Eupraxia Pharmaceuticals Inc. Announces $10 Million Convertible Debt Agreement with Silicon Valley Bank and Conversion of $6.0 Million pre-IPO Debt

VICTORIA, BC, June 21, 2021 /CNW/ - Eupraxia Pharmaceuticals Inc. ("Eupraxia" or the "Company") (TSX: EPRX), a Phase 2 clinical-stage biotechnology company with an innovative drug delivery technology platform, today announced that it has entered into a contingent convertible debt agreement (the "Agreement") with Silicon Valley Bank ("SVB") and concurrently drew down in full the $10 million principal amount under the Agreement. In addition, the Company announces the conversion of approximately $6.0 million of outstanding indebtedness into common shares of the Company ("Common Shares") pursuant to certain convertible bridge loans made to the Company prior to its March 2021 initial public offering (the "Pre-IPO Bridge Loans").

"We are extremely pleased with the continued fortification of the Company's balance sheet. With a fully funded Phase 2 program for our lead product candidate, EP-104IAR, this additional capital from a trusted and supportive investor provides us with greater financial and operating flexibility to broaden our development plans for EP-104IAR and the underlying platform technology," said Dr. James Helliwell, Chief Executive Officer of Eupraxia. "The funds will also help us identify additional therapeutic targets to expand our pipeline of locally delivered, extended-release drug candidates."

A summary of the key terms of the Agreement is as follows:

• $10 million in principal, which was drawn down at signing of the Agreement.
  
  
• Term of 36 months or 48 months upon SVB's election.
  
  
• Interest rate per annum of the greater of 2.45% and Canadian prime rate, requiring monthly interest payments, and a payment in kind at a rate of 7% per annum, capitalized monthly, which will be settled on maturity or conversion.
  
  
• Subject to the terms and conditions of the Agreement, SVB may elect to convert the principal amount of the convertible debt and the accrued and unpaid interest thereon into Common Shares at a conversion price equal to $5.68 per Common Share, representing a 40% premium to the average closing price of the Common Shares on the Toronto Stock Exchange (the "TSX") for the 20 trading days prior to the date of the Agreement. The conversion price of the accrued and unpaid interest will be subject to the minimum pricing requirements of the TSX, to the extent applicable, at the time of conversion.
  
  
• The Company will have the right (the "Call Right") to call the convertible debt by paying to SVB an amount equal to:
  
  
• 125% of the principal amount of the convertible debt (less principal amounts previously repaid), if the Call Right is exercised on or before the 18 month anniversary of the date of the Agreement; and
  
  
• 150% of the principal amount of the convertible debt (less principal amounts previously repaid), if the Call Right is exercised after the 18 month anniversary of the date of the Agreement,

in either case together with all accrued and unpaid interest on the principal balance of the convertible debt. If the Call Right is exercised by the Company, SVB will retain certain lookback rights in the event the Company subsequently announces its topline data from its Phase 2 clinical study or the Company enters into an agreement to be acquired in the 12 months following the exercise of the Call Right.

• The Company has agreed to grant SVB a security interest in all of its assets, excluding its patents and other intellectual property, as security for its obligations under the Agreement. The Company is required, on or prior to June 30, 2022, to raise additional net new capital, as defined in the Agreement, in the aggregate amount of $10 million. This net new capital can originate from, but is not restricted to, a variety of sources as outlined in the Agreement and can include up to $5 million in reduced project expenses.

The Agreement is subject to final approval of the TSX.

"This debt agreement with Eupraxia demonstrates our confidence in the Company's leadership team, their broader business strategy, and their ability to advance EP-104IAR as a potential treatment for pain due to osteoarthritis of the knee," said Anne Woods, Managing Director of Life Sciences and Healthcare at Silicon Valley Bank. Woods further stated, "As lenders with a focus on the longer-term growth trajectory, we are also excited about the Company's pipeline of earlier-stage, long-acting drug candidates."

Conversion of pre-IPO Bridge Loans

The Company also announced that approximately $6.0 million of principal and accrued and unpaid interest under the Pre-IPO Bridge Loans was converted into Common Shares. As a result of the conversions, the Company issued 1,298,664 Common Shares.

Dr. Helliwell continued, "We believe that the conversion of this debt by early investors reflects the growing confidence in Eupraxia's business and its prospects. We are grateful to these investors for their foundational, and continued, support of the Company and pleased with our ability to simplify and strengthen the Company's balance sheet."

About EP-104IAR

Eupraxia's lead product candidate, EP-104IAR, is designed to meet the significant unmet medical need and market demand for long-lasting pain relief for knee osteoarthritis (OA). The U.S. Centers for Disease Control and Prevention estimates that knee OA affects more than 30 million people in the U.S. alone. This includes 14 million that suffer with knee pain or some form of disability. Knee OA is also associated with depression and loss of sleep, which can greatly affect quality of life.

With EP-104IAR, Eupraxia hopes to change the way knee OA pain is treated. Current therapies are challenged by poor safety, inadequate efficacy and/or limited duration of activity. Corticosteroids are one of only two drug classes strongly recommended by the American College of Rheumatology and the Arthritis Foundation for the treatment of knee OA pain. Currently approved corticosteroids are very effective at reducing pain for a short duration but can expose the body to unwanted local and systemic side effects.

EP-104IAR endeavours to provide long-term pain relief with fewer unwanted side effects. It encapsulates a highly potent corticosteroid (fluticasone propionate) within a microns-thin polymer membrane.

Injected into the knee, EP-104IAR is intended to slowly release drug at therapeutic concentrations for up to six months. This has the potential dual advantage of providing long-duration pain relief with fewer systemic side effects. An enhanced safety profile would also benefit the estimated 70% of knee OA patients that experience pain in both knees.

EP-104IAR has completed a Phase 1 trial and is currently in Phase 2 clinical development. A modified version of EP-104IAR is under development for canine and equine OA.  

About Eupraxia

Eupraxia is a clinical-stage biotechnology company focused on the development of locally delivered, extended-release alternatives to currently approved drugs. Each of Eupraxia's product candidates has the potential to address therapeutic areas with high unmet medical need, and strives to provide improved patient benefit by delivering targeted, long-lasting activity with fewer side effects.

Eupraxia's lead product candidate, EP-104IAR, is currently in Phase 2 development for the treatment of pain due to osteoarthritis of the knee.  In addition to EP-104IAR, Eupraxia is developing a pipeline of earlier-stage long-acting formulations. Potential pipeline candidates include a range of drugs for indications such as post-surgical pain (EP-105), and post-surgical site infections (EP-201), each designed to improve on the activity and tolerability of approved drugs. Eupraxia is also developing a formulation of EP-104IAR for use in canine and equine osteoarthritis.

For further details about Eupraxia, please visit the Company's website at: www.eupraxiapharma.com

About Silicon Valley Bank

For nearly 40 years, Silicon Valley Bank (SVB) has helped innovative companies and their investors move bold ideas forward, fast. SVB provides targeted financial services and expertise through its offices in innovation centres around the world. With commercial, international and private banking services, SVB helps address the unique needs of innovators. Learn more at svb.com/canada.

Notice Regarding Forward-looking Statements and Information:

This news release includes forward-looking statements and forward–looking information within the meaning of Canadian securities laws. Often, but not always, forward–looking information can be identified by the use of words such as "plans", "is expected", "expects", "scheduled", "intends", "contemplates", "anticipates", "believes", "proposes" or variations (including negative and grammatical variations) of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward looking statements in this press release include statements regarding the use and benefits of the funds under the Agreement; the final approval of the TSX; the Company's business strategies and objectives, including current and future plans, expectations and intentions, statements regarding the Company's Phase 2 clinical trial and the ability of the Company to execute on its business strategy. Although Eupraxia's management believes that the assumptions underlying these statements and information are reasonable, they may prove to be incorrect. The forward–looking events and circumstances discussed in this news release may not occur by certain dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting Eupraxia, including, but not limited to: the Company's ability to secure TSX approval of the Common Shares issuable under the Agreement; the Company's ability to achieve their stated goals from the funds of the Agreement; the Company's limited operating history; the Company's novel technology with uncertain market acceptance; if the Company breaches any of the agreements under which it licenses rights to its product candidates or technology from third parties, the Company could lose license rights that are important to its business; the Company's current license agreement may not provide an adequate remedy for its breach by the licensor; the Company's technology may not be successful for its intended use; the Company's future technology will require regulatory approval, which is costly and the Company may not be able to obtain it; the Company may fail to obtain regulatory approvals or only obtain approvals for limited uses or indications; the Company completely relies on third parties to provide supplies and inputs required for its products and services; the Company relies on external contract research organizations to provide clinical and nonclinical research services; the Company may not be able to successfully execute its business strategy; the Company will require additional financing, which may not be available; any therapeutics the Company develops will be subject to extensive, lengthy and uncertain regulatory requirements, which could adversely affect the Company's ability to obtain regulatory approval in a timely manner, or at all; the impact of the COVID-19 pandemic on the Company's operations; and other risks and uncertainties described in more detail in Eupraxia's public filings on SEDAR (www.sedar.com).". Although Eupraxia has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward–looking statements and information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward–looking statement or information can be guaranteed. Except as required by applicable securities laws, forward–looking statements and information speak only as of the date on which they are made and Eupraxia undertakes no obligation to publicly update or revise any forward–looking statement or information, whether as a result of new information, future events or otherwise.

SOURCE Eupraxia Pharmaceuticals Inc.