Epistem raises £2.9 mln to strengthen balance sheet and enable potential acquisition

Epistem Holdings PLC (AIM: EHP), a UK biotechnology company with adult epithelial stem cell expertise in oncology, gastrointestinal and dermatological diseases, said it has raised £2.9 million before expenses through a placing with investors of 720,000 new ordinary shares at the market price of 400 pence each.

The new shares represent just under 10 percent of Epistem's issued share capital prior to the placing.

CEO Matthew Walls commented: "As we did in 2007, we have taken the opportunity to go to the market to raise share capital at the prevailing market price. The money raised will be used to strengthen the balance sheet and will make it easier for the company to consider an acquisition should a suitable candidate be identified. We are very pleased that we have been able to attract significant new institutional investment alongside our existing major institutional investors."

Epistem develops therapeutics and biomarkers and provides contract research services to drug development companies. The group's expertise is focused on the regulation of adult stem cells located in epithelial tissue, which includes the gastrointestinal tract, skin, hair follicles, breast and prostate. Epistem does not conduct research in the areas of embryonic stem cells or stem cell transplantation.

At the beginning of October, the company reported a 92 percent year-on-year increase in full-year sales to £4 million, which helped lift the group to its first post-tax profit.

The solid results for the year to end-June 2009 were flagged up in a trading statement released in July. The maiden profit after tax came to £0.1 million, boosted by a tax credit from the prior year’s losses, and ash reserves increased by approximately 75 percent to £3.7 million.

Epistem’s growth was down to a combination of increased revenues at its contract research division, which benefited from bio-defence spending in the United States, the first full year of operations at the company’s Biomarker business, and a regenerative medicine research and development collaboration with Swiss  pharmaceuticals giant Novartis AG. 

Novartis paid Epistem an upfront S$4 million in cash and will provide research funding for 2 years. Novartis also has an option to exclusively license targets for development of biotherapeutic products in exchange for license fees, milestone payments and royalties. According to Epistem, each product developed from targets licensed under the agreement could generate up to US$45 million in milestones, and Epistem would also receive royalties on sales of any commercialised product.