Diagonal Bio

REG

Press release

23 December 2024

 

 

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, BELARUS, HONG KONG, JAPAN, CANADA, NEW ZEALAND, RUSSIA, SINGAPORE, SOUTH AFRICA, SOUTH KOREA OR IN ANY OTHER JURISDICTION IN WHICH THE RELEASE, DISTRIBUTION OR PUBLICATION OF THIS PRESS RELEASE WOULD BE UNLAWFUL, REQUIRE REGISTRATION OR ANY OTHER MEASURES.

 

Karin Wehlin, CEO of Diagonal Bio, comments

“We are pleased to announce an exciting new chapter for Diagonal Bio as we welcome our new shareholders, Daniel Redén and Svea Bank AB. Their commitment to the future of our business will enable us to further strengthen our position and drive growth for all stakeholders. In light of this important transition, we are also inviting our valued existing shareholders to participate in an upcoming rights issue. This rights issue provides an opportunity for you to acquire additional shares and warrants in Diagonal Bio at a preferential price, reinforcing your stake in the Company’s continued success and growth. We believe this rights issue will allow us to accelerate our strategic objectives and position Diagonal Bio for long-term success”, says Karin Wehlin, CEO.

 

Daniel Redén, Head trainer of Stall Zet, comments

“Working with Diagonal Bio offers a unique opportunity to enhance horse welfare by quickly identifying health issues and ensuring top-quality care even before the break-out. I really see a huge opportunity for the entire horse industry, including the different associations internationally, to start using LAMPlify® to identify infected horses before entering racetracks or arenas, and to be able to isolate them in order not to infect others. This is also why I choose to participate with an investment in Diagonal Bio”, says Daniel Redén.

 

Summary

• The Board has resolved on the Directed Issue, amounting to initially approximately SEK 1.7 million before deduction of issue related costs, and the Rights Issue, amounting to initially approximately SEK 6.0 million before deduction of issue related costs. Through exercise of warrants series TO 2, the Company may receive a maximum of an additional approximately SEK 3.4 million in June 2025. The proceeds from the Directed Issue, a fully subscribed Rights Issue as well as fully exercised warrants of series TO 2 are intended to fund the Company’s operations until January 2026.
• The Directed Issue is directed to the Company’s marketing partner Daniel Redén, through Redén Trotting AB, and the strategic investor Svea Bank AB.
• The Rights Issue is covered by subscription undertakings from the Board members, the CEO, and other shareholders, of in total approximately SEK 0.4 million, corresponding to approximately 6 percent of the Rights Issue. In addition, Diagonal Bio has received underwriting commitments of in total approximately SEK 3 million, corresponding to approximately 50 percent of the Rights Issue, divided into two separate top-down underwriting tranches. Out of the underwriting commitments, approximately SEK 0.3 million, corresponding to approximately 4.3 percent, are in the form of a top-down guarantee from 100 percent subscription in the Rights Issue, and down to approximately 95.7 percent, from the Company’s CEO Karin Wehlin and the Board members, and approximately SEK 2.7 million, corresponding to approximately 45.6 percent, are in the form of a top-down guarantee from 95.7 percent subscription in the Rights Issue, and down to approximately 50.1 percent, from external investors.
• The subscription price in the Directed Issue and the Rights Issue is set to SEK 0.18 per unit, corresponding to SEK 0.01 per share. Warrants of series TO 2 are issued free of charge.
• The Company’s shareholders have preferential rights to subscribe for units in the Rights Issue, whereby each share entitles the shareholder to one (1) unit right. Twelve (12) unit rights entitle to subscription of one (1) unit. One (1) unit contains eighteen (18) shares and eight (8) warrants of series TO 2. Shares subscribed for in the Directed Issue do not entitle the holder to subscribe for shares in the Rights Issue.
• The record date in the Rights Issue is 21 January 2025 and the subscription period in the Rights Issue takes place from and including 23 January 2025 until and including 6 February 2025.
• One (1) warrant of series TO 2 gives the holder the right to subscribe for one (1) new share in Diagonal Bio during the period that runs from and including 4 June 2025, to and including 18 June 2025. The exercise price for warrants series TO 2 has been set to SEK 0.01 per new share.
• In connection with the Transaction, the Board members and CEO Karin Wehlin have entered into customary lock-up agreements corresponding to 100 percent of their respective shareholdings until 31 July 2025.
• An information memorandum containing full terms and conditions for the Rights Issue will be made available on or around 22 January 2025 (the “Memorandum”).

 

Motive and use of proceeds

Diagonal Bio is carrying out the Transaction to focus on validation of LAMPlify®’s commercial interest within the equine healthcare sector. This is to be obtained by reaching the objectives set out below (see headline “Objectives”).

 

The Transaction will, upon full subscription in the Rights Issue, provide the Company with a total of approximately SEK 7.7 million before deduction of issue related costs, which are estimated to amount to approximately SEK 1.7 million (of which approximately SEK 0.45 million refer to underwriting fees, provided that all underwriters desire to receive cash compensation). The issue proceeds are intended to be used for:

 

• Production of instruments and consumables – approximately 18 percent.
• Sales and marketing – approximately 18 percent.
• Intellectual property – approximately 4 percent.
• Working capital – approximately 60 percent.

 

In the event that all warrants series TO 2 issued in the Transaction are exercised for subscription of shares, the Company will receive additional net proceeds of approximately SEK 3.4 million before deduction of issue related costs, which are estimated to amount to approximately SEK 0.4 million. The issue proceeds from the warrants series TO 2 are intended to be used for working capital. It is the Board’s assessment that the net proceeds from the Directed Issue, a fully subscribed Rights Issue as well as fully exercised warrants series TO 2 are intended to fund the Company’s operations until January 2026.

 

Objectives

The general objective for 2025 is to have accumulated at least 40 LAMPlify® platforms delivered to end-users by the end of 2025 and through this having achieved market acceptance. The Company expects a conversion from pilot tests into sales of 50 percent out of the 40 LAMPlify®. Below is an overview of the Company’s objectives for 2025.

 

Q1

• Initiate at least four more pilot projects​.
• Results from two pilot projects.

Q2

• Initiate at least six more pilot projects​.
• Results from four pilot projects.

Q3

• Initiate at least eight more pilot projects​.
• Results from four pilot projects.

Q4

• Initiate at least twelve more pilot projects​.
• Results from six pilot projects.

 

Terms for the Directed Issue

The Board has today, subject to the approval by the EGM, resolved on the Directed Issue, which contains a maximum of 9,255,554 units. One (1) unit contains eighteen (18) shares and eight (8) warrants series TO 2, thus in total will 166,599,972 shares and 74,044,432 warrants series TO 2 be issued. The subscription price in the Directed Issue is set to SEK 0.18 per unit, corresponding to SEK 0.01 per share (i.e. the same subscription price as in the Rights Issue). Warrants are issued free of charge. Through the Directed Issue the Company will initially receive approximately SEK 1.7 million before deduction of issue related costs. The shares subscribed for and issued in the Directed Issue will be registered with the Swedish Companies Registration Office after the record date for the Rights Issue and thus do not entitle to participation in the Rights Issue.

 

Prior to the resolution on the Directed Issue, the Board has carefully considered alternative financing channels, including the conditions for carrying out a rights issue only. However, the Company’s Board believes, upon an overall assessment and after careful consideration, that a new share issue with deviation from the shareholders’ preferential rights, together with the subsequent Rights Issue, is a better alternative for the Company and the Company’s shareholders than an isolated rights issue and that it is objectively in the interest of both the Company and its shareholders to carry out the Directed Issue. The Board has, among other things, considered the following:

• The Board considers the cooperation with the Company partner Daniel Redén to be of utmost importance for the commercialization of LAMPlify®. Daniel Redén has in turn expressed his interest of investing in the Company. In addition, the Board believes it is favorable in the long-term for the Company and its shareholders that a financially strong investor such as Svea Bank AB, with extensive strategic knowledge, also has expressed interest in the Company.
• The Company is in need of working capital, and through the Directed Issue, the Company can improve its balance sheet in a tough market situation.
• In line with the above, the Board sees great value in having the chance to broaden its shareholder base by offering Daniel Redén, through Redén Trotting AB, and the strategic investor Svea Bank AB an opportunity to invest in the Company. Unlike in a rights issue, the Directed Issue can provide the Company with reputable new owners of strategic importance, which can create security and stability for both the Company and its shareholders. Hence, the Board considers it justified that the Directed Issue is made with deviation from the shareholders’ preferential rights. At the same time, other shareholders are given the opportunity to defend their ownership in the Rights Issue.
• The Directed Issue can be made at lower costs and with less complexity than a rights issue that had not been combined with the Directed Issue. In addition, by carrying out the Directed Issue, the Company can reduce the costs associated with procuring corresponding underwriting commitments in the Rights Issue.

 

The Board’s overall assessment is thus that the reasons for carrying out the Directed Issue partly outweigh the reasons that justify the main rule that new share issues shall be carried out with preferential rights for the shareholders, and partly that the Directed Issue with the subsequent Rights Issue is the most advantageous alternative for the Company, creates value for the Company, and may be considered to be in the interest of both the Company and all shareholders.

 

The Board has, prior to the resolution on the Directed Issue, placed great importance on ensuring that the subscription price shall be to market terms in relation to the prevailing share price. The subscription price has been determined through extensive arm’s length negotiations with the investors in consultation with Navia Corporate Finance AB, and by sounding the market taking into account the feedback received by the Company from investors. At the same time, other shareholders are given the opportunity to invest in the Company at the same subscription price as in the Directed Issue in the Rights Issue. It is thus the Board’ assessment that the subscription price has been secured on market terms.

 

Svea Bank AB’s participation in the Directed Issue implies that Svea Bank AB may exceed 10 percent of the shares and votes in the Company, depending on the subscription level in the Rights Issue. If this threshold is exceeded, Svea Bank AB will initially be allocated units so that their shareholding reaches 9.9 percent, and settlement for the remainder of their allocation will take place following the investment being approved or left without action, before or after closer examination, by the Inspectorate of Strategic Products (Sw. Inspektionen för strategiska produkter, ”ISP”) as the Company’s business is considered worthy of protection under the Act (2023:560) on the Screening of Foreign Direct Investments (Sw. lag (2023:560) om granskning av utländska direktinvesteringar, the “FDI Act”).

 

Terms for the Rights Issue

The Board has today, subject to the approval by the EGM, resolved on the Rights Issue, which contains a maximum of 33,392,851 units, corresponding to 601,071,318 shares and 267,142,808 warrants series TO 2. Diagonal Bio’s existing shareholders have preferential right to subscribe for units in proportion to their existing shareholdings. The public also has the right to subscribe for units in the Rights Issue.

 

One (1) existing share in the Company on the record date 21 January 2025 entitles to one (1) unit right. Twelve (12) unit rights entitle to subscription of one (1) unit. One (1) unit contains eighteen (18) shares and eight (8) warrants series TO 2. The subscription price in the Rights Issue is set to SEK 0.18 per unit, corresponding to SEK 0.01 per share (i.e. the same as in the Directed Issue). Warrants are issued free of charge. Through the Rights Issue the Company will initially receive approximately SEK 6.0 million before deduction of issue related costs.

 

The subscription period in the Rights Issue runs from and including 23 January 2025, until and including 6 February 2025. Unit rights that are not exercised during the subscription period become invalid. Trading in unit rights takes place on Nasdaq First North Growth Market from and including 23 January 2025, until and including 3 February 2025. Trading in BTU (Paid Subscribed Unit) is expected to take place during the period from and including 23 January 2025, until 25 February 2025.

 

If not all units are subscribed with the support of unit rights, the allocation of the remaining units within the framework of the Rights Issue’s maximum amount shall take place: primarily to those who have subscribed for units with the support of unit rights (regardless of whether they were shareholders on the record date or not) and who have registered an interest in subscription of units without the support of unit rights and in the event that allocation to these cannot take place in full, allocation must be made pro rata in relation to the number of unit rights that each of those who have declared an interest in subscribing to units without the support of unit rights used for subscription of units; secondarily to others who subscribed for units in the Rights Issue without the support of unit rights and in the event that allocation to these cannot take place in full, allocation must be made pro rata in relation to the total number of units for which the subscriber has registered for subscription; and thirdly to those who have submitted underwriting commitments regarding the subscription of units, in proportion to such underwriting commitments. To the extent that allocation in any stage according to above cannot be done pro rata, allocation shall occur by drawing lots.

 

Terms for warrants series TO 2

One (1) warrant series TO 2 gives the holder the right to subscribe for one (1) new share in Diagonal Bio during the period that runs from and including 4 June 2025, to and including 18 June 2025. The exercise price for warrants series TO 2 has been set to SEK 0.01 per new share. Upon full subscription of the Directed Issue and the Rights Issue and full exercise of TO 2 issued thereby, the Company may receive a maximum of approximately SEK 3.4 million before deduction of issue costs, which are estimated to amount to approximately SEK 0.4 million.

 

The warrants are intended to be admitted to trading on Nasdaq First North Growth Market after final registration of the Transaction with the Swedish Companies Registration Office. The last day of trading in TO 2 is expected to be 16 June 2025.

 

Subscription undertakings and underwriting commitments

The Rights Issue is covered by subscription undertakings from the Board members, the CEO, and other shareholders, of in total approximately SEK 0.4 million, corresponding to approximately 6 percent of the Rights Issue. In addition, Diagonal Bio has received underwriting commitments of in total approximately SEK 3 million, corresponding to approximately 50 percent of the Rights Issue, divided into two separate top-down underwriting tranches.

 

Out of the underwriting commitments, approximately SEK 0.3 million, corresponding to approximately 4.3 percent, are in the form of a top-down guarantee from 100 percent subscription in the Rights Issue, and down to approximately 95.7 percent, from the Company’s CEO Karin Wehlin and the Board members, and approximately SEK 2.7 million, corresponding to approximately 45.6 percent, are in the form of a top-down guarantee from 95.7 percent subscription in the Rights Issue, and down to approximately 50.1 percent, from external investors.

 

For the top-down underwriting commitment provided by external parties, an underwriting fee of 15 percent in cash or 17 percent in the form of units, which are issued on the same terms as the Rights Issue, is paid. For the top-down underwriting commitment from CEO Karin Wehlin and the Board members, no underwriting fee is paid. No compensation is paid for the subscription undertakings. Neither the subscription undertakings nor the underwriting commitments are secured by bank guarantee, blocking funds, pledging or similar arrangements.

 

In order to enable the issue of units as underwriting compensation to the underwriters who choose to receive underwriting compensation in the form of newly issued units, the Board has proposed that the EGM, which is proposed to resolve on approval of the Transaction, also resolves to authorize the Board to resolve on the issue of such units to underwriters.

 

Additional information about the parties that have provided subscription undertakings and underwriting commitments will be made public in the Memorandum.

 

Change in share capital and number of shares and dilution

The Directed Issue will initially increase the number of shares with 166,599,972, from 400,714,213 to 567,314,185, which entails a dilution effect of approximately 29.4 percent of the votes and capital, calculated on the number of shares in the Company after the Directed Issue.

 

The Rights Issue will, if fully subscribed, initially increase the number of shares with 601,071,318, from 567,314,185 to 1,168,385,503, which entails a dilution effect of approximately 51.4 percent of the votes and capital, calculated on the number of shares in the Company after the Transaction. Shareholders who do not participate in the Rights Issue can partially compensate themselves for the financial dilution effect by selling their subscription rights no later than 3 February 2025.

 

The Board has proposed that the EGM shall resolve to reduce the share capital by not more than SEK 7,659,877.37, for allocation to non-restricted equity. The reduction amount corresponds to the maximum initial share capital increase from the Transaction. Hence, the Transaction will initially have no practical effect on the share capital. Following the share capital reduction, the share’s quota value will decrease to not lower than approximately SEK 0.0034.

 

In the event all warrants series TO 2 issued in the Transaction are fully exercised for subscription of new shares in the Company, the share capital will increase by SEK 1,167,583.33, from SEK 3,998,354.20 to SEK 5,165,937.53 (calculated on the lowest possible quota value following the contemplated share capital decrease), and the total number of shares will increase by 341,187,240 shares, from 1,168,385,503 shares to 1,509,572,743 shares. This entails an additional dilution from the warrants of series TO 2 of approximately 22.6 percent.

 

Upon a fully subscribed Transaction and full exercise of the warrants of series TO 2, the total dilution amounts to a maximum of approximately 73.5 percent.

 

Future capital need

Expecting a fully subscribed Directed Issue, a fully subscribed Rights Issue as well as fully utilized warrants series TO 2, the Board assesses the additional capital need to reach break-even in the year-end 2026/2027 (focusing solely on the equine sector) to amount to approximately SEK 7 million. These estimations are based the on the objectives described above.

 

Lock up

The Board members and CEO Karin Wehlin have entered into lock-up agreements with Navia Corporate Finance AB as counterparty, and have undertaken, with customary exceptions, not to sell any of the existing shareholdings or such shareholding that is acquired through subscription in the Rights Issue, for a period lasting until 31 July 2025.

 

EGM

The Board’s resolutions on the Transaction are subject to approval by the EGM. Notice to the EGM will be published via a separate press release.

 

Indicative timeline for the Rights Issue

• Last day of trading in Diagonal Bio’s shares, including the right to receive unit rights: 17 January 2025.
• First day of trading in Diagonal Bio’s shares, excluding the right to receive unit rights: 20 January 2025.
• Record date for participation in the Rights Issue: 21 January 2025.
• Publication of the Memorandum: 22 January 2025.
• Subscription period: 23 January - 6 February 2025.
• Trading in unit rights: 23 January - 3 February 2025.
• Trading in BTU: 23 January 2025 - 25 February 2025.
• Press release on the outcome of the Rights Issue: around 7 February 2025.

 

Memorandum and teaser

The Memorandum will be made available on or around 22 January 2025 and will be available on the Company’s website (www.diagonalbio.com) together with a teaser summarizing the offer and Company information.

 

Postponed publication of year-end report

Due to the Transaction, Diagonal Bio has decided to postpone the Company’s year-end report for 2024 to 28 March 2025. The original date for publication was 25 February 2025.

 

Advisors

Navia Corporate Finance AB is the financial advisor in connection with the Transaction. Setterwalls Advokatbyrå AB is the legal advisor to Diagonal Bio and Aqurat Fondkommission AB is the issuing agent.

 

This press release contains inside information that Diagonal Bio AB (publ) is required to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication on December 23, 2024, at 22:50 CET.

 

For additional information about the Transaction, please contact:

Navia Corporate Finance AB

E-mail: info@naviacf.se

 

For additional information about Diagonal Bio, please contact:

Karin Wehlin, CEO

Phone: +46 703 052488

E-mail: kw@diagonalbio.com

 
Certified Adviser

Svensk Kapitalmarknadsgranskning AB

E-mail: ca@skmg.se

 

About Diagonal Bio

Diagonal Bio AB was founded in 2020 and is a Swedish biotechnology company with headquarters and offices in Lund. The Company develops the PANVIRAL® platform to detect and diagnose small sections of pathogen genomes, for example viruses, bacteria and fungi. The Company was founded with the goal of reducing human suffering by revolutionising global diagnostics of pathogen-borne diseases with proprietary technology. Diagonal Bio’s patented technology can also be used for the less regulated market segments via LAMPlify®.

 

Important information

The information in this press release does not contain or constitute an offer to acquire, subscribe or otherwise trade in shares, warrants or other securities in Diagonal Bio. No action has been taken and measures will not be taken to permit a public offering in any jurisdictions other than Sweden. Any invitation to the persons concerned to subscribe for units in Diagonal Bio will only be made through the Memorandum that the Company estimates to publish on or around 22 January 2025 on Diagonal Bio’s website www.diagonalbio.com. The Memorandum does not constitute a prospectus as defined in the provisions of Prospectus Regulation (EU) 2017/1129 of the European Parliament and of the Council (“Prospectus Regulation”) and has not been reviewed, registered or approved by the Swedish Financial Supervisory Authority. The offering in the Memorandum is exempt from the prospectus obligation in accordance with Article 3 (2) of the Prospectus Regulation and Chapter 2, Section 1 of the EU Prospectus Regulation (Supplemental Provisions) Act (2019:414) due to the fact that the amount offered by the Company to the public is less than EUR 2.5 million. This release is not a prospectus in accordance with the definition in the Prospectus Regulation and, accordingly, does not identify or suggest, or purport to identify or suggest, the risks (direct or indirect) that may be associated with an investment in shares, warrants or other securities in Diagonal Bio. In order for investors to fully understand the potential risks and benefits associated with a decision to participate in the Rights Issue, any investment decision should only be made based on the information in the Memorandum. Thus, investors are encouraged to review the Memorandum in its entirety.

 

The information in this press release may not be released, distributed or published, directly or indirectly, in or into the United States, Australia, Belarus, Canada, Hong Kong, Japan, New Zealand, Russia, Singapore, South Africa, South Korea, Switzerland or any other jurisdiction in which such action would be unlawful or would require registration or any other measures than those required by Swedish law. Actions in violation of these restrictions may constitute a violation of applicable securities laws. No shares, warrants or other securities in Diagonal Bio have been registered, and no shares, warrants or other securities will be registered, under the United States Securities Act of 1933, as amended (the “Securities Act”) or the securities legislation of any state or other jurisdiction in the United States of America and no shares, warrants or other securities may be offered, sold or otherwise transferred, directly or indirectly, in or into the United States, except under an available exemption from, or in a transaction not subject to, the registration requirements under the Securities Act and in compliance with the securities legislation in the relevant state or any other jurisdiction of the United States.

 

Within the European Economic Area (“EEA”), no public offering of shares, warrants or other securities (“Securities”) is made in other countries than Sweden. In other member states of the European Union (“EU”), such an offering of Securities may only be made in accordance with the Prospectus Regulation. In other member states of the EEA which have implemented the Prospectus Regulation in its national legislation, any offer of Securities may only be made in accordance with an applicable exemption in the Prospectus Regulation and/or in accordance with an applicable exemption under a relevant national implementation measure. In other member states of the EEA which have not implemented the Prospectus Regulation in its national legislation, any offer of Securities may only be made in accordance with an applicable exemption under national law.

 

In the United Kingdom, this document and any other materials in relation to the securities described herein is only being distributed to, and is only directed at, and any investment or investment activity to which this document relates is available only to, and will be engaged in only with, “qualified investors” (within the meaning of the United Kingdom version of the EU Prospectus Regulation (2017/1129/ EU) which is part of United Kingdom law by virtue of the European Union (Withdrawal) Act 2018) who are (i) persons having professional experience in matters relating to investments who fall within the definition of “investment professionals” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”); (ii) high net worth entities etc. falling within Article 49(2)(a) to (d) of the Order; or (iii) such other persons to whom such investment or investment activity may lawfully be made available under the Order (all such persons together being referred to as “relevant persons”). In the United Kingdom, any investment or investment activity to which this communication relates is available only to, and will be engaged in only with, relevant persons. Persons who are not relevant persons should not take any action on the basis of this press release and should not act or rely on it.

 

This press release may contain forward-looking statements which reflect the Company’s current view on future events and financial and operational development. Words such as “intend”, “expect”, “anticipate”, “may”, “believe”, “plan”, “estimate” and other expressions which imply indications or predictions of future development or trends, and which are not based on historical facts, are intended to identify forward-looking statements. Forward-looking statements inherently involve both known and unknown risks and uncertainties as they depend on future events and circumstances. Forward-looking statements do not guarantee future results or development and the actual outcome could differ materially from the forward-looking statements.

 

Since Diagonal Bio conducts essential services according to the FDI-act certain investments in the Transaction may require review by the ISP. Diagonal Bio will, no later than in connection with the publication of the Memorandum, publish more information about this on Diagonal Bio’s website, www.diagonalbio.com.