Cyprotex plc : January 23, 2014 - Trading Update Year to 31 December 2013

Cyprotex - Trading Update Year to 31 December 2013

Cyprotex PLC (AIM:CRX); a specialist ADME-tox Contract Research Organisation providing screening services to the pharmaceutical, biotechnology, agrochemical and cosmetic industries, today provides a trading update for the year ended 31 December 2013.
Figures for 2013 are unaudited; comparative 2012 figures are audited.

Financial update

Cyprotex can confirm that trading for the year to 31 December 2013 is expected to be slightly ahead of market expectations at £9.77 million (2012: £8.33 million), an increase of approximately 17% on the comparative period. The revenue performance is encouraging across all our principal geographic markets and our main service operations of high throughput ADME, customised ADME and toxicology.

Operating costs for the year to 31 December 2013, on a pre exceptional basis, are anticipated to be in line with market expectations. Consequently, as a company with high operational gearing, Cyprotex expects to report, on a pre-exceptional basis, an operating profit in the range of £750,000 to £850,000 which would represent a record operating profit for the Group (2012: £326,000).

Cyprotex chose to rebrand its operations in the USA in 2013 resulting in a name change of its US subsidiary to Cyprotex US, LLC (formerly Apredica, LLC). As a consequence of this rebranding exercise the Group has fully accelerated the amortisation of its intangible asset associated with the Apredica brand leading to a one-off charge to the income statement of approximately £140,000. Adding back this accelerated charge, adjusted EBITDA is expected to be slightly ahead of market expectations, in the range £1.5m to £1.6m. (2012: £0.91 million).

The Group entered into a Subscription Agreement on 21 August 2013 with Trident Private Equity Fund III LLP, the ultimate outcome of which was the issue of £3 million of unsecured Redeemable Loan Notes ("Redeemables") notionally convertible at 6 pence per share("Notional Conversion Price") and £4 million of unsecured Convertible Loan Notes ("Convertibles") convertible at 6 pence per share ("Conversion Price"). The RNS associated with the Subscription Agreement is reproduced below for ease of reference. All other things being equal, an increase in the share price over and above 6 pence increases the amount of potential loan note-related debt repayable on maturity. Under International Financial Reporting Standards ("IFRS"), this increase in debt repayable at maturity is calculated by reference to the premium over 6 pence of the average mid-market closing share price in the 30 market dealing days up to year end, and is treated as an additional finance cost in the income statement.

In the thirty dealing days prior to and including 31 December 2013, the average mid-market closing share price was 7.25 pence, approximately 20% higher than the Notional Conversion Price / Conversion Price of 6 pence per share, leading to an additional finance cost being recorded of approximately £1.5 million. As a result of this additional accounting-based finance charge - which in the ordinary course would only become payable in cash on maturity at 30 September 2018 - the Board expects to report an unaudited loss before taxation in the range of £1.0 million to £1.2 million (2012 profit £0.25 million). A further increase in the share price from 7.25 pence would lead to the recording of an additional finance charge in a subsequent reporting period, whereas a fall in share price from 7.25 pence would effectively lead to a reversal of this finance charge on a reducing basis, with a full reversal at the Notional Conversion Price / Conversion Price floor of 6 pence per share.

Dr Anthony Baxter, CEO of Cyprotex, commented
"The company has enjoyed a very buoyant 2013 in terms of sales and this has resulted in the excellent performance in turnover and EBITDA data presented today. Sales have risen in all territories and across the board of our technical offerings. We are particularly pleased in the customer uptake of our new toxicity assays eCiphrCardio and eCiphrNeuro".

RNS of 21st August 2013 - Subscription Agreement

Cyprotex PLC (AIM: CRX), a specialist ADME-Tox Contract Research Organisation (CRO), has entered into a loan note subscription agreement with Trident Private Equity Fund III LP ("TPE III"), a fund managed by Harwood Capital LLP ("Harwood Capital") (the "Subscription Agreement"). Harwood Capital, through its managed fund Oryx International Growth Fund Limited currently holds 61,250,000 ordinary shares in the Company representing a holding of 27.3% of the issued share capital. Christopher Mills, who was appointed as non-executive director of the Company on 24 July 2013, is the Chief Investment Officer of Harwood Capital.

Under the terms of the Subscription Agreement, TPE III irrevocably has undertaken, subject to certain conditions, to subscribe for £3 million of redeemable loan notes in the Company (the "Redeemable Loan Notes"). In addition, TPE III has undertaken to subscribe for convertible loan notes in the Company (the "Convertible Loan Notes") which are not taken up by Shareholders under an open offer of up to £4 million of Convertible Loan Notes to all Shareholders (the "Open Offer"), further details of which are given below, (together the "Transaction"). The Convertible Loan Notes will be convertible into ordinary shares at a price of 6 pence per share, subject to adjustment in certain circumstances including without limitation, discounted rights issues, the payment of non-cash dividends and bonus issues, and likewise the redemption price for the Redeemable Loan Notes will be based on the higher of a notional conversion at 6 pence per share, also subject to adjustment in the same circumstances as the Convertible Loan Notes, or their nominal value. Further details of the Redeemable Loan Notes and the Convertible Loan Notes will be given in the Circular (as defined below).

TPE III's undertaking to subscribe for the Redeemable Loan Notes and the Convertible Loan Notes is conditional upon, inter alia, the Company posting a circular in relation to the Open Offer. In consideration of the subscriptions to be made by TPE III in the Transaction, the Company has agreed that Christopher Mills or some other person nominated by Harwood Capital shall continue to be a director of the Company for so long as funds managed by Harwood Capital continue to hold over 50 per cent. in nominal value of the Redeemable Loan Notes and the Convertible Loan Notes in aggregate.

The issue of the Redeemable Loan Notes and the Convertible Loan Notes is not subject to Shareholder approval.

Reasons for the Transaction

As stated in the Company's interim statement of 7 August 2013, the Board believes it can, with the support of the Company's new investors, continue to grow Cyprotex, both through investment in new technology, particularly in its Watertown site, and through selective acquisitions to enhance its customer service offering.

The Board strongly believes there are major opportunities to significantly grow the business. Such opportunities arise primarily, but not exclusively, from the pharmaceutical industry. As previously alluded to on a number of occasions, there is a continuing drive to reduce costs in drug development. This includes outsourcing ever-increasing elements of this process and also assessing the likelihood of ADME-Tox issues as early, and thus as cheaply, as possible in the process. The Board believes that both of these factors bode well for the growth of Cyprotex's business. Many of these opportunities for growth are in the US and to capture them will require additional investment in the Company's US facilities to replicate both the high throughput analytical capabilities and advanced automated workflows attained presently in the UK giving significantly increased operational capacity. US operations would then be capable of matching the range, standards and performance of the facilities in the UK.

Additionally the CRO industry in which the Company operates, particularly in the US and to a lesser extent in Europe, is consolidating and is anticipated to continue to do so. This presents acquisition opportunities of which the Company wishes to be in a position to take advantage.

The Board believes that the Transaction will enable the Company to take advantages of the opportunities outlined above.

Terms of the Redeemable Loan Notes

The Redeemable Loan Notes are unsecured and no application will be made to any listing authority, stock exchange or other market for the Redeemable Loan Notes to be listed or otherwise traded. The Redeemable Loan Notes will accrue interest at 5 per cent. per annum on a daily basis, capitalised annually in the form of additional loan notes ("PIK Notes").

The Redeemable Loan Notes will be repayable by the Company on the earlier of 30 September 2018 (the "Maturity Date") or the date on which a change of control of the Company occurs.

The amount to be paid by the Company in respect of the redemption of the Redeemable Loan Notes will be the greater of:

• the nominal amount of the Redeemable Loan Notes and the associated PIK Notes; and

• the amount calculated by applying the average mid-market closing price of the Shares in the 30 dealing days prior to the Maturity Date to the number of ordinary shares in the capital of the Company represented by the Redeemable Loan Notes on the assumption that the nominal value of the Redeemable Loan Notes then in issue had been converted into ordinary shares of the Company at 6 pence per share, subject to certain adjustments as referred to above.

Related Party Transaction

By virtue of its current interests in the Company, Harwood Capital is a related party of the Company (as defined under the AIM Rules) and accordingly its participation in the Transaction via its managed fund TPE III and as a shareholder constitutes a related party transaction for the purposes of Rule 13 of the AIM Rules.

The Directors (other than Christopher Mills who did not participate by virtue of his interest in Harwood Capital), having consulted with the Company's nominated adviser, N+1 Singer Advisory LLP, consider that the terms of the Transaction to be fair and reasonable insofar as Shareholders are concerned.

Open Offer of Convertible Loan Notes

A circular will be issued to all Shareholders shortly with full details of the Open Offer (the "Circular"). The Convertible Loan Notes to be offered to Shareholders pursuant to the Open Offer are unsecured and no application will be made to any listing authority, stock exchange or other market for the Convertible Loan Notes to be listed or otherwise traded. The Convertible Loan Notes will accrue interest at 5% per annum on a daily basis but capitalised annually in the form of PIK Notes.

Subject to any conversion rights being exercised by the noteholder, the Convertible Loan Notes will be repayable on the Maturity Date or the date on which a change of control occurs and the amount to be paid by the Company will be the greater of:

• the nominal amount of the Convertible Loan Notes and the associated PIK Notes; and

• the amount calculated by applying the average mid-market closing price of the Shares in the 30 dealing days prior to the Maturity Date to the number of ordinary shares represented by the Convertible Loan Notes on the assumption that conversion of the Convertible Loan Notes had occurred.

The Convertible Loan Notes will be convertible at the option of the noteholder on 30 September 2014 or any anniversary of that date at the conversion price of 6 pence per Share, subject to certain adjustments as referred to above. Application will be made to the London Stock Exchange for new ordinary shares issued upon conversion of the Convertible Loan Notes to be admitted to trading on AIM.

Further details of the Open Offer and the Convertible Loan Notes will be given in the Circular.

The Circular will also contain a notice of general meeting at which Shareholders will be asked to approve an increase in the directors' borrowing powers and the directors' authorities to issue securities.

For further information:

Cyprotex PLC
Tel: [phone]
Dr Anthony Baxter, Chief Executive Office
John Dootson, Chief Financial Officer
Mark Warburton, Chief Operating Officer and Legal Counsel
[e-mail]
www.cyprotex.com

N+1 Singer (Nomad and broker to Cyprotex)
Tel: [phone]
Shaun Dobson
[e-mail]
Jenny Wyllie
[e-mail]
www.nplus1singer.com

About Cyprotex PLC

Cyprotex is based in Macclesfield, near Manchester in the UK, and Watertown, MA in the US and is listed on the AIM market of the London Stock Exchange (CRX). The company was established in 1999 and works with more than 700 partners ranging from small biotech's to large pharma companies. Cyprotex acquired Apredica and the assets of Cellumen Inc. in August 2010 and the combined business provides support for a wide range of experimental and computational ADME-Tox and PK services, extending from early drug discovery through to IND submission. The company's core capabilities include high quality in vitro ADME screening services, mechanistic toxicology and high content toxicology screening services, including our proprietary CellCiphr® toxicity prediction technology, and predictive modelling using PBPK and QSAR techniques, including Cloe® PK for in vivo PK prediction. For more information, see www.cyprotex.com.