Inside Information: Faron enters into an up to EUR 35 million convertible bond arrangement and issues first tranche of bonds with a principal amount of EUR 15 million

Key highlights

• Faron has entered into a convertible bond arrangement for to up to EUR 35 million with an entity managed by Heights Capital Management, Inc. and resolved to issue amortising unsecured convertible bonds with an aggregated principal amount of EUR 15 million with an option to issue, subject to certain conditions, two additional tranches of similar convertible bonds, each with a principal amount of EUR 10 million.
• Bondholders have the option to convert the bonds into shares at an initial conversion price of EUR 2.94 per share, subject to adjustments in accordance with the terms and conditions of the bonds.
• The bonds generally amortise in equal instalments every two months and the Company has the option to redeem the bonds by issue of shares against such repayment instalment or by payment in cash during the three year term of the bonds.
• In order to facilitate conversion of the bonds into shares, Faron issues special rights entitling into shares, as referred to in the Finnish Companies Act, to the bondholder in connection with the issuance of the first tranche bonds.
• The proceeds from the first tranche bonds will be used to repay the outstanding senior, secured loan from IPF and for general corporate purposes, extending the Company’s cash runway into Q1 2026 assuming that amortisations on the bonds are made in shares.
• The Company’s assets will be released from security as a result of the early loan repayment to IPF.
• The Company substantially strengthens its financial position and flexibility by reducing restrictive cash covenants with a runway extending well beyond the phase II topline readout in the BEXMAB r/r MDS study anticipated in April 2025.

TURKU, Finland – Faron Pharmaceuticals Ltd. (AIM: FARN, First North: FARON), a clinical-stage biopharmaceutical company pursuing a CLEVER-1 receptor targeting approach to reprogramming myeloid cells to activate anti-tumor immunity in hematological and solid tumors, today announces that it has entered into a subscription agreement (the “Subscription Agreement”) with an entity managed by Heights Capital Management, Inc. (“HCM”) regarding the issuance and subscription of amortising senior unsecured convertible bonds with an aggregated principal amount of EUR 15 million (the “First Tranche Bonds”) with an option to issue, subject to certain conditions, two additional tranches of convertible bonds (the “Second Tranche Bonds” and “Third Tranche Bonds”, respectively, and collectively with the First Tranche Bonds, the “Bonds”) with an aggregated principal amount of EUR 10 million each, convertible into new and/or existing shares in the Company (the “Shares”) (the “Arrangement”). Bryan, Garnier & Co acted as Sole Placement Agent and Financial Adviser on the convertible bond arrangements.

In connection with the private placement announced on 5 February 2025, the Company communicated that it would continue to actively evaluate further financing alternatives and business transactions that would allow continued flexibility in pursuing the best commercial outcome for the Company and its shareholders with BEXMAB Phase II efficacy and safety readout available. The Arrangement will be used to finance early repayment in full of the Company’s outstanding senior secured loan pursuant to the facilities agreement entered into with IPF Fund II SCA, SICAV-FIAR (“IPF”) (the “IPF Facility”) and strengthen its financial position, while increasing its financial flexibility with fewer restrictive financial commitments. After the early repayment of the outstanding loan, the restrictive cash covenants set out in the IPF Facility will no longer apply, unlocking previously restricted cash reserves, and the Company’s assets, including valuable intellectual property rights, will be released from any pledges granted in favour of IPF. The remainder of the proceeds from the First Tranche Bonds will be used for general corporate purposes, such as the continuation of the BEXMAB Phase II trial to produce follow-up data (duration of response and survival), prepare the package for end of Phase II FDA meeting and for Phase III trial preparations, and to strengthen the Company’s balance sheet. The Arrangement with HCM will also enable the Company to continue evaluating further business transactions, such as licensing agreements, with a stronger financial position in addition to which the Company will, subject to certain conditions, also have access to additional financing in the aggregate amount of up to EUR 20 million, through the issuance of the Second Tranche Bonds and the Third Tranche Bonds. The Board has conducted an overall assessment of the Arrangement, considering its key terms and commercial merits, the reputable standing of the investor as well as other explored financing alternatives potentially available to the Company, and concluded that the issuance of the First Tranche Bonds, including the Special Rights to be attached to the bonds, is in the best interest of the Company and all of its shareholders, and that there is a weighty financial reason for the Company to issue the Special Rights to HCM.

“We are very happy to announce that Faron has secured new financing through convertible loans. The new funding and repayment of our outstanding loans significantly strengthens the Company’s financial position that importantly improves our ability to execute on the Company’s business opportunities. After finalisation of this arrangement the Company will no longer have restrictive cash covenants, and the security over the patents that have been pledged as security for the IPF loan will be released. The Board and management feel even more confident about the Company’s future as one of the leading Biotech companies in the Nordics with access to meaningful amounts of capital if needed. Having HCM, a well-respected global financier, on our side is very important as they have a long track record in supporting their portfolio companies in their journey and growth.” says Yrjö Wichmann, Chief Financial Officer.

The Convertible Bonds

Pursuant to the Subscription Agreement, the Board has resolved upon the issuance of EUR 15 million of First Tranche Bonds due 2 April 2028 to HCM, convertible into new and/or existing Shares in the Company. The First Tranche Bonds consists of 150 bonds with a principal value of EUR 100,000 each. The First Tranche Bonds will be issued at 92.5 per cent of their principal amount and carry an interest rate of 7.5 per cent per annum, payable every two months in arrears.

A holder of the First Tranche Bonds, shall be able to convert the outstanding principal amount of a First Tranche Bond or any instalment amount at any time during the term of the First Tranche Bonds. The initial Conversion Price (as defined in terms and conditions of the First Tranche Bonds, (“First Tranche Conditions”)) has been set at EUR 2.93952, which equals a 20 per cent premium to the reference share price, being the EUR price per Share that is the lowest of the six Volume Weighted Average Prices of a Share listed on Nasdaq First North Growth Market Finland on each of the six consecutive dealing days ending on (and including) the Issue Date of the First Tranche Bonds, representing EUR 2.4496. The Conversion Price is subject to adjustments in the event of certain corporate actions as well as customary anti-dilution adjustments and price reset mechanisms pursuant to the First Tranche Conditions.

The First Tranche Bonds will amortise in 18 equal instalments every two months during the term of the First Tranche Bonds (each an “Amortisation Payment Date”). Faron will have the option to elect, in its sole discretion, to make amortisation and/or interest payments either in cash or by converting the relevant amounts due into Shares (“Share Settlement Option”). In case the Company exercises its Share Settlement Option to amortise the principal amount of the First Tranche Bonds, the subscription price for the Shares will be the lower of (a) the Conversion Price in effect at the time, and (b) 90 per cent of the lowest of (i) the VWAP of a Share on the relevant payment date, and (ii) the lowest of the VWAPs of a Share on each of the five consecutive dealing days ending on (and including) the dealing day immediately preceding the relevant payment date.

The Board has, in light of the frequent amortisations and need to secure continuous adherence with the Market Abuse Regulation obligating the Company to make payments in Shares in certain situations, resolved to make amortisations and interest payments by exercising its Share Settlement Option, unless it separately decides to make payments in cash. Pursuant to the First Tranche Conditions, the exercise of the Share Settlement Option is subject to certain liquidity conditions and HCM’s (including its affiliates) ownership in the Company not exceeding 9.99 per cent of the Shares at any time. The Company will publish an announcement each time the number of outstanding Shares in the Company increases following the issuance of Shares pursuant to the Arrangement.

In addition to the scheduled amortisation payments, HCM (or any future holders of the majority of the First Tranche Bonds) may, at any time between scheduled amortisations, exercise their right to bring forward up to two (2) additional amortisation payments (an “Accelerated Amortisation”) to be paid in advance on a date specified in a notice sent to the Company, with a limit of no more than nine (9) Accelerated Amortisations in the first year of the term of the First Tranche Bonds. Additionally, HCM (or any future holders of the majority of the First Tranche Bonds) will also have the right to defer any upcoming amortisation payment to be paid on a later Amortisation Payment Date specified in the notice sent to the Company.

The exercise of the bondholders’ right to convert the First Tranche Bonds into Shares as well as the exercise of the Company’s Share Settlement Option will be effected by the bondholders exercising special rights entitling into Shares, as referred to in Chapter 10 of the Finnish Companies Act (“Special Rights”), issued in connection with the issuance of the First Tranche Bonds. The Special Rights will be attached to the First Tranche Bonds, and the subscription price for the Shares to be subscribed for pursuant to the Special Rights (in accordance with the First Tranche Conditions) will be paid by setting off the Company’s debt to pay relevant amounts due under the First Tranche Bonds.

The First Tranche Conditions include certain covenants and undertakings by the Company, including a negative pledge provision and restrictions to the incurrence of additional indebtedness as well as on the conduct of business by the Company such that it may only carry on matters in the ordinary course of business and not enter into certain transactions such as mergers, demergers or reorganisations, or disposal of assets, except in relation to any partnering or licencing arrangements related to development of its business, or on terms approved by the majority bondholders.

Second Tranche Bonds and the Third Tranche Bonds

If the Board considers it to be in the best interest of the Company and all of its shareholders at the time, the Company may, in its sole discretion, during a twelve-month period following the announcement of the Phase II topline readout (expected to be released in April 2025) require HCM to subscribe for the Second Tranche Bonds. During a period starting on the date falling six months and ending on the date falling 18 months after the issuance of the Second Tranche Bonds, either party may require that the Third Tranche Bonds are issued and subscribed for. The issuance and subscription of Second Tranche Bonds and the Third Tranche Bonds, respectively, are subject to certain customary conditions precedent, including that no material adverse change has occurred and that there has been no adverse change in the international financial markets.

• With respect to the Second Tranche Bonds, it is further required that (a) Phase II topline readout in respect of its BEXMAB r/r MDS Study indicates an objective response rate of at least 60 per cent, (b) that the arithmetic mean of the daily traded value of the Shares on each dealing day comprised in the three-month period preceding the issuance of the Second Tranche Bonds is greater than EUR 500,000, and (c) that the Company has a market capitalisation greater than EUR 200 million on the date of issuance of the Second Tranche Bonds.
• In order for the Company to have the right to require HCM to subscribe for the Third Tranche Bonds, it is required that (a) the arithmetic mean of the daily traded value of the Shares on each dealing day comprised in the three-month period preceding the issuance of the Third Tranche Bonds is greater than EUR 500,000, and (b) the Company’s market capitalisation on the date of issuance of the Third Tranche Bonds is greater than 120 per cent of its market capitalisation on the date of issuance of the Second Tranche Bonds.
• HCM’s right to require issuance of the Third Tranche Bonds is not subject to the above conditions.

HCM may, at its discretion, waive any of conditions precedent in respect of both Second Tranche Bonds and Third Tranche Bonds.

The Second Tranche Bonds and the Third Tranche Bonds are intended to be issued on substantially same terms as the First Tranche Bonds. The initial Conversion Price of the Second Tranche Bonds and the Third Tranche Bonds, respectively, will be determined based on a 20 per cent premium to the reference share price, being the EUR price per Share that is the lowest of the six Volume Weighted Average Prices of a Share listed on Nasdaq First North Growth Market Finland on each of the six consecutive dealing days ending on (and including) the Issue Date of the Second Tranche Bonds and the Third Tranche Bonds, as the case may be.

Special Rights attached to the First Tranche Bonds

In connection with the issuance of the First Tranche Bonds, the Board has resolved, based on the authorisation granted by the General Meeting held on 5 April 2024, to issue 12,000,000 Special Rights. The Special Rights are issued in deviation from the shareholders’ pre-emptive rights (directed issue) without consideration to HCM as the initial subscriber of the First Tranche Bonds. The Special Rights are attached to the First Tranche Bonds and cannot be separated from them. Should HCM use its right to transfer First Tranche Bonds, the Special Rights attached to the relevant bonds that have not been exercised at the time of the transfer would be simultaneously transferred to the new bondholder.

A total of 80,000 Special Rights will be attached to each First Tranche Bond with a principal value of EUR 100,000. Each Special Right entitles to one (1) new or existing Share of the Company. Should all First Tranche Bonds be converted into Shares at the initial Conversion Price EUR 2.93952 (assuming no amortisation and/or interest payments have been made), the number of new Shares to be issued by the Company pursuant to the Special Rights would be 5,102,874 Shares, corresponding to approximately 4.57 per cent of the current total amount of Shares in the Company (approximately 4.37 per cent of a fully diluted basis). If the Conversion Price is adjusted, as set out in the First Tranche Conditions, the Company may be obligated to issue further Special Rights in which case the Board will resolve upon said issuance in accordance with the relevant provisions in the Finnish Companies Act.

The Special Rights may only be exercised, and Shares may only be issued pursuant to such exercised Special Rights, in accordance with the First Tranche Conditions.

Additionally, in order to prepare especially for any advanced amortisation situations, the Company’s Board may separately resolve to issue treasury shares to Faron itself without consideration. Such Shares could only be used to convert the First Tranche Bonds in accordance with their terms and conditions, and such issuance, if resolved, would be separately announced.

Early Repayment of IPF Facility

Faron has exercised its right of early repayment in full of the IPF Facility in accordance with its terms and conditions. The amount repayable by the Company will be EUR 9,079,832, including outstanding principal amount, accrued interest, capitalised payment-in-kinds, and the exit fee. Subject to the Company receiving the issue price for the First Tranche Bonds, the repayment is expected to be made on 3 April 2025.

“We are very grateful for IPF’s support over the past years during challenging capital markets in biotech. For the next stages of growth, we are very pleased to partner with HCM, a leading provider of growth capital globally. We believe Faron has now all the flexibility and fire power it needs to fulfil its objectives for 2025 and make the most out of the up-coming BEXMAB Phase 2 read-out”, says Dr. Juho Jalkanen, CEO of Faron Pharmaceuticals.

For more information please contact:
ICR Healthcare
Mary-Jane Elliott, David Daley, Lindsey Neville
Phone: +44 (0)20 3709 5700
E-mail: faron@icrhealthcare.com

Cairn Financial Advisers LLP, Nominated Adviser and Broker
Sandy Jamieson, Jo Turner
Phone: +44 (0) 207 213 0880

Sisu Partners Oy, Certified Adviser on Nasdaq First North
Juha Karttunen
Phone: +358 (0)40 555 4727
Jukka Järvelä
Phone: +358 (0)50 553 8990

About BEXMAB
The BEXMAB study is an open-label Phase I/II clinical trial investigating bexmarilimab in combination with standard of care (SoC) in the aggressive hematological malignancies of acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS). The primary objective is to determine the safety and tolerability of bexmarilimab in combination with SoC (azacitidine) treatment. Directly targeting Clever-1 could limit the replication capacity of cancer cells, increase antigen presentation, ignite an immune response, and allow current treatments to be more effective. Clever-1 is highly expressed in both AML and MDS and associated with therapy resistance, limited T cell activation and poor outcomes.

About Bexmarilimab
Bexmarilimab is Faron’s wholly owned, investigational immunotherapy designed to overcome resistance to existing treatments and optimize clinical outcomes, by targeting myeloid cell function and igniting the immune system. Bexmarilimab binds to Clever-1, an immunosuppressive receptor found on macrophages leading to tumor growth and metastases (i.e. helps cancer evade the immune system). By targeting the Clever-1 receptor on macrophages, bexmarilimab alters the tumor microenvironment, reprogramming macrophages from an immunosuppressive (M2) state to an immunostimulatory (M1) one, upregulating interferon production and priming the immune system to attack tumors and sensitizing cancer cells to standard of care.

About Faron Pharmaceuticals Ltd.
Faron (AIM: FARN, First North: FARON) is a global, clinical-stage biopharmaceutical company, focused on tackling cancers via novel immunotherapies. Its mission is to bring the promise of immunotherapy to a broader population by uncovering novel ways to control and harness the power of the immune system. The Company’s lead asset is bexmarilimab, a novel anti-Clever-1 humanized antibody, with the potential to remove immunosuppression of cancers through reprogramming myeloid cell function. Bexmarilimab is being investigated in Phase I/II clinical trials as a potential therapy for patients with hematological cancers in combination with other standard treatments. Further information is available at www.faron.com.

Forward-Looking Statements
Certain statements in this announcement are, or may be deemed to be, forward-looking statements. Forward looking statements are identified by their use of terms and phrases such as ”believe”, ”could”, “should”, “expect”, “hope”, “seek”, ”envisage”, ”estimate”, ”intend”, ”may”, ”plan”, ”potentially”, ”will” or the negative of those, variations or comparable expressions, including references to assumptions. These forward-looking statements are not based on historical facts but rather on the Directors’ current expectations and assumptions regarding the Company’s future growth, results of operations, performance, future capital and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. Such forward-looking statements reflect the Directors’ current beliefs and assumptions and are based on information currently available to the Directors.

A number of factors could cause actual results to differ materially from the results and expectations discussed in the forward-looking statements, many of which are beyond the control of the Company. In addition, other factors which could cause actual results to differ materially include the ability of the Company to successfully license its programs within the anticipated timeframe or at all, risks associated with vulnerability to general economic and business conditions, competition, environmental and other regulatory changes, actions by governmental authorities, the availability of capital markets or other sources of funding, reliance on key personnel, uninsured and underinsured losses and other factors. Although any forward-looking statements contained in this announcement are based upon what the Directors believe to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Subject to any continuing obligations under applicable law or any relevant AIM Rule requirements, in providing this information the Company does not undertake any obligation to publicly update or revise any of the forward-looking statements or to advise of any change in events, conditions or circumstances on which any such statement is based.