of which shall be an original, and all the counterparts together shall constitute one and the same agreement.

 

15. GOVERNING LAW AND JURISDICTION

 

This Agreement and any dispute or claim arising out of or in connection with it tor its subject matter, whether of a contractual or non-contractual nature, is governed by and construed in all respects in accordance with the law of England and Wales. The parties irrevocably agree that the Courts of England and Wales shall have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement.

 

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16. GENERAL

 

This Agreement, although marked without prejudice and subject to contract” will, upon signature by both parties, be treated as an open document evidencing an agreement binding on the parties.

 

This Agreement is executed as a deed by the parties and is delivered and takes effect on the date at the beginning of this Agreement.

 

  13  
 

  

ATTESTATION CLAUSES

 

Signed by MIDATECH PHARMA PLC
acting by:
 
 
/s/ Stephen Stamp    
[signature of director]    
     
     
 Stephen Stamp    
[print name of director]    
     
Director    

 

 

 

Signed by DR CRAIG COOK
 
 
 /s/ Dr. Craig Cook
[signature]
 
 
Dr. Craig Cook
[print name of signatory]

 

 

14

 

 

 

Exhibit 8.1

 

Subsidiaries Country of Incorporation Voting Interest
Subsidiaries of Midatech Pharma PLC    
Midatech Pharma (Wales) Limited England and Wales 100%
Midatech Limited England and Wales 100%
Midatech Pharma Pty Limited Australia 100%
Joint Ventures with Midatech Limited    
MidaSol Therapeutics GP (1)(3) Cayman Islands 50%
Syntara LLC (2)(3) United States (Delaware) 50%
Subsidiaries of Midatech Limited    
Midatech Pharma Espana SL Spain 100%
Pharmida AG (3) Switzerland 100%

 

_______________

(1)  Joint venture between Midatech Limited and Aquestive Therapuetics, formerly known as MonoSol.

(2)  Joint venture between Midatech Limited and Immunotope Inc. The percentage ownership of the entity is determined by reference to the partnership agreement and varies from time to time depending on capital committed. While 50% is the economic interest, Midatech Limited can currently direct 49% of the voting rights.

(3)  Dormant entities.

 

 

 

 

 

 

 

 

Exhibit 12.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Stephen Stamp, certify that:

 

1. I have reviewed this annual report on Form 20-F of Midatech Pharma PLC (the “Company”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

 

Date: June 15, 2020 /s/ Stephen Stamp  
  Name: Stephen Stamp  
  Title: Chief Executive Officer & Chief  
  Financial Officer  

 

 

 

 

 

 

 

Exhibit 13.1

 

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report on Form 20-F of Midatech Pharma PLC (the “Company”) for the year ended December 31, 2019, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Stephen Stamp, as Chief Executive Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 Date: June 15, 2020

 

  /s/ Stephen Stamp  
  Name: Stephen Stamp  
  Title: Chief Executive Officer & Chief  
  Financial Officer  

 

 

 

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 HAS BEEN PROVIDED TO MIDATECH PHARMA PLC AND WILL BE RETAINED BY MIDATECH PHARMA PLC AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

 

 

 

 

 

 

 

Exhibit 15.1

  

Consent of Independent Registered Public Accounting Firm

 

Midatech Pharma PLC

Cardiff, United Kingdom

 

 

We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (No. 333-233901) and Form S-8 (No. 333-209365 and 333-214969) of Midatech Pharma PLC of our report dated June 15, 2020, relating to the consolidated financial statements, which appears in this Annual Report on Form 20-F. Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

 

/s/ BDO LLP

 

BDO LLP

Reading, United Kingdom

 

June 15, 2020