THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, THE REPUBLIC OF IRELAND, NEW ZEALAND OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR CONTAIN ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY PERSON TO SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES IN FARON PHARMACEUTICALS OY (“FARON”) OR ANY OTHER ENTITY IN ANY JURISDICTION. NEITHER THIS ANNOUNCEMENT NOR THE FACT OF ITS DISTRIBUTION, SHALL FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH ANY INVESTMENT DECISION IN RESPECT OF FARON.

THE PROPOSED TRANSACTION REFERRED TO IN THIS ANNOUNCEMENT WOULD BE MADE PURSUANT TO A PRIVATE PLACEMENT EXEMPTION UNDER THE EUROPEAN DIRECTIVE 2003/71/EC (AND AMENDMENTS THERETO (THE “PROSPECTUS DIRECTIVE”), AS IMPLEMENTED IN THE MEMBER STATES OF THE EUROPEAN ECONOMIC AREA, FROM THE REQUIREMENTS TO PRODUCE A PROSPECTUS UNDER THE PROSPECTUS DIRECTIVE FOR OFFERS OF SECURITIES. FARON HAS NOT TAKEN ANY ACTION, NOR WILL IT TAKE ANY ACTION, TO OFFER ANY SECURITIES OR ANY OTHER DOCUMENTS RELATING TO THE PROPOSED TRANSACTION TO THE PUBLIC IN FINLAND, SWEDEN, NORWAY OR DENMARK, OR IN ANY OTHER JURISDICTION IN ANY FORM WHICH WOULD CONSTITUTE AN OFFER TO THE PUBLIC.

THE PLACING SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. THERE IS NO PUBLIC OFFERING OF THE PLACING SHARES IN THE UNITED STATES, THE UNITED KINGDOM OR ELSEWHERE. NO REPRESENTATION IS BEING MADE AS TO THE AVAILABILITY OF ANY EXEMPTION UNDER THE SECURITIES ACT FOR THE REOFFER, RESALE, PLEDGE OR TRANSFER OF THE PLACING SHARES. THE PLACING SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE US SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY IN THE UNITED STATES, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE PLACING OR THE ACCURACY OR ADEQUACY OF THIS ANNOUNCEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.

Faron Pharmaceuticals Oy

(“Faron” or the “Company”)

Proposed Placing and Subscription to raise up to £10.0 million

TURKU – FINLAND, 7.00 A.M. GMT, 5 October 2017 – Faron Pharmaceuticals Oy (“Faron” or “Company“) (LON: FARN), the clinical stage biopharmaceutical company, is pleased to announce a proposed placing of up to 1,123,750 new ordinary shares in the capital of the Company (the “Placing Shares“) and a proposed subscription of up to 126,250 new ordinary shares in the capital of the Company (the “Subscription Shares“) at a price of 800 pence per share (the “Issue Price“) to raise, in aggregate, up to approximately £10.0 million before expenses.

KEY HIGHLIGHTS

·      Proposed conditional placing of up to 1,123,750 Placing Shares with institutional and other investors (“Placing“) and conditional subscription of up to 126,250 Subscription Shares with certain Scandinavian based investors and a Director (“Subscription“), each intending to invest at the Issue Price, in order to raise, in aggregate, up to approximately £10.0 million before expenses

·      The Placing Shares and Subscription Shares if subscribed for in full will represent, in aggregate, approximately 4.3% of the Company’s registered number of shares as enlarged by the Placing and Subscription

·      The Issue Price of 800 pence per share represents a discount of 2.1% to the closing mid-market price of 817.5 pence on 4 October 2017, being the last practicable date prior to this announcement

·      The net proceeds of the proposed Placing and Subscription (of approximately £9.4 million if fully subscribed) would be used to fund:

o  the Company’s Traumakine commercialisation preparations and support the launch of an expanded access program for Traumakine on the successful conclusion of the INTEREST trial

o  the expedited expansion of the Clevegen clinical development program and manufacturing of Clevegen GMP material

·      The proposed Placing and Subscription is to be implemented through a private placement with a limited number of institutional and other investors. It is expected that finalisation of the proposed Placing and Subscription will commence immediately following this announcement. As soon as practicable after the Placing and Subscription have been finalised, a further announcement will be made containing details of the final number of Placing Shares and Subscription Shares to be issued at the Issue Price by the Company (together with the approximate gross proceeds of the Placing and Subscription). Further terms of the proposed Placing and Subscription are set out below

·      Panmure Gordon (UK) Limited (“Panmure Gordon“) is acting as Sole Bookrunner and Corporate Broker to the Company and Cairn Financial Advisers LLP (“Cairn“) as Nominated Adviser to the Company

Commenting on the proposed Placing and Subscription, Dr Markku Jalkanen, CEO of Faron, said:

“Given the recent positive advice from the FDA, Faron is now rapidly preparing to become a commercialisation-stage company moving its focus for Traumakine towards the market. This funding round will help us to commence commercialisation preparations ahead of read-out from the INTEREST trial and expedite our clinical development activities for Clevegen®. We are very excited about the value inflection horizon for Faron and are determined to bring our important and life-changing products to patients as quickly as possible.”

REASONS FOR THE PROPOSED PLACING AND SUBSCRIPTION

Support the Company’s preparation for the commercialisation of Traumakine

·      Traumakine^®, the Company’s lead product, could be the first ever drug for Acute Respiratory Distress Syndrome (ARDS) upon approval with blockbuster potential.

·      In anticipation of the pivotal clinical results for its INTEREST Phase III study for Traumakine for the treatment of ARDS, and following advice from the FDA that Faron can proceed directly to Biologics License Application (BLA) submission pending positive results from its two on-going Phase III trials, the Company wishes to accelerate the preparation for the commercialisation of Traumakine by raising capital to support the outsourcing costs related to preparation of the BLA for FDA and the Marketing Authorisation Application (MAA) for EMA in collaboration with a global commercial service house.

o  Faron anticipates that recruitment of the targeted 300 patients to the INTEREST Phase III trial will complete during the fourth quarter of 2017. Subject to positive results, the Company will submit its conditional MAA filing. Any requirement for a second Phase III trial will be determined by the EMA following analysis of the primary endpoint of the INTEREST Phase III trial, and would likely include an interim stop for early efficacy if the trial is required.

·      Faron plans to initiate an expanded access program for Traumakine to start once the INTEREST trial is closed to new patients, and will utilise additional working capital from the Placing and Subscription to create the infrastructure for this expanded access program and support the supply of Traumakine to its participants. This will allow compassionate use of Traumakine in eligible named patients at European and North-America intensive care unit (ICU) hospitals who may benefit from Traumakine treatment ahead of the product’s potential regulatory approval, in addition to generating late phase data on the benefit of the treatment outside a clinical trial.

Advance the clinical development of Clevegen^® in several indications

·      In advance of the Company’s first clinical trial program in cancer patients for Clevegen^®, its novel immune switch antibody, which is expected to commence in 2018, the Directors require additional capital in order to undertake the first full scale GMP production of Clevegen.

·      Faron intends to expedite the expansion of its planned Clevegen clinical development program in several solid tumours (liver, pancreas, ovarian and melanoma) in order to obtain accelerated safety and clinical data read-outs, with the protocol design to be submitted to the UK regulatory authorities MHRA later this year.

·      The Directors believe that Clevegen’s ability to remove local immune suppression by targeting pro-tumoural type-2 macrophages, while leaving intact the type-1 macrophages that support immune activation against tumours, could help the human body’s own immune system to combat cancer.

DETAILS OF THE PROPOSED PLACING AND SUBSCRIPTION AND ISSUE OF EQUITY

Subject to the Placing Shares and Subscription Shares being subscribed for in full, they are to be issued by the Company pursuant to the Directors’ existing authority to allot ordinary shares in the capital of the Company (“Ordinary Shares“) for cash on a non-pre-emptive basis, as approved by shareholders at the Company’s last annual general meeting which was held on 16 May 2017. The Company has received non-binding indications of interest from potential institutional investors and a Director for the Placing and Subscription during a pre-marketing process.

In connection with the proposed Placing, the Company has entered into a placing agreement with Panmure Gordon and Cairn (together the “Placing Advisers“) (the “Placing Agreement“). Pursuant to the terms of the Placing Agreement, Panmure Gordon has agreed to use its reasonable endeavours to procure placees for the Placing Shares at the Issue Price. The Placing is conditional upon, inter alia:

·      the Placing Agreement having become unconditional in all respects;

·      the Company having performed, in all material respects, its obligations under the Placing Agreement and not being in material breach of the Placing Agreement;

·      legally binding commitments being received in respect of all of the Placing Shares and the Subscription Shares (the “Placee Condition“); and

·      the Placing Shares and the Subscription Shares being issued and being registered at the Finnish Trade Registry (the “Issue Condition“).

The Placing is being implemented through a private placement with a limited number of institutional and other investors. The Placing Agreement contains customary warranties and an indemnity from the Company in favour of the Placing Advisers together with provisions which enable the Placing Advisers to terminate the Placing Agreement in certain circumstances before satisfaction of the Issue Condition in respect of each stage of the Placing, including where there has been a material breach of any of the warranties in the reasonable opinion of any Placing Adviser or where there is a material adverse change in the business or financial affairs of the Company. The Company has agreed to pay Panmure Gordon and Cairn certain commissions and fees for their respective appointments in connection with the Placing. In order to comply with local securities law in Finland, the Issue Condition will be satisfied prior to Admission. Accordingly, pursuant to the terms of the Placing Agreement, Panmure Gordon has agreed to underwrite the subscription for and payment to the Company of the Issue Price for the Placing Shares upon satisfaction of the Placee Condition.

Assuming that the Placing Shares and Subscription Shares (“New Shares“) are subscribed for in full, the Placing and Subscription is expected to be effected in two stages in anticipation of allowing investments made by certain venture capital trust and enterprise investment scheme funds, (the “VCT Investors” and the “EIS Investors” respectively) to qualify under VCT and EIS legislation. Certain of the Placing Shares, including those to be issued to the VCT Investors and the EIS Investors, and certain of the Subscription Shares are expected to be issued (the “First Issue Shares“) and an application made for admission of the First Issue Shares to trading on AIM (“Admission“). It is expected that Admission of the First Issue Shares will become effective and that dealings in the First Issue Shares will commence on or around 8.00 a.m. on 11 October 2017. A further announcement will be made to confirm the outcome of the Placing and Subscription (subject to, inter alia, satisfaction of the Issue Condition and Admission) and to confirm the application has been made to AIM for the Admission of the First Issue Shares in due course, but by no later than 4.30 p.m. on 9 October 2017.

Immediately following Admission of the First Issue Shares, the remaining Placing Shares and Subscription Shares are expected to be issued (the “Second Issue Shares“) and an application will be made for Admission of the Second Issue Shares. It is expected that Admission of the Second Issue Shares will become effective and that dealings in the Second Issue Shares will commence on or around 8.00 a.m. on 13 October 2017. The issue and allotment of the Second Issue Shares is conditional upon, inter alia, Admission of the First Issue Shares taking place, the Issue Condition relating to the Second Issue Shares being satisfied and the Placing Agreement otherwise remaining in full force and no material breach of its terms having occurred. A further announcement will be made to confirm Admission of the First Issue Shares and to confirm the application has been made to AIM for the Admission of the Second Issue Shares.

The Board believes this fundraise will enhance working capital to support the Company’s corporate strategy to maximise shareholder value in the longer term, and accordingly will continue to evaluate funding options over the medium term.

MARKET ABUSE REGULATION

Market Soundings, as defined in the Market Abuse Regulation (“MAR“), were taken in respect of the proposed Placing and Subscription with the result that certain persons became aware of inside information, as permitted by MAR. That inside information in relation to the Placing and Subscription is set out in this announcement and has been disclosed as soon as possible in accordance with paragraph 7 of article 17 of MAR. Therefore, those persons that received inside information in a Market Sounding are no longer in possession of inside information relating to the Company and its securities.

Panmure Gordon (UK) Limited, which is regulated in the UK by the Financial Conduct Authority, is acting as sole bookrunner and corporate broker to the Company and no one else in connection with the Placing. Accordingly, it will not be responsible to any person other than the Company for providing the regulatory and legal protections afforded to its clients nor for providing advice in relation to the contents of this Announcement or any matter, transaction or arrangement referred to in it.

Cairn Financial Advisers LLP, which is regulated in the UK by the Financial Conduct Authority, is acting as nominated adviser for the Company and no one else in connection with the Placing. Accordingly, it will not be responsible to any person other than the Company for providing the regulatory and legal protections afforded to its clients nor for providing advice in relation to the contents of this Announcement or any matter, transaction or arrangement referred to in it.

ENDS

For more information please contact:

Faron Pharmaceuticals Oy

Dr Markku Jalkanen, Chief Executive Officer

E-mail: investor.relations@faron.com

Consilium Strategic Communications

Mary-Jane Elliott, Chris Welsh, Philippa Gardner, Lindsey Neville

Phone: +44 203 709 5700

E-Mail: faron@consilium-comms.com

Westwicke Partners, IR (US)

Chris Brinzey

Phone: +1 339 970 2843

E-Mail: chris.brinzey@westwicke.com

Cairn Financial Advisers LLP, Nominated Adviser

Emma Earl, Tony Rawlinson

Phone: +44 207 213 0880

Panmure Gordon (UK) Limited, Sole Bookrunner and Corporate Broker

Freddy Crossley, Duncan Monteith (Corporate Finance)

Tom Salvesen (Corporate Broking)

Phone: +44 207 886 2500

Whitman Howard Limited, Joint Corporate Broker

Ranald McGregor-Smith, Francis North

Phone: +44 207 659 1234

About Faron Pharmaceuticals Ltd

Faron (AIM:FARN) is a clinical stage biopharmaceutical company developing novel treatments for medical conditions with significant unmet needs. The Company currently has a pipeline focusing on acute organ traumas, vascular damage and cancer immunotherapy. The Company’s lead candidate Traumakine, to prevent vascular leakage and organ failures, is currently the only treatment for Acute Respiratory Distress Syndrome (ARDS) undergoing Phase III clinical trials.  There is currently no approved pharmaceutical treatment for ARDS. An additional European Phase II Traumakine trial is underway for the Rupture of Abdominal Aorta Aneurysm (“RAAA”). Faron’s second candidate Clevegen is a ground breaking pre-clinical anti-Clever-1 antibody. Clevegen has the ability to switch immune suppression to immune activation in various conditions, with potential across oncology, infectious disease and vaccine development. This novel macrophage-directed immuno-oncology switch called Tumour Immunity Enabling Technology (“TIET”) may be used alone or in combination with other immune checkpoint molecules for the treatment of cancer patients. Faron is based in Turku, Finland. Further information is available at  www.faron.com

Caution regarding 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”, ”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 particular, the outcome of clinical trials (including, but not limited to the Company’s INTEREST trial) may not be favourable or clinical trials over and above those currently planned may be required before the Company is able to apply for marketing approval for a product.  In addition,  other factors which could cause actual results to differ materially include 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, 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.