Annual Report for the year to 31 March 2024

DIRECTORS

G Berg - Non-Executive Chairman W Brown - Chief Executive

L Smith - Chief Financial Officer

J McKenna - Director of Clinical Marketing I Ardill - Non-Executive Director

J Ely - Non-Executive Director

COMPANY SECRETARY

L Smith

REGISTERED OFFICE

c/o Davidson Chalmers Stewart 163 Bath Street

Glasgow

G2 4SQ

HEAD OFFICE

2 Drummond Crescent Irvine

Ayrshire

KA11 5AN

web: www.RUAlifesciences.com

email: info@RUAlifesciences.com

NOMINATED ADVISER

AND STOCKBROKER

Cavendish Capital Markets ltd 1 Bartholomew Close London

EC1A 7BL

LAWYERS

Davidson Chalmers Stewart

163 Bath Street

Glasgow

G2 4SQ

Burness Paull LLP

50 Lothian Road

Festival Square

Edinburgh

EH3 9WJ

REGISTRARS

Equiniti Limited

Aspect House

Spencer Road

Lancing

West Sussex

BN99 6DA

INDEPENDENT AUDITOR

RSM Audit UK LLP

Centenary House

69 Wellington Street

Glasgow G2 6HG

TRADING FOR YEAR

The headline trading results are very encouraging with the loss for the year reducing by 28.1% to £1,440k from £2,003k. Revenues at £2,191k were marginally higher than last year (£2,179k) demonstrating a strong recovery during the second half of the year. At the interim stage, trading was below the corresponding period of the prior year but the second half benefited from a 75% increase in revenues and a 55% reduction in pretax losses.

Cash burn during the year (before new funds raised) was £1,499k, similar to the £1,491k seen during 2023. The cash consumption of the business reduced from £976k in the first half to £526k demonstrating the focus of management on driving towards cash neutrality in a shorter time frame.

Cash balances at the year end of £3,931k (2023:£1,484k) resulted from the successful equity issue during December 2023.

STRATEGY REVIEW

On 20 November 2023, prior to the equity issue, the Company updated shareholders on the new strategy of the Company. The Strategy Update highlighted that the key objective of RUA was to reduce the timeframe and the funding necessary for the business to become cash generative.

One of the priorities of the business is to expand the Contract Manufacturing business through conversion of customer enquiries and projects into long term manufacturing contracts. Good progress is being made in this objective as described within the Business Review below.

Within the Heart Valve business, the new heart valve leaflet material - AurTex, has demonstrated the ideal mechanical properties to compete as a replacement for the animal tissue used to manufacture the current generation of heart valves. The business model is not to seek to develop a new heart valve to compete with the large heart valve companies but to become a supplier of material and technology to those

same businesses. This strategy allows the commercialisation of our new leaflet material earlier than planned with potential future revenues generated from licence fees and material supply contracts rather than the sale of devices after incurring large R&D and regulatory costs. The AurTex leaflet material is currently undergoing initial testing by a potential partner.

The Company no longer plans to take the Vascular Graft products through regulatory approval in house, and third party finance or license agreements being pursued to commercialise the IP created to date.

MANAGEMENT AND BOARD

STRUCTURE

Subsequent to the Strategy Update and the successful equity issue, the Company announced the departure of the Group Managing Director. This change enabled the Board to consider the most appropriate structure going forward. It was clear that a smaller, more agile and fully aligned Executive team was allowing the key objectives to be pursued and as such rather than recruit, the role of Executive Chairman was split with Bill Brown taking on the new role of Chief Executive and myself taking on the more traditional role of Non-Executive Chairman.

Lachlan Smith continues as Chief Financial Officer but has assumed a wider role covering a number of operational matters out with the finance department. John McKenna, Director of Clinical Marketing has notified the Company that he will retire from executive duties at the time of the AGM in August. John has a wealth of experience in medical devices and a substantial network of key contacts. In order not to lose this expertise, John has agreed to remain as a non-executive.

CONCLUSION

The past year has seen a switch for RUA from being a business with future funding requirements to finance R&D projects to a fully funded business with a focus on cash generation and return to profitability. The balance sheet was strong at the year end with some £4 million in cash and prospects for growth remain exciting.

GEOFF BERG

Non-Executive Chairman

23 July 2024

GROUP PERFORMANCE

Group trading has been encouraging during the year with the reduction in reported losses and the strong performance in the second half of the year. A detailed analysis of trading and finances is provided below in the Financial Review.

The change in strategy announced in November

23 has brought a focus to the business with a greater emphasis on short term commercial activities rather than longer term ambitions to grow a larger infrastructure. A laser focus on commercial activities has unified the executive team and allowed a number of roles within the business to be eliminated with total annual payroll savings of over £600,000.

strengthening of Sterling had an adverse impact of around £35,000. In addition, polymer shipments from our partner Biomerics to one particular customer were lower due to the timing of the shipments. Indications from licensees are positive regarding the prospects for steady growth with new purchasers of polymer appearing in recent months and an enquiry from one customer regarding a long term license for exclusivity in a currently un-licensed field of use. RUA Biomaterials maintains a high operating profit margin (85%) (2023: 89%), with its only real outlay being IP costs. The Group continues to use the Elast-Eon polymer within its vascular and heart valve product pipelines.

A review of each business is set out below, together with the outlook and plans for future growth and development.

RUA BIOMATERIALS

The Group's platform technology is based upon Elast-Eon, and RUA Biomaterials owns all the Elast-Eon IP, and licenses use of Elast-Eon to medical device companies. Elast-Eon has been proven to have all of the characteristics necessary for a long-term implantable biomaterial, and has been the enabling technology behind over 8 million life-sustaining devices over the last 15 years. Elast-Eon polymer licence and royalty income fell during the period from £554,000 in 2023 to £496,000. All of the revenues in Biomaterials are billed in US$ and the

RUA CONTRACT MANUFACTURE

Revenue for our contract manufacturing division increased by 3% in the period to £1,679,000 (2023: £1,625,000) and generated an operating profit of £931,000 (2023: £794,000). Our Contract manufacturing division enjoys long term manufacturing contracts with its major customer. This partnership, which has been in place since 2012, was extended during the year for a further three years.

At the interim stage, this business unit was adversely impacted by a technical problem resulting in delays in shipping products to the major customer. The problems were quickly identified in conjunction with our customer, and record shipments over the second half of the year allowed the annual forecast to be achieved. Despite this technical issue, RUA remains a

trusted supplier to the customer and ranks amongst its best suppliers with a number of new business opportunities being explored. Despite the hiatus in production and deliveries good operating profit margins of 55% were enjoyed (2023: 49%). A recent customer satisfaction survey scored 100%, which reflects the organisation's commitment to quality and service.

Our stated ambition for Contract Manufacture is to double the scale of the business over the medium term. Business development activities are focused on long term high value strategic opportunities, and significant headway has been made with plans to increase Original Equipment Manufacturer (OEM) customer demand to meet our objectives. We are confident of achieving our ambitions either through the c£2m in annualised revenue from current enquiries or from a corporate opportunity presented through our strong client relationships.

RUA VASCULAR

Following a successful pre-submission process with the FDA, which allows the Group's vascular graft to go through the less onerous 510k market clearance route. The graft is now fully prepared to undergo the regulatory testing regime agreed upon once funding is in place. Regulatory approval is anticipated to be achievable within 30 to 36 months of starting recruitment for the remaining clinical studies. The budget required would be approximately £6 million.

The Board believes that the Vascular project has very attractive risk-adjusted returns on the additional investment required but will not seek to fund these trials in house. The investment in RUA Vascular will be exploited by seeking third party funding for the project whilst retaining an interest which could involve an equity interest, a contract development and manufacture agreement or a form of licensing of technology developed.

By not pursuing the Vascular regulatory pathway in house has dramatically reduced the cash drag on the business.

RUA STRUCTURAL HEART

The heart valve industry's reliance on animal tissue remains a significant risk to the industry and the continuity of the supply of valves to patients. An outbreak of BSE or similar in Australia or New Zealand would be almost catastrophic. RUA developed a novel composite material , now referred to as AurTex, from which a preliminary valve design was created and tested. The results of this initial testing were so positive that we identified the opportunity to license and supply AurTex to the heart valve industry rather than seek to compete with it in valve design and delivery systems.

Building upon the biological properties of Elast-Eon in long term implants and coupled with RUA's textile expertise and novel process of creating a unified composite material, AurTex has continued to demonstrate very encouraging data.

Ongoing in-house trials continue to provide further encouraging data, demonstrating that AurTex has the opportunity to replace current leaflet material.

A heart valve leaflet needs to be durable and AurTex has undergone both flex fatigue and accelerated wear testing as a valve. In both cases, our expectations were exceeded. In hydrodynamic testing, the AurTex leaflet valve has performed in line with current technology. The novel material itself also has additional beneficial properties. At only 150 microns thick, it is much thinner than animal tissue material, therefore potentially delivering benefits to transcatheter valve delivery and performance.

AurTex material is currently undergoing testing with a potential partner and the full data pack of internal testing results will shortly be available to the wider industry.

The target for the heart valve business is now to pursue material supply and license agreements with other heart valve businesses, thus bringing time to commercialisation closer and future development budget requirements reduced dramatically. This strategy of seeking to "own" the leaflet material of choice may allow faster commercialisation with revenues generated during the customer development phase.

OUTLOOK

Expectations for the coming year are to engage with licencees to grow Biomaterials licensing revenues and enter into development contracts with customers in Contract Manufacture to lead to a doubling of its annual revenues in the medium term. I am very encouraged by the pace of change within the business and the focus of the team in engaging with current and prospective customers and licensees. Substantial opportunities are being pursued within Contract Manufacture and, with a following wind, could provide visibility to the ambitious growth plans. These opportunities alone would transform the Group without the potential for added value from the partnering to fund the regulatory pathway for Vascular and licensing of AurTex for heart valve leaflets.

WILLIAM BROWN

Chief Executive

23 July 2024