Realm Therapeutics Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 29 July 2019 |
| Neutral Citation | [2019] EWHC 2080 (Ch) |
| Docket Number | Case No: CR-2019-002793 |
| Court | Chancery Division |
| Date | 29 July 2019 |
[2019] EWHC 2080 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Rolls Building
7 Rolls Building
Fetter Lane, London
EC4A 1NL
THE HON Mr Justice Norris
Case No: CR-2019-002793
Andrew Thornton (instructed by Cooley(UK) LLP) for the Applicant
George Bompas QC and Edward Crossley (instructed by Teacher Stern LLP) for Bavaria Industries Group AG
Hearing dates: 8 July 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is a contested transfer scheme, where the objections to the scheme probe the rules for the constitution of classes and test the nature of the Court's power to sanction schemes.
Realm Therapeutics plc (“Realm”) was incorporated in 2006 and has a current share capital of 116,561,917 shares with a nominal value of £0.10p each. Some of these are held as American depositary shares and listed on Nasdaq. Between June 2006 and December 2014 Realm shares were listed on the main market of the London Stock Exchange: and then from 23 December 2014 until 27 March 2019 on AIM, at which point they were de-listed, leaving only the Nasdaq listing.
Realm used to have several operating businesses in the United States. But it sold them (giving customary warranties) and from early 2016 the strategic focus of its business became pharmaceutical development. For this purpose it raised additional capital in October 2017, both from existing investors (including two funds) and from new specialist institutional investors. The subscription price was £0.29p per unit (a “unit” comprising a share and a share warrant).
By 2018 Realm enjoyed a royalty stream from a wound care product, and it had two further prescription treatments undergoing Phase 2 clinical trials. One (PR013) was a topical ophthalmic solution for the treatment of allergic conjunctivitis. By March 2018 this trial had not demonstrated efficacy and Realm decided to discontinue development. The other (PR022) was a treatment for atopic dermatitis or psoriasis. By September 2018 the results from this trial did not satisfy Realm's threshold tests for continued investment and Realm decided to discontinue this development as well, and also to suspend development of all other dermatologic programmes. Upon the discontinuation of its drug development programme the board of Realm decided to undertake a strategic review with the assistance of MTS Health Partners LP (“MTS”). The review was to consider all options, from an asset sale to a strategic merger or other transaction with a third party. The evidence of Mr Martin (the CEO of Realm) was that a telephone canvass of shareholders suggested a preference for some sort of transaction with a life sciences company.
On 15 February 2019 Realm agreed a sale of its royalty stream, intellectual property and the benefit of certain contracts and licences for $10 million to an unconnected third party, again giving the customary warranties and indemnities. The proceeds of the sale would be added to the $18.8m of cash, near-cash equivalents and short-term investments already held by Realm. In the light of that sale Realm decided to de-list from AIM (but not from Nasdaq) and to adopt an investment policy. A detailed public announcement of the board's plans was made that day and a circular posted to all Realm shareholders.
At this point shares in Realm were trading on AIM at about 7–8p per share. On one view this was below the estimated dividend on a liquidation (which might have been 16p per share). On 21 February 2019 Bavaria Industries Group AG (“Bavaria”) acquired from an institutional investor some 6,944,948 shares (being 5.96% of the Realm shares in issue) at 7.5p per share. Bavaria invests in listed securities and its investment manager, Mr Sims, is an experienced UK liquidation arbitrageur. (Bavaria was not alone: others had noted the disparity between the share price and the cash pile and had also bought into Realm).
Immediately upon acquiring its holding Bavaria wrote to the Realm board suggesting that the board should use Realm's cash resources to straightaway make a tender offer for Realm shares at 15p per share before de-listing from AIM. Such an offer would plainly have been to the great advantage of Bavaria (which would have made 100% profit on its investment in days). Realm's response was to the effect that the absence of distributable reserves made the suggested course unlawful: and a partial return of capital would leave the remaining shareholders unfairly exposed to Realm's contingent liabilities. So Bavaria suggested that advice be sought on other available options for the return of capital to shareholders, expressing its opposition to the use of cash to make an acquisition or acquire third party shares.
The Realm board did not agree that a return of capital was “the most equitable solution for all shareholders” (as Bavaria described it), some of whom had invested in an active drug development business at 29p per share. Instead, the announced proposals were put to all Realm shareholders at a meeting on 15 March 2019. Bavaria was by then registered as a Realm shareholder.
The proposal to de-list from AIM was supported by 99.58% of those voting (being 50.55% of the total shareholder population). One consequence of the de-listing was that the Takeover Code no longer applied to Realm.
The investment policy that had been announced on 15 February 2019 was in these terms:-
“The Investing Policy will require the Company to seek to invest in, partner with, acquire and/or be acquired by companies with meaningful development potential in the life sciences sector or with good overall business prospects; or, if a suitable transaction is not identified, the Company will consider winding down and distributing the remaining assets to Shareholders, following satisfaction of applicable obligations.”
(The reference to “remaining assets” was a reference to the cash pile: and the reference to “applicable obligations” was a reference principally to the exposure under the warranties and indemnities given on the last sale, and on the earlier disposals in 2014 and 2016). It was this Investing Policy that enabled the Nasdaq listing to be maintained pending a potential combination with an operating company. At the meeting the Investing Policy was approved by 99.92% of those voting (being 50.72% of the total shareholder population).
Following the de-listing from AIM the market price of Realm shares had to be ascertained by reference to the price of the ADS dealings on Nasdaq. An ADS unit is the equivalent of 25 ordinary shares priced in US dollars. Realm shareholders had the option to convert their shares into ADSs if they wished their investment to remain tradeable.
The board of Realm contained both executive members (Mr Martin (CEO) and Ms Thorell (CFO)) and non-executive members. A thumb-nail sketch of the nonexecutive directors in March 2019 is as follows:-
(a) Mr Spicer (Chairman) had 20 years' experience of working in the medical technology and life sciences segments of the healthcare sector, and chaired an “Invention for Innovation” Funding Panel for the Department of Health.
(b) Mr Birkett had been an independent non-executive director since 1999, being by training an accountant, but having a career in global investing and private equity.
(c) Dr Gill's background lay in the bio-technology sector, and he was then President and CEO of Evelo Biosciences and a venture partner at Flagship Pioneering (a life sciences innovation enterprise).
(d) Mr Gergel had more than 25 years' experience of drug development and had held very senior roles (such as Chief Scientific Officer) in the research and development departments of various pharmaceutical companies.
(e) Mr Zweifach had 25 years' experience in the life sciences industry, founding some companies and being CEO of others, and developing a focus on corporate partnering, business development and capital raising.
With the assistance of MTS the board of Realm considered a number of different transactions with different counterparties, entering into advanced discussions with some of them. Eventually in early May 2019 the board identified what they unanimously regarded as a suitable transaction, and on 16 May 2019 announced it to the market. Shortly put, Essa Pharma Inc (“Essa”) (a Canadian company) was to acquire the entire issued share capital of Realm by way of a scheme of arrangement, each Realm shareholder receiving newly issued Essa shares (“New Essa Shares”) by way of consideration. Under the proposed exchange ratio entitlement to New Essa Shares was calculated to be 105% of the net cash amount held within Realm (after providing for liabilities and costs) at the effective date provided for by the scheme, divided by $3.189. This last figure was the volume weighted average price (“VWAP”) of Essa shares on Nasdaq for the 60 days preceding the date of the implementation agreement. It was above the undisturbed share price of Essa on the day preceding the announcement: that was $2.40. In substance, Realm's cash was to be invested in Essa's drug development programme and Realm shareholders were to receive a proportionate interest in the venture so financed.
The intended transaction was set out in detail in a Scheme Circular dated 29 May 2019 which explained the objective of the deal, the economics of the deal and the reasons why the board was recommending it.
As to the objectives of the deal, Essa's business was research into and the development of anti-cancer drugs using licenced patents. Androgens are hormones that play a significant part in the inception...
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Da Yu Financial Holdings Ltd (Formerly Known As China Agrotech Holdings Ltd) (In Liquidation)
...the holders of those differing ‘rights’ to confer together because there is no community of interest.” (See Re Realm Therapeutics Plc [2019] EWHC 2080 (Ch) at §32 per Norris J.) (c) whether the meeting was duly convened in accordance with the Court’s directions; (d) whether creditors have b......
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Re Da Yu Financial Holdings Ltd (Formerly Known As China Agrotech Holdings Ltd) (In Liquidation)
...the holders of those differing ‘rights’ to confer together because there is no community of interest.” (See Re Realm Therapeutics Plc [2019] EWHC 2080 (Ch) at §32 per Norris J.) (c) whether the meeting was duly convened in accordance with the Court’s directions; (d) whether creditors have b......