Phoenix Canada Oil Company Limited Signs Letter of Intent for Reverse Takeover Transaction with ZYUS Life Sciences Inc.
May 30, 2022Not for Distribution to U.S. Newswire Services or for Dissemination in the United States
TORONTO–(BUSINESS WIRE)–Phoenix Canada Oil Company Limited (TSX-V: PCO) (“Phoenix“) and ZYUS Life Sciences Inc. (“ZYUS” or the “Company”), a private Canadian life sciences company, together announce that they have entered into a non-binding Letter of Intent dated May 27, 2022 (the “LOI“). The LOI outlines the general terms and conditions of a proposed business combination by way of plan of arrangement (the “Arrangement”), which would result in ZYUS becoming a wholly-owned subsidiary of Phoenix and constitute a reverse takeover of Phoenix by ZYUS as defined in the policies of the TSX Venture Exchange (the “Exchange”).
Completion of the Arrangement is subject to customary terms and conditions as set forth in the LOI including, but not limited to: the satisfactory completion of due diligence; the successful negotiation and execution of a definitive agreement for the Arrangement (the “Definitive Agreement“); shareholder and Exchange approvals; the performance of any closing conditions; and other conditions typical for similar transactions.
Charlotte Moore Hepburn, the CEO of Phoenix, stated that, “We understand the critical clinical need for a regulated, opioid-sparing medication designed to address adult pain. In ZYUS, we are excited to have found a high potential strategic partner with an impressive scientific and patent portfolio and a program of research with transformative potential in the biomedical space. The vision and mission of ZYUS aligns with our corporate values, and we look forward to working collaboratively with ZYUS in pursuit of a favourable outcome.”
“We are excited about the significant growth opportunities this transaction will enable for both companies and their shareholders,” said Brent Zettl, President and CEO of ZYUS. “Since launching ZYUS four years ago, our focus has been to use an evidence-based approach to advance the scientific understanding of cannabinoids through clinical research for medicinal purposes. This transaction provides us with the financial resources to further advance our operations, sales and clinical research activities as we pursue innovative therapies to better the lives of patients around the world.”
General Information on Phoenix and ZYUS
Phoenix is incorporated under the laws of the Province of Ontario and has a head office in Toronto, Ontario. The company is a reporting issuer in the provinces of Alberta, British Columbia and Ontario.
ZYUS was incorporated under the laws of Saskatchewan in 2018 and is a life sciences company focused on the development and commercialization of medical cannabinoid products. As a licensed producer of medical cannabis under the Cannabis Act (Canada), ZYUS holds processing, sales, research and analytical licenses from Health Canada for its facilities located in Saskatoon, Saskatchewan and was awarded EU-Good Manufacturing Practice certification from Portugal’s Infarmed – National Authority of Medicines and Health Products, I.P. in March 2022.
ZYUS’ founder, Brent Zettl, is the former President and CEO of CanniMed Therapeutics and its wholly owned subsidiaries (collectively “CanniMed”). After years of witnessing first-hand the transformational impact medical cannabis had on the lives of patients, Mr. Zettl founded ZYUS with the mission of elevating cannabinoids as a standard of care for human health through clinical research. Background information on the principals, directors and officers of ZYUS appears at the end of this release.
Since its inception in 2018, ZYUS has conducted more than 55 non-clinical and pre-clinical animal studies on safety, toxicity and efficacy of its proprietary product candidates, the data from which was used to file and support the Company’s patent portfolio and will be used to support the Company’s clinical trials. In addition to holding four patents in the United States for certain research-related software, the Company secured its first therapeutic patent in Canada, “FORMULATION FOR PAIN MANAGEMENT”, patent no. 3,102,473 in July 2021. This patent covers novel fixed-dose cannabinoid formulations for pain management and includes ZYUS’ lead product candidate “Trichomylin®”. The Company’s patent application for this invention was allowed in Israel in 2022 and corresponding applications have been filed in seven additional jurisdictions, including the United States and Europe. ZYUS has also completed a number of additional patent applications respecting its other drug product candidates and software inventions, with two of those patent families currently in the Patent Cooperation Treaty (PCT) filing phase.
ZYUS’ lead research program relates to its drug product candidate “Trichomylin®” for use in the treatment of chronic and neuropathic pain while significantly reducing the use of opioids. In 2021, the Company received approval from Australia’s Bellberry Limited Human Research Ethics Committee and conducted a Phase 1a/b FIH (first-In-human) clinical trial “Trichomylin®”, the data from which will be used to pursue U.S. Food and Drug Administration (the “FDA”) approval. While ZYUS has not yet submitted an investigational new drug application for its clinical programs, ZYUS plans to pursue through an investigational new drug application, and the FDA has provided the Company with feedback on, the 505(b)(1) regulatory pathway, which is a regulatory pathway available for novel formulations that have not been previously studied or approved.
In addition to its research operations and in its capacity as a licensed producer under the Cannabis Act (Canada), ZYUS launched direct sales and distribution of its exempt market medical cannabis products (which does not require regulatory approval as a drug product) to registered patients across Canada in 2020. The Company has also secured a number of non-exclusive agreements with international pharmaceutical distributors and is in the late stages of securing additional clearances required to supply medical cannabinoids across several international markets that have legalized medical cannabis including, but not limited to, Australia and Portugal.
Select ZYUS Financial Highlights (in thousands of Canadian Dollars) for the year ended December 31, 2021 (unaudited):
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As at December 31, |
|
2021 (1) |
||
|
|
|
|||
|
Current assets |
$ |
7,594 |
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|
|
Total Assets |
$ |
70,111 |
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|
|
Current liabilities |
$ |
10,085 |
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|
|
Total liabilities |
$ |
45,544 |
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|
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Revenue |
$ |
207 |
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|
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Net loss |
$ |
(24,044 |
) |
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(1) Select financial information noted above is unaudited and subject to change. |
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ZYUS was pre-commercial and considered to be in the development state until December 2020, and as such, it has not generated any significant sales or incurred any cost of sales since incorporation.
General Information Regarding the LOI
Pursuant to the Arrangement, Phoenix will acquire all of the issued and outstanding common shares of ZYUS. Following completion of the Arrangement, Phoenix and ZYUS, as its new wholly owned subsidiary (referred to on a consolidated basis as the “Resulting Issuer”) will continue to carry on the business of ZYUS under ZYUS’ operating management and Phoenix will change its name to “ZYUS Life Sciences Corporation” or a similar name, and the common shares of the Resulting Issuer (“Resulting Issuer Common Shares”) will be listed for trading on the TSXV stock exchange.
As part of the Arrangement (i) each issued and outstanding common share of ZYUS (“ZYUS Shares”) held by ZYUS’ shareholders (other than Phoenix) will be acquired by Phoenix, and ZYUS shareholders will receive Resulting Issuer Common Shares using an exchange ratio (the “Exchange Ratio“) to be determined based on a valuation agreed to by the parties in the LOI, subject to adjustment to reflect the price of the Concurrent Financing (as defined below) and the final number of Units (as defined below) issued; (ii) the outstanding warrants to purchase ZYUS Shares (“ZYUS Warrants“) will be exchanged for warrants to acquire Resulting Issuer Common Shares adjusted pursuant to the Exchange Ratio; and (iii) each outstanding option to purchase ZYUS Shares (“ZYUS Options“) shall be exchanged for a replacement option of the Resulting Issuer (each a “Replacement Option“) adjusted pursuant to the Exchange Ratio.
Upon completion of the Arrangement, it is expected that the shareholders of Phoenix will hold approximately 6% and the shareholders of ZYUS will hold approximately 94% of the outstanding Resulting Issuer Common Shares, after taking into account the close of the Concurrent Financing (described below).
Phoenix currently has 5,029,194 common shares issued and outstanding while ZYUS has 54,700,754 common shares issued and outstanding. ZYUS also has certain debentures and notes outstanding which will automatically convert into common shares of ZYUS immediately prior to the Arrangement, based on an 85% discount to the price of the Concurrent Financing.
The Arrangement, as described above, constitutes an arm’s length transaction as defined in the policies of the Exchange and under applicable securities regulations. None of the directors, officers or insiders of Phoenix has any interest in ZYUS or is an insider of ZYUS and similarly none of the directors, officers or insiders of ZYUS has any interest in Phoenix or is an insider of Phoenix.
Loan To Zyus
On or prior to June 15, 2022, and whether or not the Arrangement is completed, Phoenix will loan to Zyus the sum of $1,700,000 through the acquisition of 17 Units (the “Units”) of ZYUS, with each unit consisting of one secured promissory note in the principal amount of C$100,000 (the “Promissory Notes”) and 40,000 common share purchase warrant (the “Warrants”), with both the Promissory Notes and Warrants having a maturity date of 30 months from the date of issue (the “Maturity Date”).
The Promissory Notes will earn interest at a rate of 12% per annum (compounded, accrued and payable quarterly in arrears on the outstanding balance). The Promissory Notes will be subject to mandatory conversion requirements whereby the Promissory Notes plus accrued and unpaid interest (the “Principal and Interest”) will be converted into common shares of ZYUS on certain triggering events (“Triggering Event”), which would include, but not be limited to, closing of the Arrangement. Immediately prior to the completion of the Arrangement, the Principal and Interest will be automatically converted into common shares of ZYUS at a price equal to 85% of the deemed price of ZYUS common shares in the Triggering Event. The Promissory Notes will be a secured obligation of ZYUS. If the Arrangement is terminated, Phoenix will be entitled to demand immediate repayment of its Principal and Interest If issued and subject to certain acceleration events, the Warrants would entitle Phoenix to acquire one common share of ZYUS at a price of C$2.50 per common share at any time until the Maturity Date, with the exercise of the Warrants being subject to review and approval by the TSXV. The treatment of these Zyus common shares and Warrants will be addressed in the Definitive Agreement.
The conversion of the loan into ZYUS’ shares, the issuance of warrants including the exercise of the warrants will be subject to prior Exchange approval.
Subscription Receipt Financing
As part of the Arrangement, ZYUS intends to organize and complete a private placement (the “Concurrent Financing“) of subscription receipts (the “Subscription Receipts“) for gross proceeds of up to C$25 million. The Subscription Receipts are currently anticipated to be issued by ZYUS. Purchasers of the Subscription Receipts will ultimately, as a result of the Arrangement, receive Resulting Issuer Common Shares, following the satisfaction of certain specified escrow release conditions attached to the Subscription Receipts. The proceeds of the private placement, assuming the satisfaction of the escrow release conditions, will be used by the Resulting Issuer for research and development and general corporate expenses.
The Concurrent Financing will seek to raise proceeds of a minimum of $12 million and a maximum of $25 million by way of a private placement of subscription receipts expected to be offered at price of $2.39 per subscription receipt. It is proposed that each subscription receipt would represent a right to receive one common share of ZYUS, to be converted immediately into shares of the Resulting Issuer after giving effect to the Arrangement.
The Resulting Issuer will maintain offices in Saskatoon, Saskatchewan.
Share Capital of the Resulting Issuer
Assuming completion of the Concurrent Financing as described above, 90.2 million common shares of the Resulting Issuer (which will consist of 73.7 million common shares issued to former holders of ZYUS Shares, 5 million common shares held by Phoenix shareholders, and 11.5 million common shares issued pursuant to the Concurrent Financing assuming gross proceeds of C$25 million) would be outstanding after giving effect to the Arrangement based on an exchange ratio of 1.3373 common shares of Phoenix issued for each outstanding common share of ZYUS.
Sponsorship
Sponsorship of the Arrangement may be required by the TSXV unless an exemption or waiver from this requirement can be obtained in accordance with the policies of the TSXV. Phoenix intends to apply for a waiver of the sponsorship requirement. There is no assurance that a waiver from this requirement can or will be obtained.
Halt of Trading of Common Shares of Phoenix
The common shares of Phoenix are currently halted from trading and the trading of common shares of Phoenix is expected to remain halted pending completion of the Arrangement.
Additional Information
The completion of the Arrangement and related transactions are subject to the approval of (i) the Exchange, (ii) 66 2/3% of the votes cast by Phoenix and ZYUS shareholders, respectively, and (iii) the Court of Queen’s Bench for Saskatchewan. The Arrangement and related transactions are subject to the satisfaction or, where permitted, waiver of certain additional conditions precedent, including, but not limited to: (1) the completion of the Concurrent Financing and (2) other conditions customary for transactions of a similar nature. There is no guarantee that these conditions will be met at all or before the Termination Date. A joint management information circular is expected to be mailed to shareholders of Phoenix and ZYUS in connection with their respective shareholder meetings to approve the Arrangement and transactions contemplated in connection with the Arrangement. Additional information regarding the details of the Arrangement and such transactions will be included in such joint management information circular.
If and when a definitive agreement between Phoenix and ZYUS is executed, Phoenix will issue a subsequent press release in accordance with the policies of the TSXV containing the details of the definitive agreement and additional terms of the Arrangement including information relating to sponsorship, if required, summary financial information in respect of ZYUS, and additional information with respect to the history of ZYUS and the proposed directors, officers, and insiders of the Resulting Issuer upon completion of the Arrangement. Charlotte Moore Hepburn will continue as a member of the Board of Directors of the Resulting Issuer.
Completion of the Arrangement is subject to a number of conditions including, but not limited to, the satisfaction of Phoenix and ZYUS of the due diligence investigations to be undertaken by each party, the execution of a definitive agreement in respect of the Arrangement, closing conditions customary to transactions of the nature of the Arrangement, approval of the Court of Queen’s Bench of Saskatchewan, approvals of all regulatory bodies having jurisdiction in connection with the Arrangement, TSXV acceptance and, if required by the TSXV policies, majority of the minority shareholder approval. Where applicable, the Arrangement cannot close until the required shareholder approvals are obtained and there can be no assurance that the Arrangement will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with Arrangement, any information released or received with respect to the Arrangement may not be accurate or complete and should not be relied upon. Trading in the securities of Phoenix should be considered highly speculative.
The common shares of Phoenix have not been and will not be registered under the United States Securities Act of 1933, as amended and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
Notice on Forward-Looking Statements:
This release includes forward-looking information or forward-looking statements within the meaning of Canadian securities laws, the 1933 Act, the U.S. Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995 regarding Phoenix, ZYUS and their respective businesses, which may include, but are not limited to, statements with respect to the completion of the Arrangement, the terms on which the Arrangement is intended to be completed, the ability to obtain regulatory and shareholder approvals, expectations with respect to ZYUS business plans, product lines, intellectual property strategy (including successful examination of patent applications) research activities (including without limitation, the safety, efficacy and clinical progress of Trichomylin®, the expected timing of the availability of clinical trial results and the ability to use data generated by the Australian study to pursue FDA approval) and the prospects for regulatory approval, commercializing or selling any product or drug product candidates both domestically and abroad, the timeline for Phoenix Shares to resume trading, and statements regarding the Unit Financing and Concurrent Private Placement. Research and clinical trial programs are of an experimental nature and no particular results can be guaranteed due to a number of factors and risks.
Often but not always, forward-looking information can be identified by the use of words such as “expect”, “intends”, “anticipated”, “believes” or variations (including negative variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would” or “will” be taken, occur or be achieved. Such statements are based on the current expectations and views of future events of the management of each entity, and are based on assumptions and subject to risks and uncertainties, many of which are beyond the control of Phoenix and ZYUS, and cannot be predicted or quantified, including risks related to: potential impacts due to the COVID-19 pandemic such as delays in regulatory review, manufacturing and supply chain interruptions, disruption of the global economy, the reliability of the results of studies relating to human safety and possible adverse effects resulting from the administration of drug product candidates; ability to secure regulatory approval for any investigational new drug applications submitted to the U.S. Food and Drug Administration, and the success of future product advancements, including the success of future clinical trials.
Although the management of each entity believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect. The forward-looking events and circumstances discussed in this release, including completion of the Arrangement, the Unit Financing and the Concurrent Private Placement (and the proposed terms upon which the Arrangement, the Unit Financing and the Concurrent Private Placement are proposed to be completed) and the ability to use data generated by the Australian study to pursue FDA approval), the ability to secure regulatory approval for any patents and regulatory approval of drug product candidates, and the success of future product advancements, including the success of future clinical trials and patent applications, may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting the companies, including risks regarding the medical cannabis industry, pharmaceutical industry, research and clinical trial activities, market conditions, economic factors, management’s ability to manage and to operate the business of the Resulting Issuer and the equity markets generally. Although Phoenix and ZYUS have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Accordingly, readers should not place undue reliance on any forward-looking statements or information. No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and neither Phoenix nor ZYUS undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) has in any way passed upon the merits of the Arrangement and associated transactions and neither of the foregoing entities has in any way approved or disapproved of the contents of this press release.
Neither the TSXV nor its Regulation Services Provider accepts responsibility for the adequacy or accuracy of this press release.
ZYUS Board of Directors:
Brent Zettl: President, CEO and Member of the Board of Directors of ZYUS
Mr. Zettl, BScA Distinction (Agriculture), is a pioneer of the Canadian medical cannabis industry. He co-founded CanniMed’s predecessor company Prairie Plant Systems Inc. (“PPS”) in 1988. CanniMed was the exclusive supplier of medical cannabis to Health Canada from 2000 to 2014. In March 2018, CanniMed was acquired by Aurora Cannabis Inc. for approximately CAD$1.2 billion, the largest acquisition of a cannabis company at the time.
Richard Hoyt: Chair of the Board of Directors of ZYUS; Chair of the ZYUS Governance and Nominating Committee; member of ZYUS Audit and Compensation Committees
Mr. Hoyt is currently Managing Partner of Ozark Transaction Advisors LLC, a consultancy that advises clients on pharmaceutical and active pharmaceutical ingredient transactions and licenses. Previously he was VP of Business Development and Licensing at Mallinckrodt PLC, a leading provider of controlled substances and specialty pharmaceuticals. During his 40-year career at Mallinckrodt PLC, Mr. Hoyt also served as VP of Asset and Portfolio Management, VP and General Manager of New Products and Technology and VP of Active Pharmaceutical Ingredient Commercial Operations.
John Knowles: Member of the Board of Directors of ZYUS; Chair of ZYUS Audit Committee; member of ZYUS Governance and Nominating Committee
Mr. Knowles was CFO of CanniMed from October 2016 until its acquisition in 2018. From 2007 to 2016, he was President and CEO of Fuse Cobalt Inc., a mineral exploration company.
Contacts
ZYUS Media Inquiries
[email protected]
1-833-515-5500
ZYUS Investor Relations
Bruce M. Mann
[email protected]
1-888-651-9987
Phoenix Canada Oil Company Limited
[email protected]