18:00 Wed 11 Mar 2020
AorTech Inter PLC - Proposed Acquisition of RUA Medical & Name Change
("
Proposed Acquisition of
and
Change of
Highlights
· Acquisition of a profitable, cash generative, full-service medical device developer and manufacturer that provides sub-contract manufacturing, assembly, packing and services to the medical device sector from its Class 7 and 8 cleanroom suites
· Cash element of the consideration will be satisfied from the Company's existing resources
· The Consideration Shares are being issued at a price of
· Vertical integration of the business, by providing the people, premises and processes necessary to convert the Elast-EonTM polymer into Elast-EonTM products
· The Acquisition effectively internalises the Company's manufacturing process, obtaining a large amount of manufacturing know-how and will be able to increase the gross margin potential of its patches and graft products
· Shareholder approval is required for the Acquisition
· Change of name to
· Immediately following Completion, it is proposed that
The above transaction highlights and the summary announcement below should be read in conjunction with the full appendix at the bottom of this announcement.
This announcement contains inside information and is disclosed in accordance with the Company's obligations under the Market Abuse Regulation (EU) No 596/2014.
For further information contact:
Shore Capital Tel: +44 (0)20 7408 4080
Tom Griffiths/David Coaten
About AorTech
AorTech has developed biostable, implantable polymers, including Elast-Eon™ and ECSil™, now manufactured on its behalf by
In addition to continuing to exploit AorTech's Intellectual Property related to the world class biomaterial - Elast-Eon™, AorTech is now incorporating this material into a number of medical devices of our own design. Elast-Eon™ has first class long term blood contacting properties and, as a result, all of the initial products being developed are for the cardio vascular field. Each device is being designed to have improved clinical outcomes over current device technology, eliminating the use of animal sourced material whilst allowing procedures to remain the same, therefore avoiding having to retrain surgeons in new ways of operating.
APPENDIX
A circular containing details of the Transaction is expected to be posted shortly to Shareholders along with a Form of Proxy to vote at a general meeting of the Company expected to be held at the offices of
1. Introduction
The Company announces that it has entered into a conditional agreement with David Richmond, a Non-Executive Director of the Company, to acquire
The purpose of this Announcement is to set out the background to and reasons for the Acquisition, to give details of the Acquisition and to recommend that Shareholders vote in favour of both of the Resolutions. The Acquisition is conditional on, amongst other matters, the passing of the Resolutions at the General Meeting, and is expected to complete on
Following Completion, the Company intends to change its name to
Due to ill health, Gordon Wright, a Director of the Company, has not been able to participate in the preparation and issue of this Announcement. He is, therefore, excluded from the responsibility taken by directors and from the Recommendation by the Independent Directors set out in section 12 (Recommendation) below.
2. Background to and reasons for the Acquisition
Background
In
One of those agreements, as announced on
RUA is becoming an expert in the manufacture of Elast-EonTM enabled devices and components and AorTech has recently identified a number of opportunities where third-party medical device companies are looking for both a polymer and manufacturing solution to address current design problems. In order to satisfy these market requirements, the Company has agreed with RUA that it can offer device design and manufacturing services, incorporating both Elast-EonTM polymer and processing know-how, to third party customers.
The working relationship between the two businesses has deepened since the original agreement was entered into more than 18 months ago and, from the Company's perspective, the relationship is proving beneficial and working better than anticipated. At the end of last year, I started discussing with David Richmond, a Non-Executive Director of the Company and the owner of RUA, whether a closer collaboration might be to the mutual benefit of both organisations and, if so, how that could best be structured. We both agreed that the opportunities were potentially very exciting and, as a result, the discussions have led to the Acquisition Agreement, further details of which are set out below, being entered into.
Reasons for the Acquisition
The Company currently comprises a business which licenses Intellectual Property related to the Elast-EonTM polymer together with Research and Development activities to create medical devices, such activities being subcontracted. The Directors consider that the Acquisition is strategically a good fit in that it vertically integrates the business, by providing the people, premises and processes necessary to convert the Elast-EonTM polymer into Elast-EonTM products.
The Independent Directors believe that the Acquisition will bring the following benefits for the Company: -
· integrate the infrastructure built up within RUA, which includes its management team with a background in developing and manufacturing medical devices, ISO accreditation and associated quality procedures and two FDA registered facilities with Class 7 and Class 8 cleanrooms;
· provide further diversification within the medical device value chain with a cash generative manufacturing business targeting high gross margins (more than 75 per cent.);
· the 2018 agreement with RUA to produce the patches and grafts provided for RUA to be paid 50 per cent. of the gross margin on these products; all gross margin will now be retained within the Group, increasing future profit potential if and when the products are approved and available for sale;
· will allow the manufacture of heart valves to be undertaken in RUA's Irvine facilities bringing this function within the control of the
· builds and grows the senior management team and reduces reliance on key individuals;
· provides an opportunity to support and grow the core RUA business of developing and manufacturing implantable textiles for third party customers;
· provides an opportunity to build a business providing manufacturing expertise related to incorporating Elast-EonTM into medical devices or components of medical devices; and
· provides an opportunity to consolidate all
The Company will not only be acquiring a profitable, cash generative business, but effectively internalising its manufacturing process, obtaining a large amount of manufacturing know-how and will be able to increase the gross margin potential of its patches and graft products. Furthermore, the
3. Information on RUA
RUA is a full-service medical device developer and manufacturer based in Prestwick and Irvine, Ayrshire. It provides sub-contract manufacturing, assembly, packing and services to the medical device sector from its Class 7 and 8 cleanroom suites. It is an expert in the development and introduction of processes with valid and demonstrable quality control methodologies. RUA holds ISO 13485:2016 certification and occupies two FDA registered facilities. It works with a number of businesses in the commercial application of implantable fabrics. RUA has invested for future growth through people, property and processes and has 26 staff members. While one customer currently accounts for approximately 90 per cent. of its revenue, the intention is to seek to reduce this over time to less than 50 per cent. through both
RUA owns its premises in Irvine and currently leases premises in Prestwick from
Historical Financial Information of RUA
For the year ended
4.
Following Completion, the Company intends to restructure its business into four distinct trading subsidiaries, with AorTech (to be renamed
A description of each of the companies is detailed below, all of which will have trading and licence relationships with other companies within the Enlarged Group.
RUA Life Sciences
The holding company of the
RUA Medical
Following Completion, RUA Medical will become a wholly owned subsidiary of RUA Life Sciences. It will continue to focus on the development of medical textiles, including soft tissue patches and large bore vascular grafts using a substantial amount of know-how created during its working relationship with AorTech, relating to the multiple manufacturing processes for Elast-EonTM, which, as set out above, include extrusion, dip processing (casting and coating), spray coating (including electro spinning and ultrasonic) and moulding (including compression, injection and reaction injection moulding). It is intended that the business will retain its ISO 13485:2016 certificate and that both cleanroom sites will continue to be FDA registered.
The Board's strategy is to retain the RUA Medical business as a third-party design, development and manufacturing house for medical devices, but expand the areas of expertise and product offerings to include Elast-EonTM. RUA Medical will continue to service the requirements of its current and prospective client base whilst also developing and manufacturing devices for other group companies.
RUA Vascular
Following Completion,
The currently available technology for soft tissue patches and large bore grafts comprises either animal tissue or textile (PTFE) material. Each material is compromised by either suffering from calcification or subject to tissue ingrowth leading to adhesion. Elast-Eon™ based products should avoid these problems and address a market that is suffering a lack of supply of animal sourced products.
The Company has identified device categories that currently rely on abattoir-sourced animal by-products or textile (PTFE) material. Replacing animal tissue with Elast-Eon™ will eliminate animal by-product sourcing risk and improve product sterilisation options and allow end-to-end control over the supply chain.
RUA Biomaterials
Following Completion,
RUA Structural Heart
Following Completion,
In future, it is intended that RUA Structural Heart will enter into a commercial agreement with RUA Medical to manufacture the synthetic heart valve utilising a novel manufacturing process and valve design, the IP of which will reside in RUA Structural Heart.
RUA Structural Heart has the opportunity to transform the global treatment of heart disease by delivering a synthetic heart valve that will be durable, so reducing the need for future replacement, and should not require lifelong drug treatment. As well as these potential clinical advantages, the manufacturing costs of a synthetic valve are expected to be considerably less than those of current valve technology making this a potentially disruptive advance in heart valve surgery. When it initially developed a synthetic valve, AorTech was ahead of the market. The Directors believe that the global heart valve market (valued at some
5. Principal terms of the Acquisition
Pursuant to the Acquisition Agreement, subject to Shareholders' approval, the Company has agreed to buy, and the Seller has agreed to sell, the entire issued share capital of RUA for an aggregate consideration of approximately
The Seller has given customary warranties to the Company, subject to certain conditions and financial limits.
The Seller has agreed with the Company and
Shareholder approval is required for the Acquisition pursuant to section 190 of the Companies Act and, therefore, Resolution 1 will be proposed at the General Meeting as an ordinary resolution.
In terms of the Offer to Sell it is intended that, post Completion, RUA should purchase the property at
6. Board and Senior Management
The current Board comprises Bill Brown, as Chairman, John McKenna as Director of Clinical Marketing, Gordon Wright as non-Executive Director, John Ely as non-Executive Director, Geoffrey Berg as non-Executive Director and David Richmond as non-Executive Director. Kate Full, is the Company Secretary, and also acts as the Company's Chief Financial Officer. Immediately following Completion, it is proposed that David Richmond will become Group Chief Executive Officer.
In addition, immediately following Completion, Caroline Stretton, currently RUA's Chief Executive Officer, will become Group Chief Operating Officer. Eilidh Callan, RUA's director of Operations. and Matthew Litton, RUA's director of R&D, will also become key members of the
Kate Full, Company Secretary and Chief Financial Officer. Kate is a qualified accountant with a broad range of experience and skills, whose direct experience includes professional practice (PwC and Tenon), venture capital, and financial leadership. She is a highly motivated professional with strong analytical and communication skills whose other current engagements include part-time CFO to
Caroline Stretton, Group COO. Caroline is a graduate of the
Matthew Litton, RUA Director of Research and Development. Matthew is a multi-skilled engineer with over twenty years' industrial experience in the design, development and manufacture of technical, industrial and medical textiles and their associated manufacturing equipment. He brings a wealth of experience gathered across many industries including aerospace, automotive and medical. Graduating from
Eilidh Callan, RUA Director of Operations. Eilidh joined RUA Medical in 2015 from Giltech, a wound management company, where she was Operations Director and Company Secretary. With over 20 years' experience in the medical device industry, she has worked in the alginate, wound management, biodegradable, antimicrobial and urology sectors. Eilidh developed the project management office at RUA Medical which enables the company to better serve its clients and build solid, long-term partnerships.
7. Related Party Transaction
David Richmond, a Non-Executive Director of the Company, is the sole shareholder of RUA. The Acquisition is therefore deemed a related party transaction under the AIM Rules by virtue of David Richmond being a Director.
The Independent Directors, consider, having consulted with the Company's nominated adviser,
David Richmond will be allotted the Consideration Shares at Completion. Immediately following Admission, David Richmond will hold 1,533,334 Ordinary Shares, representing approximately 9.47 per cent. of the
8. Service Agreement
The Company has entered into a service agreement with David Richmond, conditional upon Admission, and will appoint him as Chief Executive Officer with effect from Admission. His annual salary will be
9. Current trading
On
10. General Meeting
You will find set out at the end of the Circular a notice convening the General Meeting to be held at the offices of
a) to approve the Acquisition;
b) to approve the purchase by RUA of the property at
11. Action to be taken in respect of the General Meeting
Shareholders will find accompanying the Circular a Form of Proxy for use in connection with the General Meeting. The Form of Proxy should be completed and returned in accordance with the instructions thereon so as to be received by Equiniti as soon as possible and in any event not later
12. Recommendation
The Independent Directors believe that the Acquisition is in the best interests of the Company and its shareholders as a whole.
Accordingly, the Independent Directors unanimously recommend Shareholders to vote in favour of the Resolutions as they intend so to do in respect of their beneficial shareholdings amounting to 542,101 Existing Ordinary Shares, representing approximately 3.7 per cent. of the Company's issued share capital.
As explained above, Gordon Wright, a Director of the Company, has not been able to participate in the preparation and issue of this announcement. He is, therefore, excluded from this recommendation.
DEFINITIONS
The following definitions apply throughout this announcement, unless the context requires otherwise or unless it is otherwise specifically provided:
"Acquisition" |
the proposed acquisition of RUA Medical by AorTech |
"Acquisition Agreement" |
the conditional agreement entered into on |
"Admission" |
admission of the Consideration Shares to trading on AIM in accordance with the AIM Rules |
"AIM" |
AIM, a market operated by the |
"AIM Rules" |
the AIM Rules for Companies published by the |
"Announcement" |
the announcement of the Acquisition which was released by the Company on |
"Closing Price" |
the closing middle market quotation of an Existing Ordinary Share as derived from the AIM Appendix to the Daily Official List of the |
"Company" or "AorTech" |
|
"Completion" |
Completion of the Acquisition |
"Consideration Shares" |
the 1,500,000 Ordinary Shares to be issued to the Seller as part of the consideration for the Acquisition |
"Directors" or "Board" |
for the purposes of this Circular, William Brown, John McKenna, John Ely, Geoffrey Berg and David Richmond |
"Circular" |
the circular being posted to Shareholders later today, which for the avoidance of doubt does not comprise a prospectus (under the Prospectus Rules) or an admission document (under the AIM Rules) |
" |
the Group as enlarged by the Acquisition |
" |
the issued share capital of AorTech immediately following Admission |
"Equiniti" or "Registrars" |
|
"Existing Ordinary Shares" |
the 14,686,608 Ordinary Shares in issue at the date of this Document |
"FCA" |
the |
"FDA" |
|
"Form of Proxy" |
the form of proxy accompanying this Document for use at the General Meeting |
"FSMA" |
the |
"General Meeting" |
the general meeting of the Company as described in this Document, notice of which is set out at the end of this Document |
" |
a partnership of Lorna Richmond and Caroline Richmond (respectively the spouse and daughter of David Richmond, a Director of the Company) |
"Group" |
the Company and its subsidiaries |
"Independent Directors" |
William Brown, John McKenna, John Ely and Geoffrey Berg |
" |
|
"Notice of General Meeting" |
the notice of General Meeting set out at the end of this Document |
"OEM" |
Original Equipment Manufacturer |
"Offer to Sell" |
the offer to sell dated |
"Official List" |
the Official List of the |
"Ordinary Shares" |
ordinary shares of |
"PTFE" |
polytetrafluoroethylene |
"Resolutions" |
the resolutions to be proposed at the General Meeting as set out in the Notice of General Meeting |
"RIS" |
a regulatory information service as defined by the AIM Rules |
"RUA Biomaterials" |
|
"RUA Life Sciences" |
|
"RUA Medical" or "RUA" |
|
"RUA Structural Heart" |
|
"RUA Vascular" |
|
"Seller" |
David Richmond, a Director of the Company |
"Shareholders" |
holders of Ordinary Shares |
" |
Shore Capital Stockbrokers Limited and/or |
"UK" or "United Kingdom" |
the United Kingdom of Great Britain and Northern Ireland |
" |
the FCA in its capacity as competent authority for the purposes of Part VI of FSMA |
"VAT" |
value added tax |
|
|
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