US investor Heights Capital holds 25% of Faron Pharmaceuticals through shares and convertible bonds

Heights Capital Management, the San Francisco-based investment firm, has disclosed a 25.44 per cent stake in Faron Pharmaceuticals, the Finnish biotech, cementing its position as a dominant financial backer of the loss-making drug developer through a combination of direct shareholdings and convertible debt.

The holding, disclosed on Monday under UK transparency rules, comprises a 10 per cent direct voting stake in Faron's ordinary shares and a further 15.44 per cent exposure held through financial instruments — specifically two tranches of convertible bonds. The notification was filed with the Financial Conduct Authority on 20 April, with Heights Capital crossing the disclosure threshold on 17 April. The total represents 51.7mn voting rights in the group.

The convertible bond position breaks down into a tranche maturing in February 2027, equivalent to 6.62 per cent of voting rights, and a second tranche maturing in February 2028, equivalent to 8.83 per cent. Both bonds are convertible into Faron shares at any time before maturity, giving Heights Capital significant flexibility over how and when to crystallise its exposure. The investor's direct equity holding amounts to 20.3mn shares, with a further 31.4mn shares underpinning the indirect convertible bond position.

The shareholdings are held through CVI Investments, a Cayman Islands-based vehicle controlled by Heights Capital. The 25.44 per cent total represents a marginal reduction from the firm's previous disclosed position of 25.58 per cent, reflecting a slight decline in its direct equity stake while its convertible instrument exposure remained unchanged.

Structured financings of this type have become a common feature of the small-cap biotech landscape, where development-stage drugmakers frequently turn to specialist US hedge funds and convertible debt investors to bridge the capital gap between clinical milestones and commercial revenue. For Heights Capital, the layered position in Faron — equity plus near-dated and longer-dated convertibles — offers both upside participation in any clinical or regulatory catalyst and a measure of downside protection through the debt component.

Faron's shares fell 11.7 per cent following the disclosure, reflecting the scale of potential dilution implied by the conversion of Heights Capital's bond positions, and the dominant influence a single investor now holds over the company's capital structure.