The shares tumbled 54% after Halosource said a key investor had failed to obtain approval needed from the Chinese authorities to take part in its fundraise.
With the fundraise now in jeopardy, Halosource said it only had enough cash to last it until the end of June, and would have to file for insolvency if more money did not come through.
'Without the proceeds of the fundraise, the company's cash position is expected to fund the company until the end of June 2017 at which point the company will cease to trade as a going concern,' it said.
'Therefore, if the fundraise does not complete prior to the company exhausting its cash resources, the board will have no choice but to initiate insolvency proceedings and seek suspension to trading of the company's shares on the Alternative Investment Market and shareholders may lose all or a substantial amount of their equity investment.'
The company was seeking to raise £1.9 million, but the fundraise was conditional on 'one of the key cornerstone investors to the fundraise receiving a certain Chinese governmental approval to enable the investor to complete its participation in the fundraise'.
'The company has been advised by that cornerstone investor that the Chinese governmental approval has not been granted, but the cornerstone investor has advised the company that it will now be seeking to make another application for that approval.'
Woodford Investment Management is understood not to be the key investor seeking Chinese approval.
Woodford and his successor at Invesco Perpetual, Mark Barnett, are the largest shareholders in Halosource. Woodford holds a quarter of the company's shares in his Woodford Equity Income and Woodford Patient Capital (WPCT) investment trust, while Invesco has a 28.6% stake, with holdings in Barnett's Invesco Perpetual Income and High Income funds.
The stock, which is down 92% over the last year, makes up a small position in Woodford's funds, at 0.03% of the income fund and 0.1% of the investment trust.