RUA Life Sciences plc 4 November 2021

RUA Life Sciences

Significant milestone and trading update

RUA Life Sciences released a well-received announcement on an important milestone in the commercialisation of its large bore vascular graft and its related product, the vascular patches. The release also included a trading update on group businesses. As a result of this positive development on RUA's vascular graft product, we have updated our valuation of the product itself and RUA's cash position at the end of September 2021.

Vascular graft progress

The manufacturing hiccup that had held up the US FDA's medical device Premarket Notification (510k) submission for RUA Vascular's large bore vascular graft earlier in June, and which was resolved before the end of the summer, has now been consigned to the past - as RUA has announced the 510k submission.

Unlike drugs, which under the FDAs PDUFA legislation have strict, and near year-long timetables for routine reviews, US medical device product reviews are much shorter in duration and approval can occur within three months if no further interactions or data are required. Along with RUA Life Sciences' manufacturing preparations, this would be in-line with RUA's previously announced timing for a commercial launch of the vascular graft in Q1 2022.

Earlier in the summer we had been discussing a change to our valuation to reflect RUA's progress made on the vascular products, and so this announcement has helped us start to incorporate the progress that RUA has made into our valuation of its products.

RUA's announcement also discussed the regulatory separation, for submission purposes, of the vascular graft and patch products which we explore further in the body of the note.

Trading update

RUA Life Sciences' trading update included many moving parts in its revenue- and royalty- generating divisions, and its cash position. We have reviewed these updates and noted how they either largely net each other off. We have prudently deferred our estimates of vascular graft sales in Q1 2022 until RUA's FY 2023 to reflect the timing of the 510k submission. This changes our forecasts of FY 2022 revenues, and the subsequent YE 2022 cash position which are detailed in the note.

Valuation now incorporating the first step-up

Our valuation has increased to £122.9m or 554p per share (from £116.5m or 525p per share) as a result of changing our discount rate on the vascular products to reflect the progress made, RUA's revised cash balance at the end of H1 2022, and the deferred (from our previous forecasts) Vascular graft sales.

Summary Financials

	£'000s, y/e 31 March		2018A		2019A		2020A		2021A		2022E
	Revenues
		404		463		489		1528		1675
	Reported EBIT
		-34		-638		-941		-1551		-2714
	Basic EPS (US c / UK p)		-0.61c		-4.72p		-5.55p		-8.20p		-11.12p
	Net Assets		1016		3000		2275		8506		5785
	Net Cash
		422		2412		1976		5924		906

Source: Company historic data, ED estimate

4 November 2021
Company Data
EPIC	RUA
Price	166p
52 weeks Hi/Lo	180p / 113p
Mkt Cap	£37m
ED Fair Value,	£122.9m
per share	554p
End HY21 net cash	£4.8m
Avg. daily volume	32,876
Share Price, p
180
175
170
165
160
155
150
145
140
135
130
125
120
115
110
Nov-20Feb-21May-21	Aug-21Nov-21

Source: ADVFN

Description

RUA Life Sciences PLC ('RUA') is incorporated in the UK and focused on the commercialization of its own world leading biostable co-polymer technology,

Elast-EonTM.Elast-Eon is a basis for

medical devices with improved clinical

outcomes and durability.

RUA has four divisions: RUA Biomaterials

that receives the licensing and royalty fees from products based on Elast-Eon, RUA Vascular that is commercialising biostable surgical patches and grafts, and

RUA Structural Heart, which is developing an artificial aortic heart valve replacement. In early 2020, the

predecessor company (AorTech International) announced the acquisition of RUA Medical to retain the Vascular business collaboration and RUA Medical's integrated medical device

design and manufacturing capabilities in

Andy Smith (Analyst)

0207 065 2690 [e-mail]

Hannah Crowe

0207 065 2692 [e-mail]

Please refer to the important disclosures shown on the back page and note that this information is Non-independent and categorised as Marketing Material

RUA Life Sciences	3 November 2021

The product portfolio progresses

The recent delay to RUA Life Sciences' large bore vascular graft product, was later identified and rectified as cellulose contamination (for a product that does not contain cellulose) from cleaning materials. By September, the product was back on-track for a Q1 2022 commercial launch and that same timing was repeated in RUA's recent announcement of the regulatory submission to the FDA. RUA's R&D team are now validating the production equipment, ready for the commercial manufacture and launch.

Earlier this year, our notes had included a discussion on changing our valuation to reflect RUA's progress made on the vascular products, and the announcement has helped us start that process. For RUA Vascular's products - the large bore vascular graft and patches - we have decreased our discount rate from 12.5% (which is used for early-stage products) to 9% to reflect near-term regulatory approval. We have also incorporated RUA's cash position disclosed in the trading update, into this valuation.

These changes have increased our valuation of RUA Life Sciences from £116.5m or 525p per share, to £122.9m or 554p per share. Our deferral of RUA Vascular revenues from Q1 2022 to RUA's FY 2023 has also had a minor impact on our valuation since it includes a 1.5X multiple on RUA's revenues. It is important to note that this is just the first step in a valuation process that tracks RUA's transition to a more commercial entity.

There are other dynamics in our valuation, even just for the Vascular products, such as the risk-adjustment and the time to a commercial transaction, that can be levered in the coming year to more appropriately value RUA's products as they progress.

RUA's announcement also discussed the regulatory separation, for submission purposes, of the vascular graft and patch products. While the Elast-Eon-coated patches are simpler medical devices than the large- bore vascular graft, they have the same composition. As such, the regulatory submissions of the two devices are likely to be similar and RUA have been advised to run the submissions sequentially. There are good precedents for this in drug submissions where it is convention not to submit two indications for the same drug at the FDA at the same time.

There are other advantages, as any learnings from the first submission can be applied to the second and in addition in RUA's case, it allows the team to focus on the development of the new devices for peripheral artery disease and critical limb ischemia disease, that were the subject of a recently received grant.

RUA Structural Heart's polymeric aortic heart valve continues in-house testing and the recent low-stress design changes have been incorporated to potentially extend the durability of this product when implanted.

Trading update

Along with the product update announcements, RUA's release included the recent trading performance of its other divisions. RUA Biomaterials - the division that collects royalties on Elast-Eon-enabled devices - performance was ahead of the Board's expectations.

Royalties from RUA's licensee Biomerics grew 22% in US dollar terms in RUA's first half year while those to other licensees also continued to demonstrate growth over the previous period. Royalty and revenues have been affected by the strength of Sterling and were £156k (£216k in 2020) in the six months to the end of September 2021 but are expected to be positively weighted towards the second half of RUA's year.

RUA Medical Devices - the division which receives the majority of its revenues from one US medical device manufacturer - has seen revenues increase 33% to £552k (£416k in 2020) as elective US surgical procedures returned to pre-pandemic levels.

2	www.equitydevelopment.co.uk

RUA Life Sciences	3 November 2021

The investment in plant and equipment, which we had included in our financials, and the final element of the consideration payable for the acquisition of RUA Medical in April 2020, which was also in our forecasts, have resulted in a cash balance of £4,763k at the end of September (£6,293k at the end of March 2021).

Considering that the trading update of revenues at RUA's divisions largely net each other off against our expectations at the end of the half year, and we had assumed the payment of the final part of the consideration for the RUA Medical acquisition, the only change we have made to our financial forecasts was to defer our previous estimate of a full quarter of vascular graft sales to RUA's FY 2023 to reflect the approval of the vascular graft within Q1 2022.

This changes in our full-year estimates of total revenues from £2,255 to £1,675k and results in cash of £906k at the end of March 2022.

3	www.equitydevelopment.co.uk

RUA Life Sciences	3 November 2021

FINANCIALS

Consolidated Income Statement & Forecasts

£'000s, y/e 31 March	2018A	2019A	2020A	2021A	2022E
IFRS Income Statement
Total revenue	404	463	489	1528	1675

	Administration expenses			-474			-822		-1123		-2690			-3773
	Other income (expense)			255			7		14		279			279
	Depreciation & amortisation			-219			-218		-193		-272			-490
	Reported EBIT			-34			-638		-941		-1551			-2714
	Reported profit before tax			-34			-609		-941		-1551			-2714
	Taxation								81		143			247
	Basic EPS (c before 2019, p			-061			-4.72		-5.55		-8.20			-11.12
	after 2019)
	Dil'd EPS (c before 2019, p			-0.61			-4.72		-5.55		-8.20			-11.12
	after 2019)
	Share count (basic)			5,557,659			14,686,608		17,609,120		17,967,120			22,184,798
Source: Company historic data, ED estimates

NB From 2020 onwards, pro forma numbers of the combined AorTech and RUA Medical business are shown

Consolidated Balance Sheet & Forecasts

	£'000s, at y/e 31 March		2017A		2019A		2020A		2021A		2022E
	Assets
	Non-current assets
	Tangible assets						5		1952		4452
	Goodwill								301		301
	Intangible assets		527		448		255		574		574
	Total non-current assets		527		449		260		2827		5327
	Current assets
	Inventories								85		100
	Trade and other receivables		134		238		258		949		1079
	Cash and equivalents		422		2412		1976		6294		906
	Total current assets		556		2650		2234		7328		2085
	Total assets		1083		3099		2494		10155		7412
	Equity and liabilities
	Equity
	Ordinary shares		12118		12575		12574		12949		12949
	Share Premium		2500		4550		4550		11729		11857
	Retained earnings		-11599		-12208		-13024		-14475		-17600
	Foreign exchange reserve
	Other reserve		-2003		-1916		-1825		-1697		-1697
	Equity attributable to the company		1016		3000		2275		8506		5785
	Total equity		1016		3000		2275		8506		5785
	Current liabilities
	Trade and other payables		67		99		219		1016		1016
	Total current liabilities		67		99		219		1099		1076
	Total non-current liabilities								550		550
	Total equity and liabilities		1083		3099		2494		10155		7411

Source: Company historic, ED estimates. From 2020 onwards, pro forma numbers of the combined businesses are shown.

4	www.equitydevelopment.co.uk

RUA Life Sciences3 November 2021

Consolidated Cash Flow Statements & Forecasts

	£'000s, y/e 31 March		2018A		2019A		2020A		2021A		2022E
	Profit before taxation
		-34		-609		-897		-1594		-2714
	Adjustment for:
	Depreciation & amortisation		219		218		193		68		490
	Movements in working capital		162		-73		100		820		820
	Net cash generated by operating
		347		-429		-438		-1414		-2469
	activities
	Investing activities
	Capital expenditure on tangibles
				-1		-5		-620		-2500
	Capital expenditure on intangibles
		-16
	Acquisition of subsidiary
				-139				-341
	Net cash used in investing activities
		-16		-133		2		-952		-2500
	Financing activities
	Net proceeds from issue of shares				2552				6462
	Net cash from financing activities
				2552				6684		-420
	Net cash from discontinued operations
	Cash & equivalents at beginning of year
		91		422		2412		1976		6294
	Cash & equivalents at end of year
		422		2412		1976		6294		906

Source: Company historic data, ED estimates. From 2020 onwards, pro forma numbers of the combined business are shown.

5	www.equitydevelopment.co.uk