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Sphere tumbles after pinning hopes on Woodford rescue

Sphere tumbles after pinning hopes on Woodford rescue

Shares in Sphere Medical (SPHR) have plunged after the troubled diagnostics firm said it could run out of cash next month unless it receives further funding from fund manager Neil Woodford.

Shares in the business tumbled 81.5% to 1.11p as the company, Woodford’s first investment in his Woodford Patient Capital (WPCT) investment trust, said it only had enough working capital to last until the end of September.

Without any further funding, it warned it would ‘in all likelihood be forced to enter an insolvency process’.

The company plans to delist from the Alternative Investment Market (AIM) in order to unlock up to £8 million in funding.

Woodford Investment Management and the Wales Life Sciences Investment Fund have conditionally agreed to invest a combined £5 million, and the company will attempt to raise a further £3 million from other investors.

Woodford Investment Management said in a statement: ‘We recognise the investment potential of Proxima, Sphere’s patient dedicated miniaturised blood gas analyser and support the company in its decision to focus on the development of this ground-breaking product as a private business.’

Sphere Medical said delisting from AIM was necessary to allow Woodford to invest more in the company, as ‘a private company structure allows its substantial shareholder Woodford to invest a greater quantum in the investment as there are certain fund restrictions for public market investments’.

Sphere Medical accounts for just 0.28% of the £819 million Patient Capital portfolio, and 0.01% of the £10.1 billion Woodford Equity Income fund.

But these stakes represent a 30% stake in the company, which after today's share price fall has a market cap of just £1.7 million.

And Woodford effectively has a larger stake in the business. The Wales Life Sciences Fund is run by Arthurian Life Sciences, owned by Arix Bioscience, in which Woodford Investment Management holds a 30.7% stake.

Arix accounts for 2.4% of the Patient Capital fund and 0.36% of the Equity Income fund.

Should Woodford and the Wales Life Sciences Investment Fund deliver the £5 million in funding, and no other investors came forward to supply the further £3 million, the two investors, who are ‘deemed to be acting in concert’, would own 76.7% of the company.  

Should they also exercise warrants the company is issuing alongside the fundraising, their stake would swell to 87.7%.

Under normal circumstances, an investor, or investors acting together, acquiring more than 30% of the voting shares of a business are required to make a formal takeover bid, with a cash offer to the remaining shareholders of at least the highest share price over the last 12 months.

But the Panel on Takeover and Mergers has agreed to waive this rule, should Sphere Medical’s remaining investors vote in favour of what is called a ‘whitewash resolution’.

Sphere Medical's main product is its Proxima 4 device for measuring blood gases, electrolytes and metabolites. It said in today's update that six customers had placed orders for the device, after discussions with 55 hospital departments resulted in 38 requests for product demonstrations since its launch in December last year.

In May the company flagged issues over the supply of sensors needed for the product, although it said today those issues had now been addressed.

Should it receive funding, Sphere said it would focus on continuing to develop the Promina product while scaling back other commercial activities.

Sphere Medical is not the only Patient Capital investment to face a cash crunch. In June, clean water technology company Halosource (HALH) escaped the prospect of insolvency only after securing £1.8 million in funding before the end of the month.

The news on Sphere came on another bad day for Woodford, with shares in Provident Financial (PFGcrashing 71% after the consumer credit provider scrapped its dividend, parted company with its chief executive and warned of an investigation by the Financial Conduct Authority.

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