Circio Holding ASA (CRNA) Earnings Call Transcript & Summary

[Audio Gap] that Damian will provide an introduction and then Lubor will go through the details of the amendments and explain the rationale and technicalities. This will all be done in English. And at the end, we will have a Q&A session, which I will host in Norwegian for our Norwegian listeners. Please provide your questions in the Q&A section of the teams. There is a pane in the top right corner, which should enable you to post questions, and we will handle those at the end of the meeting. The questions will be addressed in the language it's post, either English or Norwegian. We've had certain questions come in beforehand, which we will present at the end. So with that, I hand over to Damian. There seems to be some trouble with the camera, so Damian is with sound only. Damian?

Thanks, Erik. Thank you. Hello to everybody. I'm very pleased to be here to be able to talk with our Circio shareholders today. Just before I start, I would draw your notice to the disclaimer and notice which is now on screen in front of you now relating to forward-looking statements and the like. So the Extraordinary General Meeting agenda items that we have relate to 3 matters: amendment to the Atlas agreement, which was voted for in EGM in March this year, a reverse stock split, and a share capital decrease, and I'll just quickly address each of these, and then as Erik said, Lubor will go into more detail around the technicalities. So regarding amendment to our Atlas agreement, we continue to trade in increasingly difficult market conditions. I've been in the industry 35 years in total. We've had 2 serious downturns in the biotech market previously, one after the dot-com bubble in the early 2000s, and the second after the financial crisis of 2008, linked to the collapse of Lehman Brothers. But in my experience, this is the longest and deepest downturn in the market that we have had to deal with and is proving exceedingly difficult for all publicly quoted biotech companies in Europe and also in the U.S., with a few occasional exceptions to that. And one of the corollaries of this is that we, under the biotechs, are dealing with a low trading volume in our shares as well as, to be quite honest, a poor share price performance that none of us are happy with whatsoever. This is making it, in terms of our Atlas agreement, very challenging to operate the convertible facility on the current terms. We are not reaching some of the predetermined criteria we need to, to be able to draw down further money. And I do need to be very clear to you, our shareholders, that this is our only short-term immediate source of financing, while the management and the Board are on a permanent search for alternative financing options in the public markets and in the private markets as well. This is our only source of financing at the moment. We want to limit our use of it. Hence, you will see that we've reduced the size of the drawdowns in the next tranche, as Lubor will explain. And we, of course, want to find an alternative financing as soon as possible, but this is it. So in order to allow it to function and for us to be able to draw the money, we need to continue to try to build value on our Circio RNA platform, which we believe, has great promise for patients and great promise in the medium and longer term to build value for you, our shareholders. We are looking at proposed changes to the bond denomination and the trading limitations. And I will say that the Board of Directors very strongly recommends to shareholders that as this is the only source of our immediate financing that shareholders do vote in support of these changes, which have been considered long and hard by the company and discussed in great detail with Atlas as well. The other 2 items for the Extraordinary General Meeting are a reverse stock split and related share capital decrease to keep our nominal value at a reasonable level. As you can see, you know very well, we're on the Oslo Stock Exchange. Our trading price is currently below NOK 1 for more than 6 months. We've received notice that we need to address this. And so we're proposing a 30:1 share consolidation in a reverse stock split. Because of that, for the share capital decrease, you will see that our nominal value gets increased to NOK 0.3 from the current NOK 0.1. We would prefer for a whole number of reasons to return the value to NOK 0.1, but that is not really practical. So we are proposing that we reduce the nominal value to NOK 0.5, and that reduction will be covered by a portion of the company's accumulated losses over the years. With those comments, I will now hand over to Lubor to take you through the details behind these proposals.

Thank you, Damian, for the introduction. I have the pleasure now to explain a little bit more in details the different resolutions that we are asking our shareholders to vote for in the upcoming EGM. And I will start with the amendment to the Atlas agreement. But before I talk about the changes, let me give you a recap of the existing agreement with Atlas. So apparently in March 2023, a NOK 300 million financing facility with Atlas was approved by an EGM. This gives us access to NOK 300 million over a period of 36 months at discretion and calling on the management. Circio decides when and if to call a tranche, and there are tranches of different sizes. And there's a variation or there's a minimum time of 3 months between each size tranche. For example, following the approval of this facility at the EGM in March 2023, we called the first tranche in March. And now in August, on August 24, we called the second tranche. So there was a gap of at least 5 months between the different tranches. So let me talk a little bit more details about the mechanics and the key terms of the investment agreement. As you can see, we presented a slide at the last EGM and we divided this process in 4 different parts. There will be changes in all those 4 parts. But before talking about the changes, I want to emphasize what hasn't changed. What hasn't changed is that the Circio remains in control of calling the tranches. There will be no warrants, which are typical for investment agreements of those arrangements. There is no change to the conversion of shares, and there's also no change to the short selling. So a lot has remained the same. But here on the next slide, I will go into more detail what has changed and why. So let me first focus on the tranche size. As Damian was already explaining, the trading volume, the liquidity of our shares has been much lower due to the general market conditions and the changes in the environment, but also, of course, much lower to what has historically been seen in our trading volume. And because we have been below this current trading volume, we decided to actually lower the tranche size to NOK 21.5 million. Also, we felt it was more prudent to call on a smaller tranche in light of a higher number of bonds outstanding. So with that, because of the higher risk and the changed market conditions and the change in trading volume, we also pay an additional NOK 500,000 fee per installment. There are 3 installments, so this will bring up to a maximum of NOK 1.5 million. We also changed the bond denomination. When we agreed to the NOK 2.5 million denomination at the agreement, we had assumed a much higher liquidity, a much higher trading volume of our shares. The NOK 500,000 volume has been decided to address the liquidity issue that we currently have and also basically reduces the risk on both sides because of the large size of the bond. The next change is the trading limit. In order for this agreement to work for Atlas and for both parties, there needs to be a certain level of liquidity. And because liquidity, as I explained, has been much lower than what was expected after the signing of the agreement, it has been decided to adjust the trading limit, so that there could be a reasonable accent for Atlas for each bond. What else has been changed? The change from a 25% trading limit per week to a 35% trading limit per month. As Atlas will not be trading every single day every month, it can be that on a single day this level can be exceeded, but it will be averaged out over an entire month to 35%. And what is very new is a onetime call option where Atlas can call one tranche up to NOK 30 million when they see an opportunity to invest more money into our company. When they call this tranche, it will be part of our existing agreement on the existing conditions that has been agreed with Atlas. So this is, in our eyes, a strong sign of confidence that Atlas wants to invest more money into our company. So let me now switch gears and talk about the reverse stock split. As Damian was saying, our share price has been trading under NOK 1 for an extended period of time. We have received notification from the Oslo Stock Exchange that we need to address this issue. And as Damian said, the Board proposes to do a reverse stock split, and the ratio has been 30:1. This will give us clarity or we could be well clear of the NOK 1 limit. So at the current share price of around NOK 0.4, this will lead to a share price of NOK 12. And basically, it means that for every 30 shares that you own, you will now have 1 new share of NOK 12. So as an example, if you have 300 shares, you will now then have 10 shares of NOK 12. So the value and the share price to you is absolutely unchanged, of course. Now let me switch gears again and talk about the share capital decrease. First of all, let me explain that the decrease in share capital has no impact on the value of the holding or share price. For a listed Norwegian public limited liability company, there are certain equity requirements that the company needs to comply with. And one of the requirements is that the total equity cannot be less than half of the company's share capital, which was the case at the end of 2022. To rectify this issue, the Board proposes now to reduce the nominal value of the shares from NOK 3 to NOK 0.5 and use that amount to reduce demand to cover losses. I want to stress that, as Damian was saying, the amendment to the investment agreement has been very important in order to secure financing for the company. The other 2 resolutions that we have put forward to vote for in the EGM are requirements due to the regulation of the Oslo Stock Exchange. And with that, I hand over to Erik, our CEO, and I, to lead us to some questions. I really encourage our shareholders to ask more questions in case anything I explained wasn't clear enough.

Thank you, Lubor and Damian. Then we switch from English to Norwegian. [Foreign Language]

[Foreign Language] Next question, please, Lubor.

[Foreign Language].

[Foreign Language]. Thank you, Lubor, and Damian for participating. And with this, we wrap up the webcast. Thank you, and bye-bye.

Thank you, everybody. Bye-bye.