The offering based on a television campaign by cannabis-based drug development company EPM has been halted and is in danger of being cancelled. In a notice to the Tel Aviv Stock Exchange, the company said, "In accordance with instructions from the Israel Securities Authority, the company has ceased accepting further orders in the offering for fourteen days, during which the company will act to obtain a renewed permit from the Israel Securities Authority and to publish an amendment to the prospectus."
The notice states that orders submitted by investors will not be cancelled. "The company will contact the investors when the period for receiving orders is renewed, in order to confirm the orders received from them. It should be made clear that if the offering is not completed for whatever reason, money paid by those placing orders will be returned to them within fourteen days."
EPM sought to raise NIS 44 million (at a pre-money valuation of NIS 381 million) through crowdfunding website Fundit. According to figures on the website, so far orders for shares in the offering amount to some NIS 18 million (40% of the amount sought), with two weeks to go before the offering closes.
EPM's offering has been accompanied in the past few weeks by an aggressive television campaign, under agreements that the company signed with the Keshet and Reshet television channels. In the agreements, the prospectus reveals, the company issued shares to the tune of NIS 13 million to the two channels in return for television and digital advertising services (Keshet's share was NIS 10 million).
It appears that the company's advertisements contain information that was not in the prospectus, and that the Israel Securities Authority (ISA) formed the impression that the advertisements were not formulated with due care. It therefore asked the company to republish the prospectus and to include in it the additional details, or to refrain from mentioning them to investors in the offering.
On Thursday evening, the video clips were removed from the company's page on the Fundit site, and other details were removed, such as the telephone number for contacting the CEO directly. This followed the ISA's request.
At the same time, the company posted a new video with disclaimers saying that the video did not represent an offering of securities and stressing that investment in the company carried risk. Investors were invited to read the company's prospectus on the Tel Aviv Stock Exchange website. In the original advertisement, the offering was presented as an alternative for anyone who had not managed to invest "in the company that invested the smartphone."
EPM was founded in 2017 by Reshef Swisa together with Prof. Raphael Mechoulam of Hebrew University, a pioneer in research into molecules originating from cannabis. In advance of the offering, the company recruited Prof. Zeev Rotstein, until recently CEO of Hadassah Hospital, and appointed him president and chairperson of the company's advisory board. Prof. Rotstein starred in the television advertising campaign. The company does research and development of original drugs based on cannabinoid acids as alternatives to steroid treatments, among other things. EPM has yet to record revenue and it has accumulated losses of $15 million, a deficit on shareholders' equity of $3 million and a going concern qualification from its auditors on its financial statements.
Responding to the ISA's decision today, Rotstein told "Globes", "I don't understand those who call EPM 'Rotstein's company'. The company has parties at interest, a CEO and a chairperson, and I have a research role there. As a medical person, I fill an important role, because drug development has to succeed medically and not just in a securities offering."
What in fact did the ISA as you to change in your prospectus?
"In the videos we presented the results of our trials on animals, and the ISA asked us to present that in our prospectus, and also that we should write 'risk' ten times, a word that the ISA is very fond of.
"Our leading drug is designed to treat an orphan disease called Prader-Willi Syndrome, a compulsive eating disorder. This is a disease with a clear genetic origin that leads to a situation in which you lock the fridge and then your child eats anything he can find, even earth or glass.
"We tested our drug on animals. It has a global market of 50,000 people, and its FDA approval track is short. The result son animals were good, and now we have to rush to test it on people as quickly as possible. This is a product that has a chance of being marketed in 2025.
"In addition, we have good results on mice with obesity that is not from a clear genetic source, and about another eight molecules at earlier stages. Data from the animals with non-genetic obesity appeared on a fine looking graph in our video, and now the ISA has asked us to include it in the prospectus. I'm not going to quarrel with the ISA. We'll do everything they've instructed us to do."
EPM really is a company with a high risk profile.
Rotstein: "Any investment is a risk. We lost on Teva as well, is that not risk? Look what happened at Amwell, a company I invested in on Nasdaq that sells telehealth solutions, on the face of it a company with no scientific risk. They're worth a quarter of what they were worth when I invested in them. I dare to say that EPM is less risky than all of my personal investment portfolio.
"We have apparently managed to annoy someone with our offering method, perhaps people used to receiving shares at a discount before the offering is opened up to the public."
Rotstein stresses that if the company does not succeed in raising the whole NIS 44 million, then under Fundit's rules the offering is cancelled.
If that happens, will shares still be allocated to Reshet and Keshet?
"They'll receive shares. I'm not sure how much they'll be worth. Even if the offering does not take place, there is no fear that we will owe money to the broadcasting channels."
Published by Globes, Israel business news - en.globes.co.il - on April 11, 2022.
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