REG - LungLife AI, INC - License Agreement and Other Matters

LungLife AIAnnouncement

17/04/2025 07:00

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RNS Number : 3641F  LungLife AI, INC  17 April 2025

17 April 2025

 

 

LungLife AI, Inc.

(the "Company" or "LungLife")

 

Exclusive License and Distribution Agreement

Operational Update

Further on Proposed Cancellation of Admission to Trading on AIM

 

LungLife AI (AIM: LLAI), a developer of clinical diagnostic solutions for lung
cancer, announces that it has entered into a conditional exclusive license and
distribution agreement (the "Agreement") for the commercial distribution of
its LungLB® test (the "LungLB® test") in the US with Circulogene
Theranostics, Inc. a US liquid biopsy diagnostics company ("Circulogene" or
the "Strategic Partner").

As set out in the Operational and Funding Update announced on 3 February 2025,
whilst discussions had started with multiple parties in 2024, in January 2025
one particular party became the key focus of these engagements. As noted in
the 3 February 2025 announcement, initial conversations regarding a letter of
intent resulted in draft documentation being exchanged with draft terms being
an upfront fee, along with ongoing royalty payments and an option to buy the
relevant IP to operate the LungLB® test for a limited period of time. Since
February 2025, Circulogene has continued to perform diligence relating to
payor and payment processes and following that due diligence has re-engaged
with LungLife in relation to the commercial licencing of the Company's
LungLB® test, which has led to the Company entering into the Agreement.

 

Licensing Terms

 

Under the Agreement, an advanced payment of $375,000 will shortly be paid to
LungLife by Circulogene following signature (the "Advanced Payment"). If
LungLife fails to obtain the required consents to allow for completion of the
Agreement ("Completion"), including but not limited to, obtaining shareholder
approval and obtaining certain other consents under the Agreement (the
"Required Consents"), then LungLife will be required to return the Advanced
Payment within thirty days following termination of the Agreement. The
Advanced Payment is made pursuant to a promissory note (the "Promissory Note")
provided by LungLife that is secured by certain of LungLife's physical assets.

Following Completion of the Agreement, a further payment of $375,000 is to be
received by LungLife and the liability under the Promissory Note, including
the security interest in certain of LungLife's physical assets, falls away.

From Completion, Circulogene will have the exclusive right and license to
improve, further develop, utilise, practice, market, distribute, offer for
sale, sell and otherwise commercialise the LungLB® test along with all
software and intellectual property which is licensed by the Company in the
United States and its territories, along with, among other things, certain of
the Company's equipment which shall be transferred to Circulogene.  The
Company will work with Circulogene to allow for Circulogene to be able to
provide the LungLB® test from its own laboratory as contemplated under the
Agreement by 31 August 2025.

LungLife will receive royalty payments equivalent of twenty per cent of the
net revenue collected by Circulogene in relation to the LungLB® test for the
first year of the Agreement, but with guaranteed minimum royalty payments
covering the first three quarters of this year of $450,000, provided that, if
the actual royalty payments earned in that period equate to less than
$450,000, the shortfall will be offset against future royalty payments due
under the Agreement. Following the one year anniversary of the signing of the
Agreement, the royalty percentage shall automatically be reduced from twenty
per cent. to fifteen per cent.

The initial term of the Agreement is for a period of two years from
Completion, after which there is the ability to renew in successive periods
for one year, upon the mutual agreement of LungLife and Circulogene, for a
maximum of five renewal terms. The initial term is subject to a potential
increase to 10 years from Completion in certain circumstances described below.

The Agreement may be terminated by either LungLife or Circulogene in various
circumstances, including if the Required Consents, including but not limited
to shareholder approval to approve the Agreement or to allow for the exercise
of the Agreement's asset purchase option (the "Asset Purchase Option", as
described below), are not met within certain specified timeframes.

 

Asset Purchase Option Terms

In addition to the terms above, from Completion, the Agreement also contains
the Asset Purchase Option, whereby Circulogene has the option but not an
obligation, by the later of 30 September 2025 or sixty (60) days after
Completion (the "Option Window"), to acquire the licensed IP, the leased
equipment and all other applicable licenses for a consideration of $6,200,000,
less all payments received by LungLife referred to above, but subject to and
conditional on, among other things, shareholder approval of a purchase
agreement at the time of exercise and potentially the consent of the Company's
shareholders being given in a general meeting pursuant to Rule 15 of the AIM
Rules for Companies (as this may be applicable).

 

Should the Asset Purchase Option be exercised, the Board currently expects
that the Company would make a distribution to shareholders of a portion of the
proceeds receivable by LungLife, with the remainder to be used fund the
operations of the Company.

 

If Circulogene exercises the Asset Purchase Option but the transaction is
unable to be consummated due to circumstances of LungLife or circumstances
outside the reasonable control of Circulogene, such as LungLife's failure to
obtain the required shareholder consent or its breach of the Agreement, then
Circulogene has the option to either terminate the Agreement or extend the
initial term of the Agreement for a period of ten (10) years from Completion.
In that circumstance, the royalty payments would be reduced to ten percent of
the net revenue collected by Circulogene in relation to the LungLB® test for
the remainder of the term.

 

Right of First Refusal

If, during the term of the Agreement, LungLife receives an offer to purchase a
controlling interest in the Company, to purchase the LungLB® test or related
assets, or to exclusively license the LungLB® test outside of the United
States and its territories, then, during a certain election period following
such offer, Circulogene will have a right of first refusal to itself
consummate the proposed transaction on the offered terms or, if LungLife
receives the offer within the Option Window, to effectuate the Asset Purchase
Option (i.e., purchase the licensed IP, the leased equipment and all other
applicable licenses for a consideration of $6,200,000, less all payments
received by LungLife referred to above), but subject to and conditional on,
among other things, shareholder approval of a purchase agreement at the time
of exercise and potentially the consent of the Company's shareholders being
given in a general meeting pursuant to Rule 15 of the AIM Rules for Companies
(as this may be applicable).

 

The Company has not capitalised the research and development expenditure
associated with the creation of the LungLB® test and the LungLB® test is
therefore recorded as having nil carrying value in the Company's statement of
financial position.  The Company's unaudited statement of financial position
as at 30 June 2024, announced in the Company's half-year report on 22 August
2024, carried an intangible asset value of $5.8 million in relation to a
license to access certain de-identified patient records at the Mount Sinai
Hospital, which does not form part of the Agreement and will not be subject to
the Asset Purchase Option.  Approximately $0.5 million of unaudited losses
were attributable to the LungLB® test over the year ended 31 December 2024,
being the research and development expenditure over that period.

 

Promissory Note

 

The Advanced Payment of $375,000 is made pursuant to a Promissory Note under
which interest of 7.5% is payable and the amount is secured against certain
tangible assets of the Company.  In the event Completion takes place the
amount of $375,000 is no longer repayable and the liability under the
Promissory Note, including the security interest in certain of LungLife's
physical assets, falls away.

 

Operational Update

 

On 31 March 2025 the Company had an unaudited cash balance of approximately
$850,000 and since the beginning of February 2025 has taken action to reduce
expenditure, including the termination of six members of staff. The Agreement
will require the re-hiring of a minority of these members of staff, and it is
anticipated that the Company's existing cash balances combined with the
minimum funding under the Agreement following Completion will satisfy the
Company's funding needs into 2026.

 

Should the Agreement not be approved by shareholders, including if any of the
other Required Consents are not satisfied or if the Agreement were to be
terminated, then the Company would be obligated to repay the Advanced Payment
secured against the Promissory Note, and under these circumstances the Board
would likely revert to a strategy of winding up the Company's business.
Accordingly, the Board considers, among other things, that it is important for
shareholders to vote in favour of the resolution to be put to shareholders in
due course in relation to shareholder approval to allow for the proposals
under the Agreement to proceed.

 

Further to the Company's previous announcements, the Company submitted its
application to the relevant Medicare contractor for the technical assessment
of LungLB® in Q1 this year.

 

Proposed Cancellation

 

Following the Agreement, LungLife is expected to have a limited level of
operating activity, with the Company's activities in the medium-term being
expected to principally involve running the LungLB® test and the collection
of royalties.  Accordingly, the Board believes that LungLife will be best
placed as a private company to pursue this and still considers that the most
appropriate course of action is for the Company to propose to seek approval
from the shareholders of the Company to cancel the admission of the Company's
common shares to trading on AIM in accordance with Rule 41 of the AIM Rules
for Companies (the "Proposed Cancellation").

 

A circular convening a general meeting of the Company to obtain shareholder
approval for the Proposed Cancellation and also to obtain shareholder approval
required to allow for Completion of the Agreement and providing further detail
on the next steps will be published in due course and a further announcement
will be made at that time.

 

Paul Pagano, CEO of LungLife, said:

"The search for a strategic partner was a key focus of 2024. We were greatly
encouraged by the strong interest shown by a number of parties and we are
delighted to have found a commercial partner that shares our vision for the
test and are excited to be in a position to move towards accelerating getting
LungLB® into the hands of clinicians. We look forward to working with
Circulogene as we move towards our vision of enabling 80% of lung cancers to
be identified early."

 

Mike Mullen, CEO of Circulogene, said:

"We are proud to partner with LungLife AI to bring the LungLB® test to
clinicians across the U.S. This agreement aligns perfectly with Circulogene's
mission to provide cutting-edge, non-invasive diagnostics that enable earlier
detection and more personalized care for cancer patients. We believe LungLB®
has the potential to transform lung cancer detection and we are committed to
accelerating its adoption to improve outcomes for thousands of patients."

For further information please contact:

 

 LungLife AI, Inc.                   www.lunglifeai.com (https://www.lunglifeai.com/)
 Paul Pagano, CEO                    via investors@lunglifeai.com
 David Anderson, CFO

 Allenby Capital Limited                                                 Tel: +44 (0)20 3328 5656

 Nominated Adviser and Joint Broker                                      info@allenbycapital.com

 Alex Brearley / Lauren Wright - Corporate Finance

 Matt Butlin / Guy McDougall - Equity Sales & Corporate Broking

 Goodbody (Joint Broker)             Tel: +44 (0) 20 3841 6202
 Tom Nicholson / Cameron Duncan

 

 

About LungLife

LungLife AI is a developer of clinical diagnostic solutions designed to make a
significant impact in the early detection of lung cancer, the deadliest cancer
globally. Using a minimally invasive blood draw, the Company's LungLB® test
is designed to deliver additional information to clinicians who are evaluating
indeterminate lung nodules. For more information visit www.lunglifeai.com
(http://www.lunglifeai.com)

 

Our Purpose is to be a driving force in the early detection to lung cancer.
And our Vision is to invert the 20:80 ratio such that in years to come at
least 80% of lung cancer is detected early.

 

About the Strategic Partner

 

Founded over a decade ago, Circulogene is a US-based liquid biopsy diagnostics
company. With multiple clinical laboratories and an extensive testing menu, it
supports precision medicine initiatives for patients at risk of cancer and
those diagnosed with cancer using proprietary methodologies for tumour
analysis, ensuring accurate and timely cancer treatment. As part of a
conglomerate of healthcare entities, Circulogene benefits from comprehensive
support across the healthcare continuum, including sales, marketing, and
revenue cycle management (billing).

 

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