On November 6, 2024 Xspray Pharma AB reported by virtue of the authorization from the annual general meeting held on 21 May 2024, resolved to carry out a new issue of shares of approximately SEK 135 million, with preferential rights for the Company’s existing shareholders (the "Rights Issue") (Press release, Xspray, NOV 6, 2024, View Source [SID1234650113]). The Company has received subscription undertakings and intentions to subscribe for shares of approximately SEK 74 million, as well as guarantee commitments of approximately SEK 61 million in total, corresponding to a total of 100 percent of the Rights Issue. Furthermore, the Company has raised a loan in the total amount of SEK 100 million (the "Loan", and together with the Rights Issue, the "Financing") and the Board of Directors of Xspray has resolved to issue warrants to the lenders Fenja Capital II A/S and Buntel AB (the "Lenders"), as a part of the Financing. The Financing is carried out in order to finance the continued development of the Company’s product portfolio for commercialization in parallel with the ongoing FDA-process regarding Dasynoc and, at approval from the FDA, market-preparatory activities for the launch of the product.

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Summary of the Rights Issue

The Board of Directors of Xspray has, by virtue of the authorization from the annual general meeting held on 21 May 2024, resolved to carry out a new issue of shares of approximately SEK 135 million, with preferential rights for the Company’s existing shareholders. The Rights Issue is carried out to capitalize the Company in connection with the commercialization of Dasynoc (XS004-dasatinib) ("Dasynoc"), primarily to finance preparatory activities ahead of the contemplated launch on the U.S. market, the conducting of registration based studies for XS003 nilotinib, other working capital to cover the Company’s ongoing operations, as well as the continued development of the product candidates XS008 axitinib and XS025 cabozantinib.
Upon full subscription of the Rights Issue, Xspray will receive approximately SEK 135 million before issue costs.
The Rights Issue is covered to approximately 43 percent by subscription undertakings, 12 percent by declarations of intent to subscribe for shares[1] and to approximately 45 percent by guarantee commitments. Consequently, subscription undertakings, intentions to subscribe for shares and guarantee commitments amount to 100 percent of the Rights Issue.
For each existing share held on the record date of 13 November 2024, one subscription right is received. Ten (10) subscription rights entitle to subscription of one (1) new share, corresponding to a subscription ratio of 1:10.
The subscription price of SEK 40 per share corresponds to a discount of approximately 27 percent compared to the theoretical price (so called TERP – theoretical ex-rights price) based on the closing price of Xspray’s share on Nasdaq Stockholm on 5 November 2024.
The subscription period in the Rights Issue is expected to run from 15 November 2024 up to and including 29 November 2024.
Existing shareholders, including eight of the largest shareholders, Flerie Invest AB, Ribbskottet AB, Östersjöstiftelsen, Fjärde AP-fonden, Tredje AP-fonden, Unionen, Andra AP-fonden and Erik Norman, have committed or declared their intent to subscribe for shares corresponding to approximately 55 percent of the Rights Issue, or approximately SEK 74 million.
A number of investors, including existing shareholder Flerie Invest AB, have entered into agreements to guarantee 45 percent of the Rights Issue, at a guarantee compensation of 8 percent of the guaranteed amount in cash.

Summary of the Loan

The Loan is unsecured and amounts to SEK 100 million in total with a term of 12 months from 6 November 2024.
Upon the raising of the Loan, 1,150,000 warrants will be issued to the Lenders, free of charge. The warrants can be exercised for subscription of the corresponding number of shares in the Company from and including the day of registration of the warrants with the Swedish Companies Registration Office and up to and including 30 November 2029, at a subscription price of SEK 50 per share from and including the registration with the Swedish Companies Registration Office and up to and including 6 November 2025, and at a subscription price of SEK 60 from and including 7 November 2025.
The Loan includes an arrangement fee of 4 percent and accrues interest at STIBOR 3M (however minimum 3 percent) plus an interest margin of 8 percent. If FDA approval for Dasynoc is obtained, the arrangement fee will be refunded, and the interest margin will be reduced to 4 percent.
The Company may repay the Loan at any time during the term.
If the warrants are exercised in full, during or after the Loan term, the number of shares and share capital will increase, resulting in dilution of approximately 3 percent for existing shareholders after the Rights Issue.

Xspray’s CEO Per Andersson comments: "With this financing, we expect to be able to with undiminished force continue to prepare for and, upon FDA market approval, execute the planned launch of Dasynoc. Further, we receive funding to carry out the studies required to complete the FDA application for our next product candidate, XS003 nilotinib. I would like to again express my gratitude to the major shareholders and investors who, through their commitments in connection with the rights issue, demonstrate continued confidence in our commercialization plan."

Background and reasons
Xspray is a pharmaceutical company that specializes in using its patented HyNap-technology to develop improved versions of existing protein kinase inhibitors (PKIs) for cancer treatment. The Company’s goal is to become a leader in the development of improved PKIs for cancer treatment. In 2023, there were around 80 PKIs available in the US market with annual sales of approximately USD 33 billion.

Xspray’s lead candidate, Dasynoc is currently under FDA regulatory review for approval in the US. Dasynoc is an amorphous version of dasatinib with improved properties compared to the crystalline reference listed drug Sprycel. Significant advantages of Dasynoc compared to the crystalline reference drug include:

compatibility with acid reducing agents which are commonly co-prescribed to many chronic myeloid leukemia (CML) patients but which may also be bought without a prescription; and
bioequivalence with a 30 percent lower dose compared to the reference drug.

The Company intends to re-submit its supplemented application for market approval for Dasynoc during the fourth quarter of 2024. After re-submission of the application, the FDA will assign a new PDUFA date (target date for final approval from the FDA), which will be either two or six months from the re-submission of the application, and depending on the review timeline, this may allow for the launch of Dasynoc in the first half of 2025.

Xspray’s product portfolio consists, in addition to Dasynoc, of several other enhanced PKI product candidates in various stages of development, including XS003 nilotinib (an improved version of Tasigna), XS008 axitinib (an improved version of Inlyta), and XS025 cabozantinib (an improved version of Cabometyx). XS003 nilotinib is currently in the stage where registration studies are carried out in healthy volunteers, after which the Company intends to submit an NDA application, expected to occur in 2025. For the Company’s two other published product candidates, XS008-axitinib and XS025-cabozantinib, the next steps are to continue formulation development for commercial scale, manufacture of clinical trial material and conduct clinical studies.

Use of proceeds from the Financing
The Company will receive SEK 235 million (excluding any proceeds from the warrants issued to the Lenders) through the Financing before deduction of transaction costs. The proceeds from the Financing are intended to be used to facilitate the continued development of the Company’s product portfolio towards commercialization while the FDA process regarding Dasynoc is ongoing. Upon receiving approval from FDA for Dasynoc, the Company will in the short term prioritize market-preparatory activities in collaboration with its partner Eversana, over the development of the product portfolio, as the Company believes that successful commercialization will generate cash flows that can be used for the development of other product candidates.

The net proceeds from the Financing are primarily intended to finance:
1. Implementation of market-preparatory activities and building up sales inventory to be ready for the launch of Dasynoc in the U.S.
a. Market-preparatory activities in collaboration with the Company’s commercialization partner Eversana (approx. 48 percent)
b. Build-up of sales inventory (approx. 10 percent)
2. Conducting of registration studies for XS003 nilotinib and preparatory activities for submission of a market approval application in H1 2025 (approx. 13 percent)
3. Other working capital to cover the Company’s day-to-day operations (approx. 16 percent)
4. Development of the product candidates XS008 axitinib and XS025 cabozantinib (approx. 13 percent)

Upon approval of Dasynoc and a subsequent launch, the Company’s need for working capital is expected to increase in the short term due to higher inventory levels, increased accounts receivable, and increasing costs related to marketing and sales activities associated with the Company’s commercialization partner Eversana, and that the Company in connection therewith shall repay the Loan. In such a scenario, the Company intends to secure non-dilutive loan financing of up to approximately SEK 200 million, which is expected to be repayable through cash flows from operating activities.

Terms of the Rights Issue
Those who are registered as shareholders in the share register of Xspray on the record date 13 November 2024 have preferential rights to subscribe for new shares in Xspray in relation to their current shareholding in the Company. Shareholders receive one (1) subscription right for each share held in the Company. The subscription rights entitle the holder to subscribe for new shares in the Rights Issue, whereby ten (10) subscription rights give the shareholder the right to subscribe for one (1) new share. In addition, investors are offered the possibility to apply for subscription of shares without subscription rights.

If all of the shares are not subscribed for by virtue of subscription rights, the Board of Directors shall resolve on the allocation of shares which have not been subscribed for by virtue of subscription rights. In such case, shares shall: (i) firstly be allocated to those who have applied for subscription and subscribed for new shares by virtue of subscription rights, regardless if the subscriber was a shareholder on the record date or not, and in the event of oversubscription, in relation to the number of subscription rights each have exercised for subscription of new shares, and, to the extent that this is not possible, by drawing lots, (ii) secondly, shares are allocated to others whom have applied for subscription of shares without exercising subscription rights, and in the event of oversubscription, in relation to the number of new shares specified in the subscription application, and, to the extent that this is not possible, by drawing lots, and (iii) thirdly to those who have contractually entered into guarantee commitments, and in the event that allotment to these cannot be made in full, allotment shall be made pro rata in relation to the amount that each has guaranteed and, to the extent that this cannot be done, by drawing lots.
The subscription price is SEK 40 per share. Provided that the Rights Issue is fully subscribed, Xspray will receive issue proceeds of approximately SEK 135 million before deduction of costs attributable to the Rights Issue. Provided that the Rights Issue is fully subscribed, the number of shares will increase by a maximum of 3,376,226 shares, from 33,762,265 shares to a maximum of 37,138,491 shares. The share capital will increase by a maximum of approximately SEK 3,376,226, from approximately SEK 33,762,265 to a maximum of approximately SEK 37,138,491. Shareholders who choose not to participate in the Rights Issue will through the Rights Issue have their ownership share diluted by up to 3,376,226 shares, corresponding to approximately 9 percent (based on the total maximum amount of outstanding shares after the execution of the Rights Issue). These shareholders have an opportunity to compensate themselves financially for the dilution effect by selling their subscription rights received.

Full terms of the Rights Issue and information about the Company will be presented in a prospectus that is expected to be published on or around 14 November 2024.

Terms of the Loan
The Loan of SEK 100 million has been secured from Fenja Capital II A/S and Buntel AB, with a term of 12 months starting from 6 November 2024. The Loan is unsecured. In connection with the Loan, 1,150,000 warrants will also be issued to the Lenders, free of charge. The warrants can be exercised to subscribe for the equivalent number of shares in the Company from and including the day of registration of the warrants with the Swedish Companies Registration Office and up to and including 30 November 2029, at a subscription price of SEK 50 per share from registration with the Swedish Companies Registration Office up to and including 6 November 2025, as well as from and including 7 November 2025 at a subscription price of SEK 60. The warrants will not be re-calculated as a result of the Rights Issue but are otherwise subject to customary re-calculation provisions. The Board of Directors has decided to issue the warrants by virtue of the authorization from the annual general meeting held on 21 May 2024.

The Loan includes an arrangement fee of 4 percent of the total Loan amount and bears an annual interest rate at STIBOR 3M (however minimum 3 percent) plus an interest margin of 8 percent. If FDA approval for Dasynoc is obtained, the arrangement fee will be refunded, and the annual interest will be adjusted to STIBOR 3M plus 4 percent. The Company may repay the Loan at any time during the term.

If all warrants are exercised, the number of shares in the Company will increase by 1,150,000 and the share capital by SEK 1,150,000, resulting in dilution of approximately 3 percent after the Rights Issue.

Subscription undertakings and guarantee commitments in the Rights Issue
The Company’s larger shareholders, Flerie Invest AB, Östersjöstiftelsen, Fjärde AP-fonden, Unionen and Erik Norman have undertaken to subscribe for shares corresponding to approximately 43 percent of the Rights Issue. In addition, certain members of the Board of Directors of the Company and senior executives intend to enter into binding subscription undertakings after the publication of the Company’s interim report for the third quarter of 2024, and these intentions cover approximately 5 percent of the Rights Issue. In addition, certain other shareholders have submitted declarations of intent for subscription of shares in the Rights Issue, and these intentions cover approximately 7 percent of the Rights Issue. In total, these subscription undertakings and intentions represent approximately 55 percent of the Rights Issue, corresponding to approximately SEK 74 million. Several investors, including Flerie Invest AB, have agreed to guarantee approximately 45 percent of the Rights Issue, corresponding to approximately SEK 61 million, at a guarantee compensation of 8 percent of the guaranteed amount in cash.

Consequently, the Rights Issue is covered by subscription undertakings and guarantee commitments, as well as intentions to subscribe for shares of 100 percent. The subscription undertakings and guarantee commitments are not secured by bank guarantees, blocked funds, pledging, or similar arrangements. Additional information regarding the parties who have entered subscription undertakings, submitted declarations of intent regarding subscription of shares and guarantee commitments will be presented in the prospectus which is expected to be published on or around 14 November 2024.

Lock-up undertakings
Prior to the execution of the Rights Issue, all members of the Board of Directors and senior executives of the Company have towards Skandinaviska Enskilda Banken AB ("SEB") and Zonda Partners undertaken, subject to certain customary exceptions, not to sell shares in the Company for a period of 90 days from the day after the outcome of the Rights Issue has been announced, a so-called lock-up undertaking.

Furthermore, the Company has undertaken towards SEB and Zonda Partners, subject to customary exceptions and except for the issue of warrants to the Lenders, not to issue additional shares or other share-related instruments for a period of 180 days from the day after the outcome of the Rights Issue has been announced.