Life Sciences’ Portfolio Update

Mercia Asset Management PLC

("Mercia")

Life Sciences' Portfolio Update

Mercia Asset Management PLC (AIM: MERC), the proactive, regionally focused, specialist asset manager, is pleased to provide an update on the Life Sciences investments within both its balance sheet and managed funds' portfolios.

Life Sciences investments accounted for seven out of the top 20 direct investments as at 31 March 2020 and their cumulative fair value of £28.6million represented 32.7% of the total portfolio by value.

All of Mercia's Life Sciences direct investments originated from its third-party managed funds and in addition to these investments, Mercia has a further c.40 Life Sciences investments across its third-party managed funds.

In the current financial year to date £4.2million has been invested into six Life Sciences direct investments, with a further £1.6million invested by Mercia's managed funds.

Direct investments

Oxford Genetics Ltd ("OXGENE") - Third consecutive year of 100%+ revenue growth

·    30.2% fully diluted direct investment stake as at 31 March 2020 with a further c.10% fully diluted stake held by Mercia's managed funds

OXGENE, based in Oxford, is a biotechnology company specialising in gene therapy, gene editing and antibody discovery that delivered a third consecutive year of 100%+ revenue growth, more than doubling revenues in its financial year ended 30 April 2020. This continued growth has been fuelled by a combination of strategic licensing agreements and service delivery projects, including a strategic partnership with Fujifilm Diosynth Biotechnologies. The company's continued growth has been recognised recently by The Sunday Times' Fastest Growing Tech 100 at position 19.

Medherant Ltd ("Medherant") - Novel transdermal drug delivery

·    30.1% fully diluted direct investment stake as at 31 March 2020 with a further c.16% fully diluted stake held by Mercia's managed funds

Warwickshire-based Medherant, which was spun out of the University of Warwick, is a developer of transdermal drug-in-adhesive patches using a novel adhesive. In May 2020 the company announced that it had signed an agreement to develop and commercialise multiple products using the TEPI Patch® technology for the global commercial-stage pharmaceutical company Cycle Pharmaceuticals Ltd ("Cycle"). Cycle focuses on rare diseases and intends to utilise Medherant's technology to develop formulations that will address the unmet needs of patients with conditions such as dysphagia and dyskinesia. As interest continues in Medherant's platform technology, the company has recently secured an additional large pharma evaluation agreement. In parallel, Medherant is developing an internal candidate patch which is expected to go into clinical trials in 2021, addressing a market estimated at c.$1billion per annum. In June 2020, the company completed on a syndicated investment round of £2.8million of which Mercia made a direct investment of £1.4million.

Locate Bio Ltd ("Locate") - Appointment of CEO and funding

·    17.4% fully diluted direct investment stake as at 31 March 2020 with a further c.17% fully diluted stake held by Mercia's managed funds

Locate, a spinout from the University of Nottingham and based at MediCity in Nottinghamshire, is a regenerative medicine company focused on orthobiologics. It received a £2.3million syndicated investment in July 2020 and has recently appointed as CEO John von Benecke who brings executive experience from ApaTech Ltd, a leading UK orthobiologics success story, which was sold for c.$330million to Baxter.

Locate's first product, at pre-clinical stage, will help patients who require spinal fusion surgery to overcome low back pain by using a type of bone protein to achieve the fusion. Its second therapy will be for the biological renewal of the intervertebral disc and will help those suffering from degenerative disc disease, which affects c.33million people in the US and EU.

In July 2020, Locate secured a syndicated investment of £2.5million of which Mercia made a direct investment of £0.8million.

MIP Diagnostics Ltd ("MIP") - £5.1million syndicated funding round in July 2020 to accelerate global expansion.

·    3.3% fully diluted direct investment stake currently with a further c.30% fully diluted stake held by Mercia's managed funds

MIP, which is a spinout from the University of Leicester and located in Bedford, has developed a proprietary process to provide Molecular Imprinted Polymers ("MIPS") to the vitro diagnostic, bioprocessing and oil and gas industries. The company develops and manufactures synthetic affinity reagents - polymers that are designed to bind to specific target molecules for detection, purification or extraction purposes. In July 2020, Mercia made its first direct investment in a £5.1million syndicated funding round to accelerate MIP's global expansion. The company recently announced a partnership with Stream Bio to develop a rapid COVID-19 viral infection detection assay.

The Native Antigen Company Ltd ("NAC") - Evidence of Mercia's model in action

·    Sale announced in July 2020, achieving an 8.4x return on original direct investment cost

In keeping with Mercia's model of providing a return to third-party managed fund investors and looking to exit its direct investments within a three to seven-year period, Mercia was pleased to exit this investment fully in July 2020. NAC, a leading producer of infectious disease reagents that include antigens for COVID-19 antibody test kits, was sold to global life sciences tools company LGC in July 2020 for a total cash consideration of up to £18.0million. 

NAC was originally a divestiture from Hybrid Systems, a University of Birmingham spinout of which Mercia was a founding investor via its managed funds. The sale generated, on its original direct investment cost, an 8.4x return and a 65% internal rate of return ("IRR") and, on a blended third-party managed funds investment cost, a 12.1x return a 31% funds IRR.

Third-party managed funds investments

The following is a selection of promising businesses within Mercia's third-party managed funds, which represent potential future candidates for Mercia's direct investment portfolio.

Abingdon Health Ltd ("Abingdon") - Leading the UK Rapid Test Consortium ("UK-RTC")

·    Mercia's managed funds hold fully diluted stakes totalling c.23%

This York-based medical device manufacturer that is leading the UK-RTC has recently received its CE mark for the SARS-CoV-2 virus ("COVID-19") rapid antibody tests which it developed. The AbC-19™ Rapid Test for detection of IgG antibodies to COVID-19 is now available for distribution for professional use. Abingdon reached design freeze for the AbC-19™ lateral flow test for IgG antibodies to COVID-19 in June 2020 after which it fast-tracked development and secured European CE Mark approval in just 14 weeks. This process would normally take 10 months or more to complete. The company is targeting to produce 0.5million COVID-19 antibody tests per month from October 2020 and 1.0million tests per month from January 2021.

Sense Biodetection Ltd ("Sense") - Accelerated programme to launch the first instrument-free, point-of-care, molecular diagnostic test for COVID-19

·    Mercia's managed funds hold fully diluted stakes totalling c.15%

With operations in the UK (in Oxford and Cambridge) and the US (in Boston), Sense is focused on the development of instrument-free molecular diagnostics delivering true point-of-care molecular testing. Just under 12 months ago Sense raised £10.5million in Series A investments and concurrently secured a grant of £1.8million from Innovate UK. In March 2020 Sense announced an accelerated programme to launch the world's first instrument-free, point-of-care molecular diagnostic test for COVID-19, partnering with Phillips-Medisize (a leading global medical device innovator, developer and manufacturer, owned by Molex) to scale up production of its testing to meet the growing demand for rapid diagnostics.

Medovate Ltd ("Medovate") - Named as one of 2020's 'Leading Innovators in Medical Device Development' in Global Health & Pharma's ("GHP") 2020 Global Excellence Awards

·    Mercia's managed funds hold fully diluted stakes totalling c.30%

Based in Cambridge, Medovate is a medical device company focused on the development, manufacture and commercialisation of innovative medical technologies created within the National Health Service ("NHS"). The company, which received £4.5milion of investment from Mercia's Northern VCT Funds in 2017, is making considerable commercial progress. Since April 2020, it concluded agreements with four US-based companies to act as the exclusive distributors for its FDA-approved Safer Injection for Regional Anaesthesia ("SAFIRA") innovation across the US. In September 2020, the company secured European CE Mark approval for SAFIRA and a further agreement was concluded with Brisbane-based LTR Medial, which will provide exclusivity in Australia and New Zealand.

Mark Payton, Chief Executive Officer at Mercia, commented: 

"The Life Sciences sector represents a significant growth area in the UK's regions and is well positioned to benefit from current trends. We are excited by the progress we are seeing in both our direct investments and managed funds, and the potential of our portfolio demonstrates the value and innovation in the UK healthcare sector. Today's update is an important indicator that the life sciences community is predominantly located outside of London and that not only is it resilient, but it is fast growing.

"Mercia has demonstrated its ability to identify investment opportunities to which others do not have access. By continuing to invest and nurture early-stage regional Life Sciences businesses, we make it possible for the UK's technology industry to have a real impact in tackling global issues, build regional employment and create demonstrable shareholder value."

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About Mercia Asset Management PLC:

Mercia is a proactive, specialist asset manager focused on supporting regional SMEs to achieve their growth aspirations. Mercia provides capital across its four asset classes of balance sheet, venture, private equity and debt capital: the Group's 'Complete Connected Capital'. The Group initially nurtures businesses via its third-party funds under management, then over time Mercia can provide further funding to the most promising companies, by deploying direct investment follow-on capital from its own balance sheet.

The Group has a strong UK footprint through its regional offices, 19 university partnerships and extensive personal networks, providing it with access to high-quality deal flow. Mercia currently has c.£800million of assets under management and, since its IPO in December 2014, has invested over £96million into its direct investment portfolio.

Mercia Asset Management PLC is quoted on AIM with the epic "MERC".