Prior to
publication, the information contained within this announcement was
deemed by the Company to constitute inside information as
stipulated under the UK Market Abuse Regulation. With the
publication of this announcement, this information is now
considered to be in the public domain.
31 July 2024
Crystal Amber Fund Limited
("Crystal Amber", the "Company" or the
"Fund")
Investee company update: Morphic Medical
Inc.
The Board of Crystal Amber is pleased to provide an
operational and valuation update on its investee company, Morphic
Medical Inc. ("Morphic"),
the creator of RESET®, a medical device designed to target the
underlying cause of diabetes and which also serves the obesity
market.
Background
The Fund first acquired a small equity interest in
Morphic in 2014. Morphic is a US based company which listed on the
Australian stock exchange in 2011, raising A$80 million and
commanding a market capitalisation of A$304 million. In 2017,
Morphic received formal notification of CE Mark withdrawal for Endo
Barrier (now known as RESET®), its device to treat diabetes,
preventing Morphic making sales in Europe and select Middle Eastern
countries. Thereafter, Crystal Amber commenced more significant
activism. By December 2020, the Fund effected a change of
management and supported a delisting of the shares on the ASX. At
that time, the Fund's investment represented 14p a share of the
Fund's 129p a share of total net asset value. Since then, Crystal
Amber has been and continues to be the sole provider of funding to
Morphic.
Last October the Fund stated that, following the
return of 55p a share in dividends amounting to £45.7 million
arising from other investment disposals, Morphic represented 40% of
net asset value of the Fund. Following additional investment in
Morphic and the Fund's share buyback programme commencing last
December, which has returned a further £8.3 million, the Fund's
equity interest in Morphic together with the associated outstanding
convertible loan notes, represented close to 50% of net asset value
of the Fund at 30 June 2024.
The Fund currently owns 95.3% of Morphic's share
capital via common shares and preferred shares and holds interest
bearing convertible loan notes totalling US$23.4 million, with
accrued interest currently at approximately US$2.13 million.
The loan notes are repayable from 13 January 2025, unless converted
to equity, and accrue interest at 5% and 7.5% per annum. The Fund's
representative executive director on the board of Morphic has an
option to acquire approximately US$1.96 million of the Fund's
shareholding in Morphic as part of their incentive package.
About Morphic's
product - RESET®
RESET® is a thin, flexible implant that lines the
proximal small intestine and mimics gastric bypass bariatric
surgery as food bypasses the duodenum and the upper intestines.
Unlike gastric bypass surgery, RESET® is reversible, minimally
invasive, and temporary. It does not permanently alter the
patient's anatomy and uniquely targets the body's own blood glucose
control mechanisms. This is achieved through a 20-minute endoscopic
procedure. The patient will typically retain the device for nine
months, after which the device is removed.
Market
opportunity and scientific results
According to the World Obesity Federation, the impact
of being overweight and obese on the UK economy will continue to
grow and is projected to reach 2.4% of GDP or £125 billion by 2060.
This is both a global problem and a global market, affecting around
1 billion of the world's population and expected to increase to 25%
by 2035, or around 1.9 billion people, resulting in an estimated
burden of $4 trillion in 2035 or 2.9% of global GDP (Source:
IQVIA).
The Fund believes that Morphic's RESET® device can
deliver superior and durable results without changing the anatomy.
A UK study by Dr Bob Ryder of the Sandwell and West Birmingham NHS
Trust demonstrated an average 17.9 Kg reduction in weight and a 2%
reduction in HBA1C (the amount of glucose in blood cells) at the
end of treatment with RESET®. Three years after treatment, 75% of
patients maintained most of the improvement achieved.
We believe that these results compare favourably to
the Wegovy and Ozempic treatments and importantly, without the
side-effects experienced by this currently popular weight loss drug
category.
Recent
developments
The Fund is pleased to provide an update regarding
several positive developments at Morphic.
CE Mark
certification and commercialisation
In April 2024, based on the body of evidence
submitted, key US and European medical societies provisionally
endorsed RESET® therapy in conjunction with lifestyle modification,
for treatment of metabolic disease.
Morphic is now in a very advanced stage of securing
CE Mark certification, with an anticipated commercial launch in
Germany and the UK in autumn 2024. Sales in other European markets
and the Middle East are planned for the first half of 2025.
Whilst in product development and regulatory approval
processes, Morphic currently has no revenue. In anticipation of
receiving regulatory approval and so that the business is ready to
commence sales early in Q4 2024, Morphic recruited Mike Gutteridge
as Head of Commercial Operations, International in late 2023. Mike
previously held a senior role at Apollo Endosurgery, which was
acquired by Boston Scientific for around £500 million.
In order to ensure volume ramp ups can be achieved,
Morphic has secured Medical Murray Inc. as its contract
manufacturer to complete testing, validation and building inventory
in preparation for launch.
Morphic continues to expand its innovation pipeline
with new R&D projects and IP filings.
FDA
Last month, Crystal Amber reported that Morphic had
received approval from the U.S. Food and Drug Administration
("FDA") to Morphic's application for amendments to certain
requirements for its pivotal study, which is approved as a staged
study. These protocol changes are expected to significantly
accelerate access to the key US markets for the treatments of
diabetes and obesity, subject to, inter alia, successful completion
of the study and trials.
Strategic
discussions
Given the market opportunity and the ability to tap
into other existing infrastructure and sales distribution channels,
Morphic is in early-stage discussions with a number of large-scale
medical devices companies. These discussions aim to achieve
significant equity investment via a strategic stake, as well as
sales and distribution agreements. There can be no certainty as to
a successful outcome of these discussions.
Valuation
Given the importance of Morphic to the Fund, the Fund
commissioned an independent third-party valuation of Morphic (the
"Valuation"). This has
concluded that, at 30 July 2024, Morphic was valued at US$98.8
million (approximately £77 million) on a risk-adjusted basis and on
a cash free, debt free basis.
This Valuation means that the Fund's equity interest
in Morphic, on an undiluted basis (i.e. excluding conversion of
loan notes and associated interest and exercise of Morphic employee
share options) and after including net debt at 31 December 2023
(the most recently published balance sheet of Morphic), would be
valued at approximately US$75.8 million (approximately £59.1
million). At 30 June 2024, the Fund's unaudited net asset value per
share was 117.85p (31 May 2024: 117.78p), which would increase to
172.67p with the inclusion of this new Morphic equity valuation
estimate.
The Valuation is unaudited and the Fund's auditors
are currently auditing the annual financial statements for the year
ended 30 June 2024, which involves a valuation assessment, by the
auditors, of the Fund's portfolio, including Morphic, and this
assessment may produce a different conclusion on valuation than
stated above.
Christopher Waldron,
Chairman of Crystal Amber commented:
"The Fund is hugely encouraged that its collaborative
activism with Morphic, together with providing the necessary
investment, is reflected within the third-party valuation that now
significantly increases the Fund's carrying value. The addressable
market that Morphic serves is global. Continuing strong execution
can therefore deliver even greater shareholder returns."
The FX rate used throughout this announcement is as
at 30 July 2024, US$1.2838: £1, save for NAV calculations at 30
June 2024 where the rate used was US$1.2649: £1.
For further enquiries please contact:
Crystal Amber Fund
Limited
Chris Waldron (Chairman)
Tel: 01481 742 742
www.crystalamber.com
Allenby Capital
Limited - Nominated Adviser
Jeremy Porter/ Dan Dearden-Williams
Tel: 020 3328 5656
Winterflood
Investment Trusts - Broker
Joe Winkley/Neil Langford
Tel: 020 3100 0160
Crystal Amber
Advisers (UK) LLP - Investment Adviser
Richard Bernstein
Tel: 020 7478 9080