Lam Kong, through his China Medical System and A&B Company businesses, has agreed to buy 207.8mln new shares for 3.85p each, bringing in £8mln for Midatech.
The company, which has a market cap of £2.5mln, plans to use the proceeds to “pursue further development” of its lead product, MTD201 – a potential treatment for a hormonal disorder called acromegaly and carcinoid cancer.
A pivotal trial – which will cost between £5-7mln – is pencilled in for the second half of this year, and Kong’s cash injection will allow for that to get started, although Midatech has warned it would need more money to complete the study and prepare MTD201 for commercialisation.
To help top up its coffers a bit more, the junior pharma has also said it will carry out a placing and open offer with existing retail shareholders on the same terms as Kong.
The investment needs shareholder approval, as does a resolution which would allow Kong not to launch a formal bid for the company, as is normal when a shareholder’s stake surpasses 30%.
Should investors give their blessing, China Medical System – the drug distributor founded by Kong in 1995 – will sign a licence agreement giving it the exclusive right to develop and commercialise Midatech’s assets, including MTD201 and MTX110, in China, Hong Kong, Macau and Taiwan.
Hefty milestone payments
Midatech will manufacture and supply the licensed products, earning a manufacturing margin “in the low double-digit percentage range”, although the margin will be a bit less for MTX110 – a treatment for a rare type of brain tumour found in children – as Novartis will take a slice for the use of its panbinostat.
On top of that, the AIM firm is also entitled to receive various regulatory and sales-based milestone payments for each product which could run into the tens of millions, although these are not expected for a couple of years yet.
“The board believes that this partnership with the licensees has the potential to accelerate the development of the company's assets in the CMS Territory with a high quality, expert partner with demonstrable development and significant sales expertise, whilst permitting the company to retain its focus on its main target markets in the US and the EU and potentially to service the rest of the world.”
Having settled following an initial spike, Midatech shares were up 0.6% to 4.12p in late-morning trading on Tuesday.