Motif Bio Reports Half-Year 2019 Financial Results, Operational Progress and Proposed Initiatives

30 September 2019

Motif Bio plc (AIM/NASDAQ: MTFB) today announced unaudited financial results for the half year ended June 30, 2019 and reported on its progress year to date.

Graham Lumsden, CEO of Motif Bio, said: “Receipt in February of the CRL for iclaprim dealt a major blow to our wholly-owned subsidiary, Motif BioSciences Inc. We have worked collaboratively with the U.S. Food & Drug Administration (FDA) to develop a way forward and based on guidance received during the FDA meeting on 19 September, we believe that a single well-designed adequate and well-controlled Phase III clinical trial demonstrating safety and efficacy of iclaprim in patients with hospital-acquired bacterial pneumonia (HABP), including ventilator-associated bacterial pneumonia (VABP), along with data on potential mechanisms of hepatic injury, would enable submission of a New Drug Application for approval by FDA. Iclaprim has been shown to concentrate in lung tissue (alveolar macrophages and epithelial lining fluid) following intravenous administration and a Phase II trial in patients with HABP/VABP has been completed, demonstrating proof of concept. It would take several years to enroll and complete a HABP/VABP Phase III trial and the cost is expected to be tens of millions of dollars. We believe that the most efficient way to generate future value from iclaprim is for a partner or other entity with a lower cost of capital to complete the HABP/VABP Phase III trial and commercialize the asset globally.

Motif Bio continues to conserve its existing cash resources and is implementing immediate additional initiatives to curtail further expense given limited availability of funds. Motif Bio has reached agreement in principle with its senior secured lender, Hercules Capital, Inc. (Hercules), to extend the interest only period on the Hercules loan through October 2019 and allow non-cash payment-in-kind, or PIK, of the interest payment due on October 1^st. In connection with this agreement to vary the loan facility, Motif Bio will provide Hercules with a warrant option to subscribe for ordinary shares equivalent to 5% of Motif Bio’s share capital at an exercise price of 5 pence (subject to adjustment).

With the accommodation from Hercules under the loan facility and other cash conservation initiatives, we believe that the Group has sufficient cash to continue operations as of September 30, 2019. However, we will be required to seek additional capital funding in the immediate future and will provide further updates in due course.

We are proposing a corporate restructuring, loan amendment and capital raise as described below and believe that this is the best path forward for shareholders of Motif Bio.

Proposed Corporate Restructuring and Loan Amendment (subject to shareholder approval)

• The Group’s ownership of the iclaprim-related assets and all other operations have been through its ownership of the wholly-owned US subsidiary, Motif Biosciences Inc. The Hercules loan as senior secured lender is to Motif BioSciences Inc., guaranteed by Motif Bio plc (with the pledge of its ownership of Motif BioSciences Inc.). Motif Bio plc is proposing a corporate restructure (‘Proposed Restructuring’) that we believe will allow the shareholders of Motif Bio plc to benefit from the monetization of the iclaprim asset (above the amounts owed to Hercules and other obligations of Motif BioSciences Inc.), while being relieved of the liability and guarantee for the Hercules loan.

• Subject to a shareholder vote and a capital raise (‘Proposed Capital Raise’), Motif Bio has reached agreement in principle with Hercules that includes the following elements:

1. Hercules will relinquish the loan guarantee from Motif Bio and relieve it of any future obligations to Hercules;
2. Motif BioSciences Inc. is expected to immediately wind down operations and hire an advisor to facilitate the sale of its iclaprim and other assets, ideally by transacting with a company that intends to develop and commercialize iclaprim;
3. Hercules will be granted a perfected security interest in all of the intellectual property of Motif BioSciences Inc.; and
4. Hercules will receive a warrant for an additional 20% of Motif Bio’s post capital raise outstanding ordinary shares at an exercise price of 5 pence (subject to adjustment). With this warrant position, Hercules will benefit from the future success of Motif Bio and potential upside in a successful monetization of iclaprim.

• Upon completion of the Proposed Restructuring, it is expected that the Group will become an AIM Rule 15 cash shell and will have 6 months to find a suitable target to reverse into it or face cancellation from AIM.

• If this Proposed Restructuring and Proposed Capital Raise is approved by shareholders and completes in accordance their terms, then Motif Bio plc will be able to move forward as a debt-free, publicly-listed company seeking M&A opportunities. Shareholders today of Motif Bio:

1. would be invested in a company relieved of the liability and guarantee for the Hercules loan of approximately $6.9 million;
2. would have the benefit of any potential upside from the sale of, or development and commercialization of, the iclaprim asset once Hercules receives repayment of the loan, repayment of other liabilities of Motif BioSciences Inc., and costs of sale and/or wind down of Motif BioSciences Inc.; and
3. would have the benefit of any future upside potential from assets or a company acquired by Motif Bio.

• If Motif Bio is not able to complete the contemporaneous Proposed Capital Raise and this transaction is not approved by shareholders, the Group will no longer be able to continue operations and it would be expected that trading in the Group’s shares would be immediately suspended.

• The Proposed Restructuring would mean that the existing obligations under the loan facility are better aligned with our strategy, namely to bring one or more assets into Motif Bio without the burden of the debt obligations to Hercules, and for Motif Bio to be able to benefit from any upside from the sale of, or development and commercialization of, the iclaprim asset once Hercules receives repayment of the loan, repayment of other liabilities of Motif BioSciences Inc., and costs of sale and/or wind down of Motif BioSciences Inc.