Proposed Placing and Amendment to GHIF Bond

RNS Number : 0203C

Epistem Holdings plc

23 June 2016

 

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23 June 2016

Epistem Holdings plc ("Epistem" or the "Company")

Proposed Placing to raise £6.5 million at 80p per share

Agreement reached to amend and restate GHIF Bond

In the interim results issued on 31 March 2016 the Company confirmed that it had been holding discussions with shareholders and other potential investors with regards to securing approximately £6.5 million (before expenses) of equity funding. Feedback from these discussions suggested that financial backing for the Company should be enhanced when a track record of sales in India for Genedrive® could be demonstrated and also focused on the maturity date for the GHIF Bond.

On 7 June 2016, the Company announced a business update which confirmed that the Company and GHIF had entered into heads of agreement to extend by two years the maturity date of the GHIF Bond to 21 July 2021, provided an update on activities in India since the launch of the Genedrive® platform and its first TB test in April 2016 in that country and confirmed a £2.5 million cornerstone investor had been identified in connection with the proposed equity raise.

The Company is pleased to announce today the details of a fundraising of £6.5 million (before expenses) by means of a conditional Placing through Peel Hunt with new and existing investors of 8,125,000 Placing Shares at a price of 80 pence per new Ordinary Share. The Issue Price represents a discount of 11.1 per cent. to the mid-market Closing Price of the Company's Ordinary Shares on 22 June 2016. Calculus Capital, as the cornerstone investor, has subscribed for 3,125,000 Placing Shares and on Admission will be interested in 16.7 per cent. of the Enlarged Share Capital.

The New Ordinary Shares, will, when issued, represent approximately 43.5 per cent. of the Company's Enlarged Share Capital.

The Placing is conditional upon, inter alia:

·    the passing of Resolutions 1 and 2 to be proposed at the General Meeting;

·    the Placing Agreement entered into between the Company and Peel Hunt becoming unconditional in accordance with its terms and not having been terminated prior to Admission; and

·    Admission becoming effective by no later than 8.00 a.m. on 12 July 2016 or such other date as the Company and Peel Hunt may agree (being not later than 8.00 a.m. on 29 July 2016).

In addition, the Company proposes to change its name to Genedrive plc to better reflect the focus of its activities and is seeking Shareholder approval for this change of name at the General Meeting. The Company intends to change its TIDM to GDR following the name change.

Commenting on today's announcement, David Budd, Chief Executive Officer of Epistem, said:

"We are very pleased to announce this fundraising which saw demand from new and existing investors. We are excited in the future of Genedrive® in bringing the power of hospital-based, central laboratory diagnostics closer to the point of need and the patient setting. These new funds put us in a strong position to deliver on Genedrive's potential and expand its testing capabilities."

For further details please contact:

Epistem Holdings Plc	[phone]
David Budd: CEO
John Rylands: Finance Director
Peel Hunt LLP	[phone]
James Steel
Oliver Jackson
Sohail Akbar
Consilium Strategic Communications	[phone]
Chris Gardner
Laura Thornton
[e-mail]

Information on Epistem

Epistem is a commercial stage personalised medicine and biotechnology company developing innovative diagnostics and biomarkers alongside providing contract research services to drug development companies. Epistem was founded as a contract research business (''CRO'') but is now refocussing as a Point of Care molecular diagnostics company. Epistem has developed and launched Genedrive®: a next-generation Point of Care molecular diagnostic system providing a low cost, rapid, versatile, simple to use and robust diagnostics platform for the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications.

The Genedrive® platform and its first TB test have been approved and launched in India. Epistem intends to develop a pipeline of tests for other infectious diseases such as HCV, HIV and HBV.

Epistem's operations in its separate pharmacogenomics and Contract Research Services divisions (as well as its Novel Therapies division), are deemed to be non-core to the Company's primary diagnostics activities and the Company's strategy is to focus the Company's resources on the commercialisation of the diagnostic business with the intention of becoming a pure play molecular diagnostics company, which the Board believes is best placed to deliver superior returns for Shareholders. The Directors expect that successful execution of this strategy would result in Epistem being self-sustainable by the end of 2018. To this end, the Board has run a process to select advisers and Northridge Advisory has been appointed to complete a strategic review for the purposes of evaluating potential options for these businesses.

Recent Developments

Epistem commenced its full commercial launch of the Genedrive® TB and antibiotic resistance tests in India in April 2016 and 50 Xcelris staff attended launch training.

In addition to the progress being made by the Company in connection with the opportunity that has been identified in the diagnosis of TB, in February 2016 Epistem announced that it had successfully completed its first external assessment of its Point of Care HCV test. The assessment was conducted on reference material and patient samples at the Institut Pasteur, Paris and its success allows clinical trials of the HCV test to commence, with the aim of securing regulatory approval and market launch in the EU during 2017.

In May 2016 Epistem announced the successful completion of an independent clinical trial of its Genedrive® Point of Care IL28B SNP human genotyping test conducted by teams from the Institut Pasteur and Hôpital Cochin, Paris in the context of the FP7 funded Point of Care HCV project. Topline data from the clinical trial showed that the Genedrive® human genotyping IL28B SNP test was 100 per cent. accurate in detecting inherited genetic polymorphisms in HCV patients when compared to the current 'gold-standard' laboratory test (Roche TaqMan® PCR).

Epistem has also been working with the US Department of Defense to develop Genedrive® as a handheld biohazard identifier. The Company has already been allocated funding of $5.3 million in connection with this programme from the Department of Defense and, subject to positive review, a further $2.5 million could be received over the next few years. In the aqua culture industry a smaller programme with CEFAS has provided Epistem with £0.4 million of grant funding due to such industry's requirement for a rapid point of need test for pathogens, in this case the white spot syndrome virus which can be devastating to farmers of shrimps and other crustaceans.

Whilst historically the development of Genedrive® and associated assays has experienced some setbacks and delays, the Directors believe that the device has now been de-risked and validated and is positioned to offer low-cost, rapid, simple-to-use and robust tests via a razor/razor blade business model across a range of applications. Genedrive® has now generated revenues and attracted grant funding of £4 million in aggregate and also attracted investment in the Company from GHIF, which subscribed for a US$8 million (£4.7 million) convertible bond in July 2014 pursuant to the GHIF Bond and Collaboration Agreement to support the development, production and commercialisation of the Genedrive® device and new diagnostic tests.

In light of the positive progress being made across the Genedrive® business, the Company is undertaking the Placing to develop its test menu, expand market clearance to other tests and geographies, drive commercialisation activities and strengthen its infrastructure.

Management Changes

Epistem has recently strengthened its management team with the appointment of David Budd as Chief Executive Officer who has over 20 years of international and commercial experience in the diagnostic and medical devices field, having launched multiple diagnostics products into international markets. David has joined Epistem from Leica Biosystems (a Danaher company) and took up the position of Chief Executive Officer in March 2016. Dr. Ian Gilham is the Company's Non-Executive Chairman, having previously been appointed to the Board as a Non-Executive Director in 2014. Following the departure of Matthew Walls, Ian acted as Interim Chief Executive Officer pending David's recruitment and arrival. Dr. Gilham has extensive experience in the Point of Care diagnostics sector having previously been Chief Executive Officer of Axis-Shield plc prior to its acquisition by Alere Inc. for £235 million in 2011 and he also worked for Abbott Laboratories. Dr. Gilham is also Chairman of Horizon Discovery Group plc, Multiplicom NV and Biosurfit SA and is a Non-Executive Director of Vernalis plc.

Genedrive® - a disruptive Point of Care diagnostic platform

Genedrive® is designed to bring the power of central laboratory molecular diagnostics to the Point of Care setting in a device that has a lower cost and lower time to result than molecular alternatives. Tests are intended to compete with alternatives (e.g. microscopy, culture and central laboratory tests). Typically Genedrive® requires 60 to 90 minutes to go from sample to result and eliminates the need for samples to be sent to a central laboratory, which in many cases could be in a location which is remote from the point of need. Genedrive® is versatile with capability of rapid configuration to different assays and sample types (e.g., sputum, blood plasma and buccal cheek swabs) and numerous healthcare applications in infectious disease diagnosis, mutation detection, patient genotyping and pathogen detection and identification.

Genedrive® is designed to be used with limited training and without extensive laboratory equipment. Single-use, plug-in cartridges bring one-button operation. It can be operated with a supplementary battery pack and works in hot, humid conditions. It is intended that service replacement units could be delivered by post.

Genedrive® has been positioned to capitalise on two growing trends in the in vitro diagnostics market. The first of these trends is the use of DNA/RNA to test for specific states of disease or health in the molecular diagnostics market. The molecular diagnostics market is anticipated to grow at a compound annual growth rate (''CAGR'') of 7.5 per cent. from US$5.3 billion in 2012 to US$7.6 billion by 2017¹, driven by the continued understanding of the molecular underpinning of diseases, emerging market investments in treatment availability and an economic requirement to validate the response to treatment prior to administration (e.g. companion diagnostics, often referred to as 'personalised medicine'). The largest areas of growth are infectious diseases and cancer.

The second trend is the rising usage of medical diagnostic testing at the time and place of patient care. The use of Point of Care diagnostics enables improved healthcare accessibility, reduced waiting times, immediate discussion of results and treatment and fewer follow-up visits. The global market for Point of Care diagnostics is expected to rise to over $30 billion of sales in 2020 from c.$20 billion in 2014².

(a)   Infectious diseases

Epistem unveiled Genedrive® as its mobile molecular diagnostic device in its 2010 preliminary financial results. Epistem is currently targeting TB, HCV, HIV and HBV with a particular focus currently on TB and HCV. Epistem's infectious disease pipeline is targeting a c.$1 billion market, testing for which today is generally performed in expensive, hospital based settings.

There are several near-term milestones ahead with the commencement of KOL studies and the results from these, plus two studies that have already begun in addition to the launch of the TB test in India and completion of clinical testing for the HCV assay with the aim of securing regulatory approval and market launch in the EU during 2017.

i)     TB diagnostics

TB is an airborne infectious disease thought to infect almost one-third of the world's population. An active TB infection causes chronic cough, blood-tinged sputum and weight loss.

TB is the largest single infectious cause of death among young people and adults today and accounts for more than one quarter of all preventable adult deaths in developing countries. There were an estimated 9.6 million new cases worldwide and TB killed 1.5 million people in 2014. In 2012, India, China, South Africa and Brazil had the highest global incidence of TB. In these four highest burden countries 52 per cent. of new active TB cases occurred in India; 33 per cent. were in China; 13 per cent. were in South Africa and 2 per cent. were in Brazil.

If it is diagnosed, both latent and active TB can be treated with antibiotics with an 80 per cent. success rate. However, diagnosing active TB based on symptoms alone is time consuming and high risk patients are often treated without a definitive diagnosis. Of the total deaths from TB, 98 per cent. occur in poor countries. Poorly managed and financed TB programmes are exacerbating the problem of drug resistant TB and threatening to make TB incurable. Early, near-patient detection enables rapid treatment, reducing transmission rates and remains the most important TB control strategy.

The Foundation for Innovative New Diagnostics (FIND) believes there remains an unmet need for simpler, more effective diagnostics that are designed for use in peripheral settings. FIND further believes that without the right diagnostic tools available near to the locations where patients seek care, 3 million people with TB are not diagnosed, early diagnosis is often not achieved and, therefore, the WHO goal of TB elimination will not be reached.

Epistem's background in TB diagnostics

In June 2011 Epistem announced a TB diagnostic collaboration with Xcelris and the first round of TB internal studies was completed in September 2011. A sales and marketing agreement with Xcelris was subsequently signed in March 2012 for TB testing in India. Outside India, Genedrive® gained CE-IVD registration in July 2012 and in August 2012 Epistem signed a global (ex-Indian sub-continent) TB diagnostic supply and distribution agreement with Becton, Dickinson and Company. This agreement was terminated in September 2013; however, whilst this was a setback for the Company at the time, Epistem has continued to make solid progress as evidenced by the GHIF Bond and Collaboration Agreement that it entered into in July 2014 to support the roll out of Genedrive® in the developing world. Further, in April 2015, the Indian regulator approved an import licence for the Genedrive® MTB/RIF antibiotic resistance test. This paved the way for Xcelris to launch the device and assay in India.

Epistem began its full commercial launch of the Genedrive® MTB/RIF and antibiotic resistance tests in India in April 2016 with an initial shipment of 100 Genedrive® systems and 5,000 test cartridges to Xcelris. 50 Xcelris staff attended launch training and the intention is to grow the front line sales force to 25 people by the end of June 2016 following a successful product introduction.

Genedrive® for TB

The Directors believe that Genedrive® can overcome many of the drawbacks with current diagnostic options for active TB. There are three main competitor options for TB diagnostics: smear microscopy tests, solid state bacterial culture tests and Cepheid, Inc's GeneXpert®.

Smear microscopy tests involve the examination of a stained sputum smear sample under a microscope to identify TB bacteria. They do not have a drug susceptibility test. Results are generated rapidly and the cost per test is low at approximately US$3. A microscope and microscopy training are required. The sensitivity of these tests is approximately 70 per cent.

Solid state bacterial culture tests are run on a sputum sample away from the patient's location. They have a slow turnaround time (i.e., the time from sample to patient or physician receiving the result) of up to 40 days and cost approximately US$17-20 per test. Culture tests require a medium level of operator skill including microbiology training. They have a 100 per cent. specificity.

Cepheid, Inc's GeneXpert® is a laboratory-based PCR test for TB DNA run on diluted sputum which can be away from the patient's location. This means the turnaround time from the patient giving the sample to the physician receiving a result can potentially take days or weeks, and according to one study 16 per cent. of positive patients were lost to follow-up in this time. Up to 1,000 samples per day can be analysed (module dependent). The user price is high at US$18,000 per system and US$10-25 per test; these prices reflect the inclusion of a WHO subsidy, without which they would be higher. A clinical laboratory is required but the operator only requires basic laboratory training. GeneXpert® has 98.5 per cent. accuracy in sensitivity (true positives)³ and 94.4 per cent. accuracy in specificity (true negatives)⁴.

Epistem's Genedrive® is a PCR test for TB DNA run on diluted sputum at the patient's location. It has a fast turnaround time of 75 minutes for TB and a comparatively low user price of US$4,000 per system and US$16-25 per test. It is straightforward to use with single button operation and only requires the patient to visit an out reach centre for the test to be carried out. The operator must wear protective clothing and operate the Genedrive® in a bio-safe environment as sputum is considered potentially infectious. A study performed for the DCGI showed that Genedrive® has 93.0 per cent. sensitivity and 96.0 per cent. specificity with respect to culture confirmed microscopy.

TB diagnosis in many countries is still reliant on older tools, with 77 million sputum smear microscopy tests performed annually in 22 high burden countries at 42,000 dedicated microscopy centres, but new diagnostics are changing the landscape. Molecular testing is the fastest growing TB diagnostic test segment and is expected to erode market share in smear microscopy. 13 million Cepheid GeneXpert® MTB/RIF tests have been sold since launch in 2010 and approximately 1.7 million PCR and GeneXpert® tests were performed in the four highest burden TB markets (China, India, South Africa and Brazil) in 2012. GeneXpert® is not designed to reach out of large hospitals to microscopy centres where most sputum tests are currently run.

Commercial strategy

89 million TB tests were performed in 2012 and 2013 using a variety of products. 32.8 million of these tests were in India, of which 21 million tests were in Genedrive's target market of smear microscopy. 44.2 million TB tests were performed in China, 9.2 million in South Africa and 2.4 million in Brazil.

A recent stakeholder survey stated that a rapid, low-cost, sputum-based, molecular test with ''Detection and Drug Susceptibility Testing'' (''DST'') capability for microscopy centres was the highest priority, demonstrating that there is a push for DST, i.e., MTB/RIF. In the top four markets it is estimated that this will be sized at 11.9 million tests in 2020. The Directors believe that, at a sales price of $10 per test, this will be a US$120 million target opportunity in the top four markets alone. The top four markets account for c.46 per cent. of global volume and it is expected that there would be future upside from additional global markets. Building on the experience that it is developing in India, Epistem intends to seek partners in wider markets after the receipt of any necessary approvals.

As previously reported, Epistem has paused its trials in Africa, part of a programme towards WHO approval, whilst a programme analysis can be undertaken. Feedback from its Brazil and Africa trials of earlier protocols for Genedrive® highlighted levels of sensitivity materially lower than were experienced in other trials. The Directors believe these variations can be partially accounted for by different levels of co-infection experienced in the different patient population groups and potentially in variations in operator practice.

Epistem is initially targeting India which, based on data from 2012, has the largest recorded annual incidence of TB infection. Epistem's commercial strategy for India will exploit Genedrive's low-cost, ease-of-use, speed-to-result, small footprint and robustness. The launch is initially targeting the segments of the market currently using smear microscopy and skin testing, which accounted for over 30 million TB diagnostic tests in 2015. The initial focus is intended to be on c.5,000 small and medium decentralised laboratories predominantly in the private sector, which is the largest market by revenue. The Directors believe that Genedrive® is better positioned to take advantage of the private market on a cost basis. A significant proportion of the Indian healthcare system comprises small out-reach laboratories, which are predominantly in the public sector. They are semi-automated with a medium skill level and high Point of Care usage. The remainder of the market is made up of large hospital laboratories which are predominantly in the public sector.

The Company announced the launch of its Genedrive® TB test in India on 18 April 2016, with the product marketed by Epistem's partner Xcelris under a licence from the Drug Controller General of India (DCGI). The product became available in-country at the beginning of May and Xcelris began appointing sub-dealers to selectively access the market.

Dr Bhavini Shah, who heads TB testing services at Supratech Inc, India, has confirmed that in a recently initiated device performance study, over 200 patient tests have now been performed using the Genedrive® TB system and she confirms the device performance is in alignment with the Company's DCGI claims.

Genedrive® is a pioneering Point of Care testing solution for TB and, although Epistem is aware of a number of competitor devices in development, the Directors believe that Genedrive® is positioned ahead of potential competing devices in terms of its development.

Such competitors include GeneXpert Omni, which is a portable follow-on device being developed by Cepheid, Inc. to its existing laboratory-based GeneXpert. It has a higher average net selling price (''ANSP'') compared to Genedrive® and uses the same high cost cartridge as GeneXpert. The device has WHO backing and will benefit from Cepheid's strong international sales network and Cepheid has recently confirmed that it is expected to be available in emerging markets in Q3 2017.

Alere Inc. is developing Alere q, a portable microarray based detection device. Alere q is not yet launched and is anticipated to have a higher ANSP than Genedrive®. The device has WHO/UNITAID backing and will benefit from Alere's strong international sales network. The launch date is not yet confirmed and, therefore, at the current time, the trajectory for Alere q is unclear.

Molbio Diagnostics Pvt. Ltd has developed Truelab, a semi-automated DNA extraction and analysis device. The cost of the instrument is reportedly twice the price of Genedrive® and two instruments are needed for extraction and analysis of the data. It is mains powered with battery backup. Truelab is being marketed in India by a local company and is expected to have a range of assays and be able to generate results from a single sample in three hours.

HCV diagnostics

HCV is a blood-borne virus which primarily affects the liver. Although asymptomatic, after many years chronic HCV infection gives rise to liver cirrhosis, hepatocellular carcinoma and is the leading cause for liver transplantation. HCV is a significant public health concern that affected approximately 100 million patients globally in 2012. Only 0.4 million of these patients were treated that year, showing the need for increased screening and timely diagnosis. There is currently no vaccine available against HCV.

There are three to four million new HCV infections each year and approximately 170 million people infected globally, of which approximately 75 to 80 per cent. will progress from acute to a chronic state. Chronic infection is estimated to lead to 350,000 to 500,000 deaths per year. There are approximately 7.5 million people in the US and EU5 with chronic HCV, of whom only 1.7 million (approximately 23 per cent.) are diagnosed. In developing countries, diagnosis rates are less than 10 per cent. A lack of effective diagnostics is the major barrier to providing life-saving care and treatment for HCV.

Chronic HCV infection is curable if diagnosed. There is scope to reduce the high healthcare costs associated with chronic infection. The lifetime cost per patient is US$65,000 and it costs US$280,000 per liver transplant so there is a clear economic case for treating HCV over managing the high costs of end-stage liver disease. New treatment options, such as Gilead Science Inc's Sovaldi®, are associated with fewer side effects and cure rates are approximately 90 per cent.

The global HCV testing market is estimated to be worth approximately $500 million, and is comprised of qualitative testing and Nucleic Acid Testing (''NAT''). Qualitative immunoassay (anti-HCV antibodies) testing accounts for US$250-300 million and NAT PCR tests (viral load) are worth US$200-250 million. NAT methods are only available in centralised, high resource settings. The US represents 40 per cent. of this market with the EU accounting for 35 per cent. and the high-burden developing world for the remaining 25 per cent.

Based on data from 2010, China has the highest prevalence of HCV with 29.8 million incidences, followed by India with 18.2 million cases, Egypt with 11.8 million cases and Pakistan and Indonesia each with 9.4 million cases.

HCV diagnosis has three stages. The first stage at present comprises an immunoassay test which costs US$20 but which tests for the presence of HCV antibodies without indicating the presence of active infection. Confirmation of diagnosis requires a NAT test. The second stage requires one genotype test at a cost of US$20 to US$500 to determine the treatment decision. The final stage consists of five to six viral load quantitative tests at a cost of US$20 to US$80 each: one baseline test, three to four monitoring tests and one post-treatment test are required.

Molecular tests are necessary to confirm active infection and monitor viral loads. There are several PCR tests on the market including tests marketed by Roche AG, Abbott Laboratories Inc and Qiagen N.V. but all operate on costly platforms for centralised, high-resource settings, which are too costly for developing markets. Subsidised access to new therapies in developing markets is stimulating the need for diagnostics.

The emergence of new therapies, such as Gilead Science Inc's Sovaldi®, with improved efficacy and side effect profiles is stimulating a large demand for improved diagnostics. Low and middle income countries have a less than ten per cent. diagnosis rate and the current diagnostic paradigm is too costly for low-income countries with multiple tests costing US$300 to US$1,400 per patient. 84 to 96 per cent. of the population of these countries live in areas where testing is not accessible. The Directors therefore believe that there is a strong need for a rapid, inexpensive and accurate Point of Care PCR test.

Epistem's background in HCV diagnostics

Epistem is developing a proprietary HCV test, in collaboration with Inserm, the French National Institute of Health and Medical Research, under a €6 million programme part-funded by the European Commission's 7th Framework HCV programme (EU FP7 PoC-HCV, www.poc-hcv.eu), which commenced in September 2013.

The Genedrive® HCV test detects viral RNA, covers all HCV genotypes and is performed at point of need medical centres directly on plasma without the requirement for complex laboratory equipment or highly trained operators. The test is completed within 90 minutes and has shown excellent alignment to target product profile specifications for HCV, as specified by FIND. On 18 February 2016 Epistem announced that its HCV test had successfully completed its first external assessment. The assessment was conducted on reference material and patient samples at the Institut Pasteur, Paris, and its success allows clinical trials of the HCV test to commence, in anticipation of expected regulatory approval and market launch in the EU in Q2 2017.

Genedrive® for HCV

Genedrive® is a near to market Point of Care testing solution for HCV diagnosis with the potential to expand the overall HCV testing market in high burden countries where there is a need for a Point of Care quantitative HCV test and for increased availability of next generation cures. It is a field based PCR test with a fast turnaround time of up to 90 minutes for HCV and an anticipated low price of US$20 to US$50 per test. It can also diagnose active infections from a patient's blood sample and has a level of detection (''LOD'') of 500 international units per millilitre, well within FIND's published parameters for LOD. Above this level it has greater than 98 per cent. specificity and 100 per cent. sensitivity. The Genedrive® test can be conducted directly from patient plasma without the requirement for nucleic acid amplification.

As a Point of Care solution, the Company believes that Genedrive® is uniquely positioned to support FIND's HCV strategy and potentially be the first to market molecular and Point of Care test for HCV diagnostics and viral load. Competing central laboratory offerings consist of immunoassays and laboratory-based PCR based tests.

Immunoassays are laboratory-based tests used to identify the presence of HCV antibodies in patients' blood serum. Numerous companies provide these tests including Abbott Laboratories Inc., Johnson & Johnson Inc., BioRad Laboratories Inc. and DiaSorin Ltd. Currently the turnaround time for test results is days or weeks and the price is approximately US$20 per test.

Laboratory-based PCR based tests for viral DNA run on blood samples. These are high-cost platforms in centralised, high-resource laboratories with an approximate US$250-500 cost per test. There are numerous providers of PCR-based tests including Abbott Laboratories Inc, Qiagen N.V., Roche AG, Siemens AG and Cepheid Inc. While the test is undertaken in hours, the turnaround time to deliver the results of a test back to the medical centre may take weeks or days and they have 100 per cent. specificity and 100 per cent. sensitivity above 5-10 international units per millilitre. Unlike present immunoassays, PCR-based tests can diagnose active infections and measure viral load.

The Genedrive® test has been developed to perform on whole blood derived plasma (from either venous phlebotomy or capillary derived plasma). Whilst the assay is qualitative at present, its inherent design features will allow quantitative (viral load) testing.

Commercial strategy

Strategies are emerging allowing access to new treatments for HCV, such as Gilead Science Inc's Sovaldi®, in developing countries. In many developing countries HCV testing and diagnosis at sustainable prices is becoming the bottle-neck to treatment. FIND's guidelines support the development of a Point of Care solution. It is intended that Genedrive® will establish and develop new partnerships and distribution networks for market access and the Directors believe the uptake of this qualitative HCV test should benefit from improved access to new drugs. Significant global players could offer a future opportunity for partnership, development and distribution opportunities.

Pipeline

In 2011, the global market for qualitative detection of HIV, HCV and HBV was estimated at $900 million. The 2011 market size for Point of Care tests was estimated to be $13.4 billion, forecasted to grow to $16.5 billion by 2016.

Beyond TB and HCV, Epistem has plans to develop Genedrive® assays for HIV and HBV, which are expected to move to external testing and validation in 2017 subject to satisfactory completion of internal testing and verification which would commence later in 2016.

Furthermore, Epistem is considering positioning Genedrive® as an ''open source'' platform to expand the market for tests and devices. This would allow partners to establish a market need for a new test, for example as a result of a virus outbreak. Epistem would then develop the core technology, which would be released for partners to complete the target-specific development aspects, verify and validate the data, conduct clinical trials, seek regulatory clearance and market the test. Epistem and its partners currently complete all aspects of the process. The Directors believe that the ''open source'' approach may lighten the time and cost burden for product development and allow for the rapid deployment of novel tests in response to infectious disease outbreaks such as Zika and Ebola, etc.

(b)   Pharmacogenomics

Pharmacogenomics, often referred to as personalised medicine, is a growing sub-segment of the in-vitro-diagnostics market used for patient genotyping, patient stratification and target identification and validation. Out of 45 new drugs approved by the FDA in 2015, 13 (28 per cent.) required a companion diagnostic test and 30 per cent. of all treatments in late clinical development rely on biomarker data. This data can be used for prognostic information, screening and therapeutic monitoring.

The global market for companion diagnostics is expected to grow at a CAGR of 18 per cent. from US$1.8 billion in 2012 to $5.6 billion in 2019⁵.

The Genedrive® IL28B patient genotype is a pharmacogenomic patient stratification test. The test is run on buccal swab samples with no need to isolate DNA. Genedrive® provides near patient genotype results within 50 minutes of sample collection and it predicts patient response to interferon therapy in HCV treatment.

Institut Pasteur conducted clinical trials on the IL28B diagnostic and the intention now is to offer the test for research use. Topline data from the clinical trial at Hôpital Cochin in Paris showed that the Genedrive® human genotyping IL28B SNP test was 100 per cent. accurate in detecting inherited genetic polymorphisms in HCV patients when compared to the present laboratory 'gold standard' (Roche TaqMan® PCR). With the replacement of interferon treatment with newer drug treatments, such as Gilead Science Inc's Sovaldi®, the market need for the IL28B test is reduced. However, development of the IL28B companion diagnostic validates the Genedrive® platform for use in pharmacogenomics and companion diagnostics. With 28 per cent. of new drugs being cleared by the FDA requiring a genotyping test, the Company aims to collaborate with pharma partners to develop companion diagnostic genotyping tests targeted at specific drug development needs.

Epistem also intends to explore agreements with pharmaceutical and biotechnology companies as partners for Point of Care tests for patient stratification.

(c)   Wider applications

Epistem has an agreement with the US Department of Defense to develop Genedrive® as a handheld test for biohazard identification. This is used for the identification of biological agents and pathogens.

The US Department of Defense began assessing Genedrive® for biodefence use in 2011. A positive review was followed up by a funding programme of up to US$7.8 million due over 5 years. As part of this programme $2.4 million was awarded in 2015, to be received by Epistem in 2016. Further funding of $2.9 million for delivery in 2016/17 was announced on 21 March 2016. The Directors believe that this represents an independent validation of the Genedrive® technology over competing systems.

Epistem also has a collaboration with CEFAS for a point of need aquaculture test for diagnosis of pathogens. The main pathogen identified is the white spot syndrome virus, which affects shrimps and crustaceans and can wipe out entire shrimp farms within days.

Epistem has received £0.4 million of grant funding for the development of a rapid diagnostic tool for white spot syndrome. Final data on verification for white spot syndrome virus is expected in March 2018. The Directors believe that this represents a further independent validation of the Genedrive® technology over competing systems.

(d)   Supply chain

Defond Group Ltd, based in China, manufactures Genedrive® units under a supply agreement. Current unit pricing is US$543 per unit at a 300 batch level, which generates a c.80 per cent. gross margin at a sales price of $2,400. Unit quality and first-time manufacturing yield is in line with expectations. The standard batch size is 300 but it can be scaled.

Cartridge and assay test formulations are manufactured by Epistem, and then transferred to GE where they are powdered and prepared into cartridge format. The current batch size is 3,000 tests and currently Epistem is breaking even on the sale of TB assays. An initiative is underway to achieve a volume related reduction in the cost of goods. In non-developing markets, or with other targets (e.g. HCV), the financial model is directly supported by the current set-up but the Directors expect that such markets will also benefit from the focus on cost reductions required for the TB assay.

Pharmacogenomics and Contract Research Services divisions

Epistem's other businesses, which build on its know-how and heritage in the epithelial stem cell space, include its Pharmacogenomics division, which provides high quality biomarker and personalised medicine information to top tier pharmaceutical and biotechnology companies including GlaxoSmithKline plc and Novartis AG. The division generated revenues of £1.8 million in the year to June 2015, compared with £2.4 million in 2014, including £0.5 million FP7 grant income for the HCV development and targets top-tier pharmaceutical partners including collaborations with GSK and Novartis.

In addition, Epistem has a Contract Research Services division which contains experts in epithelial stem cells and specialists in pre-clinical efficacy testing. The division has an established international track record and delivers bespoke preclinical (and early clinical) services testing efficacy and specificity of client drugs and offers internally developed models and assays in the diseases of oncology, oncology supportive care (mucositis), inflammatory bowel disease, rheumatoid arthritis and dermatology. Each disease area is served by specialist core technologies (imaging, FACS analysis, histopathology, immunohistochemistry and multiplexing) to support drug, target and protein biomarker validation. Contract Research Services generated sales of £2.3 million to 30 June 2015 (2014: £2.9 million) reflecting weaker sales in Europe. The division's work for the University of Maryland ended in September 2015, after earning £0.9 million to 30 June 2015 (2014: £1.1 million). Contribution by the division was £0.1 million to 30 June 2015 (2014: £0.5 million). During the six months to 31 December 2015, the division's sales were £1.0 million (2014: £1.0 million) and it broke even (2014: a loss of £0.1 million). The division's sales have, in the past, been weighted to the second half of the financial year.

Epistem's operations in its separate Pharmacogenomics and Contract Research Services divisions (as well as its Novel Therapies division) are deemed to be non-core to the Company's primary diagnostics activities and the Company's strategy is to focus the Company's resources on the commercialisation of Epistem's diagnostic business with the intention of becoming a pure play molecular diagnostics company, which the Board believes is best placed to deliver superior returns for Shareholders. To this end, the Board has run a process to select advisers and Northridge Advisory has been appointed to complete a strategic review for the purposes of evaluating potential options for these businesses.

Reasons for the Placing and use of proceeds

It is the intention of the Directors that the net proceeds of the Placing will be used to support and fund the Group in the following ways:

·    40 per cent. for the development of the test menu, including final testing and verification of the HCV assay and HIV and HBV assay development and verification;

·    20 per cent. for the expansion of market clearance, including TB approval in other countries and CE marking of the HCV test;

·    15 per cent. for the driving commercialisation activities, including partner support for ongoing TB launch in India and in-house business development activities; and

·    25 per cent. for the strengthening infrastructure, including manufacturing and capital expenditure, regulatory, quality assurance and quality control and clinical trial capabilities.

Details of the Placing and the Placing Agreement

(a)   The Placing

The Company is proposing to raise £6.5 million, before expenses, by way of a conditional placing of 8,125,000 Placing Shares at the Issue Price with new and existing investors. The Issue Price represents a discount of 11.1 per cent. to the Closing Price of 90 pence on 22 June 2016, being the last dealing day prior to announcement of the Placing. The Placing is conditional upon, inter alia, (i) the passing of Resolutions 1 and 2 set out in the Notice of General Meeting; and (ii) Admission. In connection with the Placing, the Company has entered into the Placing Agreement pursuant to which Peel Hunt has agreed, in accordance with its terms, to use reasonable endeavours to place the Placing Shares with certain new and existing investors. The Placing is being underwritten by Peel Hunt.

Pursuant to the terms of the Placing Agreement Peel Hunt has conditionally placed the Placing Shares at the Issue Price with the Placees. Assuming the issue of all of the Placing Shares, the Placing Shares will represent approximately 76.9 per cent. of the Existing Ordinary Shares and will, when issued, represent approximately 43.5per cent. of the Enlarged Share Capital.

The Placing Shares are not being made available to the public and none of the Placing Shares are being offered or sold in any jurisdiction where it would be unlawful to do so.

On issue, the New Ordinary Shares will not be treated as either ''listed'' or ''quoted'' securities for relevant tax purposes. The Directors believe that a proportion of the New Ordinary Shares should be eligible (subject to circumstances of investors) for tax reliefs under EIS and for investment by VCTs. However, neither the Directors nor the Company give any warranty or undertaking that relief will be available in respect of any investment in the New Ordinary Shares nor do they warrant or undertake that the Company will conduct its activities in a way that qualifies for or preserves its status.

(b)   The Placing Agreement

The Placing Agreement has been entered into between the Company and Peel Hunt. Pursuant to the Placing Agreement, Peel Hunt has agreed to use its reasonable endeavours to arrange for Placees to subscribe at the Issue Price for the Placing Shares.

The Placing Agreement is conditional upon Admission having taken place and certain other conditions having been fulfilled or waived on or before 12 July 2016 (or such later time and date as the Company and Peel Hunt may agree, being no later than 29 July 2016).

The Placing Agreement contains certain warranties from the Company in favour of Peel Hunt in relation to, inter alia, the accuracy of the information contained in the Circular and certain other matters relating to the Company, its business and the Placing. In addition, the Company has agreed to indemnify Peel Hunt in relation to certain liabilities that Peel Hunt may incur in respect of the Placing.

The Placing Agreement provides for the Company to pay all expenses incidental to the Placing and the application for Admission, including the fees and costs of other professional advisers, and all costs relating to the Placing, including printing, advertising and distribution charges, the fees of the Registrars and the fees payable to the London Stock Exchange.

Peel Hunt is entitled to terminate the Placing Agreement if, amongst other things: (a) prior to Admission, Peel Hunt becomes aware that there has been a material breach of any of the warranties given by the Company in the Placing Agreement; (b) prior to Admission, the Company has failed to comply with certain of its obligations under the Placing Agreement; or (c) prior to Admission, certain force majeure events occur such that Peel Hunt considers (in good faith) that the Company ought not to proceed with the Placing including any calamity, crisis or material adverse change in the financial, political, economic or stock market conditions in the United Kingdom (including, without limitation, as a result of a majority of the votes cast in the referendum on the United Kingdom's membership of the European Union, to be held in accordance with the European Union Referendum Act 2015 on 23 June 2016, being in favour of the United Kingdom leaving the European Union).

Subject to the terms of the Placing Agreement, Peel Hunt has agreed to pay the net proceeds it receives from the Placing to the Company within three Business Days of Admission.

(c)   Restricted Jurisdictions

Securities may not be offered or sold in the United States absent (i) registration under the U.S. Securities Act of 1933, as amended (the ''Securities Act'') or (ii) an available exemption from registration under the Securities Act. The New Ordinary Shares have not been and will not be registered under the Securities Act or under the applicable securities laws of any state or other jurisdiction of the United States. The New Ordinary Shares may not be offered, sold, taken up, resold, transferred or delivered, directly or indirectly, within, into or in the United States. The New Ordinary Shares are being offered and sold only outside the United States in offshore transactions within the meaning of, and in accordance with, Regulation S under the Securities Act. There will be no public offer of the New Ordinary Shares in the United States.

The New Ordinary Shares may not be offered, sold, taken up, resold, transferred or delivered, directly or indirectly, within, or into any other Restricted Jurisdiction, or to any national, resident or citizen of, or any corporation, partnership or other entity created or organised under the laws of, any other Restricted Jurisdiction, except in compliance with the securities laws of such relevant Restricted Jurisdiction.

Effect of the Placing

Upon Admission, the Enlarged Share Capital is expected to be 18,689,446 Ordinary Shares. On this basis, the New Ordinary Shares will represent approximately 43.5 per cent. of the Enlarged Share Capital.

The New Ordinary Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the Ordinary Shares of the Company, including the right to receive all dividends and other distributions declared, made or paid after the date of their Admission.

Application will be made for all of the New Ordinary Shares to be admitted to trading on AIM. On the assumption that, inter alia, the Resolutions are approved by Shareholders, it is expected that Admission will become effective and that dealings will commence at 8.00 a.m. on 12 July 2016. It is expected that the New Ordinary Shares will be delivered into CREST on 12 July2016 or, as applicable, that share certificates for any of the New Ordinary Shares will be despatched by no later than 20 July 2016.

Interim results

The Company announced its interim results for the period ending 31 December 2015 on 31 March 2016. Please refer to the Company's announcement as notified through a RIS and made available on the Company's website at www.epistem.co.uk.

Highlights of the interim results are as follows:

Operating Highlights

·    Continued preparation for full launch of the Genedrive® TB assay in India (now launched).

·    Completion of internal phase of Genedrive® HCV test development programme.

·    Positive interim feedback from clinical trials of IL28B genotype test supervised by Pasteur Institut.

·    Positive progress with latest phase of US Department of Defense biohazard identifier programme.

·    Positive progress with the UK Department of Environment/TSB for Genedrive® aquaculture testing programme.

·    Soft first half revenues from the Preclinical and Personalised Medicine businesses.

Financial Highlights

·    Total revenue and other income of £2.0 million (2014: £2.2 million) with sales by the Preclinical Research Services and Personalised Medicine divisions supplemented by Genedrive® collaboration income.

·    Increased investment in Genedrive®, giving rise to a reported after tax loss of £3.3 million (2014: £1.9 million loss after tax.

·    Net cash outflow from operating activities of £2.5 million (2014: £1.9 million).

·    Cash reserves of £2.3 million at 31 December 2015 (30 June 2015: £4.9 million).

Current trading and prospects

Following the appointment of David Budd as Chief Executive Officer on 1 March 2016, the Group has continued to focus its resources on its Genedrive® Point of Care molecular diagnostic platform and strengthen its diagnostics expertise and infrastructure.

The Company's focus for the second half of the financial year has remained firmly on progressing with the commercialisation of the Genedrive® TB test in India, alongside the development of its pipeline HCV assay, and delivering on its collaborative projects. With increasing validation of Epistem's expertise across a variety of diagnostics applications, the Directors believe that the Company is well placed to exploit the commercial potential of Genedrive® and to generate shareholder returns from the expected market response. The Company also intends to drive an improved second half revenue delivery in its Preclinical Research Services and Personalised Medicine Divisions, with both divisions anticipating increased revenues in the second half although they are expected to make a modest loss for the year as a whole.

Whilst the Directors have been disappointed by the first half revenue development from Epistem's service businesses and the delay in developing repeat sales of the Genedrive® TB tests in India the Board has been encouraged by the continued progress with increasing validation of the Genedrive® platform and its potential to test for a broad range of diseases, genotypes and biodefence applications. The Company has launched Genedrive® in India in respect of TB testing, initially targeting approximately 5,000 small/medium laboratories in India in partnership with Xcleris. The Directors believe that the Genedrive® TB and HCV programmes represent substantive commercial value underpinning the Epistem business going forward.

The Company has continued to trade in line with the Board's expectations and expects to report revenues of between £4.6 million and £5.0 million for the year ending 30 June 2016 (2015: £4.5 million). Unaudited cash balances as at 31 May 2016 were £1.2 million and confirmation of the Placing today will, subject to Admission, provide the Company with a significantly strengthened balance sheet to deliver on a number of strategic objectives as outlined herein.

GHIF Amendment Agreement

GHIF is capitalised by a broad range of investors, governments, foundations, institutional investors, leading pharmaceutical companies and a development bank with the benefit of a partial guarantee from the Bill & Melinda Gates Foundation.

In July 2014, Epistem announced that it had entered into the GHIF Bond and Collaboration Agreement, pursuant to the terms of which GHIF provided the Company with US$8 million of funding to support the development, production and commercialisation of the Genedrive® unit and tests for the diagnosis of infectious diseases in the developing world.

The GHIF Bond and Collaboration Agreement also provided for a 5 year global access commitment collaboration to support and facilitate the introduction, distribution and sale of the Genedrive® platform and its expanding menu of products in development. GHIF supports a new approach to diagnosis of infectious disease in low income countries by enabling the advance of new technology at low cost whilst delivering 'gold standard' molecular diagnosis.

In order to align Company and shareholder requirements, the Company and GHIF have now entered into the GHIF Amendment Agreement, to amend and restate certain terms of the GHIF Bond and Collaboration Agreement. Pursuant to the GHIF Amendment Agreement the maturity date of the GHIF Bond will be extended by two years to 21 July 2021 and the GHIF Bond will be split into two tranches, with the first tranche of US$2 million having a conversion price of 150p per Ordinary Share and the conversion price for the second tranche of US$6 million remaining at 489p per Ordinary Share. The conversion prices of the two tranches of the GHIF Bond were agreed in arms length negotiations between the Company and GHIF. As a consequence of the reduction in the conversion price for the first tranche of US$2 million, the aggregate limit on the number of Ordinary Shares that can be issued in connection with the conversion of the GHIF Bond, has been increased pursuant to the terms of the GHIF Amendment Agreement from 968,080 Ordinary Shares to 1,514,348 Ordinary Shares.

The Company will have the option to convert the first tranche of US$2 million into new Ordinary Shares in circumstances where the average closing price of the Company's Ordinary Shares is greater than or equal to £2.50 per Ordinary Share for a prior period of 20 consecutive days. In addition, for interest periods ending on or before 21 January 2019 the Company may elect (by giving not less than 30 days' notice to GHIF prior to each interest payment date) to pay none or a portion of the 5% interest payable semi-annually on the accrued and outstanding principal amount of the GHIF Bond and instead capitalise and compound some or all of such outstanding interest due until the earlier of the date on which the GHIF Bond is repaid or converted into Ordinary Shares. The Company will not have the ability to capitalise any of the interest payable on interest periods ending after 21 January 2019 which shall remain payable semi-annually.

The GHIF Amendment Agreement remains conditional upon the completion of the Placing and receipt of the Placing proceeds by the Company by no later than 31 July 2016. GHIF is supportive of Epistem and believes Genedrive® has the potential to support the diagnostic testing needs of significant numbers of patients across the world for a wide range of infectious diseases.

Resolutions

The Circular to be sent to Shareholders includes the notice convening the General Meeting. Of the Resolutions to be proposed at the General Meeting, Resolutions 1 and 2 are necessary in order for the Placing to proceed and may be summarised as follows:

(1)  Resolution 1 is an ordinary resolution to grant the Directors authority to allot up to the maximum number of New Ordinary Shares that may be issued in the Placing; and

(2)  Resolution 2 is a special resolution to disapply pre-emption rights granted under the Act in respect of the allotment of up to the maximum number of New Ordinary Shares that may be issued in the Placing;

In addition, the Company is seeking Shareholder approval to replace and renew the authorities granted at the 2015 AGM in respect of the general authority to allot shares and the authority to disapply pre-emption rights in respect of 10 per cent. of the Company's issued share capital to reflect the increase in the Company's issued share capital that will result from the issue of the Placing Shares. Accordingly:

(3)  Resolution 3 is an ordinary resolution which replaces the authority granted at the 2015 AGM to allot up to 6,229,800 Ordinary Shares (£93,447 in nominal value), representing a third of the issued share capital as enlarged by the issue of the Placing Shares; and

(4)  Resolution 4 is a special resolution which replaces the authority granted at the 2015 AGM to disapply pre-emption rights granted under the Act in respect of 1,868,933 Ordinary Shares (£28,034 in nominal value), representing 10 per cent. of the issued share capital as enlarged by the issue of the Placing Shares.

The authorities set out in Resolutions 3 and 4 are in substitution for the Existing Authorities conferred on the Directors by Shareholders at the 2015 AGM. Resolutions 3 and 4 are conditional upon Admission, so that if the Placing is not completed the Existing Authorities will continue in force.

The Placing Agreement is conditional upon the amendments to be made to the GHIF Bond and Collaboration Agreement pursuant to the GHIF Amendment Agreement becoming unconditional in all respects save for the condition relating to closing of the Placing and payment of the Placing proceeds to the Company. As described above, pursuant to the GHIF Amendment Agreement, the aggregate limit on the number of Ordinary Shares that can be issued in connection with the conversion of the GHIF Bond will be increased. Consequently, the Company is proposing Resolutions 5 and 6, which are necessary to enable the increased number of Ordinary Shares to be issued in connection with the GHIF Bond. Accordingly:

(5)  Resolution 5 is an ordinary resolution to grant the Directors authority to increase and allot the maximum number of New Ordinary Shares that may be issued to GHIF in connection with the GHIF Bond and the GHIF Bond and Collaboration Agreement (as amended by the GHIF Amendment Agreement); and

(6)  Resolution 6 is a special resolution to disapply pre-emption rights granted under the Act in respect of the increase in and allotment of the maximum number of New Ordinary Shares that may be issued in connection with the GHIF Bond and the GHIF Bond and Collaboration Agreement (as amended by the GHIF Amendment Agreement).

Resolutions 5 and 6 are conditional upon Admission.

Finally, to reflect the Company's increased focus on Genedrive®, the Company is seeking Shareholder approval to change its name from Epistem Holdings plc to Genedrive plc. Accordingly:

(7)  Resolution 7 is a special resolution to change the Company's name to Genedrive plc.

Resolution 7 is not conditional upon the passing of any of the other Resolutions.

If Resolutions 1 and 2 are not passed by Shareholders at the General Meeting, the Placing will not proceed. Your attention is specifically drawn to the section below ''Working Capital and Importance of Vote''.

Related party transaction and Directors' intentions

The Company has today been notified that certain directors of the Company have agreed to subscribe or intend to subscribe for Placing Shares pursuant to the terms of the Placing. Following Admission, the beneficial interests of the participating directors will be as follows:

Director	Number of Placing Shares acquired pursuant to the terms of the Placing	Resulting holding post Admission*	% of enlarged issued voting share capital
Dr. Ian Gilham	31,250	51,750	0.28
David Budd	31,250	31,250	0.17
John Rylands	162,500	384,069	2.06
Dr. Allan Brown	31,250	57,507	0.31
Dr. Catherine Booth	-	990,922	5.30
Dr. Robert Nolan	-	5,065	0.03
Dr. Roger Lloyd	12,500	12,500	0.07

*Includes shares held by Epistem SIP Trustee Limited (a wholly owned subsidiary of the Company) on behalf of Directors participating in the Epistem Share Incentive Plan, a HMRC approved share investment plan.

The following substantial shareholders as defined in the AIM Rules for Companies, in that they currently have an interest in more than 10 per cent. of the Company's current issued share capital, have agreed to subscribe for Placing Shares.

Shareholder	Number of Placing Shares acquired pursuant to the terms of the Placing	Resulting holding post Admission	% of enlarged issued voting share capital
Odey Asset Management LLP	786,254	2,398,254	12.83

The Independent Directors consider, having consulted with the Company's nominated adviser, Peel Hunt, that the terms on which the Placing Shares will be issued to Dr. Ian Gilham, David Budd, Dr. Allan Brown, Dr. Roger Lloyd, John Rylands and Odey Asset Management LLP are fair and reasonable insofar as the Company's Shareholders are concerned.

Irrevocable commitments from certain Directors and major Shareholders

The Directors, who in aggregate hold 1,236,961 Existing Ordinary Shares, representing approximately 11.71 per cent. of the existing issued ordinary share capital of the Company, have irrevocably undertaken to vote in favour of the Resolutions at the General Meeting.

Odey Asset Management LLP who holds 1,612,000 Existing Ordinary Shares, representing approximately 15.26 per cent. of the existing issued ordinary share capital of the Company, has irrevocably undertaken to vote in favour of the Resolutions at the General Meeting.

General Meeting and action to be taken

A notice convening the General Meeting to be held at the offices of Covington & Burling LLP, 265 Strand, London, WC2R 1BH at 10.00 a.m. on 11 July 2016 is set out at the end of the Circular. A Form of Proxy for use by Shareholders in connection with the General Meeting is also enclosed with the Circular.

Whether or not Shareholders propose to attend the General Meeting in person, Shareholders are requested to complete the Form of Proxy in accordance with the instructions printed on it and to return it to the Company's registrars Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen B63 3DA as soon as possible and in any event so as to arrive no later than 48 hours before the meeting.

Completion and return of the Form of Proxy will not preclude Shareholders from attending the General Meeting and voting in person should they so wish.

Working Capital and Importance of Vote

Shareholders should be aware that, if Resolutions 1 and 2 are not approved at the General Meeting, the net proceeds of the Placing will not be received by the Company and the Placing will not proceed. If this were to happen, the Company would only have sufficient working capital to trade into the middle of Q3 2016 without taking any mitigating action and, therefore, the Board would need to seek alternative financing which may or may not be forthcoming. The Directors consider that such a scenario would not be in the best interests of the Company or its Shareholders and that any alternative financing, if available, could be on less favourable terms than the Placing and could risk leading to substantial dilution for Shareholders. If the Company were to be unsuccessful in pursuing alternative financing, the Company could be obliged to cease operations, the consequences of which could include insolvency proceedings and Shareholders potentially losing all or a very significant part of the value of their shareholding. Accordingly, it is very important that Shareholders vote in favour of the Resolutions in order that the Placing may proceed.

Taking into account the net proceeds of the Placing, the Directors have no reason to believe that the Company's working capital will be insufficient for at least 12 months from the date of Admission.

Recommendation

The Directors consider the Placing and the GHIF Amendment Agreement to be in the best interests of the Company and the Shareholders as a whole and, accordingly, unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as they intend to do in respect of their own holdings of Ordinary Shares.

Indicative Timetable

	2016
Announcement of the Placing Posting of the Circular and Form of Proxy	23 June 23 June
Latest time and date for receipt of Forms of Proxy	48 hours before the General Meeting
General Meeting	10.00 a.m. on 11 July
Admission and commencement of dealings in New Ordinary Shares	8.00 a.m. on 12 July
New Ordinary Shares to be held in uncertificated form credited to CREST stock accounts	12 July
Expected date of despatch of definitive share certificates for New Ordinary Shares to be held in certificated form	20 July

Notes:

(1) References to times in this Document are to London time (unless otherwise stated).

(2) The dates and timing of the events in the above timetable and in the rest of this Document are indicative only and may be subject to change.

(3) If any of the above times or dates should change, the revised times and/or dates will be notified by an announcement through an RIS.

Placing Statistics

Issue Price	80 pence
Discount to Closing Price of Existing Ordinary Shares on 22 June 2016	11.1%
Number of Existing Ordinary Shares in issue	10,564,446
Number of Placing Shares to be issued pursuant to the Placing	8,125,000
Enlarged Share Capital at Admission	18,689,446
Number of Placing Shares as a percentage of the Enlarged Share Capital	43.5%
Gross proceeds of the Placing	£6.5 million
Estimated net proceeds of the Placing	£6.05 million

References

¹Nugent et al. (2014) BD Molecular Diagnostics. American Association for Clinical Chemistry

²Drain, P.K et al. (2015) The arrival of a true point-of-care molecular assay-ready for global implementation?. The Lancet. Vol (3) November 2015

³Tuberculosis Diagnostics Technology & Market Landscape. UNITAID October 2015

⁴Ioannidis et al (2011). Cepheid GeneXpert MTB/RIF Assay for Mycobacterium Tuberculosis Detection

⁵Companion Diagnostics Market Research (August 2013). Transparency Market Research

Definitions

''2015 AGM''	the annual general meeting of the Company held on 16 December 2015;
''Act''	the Companies Act 2006, as amended;
''Admission''	the admission of the New Ordinary Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules;
''AIM''	AIM, a market of the London Stock Exchange;
''AIM Rules''	the AIM rules for companies and nominated advisers, published by the London Stock Exchange (as amended from time to time);
''Board'' or ''Directors''	the directors of Epistem;
''Business Day''	a day (other than a Saturday or Sunday) on which commercial banks are open for general business in London, England;
"CEFAS"	The Centre for Environment, Fisheries and Aquaculture Science, an executive agency of the United Kingdom government Department for Environment;
''certificated form''	not in uncertificated form;
''Circular"	the circular to be sent to Shareholders giving details of the Placing and convening the General Meeting and which, for the avoidance of doubt, does not comprise a prospectus (under the Prospectus Rules) nor an admission document (under the AIM Rules);
''Closing Price''	the closing middle market quotation of an Ordinary Share as derived from the AIM Appendix to the Daily Official List of the London Stock Exchange;
''Company'' or ''Epistem''	Epistem Holdings plc;
''CREST''	the relevant system (as defined in the CREST Regulations) in respect of which Euroclear is the Operator (as defined in the CREST Regulations);
''CREST Regulations''	the Uncertificated Securities Regulations 2001 (SI 2001/3755) (as amended);
''Disclosure and Transparency Rules''	the disclosure and transparency rules made by the FCA in exercise of its functions as competent authority pursuant to Part IV of FSMA;
''EIS''	enterprise investment scheme;
''Enlarged Share Capital''	the issued Ordinary Share capital of Epistem immediately following completion of the Placing;
''EU''	the European Union;
"EU5"	the European Union Five (France, Germany, Italy, Spain, United Kingdom);
''Euroclear''	Euroclear UK & Ireland Limited, the operator of CREST;
''Existing Authorities''	the authorities granted to the Directors to allot Ordinary Shares and to disapply pre-emption rights pursuant to certain of the resolutions passed at the 2015 AGM;
''Existing Ordinary Shares''	each Ordinary Share in issue as at 22 June 2016;
''FCA''	the Financial Conduct Authority;
"FIND"	Foundation for Innovative New Diagnostics, a non-profit foundation, recognised by the Swiss government as an ''other International Organization'', which designs and drives diagnostic solutions;
''Form of Proxy''	the form of proxy enclosed with the Circular for use by Shareholders in connection with the General Meeting;
''FSMA''	the Financial Services and Markets Act 2000 (as amended);
''General Meeting''	the general meeting of Epistem convened by the notice set out in the Circular to be held at 10.00 a.m. on 11 July 2016 at the offices of Covington & Burling LLP, 265 Strand, London, WC2R 1BH;
"GHIF"	the Global Health Investment Fund, a private investment fund structured by JPMorgan Chase & Co. and the Bill and Melinda Gates Foundation.  The fund finances late-stage therapeutics, vaccines and diagnostics for diseases that disproportionately affect low-income populations;
''GHIF Amendment Agreement''	the first amendment and restatement agreement of the GHIF Bond and Collaboration Agreement entered into between the Company and GHIF dated 23 June 2016;
"GHIF Bond"	the $8 million convertible bond entered into between GHIF and the Company pursuant to the GHIF Bond and Collaboration Agreement;
''GHIF Bond and Collaboration Agreement''	the collaboration and convertible bond purchase agreement entered into between the Company and GHIF dated 21 July 2014;
''Group''	the Company and its subsidiaries;
''Independent Directors''	Dr. Catherine Booth and Dr. Robert Nolan;
"INSERM"	Institut national de la santé et de la recherche médicale, a French biomedical and public health research institution;
''Issue Price''	80 pence per New Ordinary Share;
''London Stock Exchange''	London Stock Exchange plc;
"New Ordinary Shares" or "Placing Shares"	the new Ordinary Shares to be issued and allotted pursuant to the Placing subject to the passing of Resolutions 1 and 2 at the General Meeting;
''Notice of General Meeting''	the notice of the General Meeting, which is set out at the end of the Circular;
''Official List''	the Official List of the FCA;
''Ordinary Shares''	the ordinary shares of 1.5 pence each in the capital of the Company;
''Peel Hunt''	Peel Hunt LLP, the Company's Nominated Adviser and Broker;
''Placees''	persons subscribing for Placing Shares as part of the Placing;
''Placing''	the placing of 8,125,000 Placing Shares by Peel Hunt on behalf of the Company pursuant to the Placing Agreement;
''Placing Agreement''	the placing agreement between the Company and Peel Hunt dated 23June 2016 concerning the Placing;
''Prospectus Rules''	the Prospectus Rules made in accordance with EU Prospectus Directive 2003/71/EC;
''Registrars''	Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesown B63 3DA;
''Resolutions''	the resolutions to be proposed at the General Meeting, as set out in the Notice of General Meeting;
''Restricted Jurisdictions''	the United States, Australia, Canada, Japan, New Zealand and the Republic of South Africa;
''RIS''	a regulatory information service operated by the London Stock Exchange as defined by the AIM Rules;
''Securities Act''	the US Securities Act of 1933, as amended;
''Shareholders''	holders of Ordinary Shares whose names appear on the register of members of Epistem;
''Sterling'' or ''£''	the lawful currency of the United Kingdom;
"TIDM"	tradeable instrument display mnemonic for the purposes of the London Stock Exchange;
''UK'' or ''United Kingdom''	the United Kingdom of Great Britain and Northern Ireland;
''UK Listing Authority''	the UK Listing Authority, being the FCA acting as competent authority for the purposes of Part V of FSMA;
''uncertificated form''	Ordinary Shares recorded on the share register as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred within the CREST settlement system;
''United States'' or ''US''	the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia;
''VCT''	venture capital trust; and
"Xcelris"	Xcelris Labs Ltd.

All references to "pounds", "pounds sterling", "sterling", "£", "pence" and "p" are to the lawful currency of the UK.

All references to "US$", "$" and "US Dollars" are to the lawful currency of the United States.

All references to time in this document are to London time.

Words importing the singular shall include the plural and vice versa, and words importing the masculine gender shall include the feminine or neutral gender.

Glossary

"ANSP"	average net selling price;
"CE-IVD"	registration for CE marking of in vitro diagnostic medical devices;
"CRO"	contract research organisation;
"DCGI"	Drug Controller General of India;
"epithelial stem cell"	stem cells contained in the epidermis of the skin;
"FP7"	the European Commission 7th Framework Programme for Research & Technological Development;
"GE"	GE Healthcare UK - Life Sciences
"Genedrive®"	Epistem's genotyping and sequence analysis device for diagnostic testing;
"HBV"	hepatitis B; a blood-borne virus which affects the liver;
"HCV"	hepatitis C, a blood-borne virus which primarily affects the liver;
"HIV"	human immunodeficiency virus, a virus that attacks the immune system, and weakens the patient's ability to fight infections and disease;
"IL28B"	interleukin 28B, a single nucleotide polymorphism associated with treatment response for HCV infection;
"KOL study"	key opinion leader study;
"LOD"	level of detection;
"MTB/RIF test"	test for mycobacterium tuberculosis and rifampicin resistance;
"NAT"	Nucleic acid testing
"nucleotide"	an organic molecule that serves as a sub-unit of nucleic acids like DNA and RNA;
"pathogen"	a bacterium, virus or other microorganism that can cause disease;
"PCR"	polymerase chain reaction, a method of amplifying a targeted sequence of DNA/RNA for analysis;
"Point of Care"	the delivery of healthcare products and services by clinicians to patients at the time of care;
"polymorphism"	the presence of genetic variation within a population;
"Rifampicin"	antibiotic used to treat bacterial infections including TB, leprosy and legionella among others;
"RNA"	ribonucleic acid, a nucleic acid present in all living cells and many viruses;
"Sensitivity"	the ability of a diagnostic test to correctly identify those patients with the disease;
"SNP"	single nucleotide polymorphism, a variation in a single nucleotide that occurs at a specific position in the genome;
"Specificity"	the ability of a diagnostic test to correctly identify those patients without the disease;
"Tuberculosis" or "TB"	tuberculosis, a highly-contagious, airborne bacterial disease caused by mycobacterium tuberculosis bacteria;
"TSB"	the Technology Strategy Board, now called "Innovate UK", a non-departmental public body in the UK, which among other activities, provides funding for technological innovation;
'UNITAID''	a global health institute established in 2006 by the governments of Brazil, Chile, France, Norway and the UK;
"white spot syndrome"	virus responsible for causing white spot syndrome in a wide range of crustacean hosts; and
"WHO"	the World Health Organisation.

 

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