IMPORTANT NOTICE

THIS DOCUMENT IS AVAILABLE ONLY TO INVESTORS WHO ARE (1) QUALIFIED INSTITUTIONAL BUYERS ("QIBS") AS DEFINED IN RULE 144A UNDER THE US SECURITIES ACT OF 1933 (THE "US SECURITIES ACT"), OR (2) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE US SECURITIES ACT ("REGULATION S").

IMPORTANT: You must read the following before continuing. The following applies to the document following this page (the "Document"), and you are therefore advised to read this notice carefully before reading, accessing or making any other use of the Document. In accessing the Document, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from Mereo BioPharma Group Limited (the "Company"), RBC Europe Limited and Cantor Fitzgerald Europe (together with RBC Europe Limited, the "Private Placement Agents") as a result of such access.

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NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED DIRECTLY OR INDIRECTLY IN, INTO OR WITHIN THE UNITED STATES, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THERE WILL BE NO PUBLIC OFFERING OF SUCH SECURITIES IN THE UNITED STATES.

THE FOLLOWING DOCUMENT IS BEING FURNISHED TO YOU SOLELY FOR YOUR INFORMATION AND YOU ARE NOT AUTHORISED TO, AND YOU MAY NOT, FORWARD OR DELIVER THE DOCUMENT, ELECTRONICALLY OR OTHERWISE, TO ANY PERSON OR REPRODUCE THE DOCUMENT IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE FOLLOWING DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE US SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE SECURITIES DESCRIBED THEREIN.

THE FOLLOWING DOCUMENT IS ADDRESSED TO AND DIRECTED AT PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA ("MEMBER STATES") WHO ARE "QUALIFIED INVESTORS" WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC AS AMENDED (INCLUDING AMENDMENTS BY DIRECTIVE 2010/73/EU TO THE EXTENT IMPLEMENTED IN THE RELEVANT MEMBER STATE)) ("QUALIFIED INVESTORS").

In addition, this electronic transmission and the Document is only directed at, and being distributed: (A) in the United Kingdom, to persons: (i) who have professional experience in matters relating to investments and who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the "Order") or who fall within Article 49 of the Order; and (ii) are "qualified investors" as defined in section 86 of the Financial Services and Markets Act 2000, as amended; and (B) any other persons to whom it may otherwise be lawfully communicated (together all such persons being referred to as "relevant persons"). This electronic transmission and the Document must not be acted on or relied on: (a) in the United Kingdom, by persons who are not relevant persons; and (b) in any Member State other than the United Kingdom, by persons who are not Qualified Investors. Any investment or investment activity to which the Document relates is available only to: (1) in the United Kingdom, relevant persons; and (2) in any Member State other than the United Kingdom, Qualified Investors and other persons who are permitted to subscribe for the Ordinary Shares described therein pursuant to an exemption from the Prospectus Directive and other applicable legislation, and will only be engaged in with such persons.

Confirmation of your Representation: In order to be eligible to view the Document or make an investment decision with respect to the securities, investors: (1) must be (a) QIBs; or (b) outside the United States transacting in an offshore transaction (in accordance with Regulation S); (2) if located in the United Kingdom, must be relevant persons; and (3) if located in any Member State other than the United Kingdom, must be Qualified Investors. By accepting this e-mail and accessing the Document, you shall be deemed to have represented to the Company and each of the Private Placement Agents that: (1) you have understood and agree to the terms set out herein; (2) you and any customers you represent are (a) QIBs; or (b) outside the United States and the e-mail address to which this e-mail and the Document has been delivered is not located in the United States; (3) if you are located in the United Kingdom, you and any customers you represent are relevant persons; (4) if you are located in any Member State other than the United Kingdom, you and any customers you represent are Qualified Investors; (5) you consent to delivery of the Document and any amendments or supplements thereto by electronic transmission; and (6) you acknowledge that this electronic transmission and the Document is confidential and intended only for you and you will not transmit the Document (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person.

You are reminded that the Document has been delivered to you or accessed by you on the basis that you are a person into whose possession it may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver or disclose the contents of the Document to any other person.

The materials relating to the offering described in the Document do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law.

No action has been or will be taken in any jurisdiction by the Company or any of the Private Placement Agents that would, or is intended to, permit a public offering of the securities described in the Document, or possession or distribution of a prospectus (in preliminary, proof or final form) or any other offering or publicity material relating to those securities, in any country or jurisdiction where action for that purpose is required. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Private Placement Agents or any of their respective affiliates is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Private Placement Agents or such affiliate on behalf of the Company in such jurisdiction.

The Document has been sent to you or accessed by you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently, none of the Company, any of the Private Placement Agents or any of their respective affiliates, directors, officers, employees, representatives and agents or any other person controlling the Company, any of the Private Placement Agents or any of their respective affiliates accepts any liability or responsibility whatsoever, whether arising in tort, contract or otherwise which they might have in respect of this electronic transmission, the Document or the contents thereof, or in respect of any difference between the document distributed to you in electronic format and the hard copy version that will be provided to you at a later date or is available to you on request from the Company or any Private Placement Agent. Please ensure that your copy is complete.

If you receive the Document by e-mail, you should not reply to the e-mail. Any reply e-mail communications, including those you generate by using the "Reply" function on your e-mail software, will be ignored or rejected. If you receive the Document by e-mail, your use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.

This document comprises an AIM admission document relating to Mereo BioPharma Group plc (the Company or Mereo) prepared in accordance with the AIM Rules for Companies. This document contains no offer to the public within the meaning of section 102B of the Financial Services and Markets Act 2000, as amended (FSMA), the Companies Act 2006 (the Companies Act) or otherwise. Accordingly, this document does not comprise a prospectus within the meaning of section 85 of FSMA and has not been drawn up in accordance with the Prospectus Rules of the Financial Conduct Authority (the FCA) or approved by or filed with the FCA or any other competent authority for the purposes of the Prospectus Directive. This document has been prepared in connection with the offer of Ordinary Shares to certain institutional and other prospective investors described in Part XII: “Details of the Private Placement” of this document (the Private Placement) and Admission (as defined below). Applications will be made to the London Stock Exchange plc (the London Stock Exchange) for all of the Ordinary Shares, issued and to be issued pursuant to the Private Placement, to be admitted to trading on AIM (together, Admission). It is expected that Admission will become effective and that unconditional dealings in the Ordinary Shares will commence at 8am on 9 June 2016. No application has been, or is currently intended to be, made for the Ordinary Shares to be admitted to listing or trading on any other stock exchange.

The Directors, whose names appear on page 34 of this document, and the Company accept responsibility for the information contained in this document and compliance with the AIM Rules for Companies. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and contains no omission likely to affect its import. Prospective investors are advised to examine all the risks that might be relevant in connection with an investment in the Ordinary Shares. Prospective investors should read this entire document, and in particular, Part II: “Risk Factors” for a discussion of certain risks and other factors that should be considered in connection with an investment in the Ordinary Shares. MEREO BIOPHARMA GROUP PLC (Incorporated under the Companies Acts 1985 to 2006 and registered in England and Wales with registered number 09481161) Private Placement of 5,135,962 Ordinary Shares of £0.003 each at a Price of £2.21 per Ordinary Share and admission of 64,340,798 Ordinary Shares to trading on AIM Global Co-ordinator, Private Placement Agent and Broker RBC Capital Markets Nominated Adviser, Private Placement Agent and Broker Cantor Fitzgerald Europe Financial Adviser to the Company Evercore The Ordinary Shares have not been, and will not be, registered under the U.S. Securities Act of 1933 (the Securities Act) and, subject to certain exceptions, may not be offered or sold within the United States. The Ordinary Shares are being offered and sold outside the United States in reliance on Regulation S and within the United States only to “qualified institutional buyers”. See paragraphs 10 (Selling restrictions) and 11.3 (Transfer restrictions) of Part XII: “Details of the Private Placement”.

AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the UK Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. Each AIM company is required pursuant to the AIM Rules for Companies to have a nominated adviser. The nominated adviser is required to make a declaration to the London Stock Exchange on Admission in the form set out in Schedule Two to the AIM Rules for Nominated Advisers. The London Stock Exchange has not itself examined or approved the contents of this document.

The date of this Admission Document is 3 June 2016 RBC Europe Limited, Cantor Fitzgerald Europe and Evercore Partners International LLP, which are authorised and regulated by the FCA in the United Kingdom, are acting exclusively for the Company and no one else in connection with the Private Placement and Admission, will not regard any other person (whether or not a recipient of this document) as their respective client in relation to the Private Placement and Admission, and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients, nor for providing advice in relation to the Private Placement, Admission or any other matter referred to in this document.

Apart from the responsibilities and liabilities, if any, which may be imposed on RBC Europe Limited, Cantor Fitzgerald Europe and Evercore Partners International LLP or any of them by FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, none of RBC Europe Limited, Cantor Fitzgerald Europe, Evercore Partners International LLP nor any of their respective affiliates accepts any responsibility whatsoever for, or makes any representation or warranty, express or implied, as to the contents of this document, including its accuracy or completeness or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Ordinary Shares or the Private Placement, and nothing in this document will be relied upon as a promise or representation in this respect, whether or not to the past or future. Each of RBC Europe Limited, Cantor Fitzgerald Europe, Evercore Partners International LLP and their respective affiliates accordingly disclaims all and any responsibility or liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above), which it might otherwise have in respect of this document or any such statement.

Cantor Fitzgerald Europe has been appointed as Nominated Adviser in connection with Admission.

Cantor Fitzgerald Europe’s responsibilities as the Company’s Nominated Adviser under the AIM Rules are owed solely to the London Stock Exchange and are not owed to the Company or to any Director or to any other person in respect of such person’s decision to acquire shares in the Company in reliance on any part of this document.

Recipients of this document are authorised solely to use it for the purpose of considering the acquisition of the Private Placement Shares and may not reproduce or distribute this document, in whole or in part, and may not disclose any of the contents of this document or use any information herein for any purpose other than considering an investment in the Private Placement Shares. Such recipients of this document agree to the foregoing by accepting delivery of this document.

This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities other than the securities to which it relates or any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, such securities by any person in any circumstances in which such offer or solicitation is unlawful.

In making an investment decision, each recipient of this document must rely on its own examination, analysis and enquiry of the Company and the terms of the Private Placement, including the merits and risks involved.

No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied on as having been so authorised. Neither the delivery of this document nor any subscription or sale made under it shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this document or that the information in it is correct as of any subsequent time.

None of the Company, RBC Europe Limited, Cantor Fitzgerald Europe, Evercore Partners International LLP nor any of their respective representatives, is making any representation to any prospective investor of the Ordinary Shares regarding the legality of an investment in the Ordinary Shares by such prospective investor under the laws applicable to such prospective investor. The contents of this document should not be construed as legal, financial or tax advice. Each prospective investor should consult his, her or its own legal, financial or tax adviser for legal, financial or tax advice.

In connection with the Private Placement, RBC Europe Limited or Cantor Fitzgerald Europe, or any of them, and any of their respective affiliates, acting as investors for their own accounts, may subscribe for Private Placement Shares and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in the Private Placement Shares, any other securities of the Company or other related investments in connection with the Private Placement or otherwise. Accordingly, references in this document to the Private Placement Shares being issued, offered, subscribed, sold, purchased or otherwise dealt with should be read as

1 including any issue, offer or sale to, or subscription, purchase or dealing by Cantor Fitzgerald Europe, RBC Europe Limited, or any of them and any of their respective affiliates acting as an investor for its or their own account(s). RBC Europe Limited and Cantor Fitzgerald Europe do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so.

Notice to overseas shareholders Notice to United States shareholders The Ordinary Shares have not been, and will not be, registered under the Securities Act or with any securities regulatory authority or under the applicable securities laws or regulations of any state or other jurisdiction of the United States, and may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable state securities law. Subject to certain exceptions, the Ordinary Shares may not be offered or sold in the United States. RBC Europe Limited and Cantor Fitzgerald Europe (together the Private Placement Agents) may arrange for the offer and sale of Ordinary Shares in the United States only to “qualified institutional buyers” (QIBs)as defined in Rule 144A of the Securities Act, and outside the United States in offshore transactions within the meaning of, and in reliance on, Regulation S under the Securities Act (Regulation S). For a description of these and certain further restrictions on offers, sales and transfers of the Ordinary Shares and the distribution of this document, see Part XII: “Details of the Private Placement”.

This document is being furnished by the Company in connection with an offering exempt from the registration requirements of the Securities Act, solely for the purpose of enabling a prospective investor to consider the subscription for or purchase of Ordinary Shares described herein. The information contained in this document has been provided by the Company and other sources identified herein or therein. This document is being furnished on a confidential basis only to persons either outside the Unites States or in the United States who are QIBs. Any reproduction or distribution of this document, in whole or in part, in the United States and any disclosure of its contents or use of any information herein in the United States for any purpose, other than in considering an investment by the recipient in the Ordinary Shares offered hereby or thereby is prohibited. Each prospective investor in the Ordinary Shares, by accepting delivery of this document, agrees to the foregoing.

The Ordinary Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission, any state securities commission in the United States or any other U.S. regulatory authority nor have any such authorities passed upon or endorsed the merits of the offering of the Ordinary Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States.

Notice to other overseas shareholders The distribution of this document and the offer and sale of the Ordinary Shares in certain jurisdictions may be restricted by law. Other than in the United Kingdom, no action has been taken or will be taken to permit the possession or distribution of this document (or any other offering or publicity materials or application form(s) relating to the Ordinary Shares) in any jurisdiction where action for that purpose may be required or doing so is restricted by law. Accordingly, neither this document, nor any advertisement, nor any other offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes should inform themselves about and observe any such restrictions.

In addition, the Ordinary Shares are subject to restrictions on transferability and resale in certain jurisdictions and may not be transferred or resold except as permitted under applicable securities laws and regulations. Prospective investors should be aware that they may be required to bear the financial risk of this investment for an indefinite period of time. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. Further information with regard to the restrictions on the distribution of this document and the offering, sale and transfer and resale of the Ordinary Shares is set out in paragraph 10 (Selling restrictions)of Part XII: “Details of the Private Placement”. Each subscriber for Ordinary Shares will be deemed to have made the relevant representations made therein.

2 CONTENTS

PART I SUMMARY INFORMATION ...... 4 PART II RISK FACTORS ...... 8 PART III DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS ...... 34 PART IV EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND PRIVATE PLACEMENT STATISTICS ...... 35 PART V PRESENTATION OF INFORMATION ...... 36 PART VI INFORMATION ON THE COMPANY AND THE GROUP ...... 40 PART VII DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE ...... 82 PART VIII CAPITALISATION AND INDEBTEDNESS ...... 88 PART IX OPERATING AND FINANCIAL REVIEW ...... 89 PART X FINANCIAL INFORMATION ...... 96 PART XI UNAUDITED PRO FORMA FINANCIAL INFORMATION ...... 121 PART XII DETAILS OF THE PRIVATE PLACEMENT ...... 123 PART XIII APPLICATION INSTRUCTIONS AND PROCEDURES ...... 128 PART XIV SUBSCRIPTION TERMS AND CONDITIONS ...... 130 PART XV ADDITIONAL INFORMATION ...... 133 PART XVI DEFINITIONS ...... 169 PART XVII GLOSSARY ...... 173 PART XVIII INTELLECTUAL PROPERTY EXPERT REPORT ...... 174

3 PART I SUMMARY INFORMATION This summary should be read as an introduction to this document. Any decision to invest in the Private Placement should be based on consideration of this document as a whole by the prospective investor. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of a Member State, have to bear the costs of translating this document before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary, including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document or it does not provide, when read together with the other parts of this document, key information in order to aid investors when considering whether to invest in such securities.

1. History and development of the Group Mereo is a UK-based specialty biopharmaceutical company focused on the development of innovative medicines that aim to address unmet medical needs in rare and specialty disease areas and improve patient quality of life. The Company is the holding company of the Group. The Company has three wholly owned subsidiaries, Mereo BioPharma 1 Limited (Mereo 1), which is responsible for future development of BCT-197, Mereo BioPharma 2 Limited (Mereo 2), which is responsible for future development of BGS-649, and Mereo BioPharma 3 Limited (Mereo 3), which is responsible for future development of BPS-804. The Group will seek to selectively acquire clinical-stage product candidates with demonstrated clinically meaningful data from large pharmaceutical companies and to further develop these product candidates to subsequent key value inflection points or to commercialisation. The Group is an early adopter of a novel business model that aligns its interests with those of large pharmaceutical companies. By selectively acquiring and further developing promising product candidates, the Group and its product candidate provider can jointly participate in the value realisation through any future sale, licensing or commercialisation of the product candidate. Since its inception in March 2015, the Group has acquired three product candidates from Novartis, which comprise its initial portfolio. In the near term, the Group aims to develop this existing portfolio, while in the medium to long-term the Group intends to build a broader pipeline of product candidates which fulfil Mereo’s selection criteria. Ultimately, Mereo’s goal is to leverage its innovative business model and resources to develop additional product candidates that address a broad range of rare and specialty diseases with significant unmet clinical needs and to become an innovative leader in the specialty biopharmaceutical sector. Mereo’s senior management has extensive experience in the pharmaceutical and biotechnology sector in investment in and development, manufacturing and commercialisation of product candidates in multiple therapeutic areas. The Company also benefits from a strong board of directors that is comprised primarily of current and former senior leaders in the pharmaceutical and biotechnology industry. The Company is backed by leading institutional shareholders Invesco Perpetual High Income Fund and Invesco Perpetual UK Strategic Income Fund (together, Invesco) and CF Woodford Equity Income Fund and Woodford Patient Capital Trust (together, Woodford), each of which has significant pharmaceutical and biotechnology industry knowledge and relationships and a history of long-term supportive investments. Both participated in an equity financing round in July 2015, committing £76.5 million, with £20 million funded upon closing of the financing round. In addition, Novartis holds a stake in the Company of 19.5% immediately prior to Admission and is expected to hold a stake in the Company of 19.5% following Admission, thus ensuring alignment of interests. The Company is incorporated in England and Wales, and the Group has its headquarters in London.

2. The Mereo business model Mereo’s business model is highly flexible and scalable, allowing efficient integration of new product candidates. The Group has an efficient and light infrastructure, including a services agreement with ICON Clinical Research (ICON), a leading global CRO, to assist with the clinical development of its initial portfolio. The Group intends to leverage its global network of experts with expertise across multiple clinical disciplines to optimise the development strategies for the selected product candidates. Mereo’s Directors and senior management have long- standing relationships with senior executives of large pharmaceutical companies, which the Directors believe will enhance the Group’s process for identifying and acquiring additional product candidates. The Group’s alignment of interests with product candidate providers can be enhanced by its flexibility to use alternative transaction structures, including those in which the Group does not make an upfront cash payment for product candidate acquisitions and a pharmaceutical company retains economic interest in a product candidate, including through potential equity participation.

4 Mereo has a highly disciplined approach in acquiring selective product candidates for further development. The product candidates will typically originate from large pharmaceutical companies in rare and specialty indications with unmet medical need and compelling market potential. Additionally, the product candidates need to have a strong scientific rationale, demonstrated clinically meaningful data, a clear and manageable clinical and regulatory strategy and a favourable competitive landscape. This is exemplified by Mereo’s initial pipeline, which comprises three well characterised, novel clinical Phase 2 product candidates acquired from Novartis in July 2015: BCT-197 for acute exacerbations of chronic obstructive pulmonary disease (AECOPD), BGS-649 for hypogonadal hypogonadism in obese men and BPS-804 for osteogenesis imperfecta. Each product candidate has a strong pre-clinical and clinical dataset, including clinically meaningful results for the relevant indication. Further, because BCT-197, BGS-649 and BPS-804 are in different drug classes and are for different indications, the risk profile of the portfolio is well diversified enabling the Group to optimise the commercial strategy for each product candidate based on clinical trial results.

3. Current product portfolio BCT-197 is being developed to treat inflammation in patients with an acute exacerbation of chronic obstructive pulmonary disease. Chronic obstructive pulmonary disease (COPD) is a non fully reversible, progressive lung disease that was the third largest cause of death in the world in 2010 according to the Global Burden of Disease Study, resulting in annual direct and indirect costs of approximately $50 billion in the United States, and the WHO forecasts that it will remain the third largest cause of death in the world in 2030. On average, COPD patients suffer one to three AECOPDs per year. Current treatments for AECOPD are supportive therapies that do not treat the underlying disease and corticosteroids have been the long-standing mainstay of treatment for AECOPD. Inflammation is a key feature of AECOPDs, and the Group’s product candidate BCT-197 aims to deliver tangible benefits for patients and payers by improving symptoms and potentially resulting in shorter hospital stays with fewer readmissions. Other p38 MAP kinase inhibitors under development for COPD include GlaxoSmithKline’s losmapimod and AstraZeneca’s AZD7624.

BGS-649 is being developed for hypogonadal hypogonadism in obese men. Hypogonadal hypogonadism is a clinical syndrome that results from inadequate levels of testosterone. Current treatment for hypogonadal hypogonadism is testosterone replacement therapy by intramuscular injection, gel or patches. Testosterone replacement is associated with significant side effects, including excessively high levels of testosterone, which has been associated with higher risk of stroke and heart attack. The Group’s product candidate BGS-649 aims to restore normal levels of testosterone without causing excessively high testosterone levels and is being developed as a once-weekly pill, conferring potential safety and convenience benefits as compared to current testosterone treatments. There are currently several other products under development for hypogonadal hypogonadism that are not testosterone replacement therapies, including Repros’ Androxal and Takeda’s TAK-448. Takeda’s product is currently in Phase 2. Repros submitted an NDA for Androxal but on 1 December 2015, announced that it received a complete response letter from the FDA stating that the NDA cannot be approved in the present form and recommending that Repros conduct one or more additional Phase 3 studies to support approval in the target population.

BPS-804 is being developed for osteogenesis imperfecta, a chronic genetic disorder that results in bones that can break easily. Osteogenesis imperfecta is a rare condition that affects a minimum of approximately 20,000 and possibly as many as 50,000 patients in the United States. In Europe, approximately 7.5 out of 100,000 people have the condition. Current treatment largely relies on the acute management of fractures as they occur and the use of bisphosphonate drugs, although the Directors believe there is no clear data demonstrating that bisphosphonate drugs reduce fractures. BPS-804 aims to demonstrate a benefit compared to placebo in terms of fractures in osteogenesis imperfecta patients. BPS-804 works by inhibiting sclerostin, which inhibits the activity of bone-forming cells, known as osteoblasts. The Directors believe that by blocking sclerostin, BPS-804 will induce or increase osteoblast function and maturation of these cells, increasing bone formation and reducing bone resorption, thereby reducing fractures in osteogenesis imperfecta patients. Currently, Amgen and UCB are conducting Phase 3 programmes for an anti-sclerostin antibody, romosozumab, for post-menopausal osteoporosis, Amgen is conducting an exploratory open-label trial for denosumab, Prolia, for paediatric osteogenesis imperfecta, and Eli Lilly has blosozumab, an anti-sclerostin antibody in Phase 1 development for osteoporosis, each of which may compete with BPS-804.

4. Significant recent trends affecting the Group and the industry in which the Company operates The Directors believe the ongoing high productivity at the discovery and early clinical development phase of large pharmaceutical companies has resulted in an increasing number of research and development product

5 candidates available for further development. However, the Directors believe pressure to meet profitability targets is constraining large pharmaceutical companies’ ability to fund their entire pipeline of research and development product candidates, requiring them to focus their resources on a sub-set of product candidates. By identifying and selectively acquiring product candidates from large pharmaceutical companies and funding their further development, Mereo aims to advance promising product candidates to key value inflection points or to commercialisation. 5. Selected historical key financial information Period ended 31 December 2015 £ Research and development expenses ...... (5,445,015) Administrative expenses ...... (7,716,344) Operating loss ...... (13,161,359) Finance income ...... 25,717 Loss before tax ...... (13,135,642) Taxation ...... 946,681 Loss for the period, attributable to equity holders of the parent ...... (12,188,961) Other comprehensive income/(loss) for the period, net of tax ...... — Total comprehensive (loss) for the period, net of tax and attributable to the equity holders of the parent ...... (12,188,961)

The historical information presented is in respect of the period from the incorporation of the Company on 10 March 2015 to 31 December 2015. 6. Pro forma financial information The unaudited pro forma statement of net assets of the Company included in Part XI “Unaudited Pro Forma Financial Information” illustrates the effect of the receipt of the net proceeds of £12.6 million raised in the Capital Raise (as defined below) including £3.5 million received upon issuance of the convertible loan note to Novartis as detailed in paragraph 12.5 of Part XV “Additional Information”, and the Company’s exercise in full of its option under the Subscription Agreement to require Invesco and Woodford to subscribe for Ordinary Shares in the amount of £56.5 million (£54.9 million after fees). After giving effect to the pro forma adjustments described above, at 31 December 2015, the Company would have had tangible assets of £0.2 million, intangible assets of £25.8 million, receivables of £1.6 million and £79.7 million in cash, resulting in total assets of £107.3 million, and payables of £2.8 million, borrowings of £2.8 million and long-term provisions of £0.1 million, resulting in total liabilities of £5.7 million, and net assets of £101.6 million. 7. Description of the Private Placement The Private Placement comprises an offer of 5,135,962 Ordinary Shares, which the Company intends to issue for an amount of £9.1 million, net of the private placement agency fees, taxes and other estimated fees and expenses (including VAT) of £2.3 million, representing 8.0% of the issued share capital of the Company immediately following Admission. The Private Placement is made by way of an offer (i) to certain institutional and professional investors in the United Kingdom and elsewhere outside the United States in reliance on Regulation S and (ii) in the United States only to QIBs. No expenses will be charged to the subscribers for Ordinary Shares in connection with the Admission or the Private Placement by the Company. Under the Private Placement, all Private Placement Shares will be issued at the Private Placement Price. 8. Use of proceeds The Directors believe the proceeds of the Private Placement and the issue of the Notes (as defined below; together, the Capital Raise) and funds to be received pursuant to the exercise of the Company’s option under the Subscription Agreement will provide additional funds to allow the Group to bring its product candidates BCT- 197, BGS-649 and BPS-804 to the next stage of development, namely:

• completion of the phase 2 study for BCT-197;

6 • completion of the phase 2b study for BGS-649; and • achievement of the interim data point for BPS-804.

The Company intends to allocate the net proceeds from the Capital Raise of £12.6 million and proceeds resulting from the exercise of the option under the Subscription Agreement of £54.9 million and its cash balances as of 31 December 2015 as follows: • development costs of product candidate BCT-197 of £18.1 million; • development costs of product candidate BGS-649 of £16.4 million; • development costs of product candidate BPS-804 of £26.2 million; and • other corporate costs covering a period to the end of 2018, estimated at £19.0 million.

At the time of Admission, the Company’s existing cash balances will include funds received pursuant to the Company’s option under the Subscription Agreement to require Invesco and Woodford to subscribe for Ordinary Shares in the amount of £56.5 million (£54.9 million after fees).

9. Issued share capital On Admission, the nominal value of the issued share capital of the Company will be £193,022 divided into 64,340,798 Ordinary Shares of £0.003 each, all of which will be fully paid.

10. Dividend policy The Company has never declared or paid any cash dividends on its shares. The Company intends to retain future earnings, if any, to finance the operation of the Group’s business and does not anticipate paying any cash dividends in the foreseeable future. Any future determination related to the Company’s dividend policy will be made at the discretion of the Directors of the Company after considering the Group’s financial condition, results of operations, capital requirements, business prospects and other factors the Directors of the Company deem relevant, and subject to the restrictions contained in any future financing instruments.

7 PART II RISK FACTORS Any investment in the Ordinary Shares is subject to a number of risks. Prior to investing in the Ordinary Shares, prospective investors should consider carefully the factors and risks associated with any such investment in the Ordinary Shares, the Group’s business and the industry in which it operates, together with all other information contained in this document, including, in particular, the risk factors described below. Prospective investors should note that the risks relating to the Group, its industry and the Ordinary Shares summarised in Part I: “Summary Information” are the risks that the Directors believe to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Ordinary Shares. However, as the risks which the Group faces relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in Part I: “Summary Information” but also, among other things, the risks and uncertainties described below.

Risks Relating to the Group’s Business and Financial Position The Group will require additional financing in the long-term and may be unable to raise sufficient capital, which could lead it to delay, reduce or abandon development programmes of some of its product candidates. The Group expects to incur further significant expenses in connection with its ongoing development activities in relation to its product candidates, including for funding pre-clinical and clinical studies, registration, manufacturing, marketing, sales and distribution. As at 31 December 2015, the Group had capital resources consisting of cash, cash equivalents and investments in marketable securities of £12.2 million. Research and development expenses, administrative expenses and payables are expected to increase significantly from the first quarter of 2016 as the Group progresses its three product candidates through clinical studies that have commenced or are expected to commence in 2016. The Group raised £20 million from a group of investors in an equity financing round that closed on 29 July 2015, with an additional £56.5 million committed. The Group does not expect to generate any revenues from licensing prior to the achievement of key clinical data with each of its product candidates in development. The Group does not expect to earn revenues from product sales unless and until its product candidates become commercially available. Because the outcome of any clinical trial is highly uncertain, the Group cannot reasonably estimate the actual costs involved in completing the development of any of its product candidates, including any future trials. Except in the case of any new product acquisitions, the Group does not anticipate requiring additional funding prior to achievement of key clinical data points with BCT- 197 and BGS-649, expected by the end of 2017. The Directors believe the proceeds from the Capital Raise and funds to be received pursuant to the exercise of the Company’s option under the Subscription Agreement, together with the Group’s existing cash resources, are sufficient to fund BCT-197 and BGS-649 to the next stage of development and BPS-804 to interim data from the initial part of the potential registration study in the first quarter of 2018. The Group’s future capital requirements depend on many factors, including: • the results of the clinical trials for the Group’s product candidates; • the timing of, and the costs involved in, obtaining regulatory approvals for the Group’s product candidates; • the number and characteristics of any additional product candidates the Group develops or acquires; • the scope, progress, results and costs of developing the Group’s product candidates, and conducting pre-clinical and clinical trials; • the cost of selling, commercialising or otherwise realising value on any product candidates approved for sale, including marketing, sales and distribution costs; • the cost of manufacturing any product candidates the Group commercialises; • the Group’s ability to establish and maintain strategic collaborations, licensing or other arrangements and the terms of and timing of such arrangements; • the degree and rate of market acceptance of any future approved products; • the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments; • any product liability or other lawsuits related to the Group’s product candidates; • the expenses needed to attract and retain skilled personnel; • the costs associated with being a public company; • the costs associated with evaluation of the Group’s product candidates; • the costs associated with evaluation of third-party intellectual property;

8 • the costs associated with obtaining and maintaining licences;

• the costs associated with obtaining, protecting and enforcing intellectual property, such as costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, litigation costs and the outcome of such litigation; and

• the timing, receipt and amount of sales of, or royalties on, future approved products, if any.

Adequate additional financing may not be available to the Group when needed, on acceptable terms, or at all. If the Group is unable to raise capital when needed or on attractive terms, the Group could be forced to delay, reduce or eliminate its development programmes. Any additional fundraising through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, may force the Group to relinquish certain valuable rights to its product candidates or future revenue streams or grant licences on terms that may not be favourable; any of which could restrict the Group’s ability to realise value on a product candidate or operate as a business.

Global economic conditions and risks could adversely affect the Company’s business and operations.

In recent years, the commercial and financial markets have been faced with very challenging global economic conditions, particularly in the United States and Europe. Many of the Group’s potential customers are international pharmaceutical and biotechnology companies based in the United States or in Europe. Deterioration in the global economic environment, particularly in those regions, may negatively impact the Company’s ability to access additional funding, or the Company’s ability to commercialise or otherwise realise value from its product candidates due to downward pressures on the potential prices for product candidates, longer sales cycles and slower adoption of new technologies. A weakening of macroeconomic conditions may also adversely affect the Group’s third-party suppliers based in the United States or Europe, which could result in interruptions in supply in the future. There can be no assurance that a deterioration of economic conditions in international markets will not adversely affect the Company’s future results. Moreover, changes in foreign currency exchange rates could affect the value of the Company’s assets and liabilities, and the amount of its revenue and expenses.

The Group has limited operating history, has incurred losses since its inception and anticipates it will continue to incur losses for the foreseeable future. The Group has no sales, which, together with its limited operating history, make it difficult to assess the Group’s future commercial viability.

The Group is a small clinical stage company with a limited operating history. To date, the Group has commenced clinical trials with two of its product candidates. Further, the Group has obtained limited regulatory approvals for its product candidates and has not generated any revenues from out-licensing, selling, commercialising or otherwise realising value on its product candidates. The Group continues to incur significant development and other expenses related to its planned clinical trials and operations. The Group’s ability to achieve revenues and profitability is dependent on its ability to develop its product candidates to key value inflection points or to commercialisation and obtain necessary regulatory approvals. Even if the Group achieves profitability in the future, the Group may not be able to sustain profitability in subsequent periods. The Group’s prior losses, combined with expected future losses, may adversely affect the market price of its Ordinary Shares and its ability to raise capital and continue operations.

The Group commenced operations in mid-2015 and consequently there is limited financial information on which to evaluate the Group. To date, its activities have been primarily limited to staffing, business planning, raising capital, identifying potential product candidates, acquiring its initial product candidates and planning the development programmes for its initial product candidates, and therefore it has a limited operating history and investors may find it difficult to evaluate the Group’s performance and prospects. The Group’s product candidates are in clinical development. The Group has not yet demonstrated its ability to manufacture or conduct sales and marketing activities necessary to commercialise successfully a product candidate. In addition, given its limited operating history, the Group may encounter unforeseen expenses, difficulties, complications or delays. If the Group completes successfully clinical studies and receives marketing approval from the FDA and the EMA for any product candidate, the Group anticipates transitioning from a group with only a development focus to a group also capable of supporting commercial activities. The Group may not be successful in such a transition or may incur greater costs than expected during such transition that adversely affect its financial results and prospects.

9 Any inability to identify product candidates suitable for the Group’s purposes may have an adverse impact on the Group’s future performance.

The Group will continue to review opportunities to expand its initial portfolio by acquiring novel product candidates with demonstrated clinically meaningful data in the treatment of rare and specialty diseases. Increased demand from the Group’s competitors (including major pharmaceutical and biotechnology companies) for such product candidates may make it more difficult for the Group to acquire product candidates and could lead to increases in the price of procuring such product candidates.

While the Group is actively developing a deal pipeline with large pharmaceutical companies, there is no guarantee that any or all of the product candidates that the Group may review will be acquired by the Group. An inability to identify or successfully acquire suitable product candidates in line with the Group’s acquisition criteria, or obstacles within the purchasing process, could adversely impact the Group’s ability to further diversify its portfolio and its future performance.

The Group may not be able to integrate efficiently or achieve the expected benefits of any acquisitions of complementary product candidates or businesses.

The Group’s ability to integrate and manage acquired product candidates or businesses effectively will depend upon a number of factors including the complexity of any product candidate or the size of the acquired business and the resulting difficulty of integrating the acquired business’s operations, if any. The Group’s relationship with current employees or employees of any acquired business may become impaired. The Group may also be subject to unexpected claims and liabilities arising from acquisitions of product candidates or businesses. These claims and liabilities could be costly to defend, could be material to the Group’s financial position and might exceed either the limitations of any applicable indemnification provisions or the financial resources of the indemnifying parties. There can also be no assurance that the Group will be able to assess ongoing profitability and identify all actual or potential liabilities of a product candidate or business prior to its acquisition.

A determination by the United Kingdom to exit or otherwise significantly change its relationship with the European Union could have an impact on the Company’s business, financial condition and results of operations.

An exit of the United Kingdom from the European Union could significantly affect the fiscal, monetary and regulatory landscape in the United Kingdom, and could have a material impact on its economy and the future growth of its various industries, including the pharmaceutical and biotechnology industries. This may impact the Company’s ability to access funding in the future. Although it is not possible to predict fully the effects of an exit of the United Kingdom from the European Union, if it were to occur, it could have a material adverse effect on the Company’s business, financial condition and results of operations. In addition, it may impact the Group’s ability to comply with the extensive government regulation and oversight to which it is subject, and impact the regulatory approval processes for its product candidates.

The Directors believe that the Ordinary Shares are likely to be treated as stock of a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. If the Company is a PFIC for any taxable year, this could result in adverse U.S. federal income tax consequences to U.S. holders.

Under the U.S. Internal Revenue Code of 1986, as amended (the Code), the Company will be treated as a PFIC for any taxable year in which either of the following is true:

• at least 75% of the Company’s gross income (looking through certain corporate subsidiaries) for the taxable year is “passive income;” or

• at least 50% of the value, determined on the basis of a quarterly average, of the Company’s gross assets (looking through certain corporate subsidiaries) is attributable to assets that produce or are held for the production of “passive income”.

Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income.

10 If the Company is treated as a PFIC and you are a U.S. holder as defined in paragraph 14.1 (U.S. federal income taxation) of Part XV: “Additional Information” that does not make a QEF or other election (which may or may not be available to you based on circumstances not entirely within the Company’s control), you will be subject to potentially adverse U.S. federal income tax consequences in the taxable year in which your Ordinary Shares are sold or upon receipt of an “excess distribution” with respect to such Ordinary Shares. In general, you would receive an “excess distribution” if the amount of any distribution for U.S. federal income tax purposes in respect of the Ordinary Shares is more than 125% of the average distributions made with respect to the Ordinary Shares within the three preceding taxable years (or shorter period in which you held such Ordinary Shares). In general, you would be subject to an additional tax that is equivalent to an interest charge on U.S. taxes that are deemed due during the period that you owned your Ordinary Shares computed by assuming that the gain (in the case of a sale) or the “excess distribution” in respect of your Ordinary Shares was realized ratably over the period during which you owned your Ordinary Shares and was subject to tax at the highest applicable tax rate in effect for each taxable year during such period. In addition, as a PFIC, dividends paid by the Company on the Ordinary Shares would not be eligible for the preferential rate of taxation available to noncorporate U.S. holders applicable to “qualified dividend income”.

The special PFIC tax rules described above will not apply to you if you make a QEF election and the Company provides certain required information to U.S. holders. The Company intends to provide U.S. holders with such information as may be required to make a QEF election. If you make a QEF election with respect to your Ordinary Shares, you will be currently taxable on your pro rata share of the Company’s ordinary earnings and net capital gain, at ordinary income and capital gain rates, respectively, for each of the Company’s taxable years, regardless of whether you receive distributions from the Company. Your basis in your Ordinary Shares will be increased to reflect taxed but undistributed income, and distributions of income that have been taxed previously will result in a corresponding reduction of basis in your Ordinary Shares and will not be taxed again as a distribution to you. The Company does not expect that a U.S. holder will be able to make a mark-to-market election treatment with respect to the Ordinary Shares to mitigate the adverse effects of the PFIC rules because the Company does not expect that the Ordinary Shares will be regularly traded on a qualified exchange (as determined for purposes of the PFIC rules). Prospective U.S. holders of Ordinary Shares should consult their own U.S. tax advisers regarding the potential application of the PFIC rules. For further discussion of the U.S. federal income tax consequences of the Company’s classification as a PFIC, see paragraph 14 (U.S. federal income taxation) of Part XV: “Additional Information”.

Risks Relating to the Development and Regulatory Approval of the Group’s Product Candidates Failure or delay in completing clinical studies for any of the Group’s product candidates may delay or even prevent it from obtaining regulatory approval or commercialising its product candidates. Clinical studies are typically expensive, complex and time-consuming, and have uncertain outcomes. Conditions in which clinical studies are conducted differ and results achieved in one set of conditions could be different from the results achieved in different conditions or with different subject populations. The Group, the FDA, the EMA and other applicable regulatory authorities or institutional review boards (IRBs) may suspend or terminate clinical studies of product candidates at any time if the subjects participating in such clinical studies are being exposed to unacceptable health risks or for other reasons.

Failure can occur at any stage of the testing and the Group may experience unforeseen events during, or as a result of, the clinical study process. Several factors could result in the failure or delay in completion of a clinical study, including but not limited to the following: • delays in securing clinical investigators or clinical study sites; • delays in obtaining institutional review board or other regulatory approvals to commence a clinical study; • inability to monitor subjects adequately during or after treatment or problems with investigator or subject compliance with the study protocols; • inability to replicate or confirm in larger studies (such as Phase 3 studies) the safety and efficacy data obtained in studies to date; • inability to agree upon protocols with the FDA, the EMA or other regulatory authorities; • inability or unwillingness of medical investigators to follow agreed upon clinical protocols; and

11 • unexpected adverse events or results, or other safety issues. Any such factors leading to a delay in the completion of a clinical study could require the Group to incur additional costs and would also delay receipt of any product revenues. Any failure to complete successfully a clinical study could result in the Group not receiving any product revenues with respect to the relevant product candidate at all. The Group relies on third parties to enrol qualified subjects and conduct, supervise and monitor its clinical studies. Its reliance on these third parties for clinical development activities reduces its control over these activities. Its reliance on these parties, however, does not relieve the Group of its regulatory responsibilities, including ensuring that its clinical studies are conducted in accordance with relevant regulations. Pre-clinical or clinical studies may not be performed or completed in accordance with relevant regulatory requirements or its study design. Even if Phase 2 and Phase 3 clinical trials are completed in accordance with relevant regulatory requirements, the Group would not be permitted to market any product candidate in the United States until it received approval of a new drug application (NDA) or Biologics License Application (BLA) from the FDA, or in any other countries until the Group receives the requisite approval from the respective regulatory agencies in such countries, and the Group may never obtain regulatory approval for its product candidates in any jurisdiction. To gain approval of an NDA or other equivalent regulatory approval, the Group must provide the FDA or other relevant regulatory authority with clinical data that demonstrates, among other things, the safety, efficacy, purity and potency of the product for the intended indication. The Group also may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to additional post-marketing testing requirements to maintain regulatory approval. In addition, regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy. The Group’s current plans for commercialising its product candidates depend on it meeting current estimates for the timing of completing clinical studies.

If the Group or one of its third-party suppliers fails to comply with good manufacturing practice regulations, it could impair the Group’s ability to develop its product candidates in a cost-effective and timely manner. In order to be used in clinical studies, the Group’s product candidates are required to be manufactured in facilities which comply with current good manufacturing practice (cGMP) regulations issued by the FDA, UK MHRA and other competent authorities (Competent Authorities). If any of the Group’s suppliers fails to comply with cGMP regulations issued by Competent Authorities the Group may be required to identify an alternate supplier for its products or components. The Group’s product candidates are complex and difficult to manufacture. Finding alternate facilities would be costly and time-consuming and would negatively impact the Group’s ability to conduct clinical trials with its product candidates. Competent Authorities audit compliance with cGMP requirements through periodic announced and unannounced inspections of manufacturing and other facilities and may conduct inspections or audits at any time. If the Group or one of its suppliers fails to adhere to cGMP requirements, has significant non-compliance issues or fails to timely and adequately respond to any adverse inspectional observations or product safety issues, or if any corrective action plan that the Group or one of its suppliers proposes in response to observed deficiencies is not sufficient, Competent Authorities could take enforcement action against the Group or its suppliers, which could delay production of product candidates and could have a material adverse effect on the Group’s reputation, business, financial condition and operating results. Furthermore, the Group’s key suppliers may not continue to be in compliance with all applicable regulatory requirements, which could result in the failure to produce its product candidates on a timely basis and in the required quantities, if at all. In addition, before any additional product candidates would be considered for marketing approval, the Group’s suppliers will have to pass an audit by Competent Authorities. The Group is dependent on its suppliers’ cooperation and ability to pass such audits. Such audits and any audit remediation may be costly. Failure to pass such audits by any of the Group’s suppliers would affect the Group’s ability to obtain licensure.

The Group acquires product candidates from third parties, and the Group is reliant on the accuracy and reliability of the data packages that are purchased. The Group has only recently acquired the rights to develop its product candidates. Prior pre-clinical and clinical studies on the Group’s product candidates were performed by Novartis, and the Group is reliant on the accuracy and reliability of the data packages that were purchased along with the rights to develop its product candidates from Novartis. The Group may be unable to replicate the results of clinical studies performed by third parties, or there may be errors in such studies.

12 If the Group experiences delays or difficulties in the enrolment of subjects in clinical studies, its clinical studies could be delayed or prevented. The Group may not be able to initiate or continue clinical studies for its product candidates if it is unable to locate and enrol a sufficient number of eligible subjects to participate in these studies as required by the FDA, the EMA and other applicable regulatory authorities. In particular, it may be difficult for the Group to locate and enrol a sufficient number of eligible subjects who meet the studies’ inclusion and exclusion criteria for the purpose of progressing the clinical development of BPS-804, because it is a rare disease. In addition, some of the Group’s competitors may have ongoing or may begin clinical studies for product candidates that treat the same patient populations as the Group’s product candidates, and subjects who would otherwise be eligible for its clinical studies may instead enrol in clinical studies of its competitors’ product candidates.

Subject enrolment is affected by other factors including: • the size and nature of the patient population; • the severity of the disease under investigation; • the subject eligibility criteria for the study in question; • the perceived risks and benefits of the product candidate under the study; • the Group’s payments to participants and third parties for conducting clinical studies; • the referral practices of physicians; • the ability to monitor subjects adequately during and after treatment; and • the proximity and availability of clinical study sites for prospective subjects.

Any difficulties in enrolling a sufficient number of subjects for any of its clinical studies could result in significant delays and could require the Group to abandon one or more clinical studies altogether. Moreover, even if the Group enrols a sufficient number of eligible subjects to initiate its clinical trials, it may be unable to maintain participation of these subjects throughout the course of the clinical trial as required by the clinical trial protocol, in which event the Group may be unable to use the research results from those subjects. Enrolment delays in the Group’s clinical studies may result in increased development costs for its product candidates and in delays to commercially launching its product candidates, if approved.

If the Group experiences delays or difficulties in clinical studies, its receipt of necessary regulatory approvals could be delayed or prevented. The Group may encounter delays if a clinical trial is suspended or terminated by it, by the IRB of the institutions in which such trials are being conducted, by the trial’s data safety monitoring board, or by the FDA, the EMA or other applicable regulatory authorities. Such authorities may suspend or terminate one or more of the Group’s clinical trials due to a number of factors, including the Group’s failure to conduct the clinical trial in accordance with relevant regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA, the EMA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

If the Group experiences delays in carrying out or completing any clinical trial of its product candidates, the commercial prospects of its product candidates may be harmed, and its ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing clinical trials will increase the Group’s costs, slow down product candidate development and approval process and jeopardise the Group’s ability to commence product sales and generate revenues. Any of these occurrences may significantly harm the Group’s business and financial condition, and there can be no assurance that any such development problems can be solved. In addition, many of the factors that cause, or lead to, a delay in the completion of clinical trials may also ultimately lead to the denial of regulatory approval of the Group’s product candidates.

Positive results from early clinical studies in the Company’s products are not necessarily predictive of the results of later clinical studies. If the Company cannot replicate the positive results from earlier clinical studies in its later-stage clinical studies, it may be unable to successfully develop, obtain regulatory approval for and commercialise its products. Positive results from early stage clinical studies performed by Novartis for the Company’s products may not necessarily be predictive of the results from its later-stage clinical studies. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials after achieving positive results in early-stage development, and the Company cannot be certain that it will not face

13 similar setbacks. These setbacks have been caused by, among other things, pre-clinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including previously unreported adverse events. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials nonetheless failed to obtain regulatory approval. If the Company fails to produce positive results in future clinical trials, the development timeline and regulatory approval and commercialisation prospects for its product candidates, and, correspondingly, its business and financial prospects, would be materially adversely affected.

Adverse events in clinical trials of the Group’s product candidates could result in the delay or suspension of the trials, which may delay or prevent marketing approval, or, if approval is received for the product candidate, require it to be taken off the market, require it to include safety warnings or otherwise limit its sales. Not all adverse effects of drugs can be predicted or anticipated. Serious unforeseen side effects from any of the Group’s product candidates could arise either during clinical development or, if approved by regulatory authorities, after the approved product has been marketed. All of the Group’s product candidates are in development, and the most common adverse events observed thus far have been the following: • for BCT-197, a mild acne-like rash, dizziness and headache, each of which was also observed in the placebo group; • for BGS-649, headache, nasal congestion, somnolence, and spontaneous penile erection, which were distributed broadly across the BGS-649 and placebo groups; and • for BPS-804, headache, influenza, arthralgia and fatigue.

The results from future trials may identify more serious adverse events. The results of future clinical studies may show that the Group’s product candidates cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical studies, and result in delay of, or failure to obtain, marketing approval from the FDA, the EMA and other regulatory authorities, or result in marketing approval from the FDA, the EMA and other regulatory authorities with restrictive label warnings or potential product liability claims. Moreover, as larger numbers of subjects are enrolled in advanced clinical studies for the Group’s product candidates or if the Group’s product candidates receive marketing approval, the risk that uncommon or low frequency but significant side effects are identified may increase as the clinical exposure of the Group’s product candidates is expanded to a wider and more diverse group of patients. Routine review and analysis of post-marketing safety surveillance and clinical trials will provide additional information, for example, potential evidence of rare, population-specific or long-term adverse reactions, and may adversely affect the commercialisation of a product candidate. If any of the Group’s product candidates receive marketing approval and the Group or others later identify undesirable or unacceptable side effects caused by such products: • regulatory authorities may require the Group to take its approved product off the market; • regulatory authorities may require the addition of labelling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies; • the Group may be required to change the way the product is administered, conduct additional clinical studies or change the labelling of the product; • the Group may be subject to limitations on how it may promote the product; • sales of the product may decrease significantly; • the Group may be subject to litigation or product liability claims; and • the product’s and the Group’s reputations may suffer.

Any of these events could prevent the Group or any potential future partners from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of out-licensing, selling, commercialising or otherwise realising value on the product, which in turn could delay or prevent the Group from generating significant revenues from its products.

The FDA, the EMA and other regulatory agency regulations require that the Group report certain information about adverse medical events whether or not its products may have caused or contributed to those adverse events. The timing of the Group’s obligation to report would be triggered by the date on which it becomes aware of the adverse event as well as the nature of the event. The Group may fail to appreciate that it has become aware of a reportable adverse event, especially if it is not reported as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of its product candidates, and fail to report such adverse event

14 within the prescribed timeframe. If the Group fails to comply with its reporting obligations, the FDA, the EMA or other regulatory agencies could take action including criminal prosecution, the imposition of civil monetary penalties or seizure of the Group’s product candidates.

Even if the Group completes its planned clinical studies, it may fail to demonstrate efficacy and safety to the satisfaction of applicable regulatory authorities. The Group may to seek approval to market some of its products in the United States, the European Union, Japan, China, Canada, Australia, and possibly other jurisdictions. The Group cannot commercialise a product candidate in a jurisdiction until the appropriate regulatory authorities have reviewed and approved it. Even if the product candidates demonstrate safety and efficacy in clinical studies, such regulatory agencies may not complete their review processes in a timely manner, or the Group may only be able to obtain regulatory approval subject to conditions that are more stringent than the Group expects.

Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in various countries might differ. For example, regulatory authorities in certain jurisdictions, such as the United States and Europe, have differing endpoints for completion of their reviews. Additional delays may result if an FDA or an EMA advisory committee or other regulatory authority recommends non-approval or restrictions on approval. Certain countries require that a product receive pricing and reimbursement approval before the product can be licensed, sold or commercialised, which can result in substantial delays. In other countries, product approval may depend on showing superiority to an approved alternative therapy, which can result in significant expense for conducting complex clinical trials.

In addition, the Group may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. Regulatory agencies also may approve a treatment candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies might not approve the labelling claims that are necessary or desirable for the successful commercialisation of the Group’s product candidates.

Moreover, the results of clinical trials may be unsatisfactory to the FDA, the EMA or other regulatory authorities even if the Directors believe those clinical trials to be successful. The FDA, the EMA or other regulatory authorities may suspend any of the Group’s clinical trials or require that it conducts additional clinical, pre- clinical, manufacturing, validation or drug product quality studies and submit that data before it considers or reconsiders any NDA or similar regulatory application the Group may submit. Depending on the extent of these additional studies, approval of any applications that the Group submits may be significantly delayed, or may require the Group to expend more resources than it has available. It is also possible that additional studies the Group may conduct may not be considered sufficient by the FDA or applicable foreign regulatory agencies to provide regulatory approval.

Achieving regulatory approval for product candidates is time-consuming and unpredictable, and involves substantial costs and consumes management time and attention. It is not possible to predict the timing or success of obtaining regulatory approvals with any degree of certainty, and there could be unexpected development in the regulatory approval process, including delays or denials of regulatory approvals, or significant modifications to the Group’s product candidates required by the applicable regulators. As a result, it is difficult for the Group to forecast its future financial results or growth.

If the Group obtains regulatory approval for a product candidate, the product will remain subject to ongoing regulatory obligations and failure to comply therewith could have negative consequences for the Group. If the Group obtains regulatory approval in a jurisdiction, regulatory authorities may impose additional restrictions on the indicated uses or marketing of the product and may impose ongoing requirements for potentially costly post-approval studies or post-market surveillance to monitor the safety or efficacy of the product candidate, which could negatively impact the Group by increasing expenses. If the results of the studies are materially negative, it could impact the ability of a product candidate to be commercialised. The holder of a marketing authorisation, such as an NDA or BLA, is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the marketing authorisation. The holder of a marketing authorisation must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labelling or manufacturing process. Packaging, labelling, advertising and promotional materials must comply with FDA or EMA or other applicable rules and are subject to FDA or EMA review, in addition to other potentially applicable federal and state laws and legislation globally.

15 Failure to comply with a marketing authorisation or any other ongoing regulatory obligation may also result in suspension of approval to manufacture or distribute the relevant product, as well as fines or imprisonment for violations.

If the Group fails to comply with applicable regulatory requirements following approval of any product candidate, a regulatory agency may, for example: • issue a warning letter asserting that the Group is in violation of the law; • seek an injunction or impose civil or criminal penalties or monetary fines; • suspend or impose restrictions on operations, including costly new manufacturing requirements; • refuse to approve pending applications or supplements to applications; • suspend or withdraw regulatory approval; • suspend any ongoing clinical studies; • mandate a product recall or seize the product; or • refuse to allow the Group to enter into supply contracts, including government contracts, or exclude the Group from participation in government reimbursement programmes, such as Medicare, Medicaid and other U.S. healthcare programmes.

Any government investigation of alleged violations of law could require the Group to expend significant time and resources in response and could generate negative publicity. Costs arising out of any regulatory developments could be time-consuming and expensive and could divert management resources and attention and, consequently, could adversely affect the Group’s business operations and financial performance.

The Group’s ability to market product candidates in the relevant territory will be limited to use for the treatment of diseases for which it is approved. If the Group wants to expand the indications for which it may market a product candidate (including for new or additional uses or protocols), or the territories in which it may market a product candidate, the Group will need to obtain additional regulatory approvals, which may not be granted.

Additionally, if a product candidate is approved for marketing, and the Group is found to have improperly promoted off-label uses, or if physicians misuse its products or use its products off-label, the Group may suffer severe repercussions. The FDA, the EMA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about drug products, which may not be promoted for uses or indications that are not approved by the FDA, the EMA or such other regulatory agencies as reflected in the product’s approved labelling. The Group cannot prevent physicians from using a product on their patients in a manner that is inconsistent with the approved label, potentially including for the treatment of therapeutic or aesthetic indications other than the approved indication. If the Group is found to have promoted such off-label uses, it may receive warning letters and could be subject to prohibitions on the sale or marketing of its products or significant fines and penalties. Physicians may also misuse the Group’s products, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If the Group’s products are misused, it may become subject to costly litigation by its customers or their patients.

If the Group is unable to establish sales, marketing and distribution capabilities, or enter into relationships for sales, marketing and distribution capabilities, the Group may be unable to realise value on its product candidates. Given the Group’s stage of product development, it does not have any internal sales, marketing or distribution infrastructure or capabilities. For the Group to realise value on a product candidate, it must develop or acquire a sales and marketing organisation, outsource these functions to third parties or out-license to a partner with sales and marketing capabilities.

The Group may establish its own sales and marketing capabilities to promote a product candidate in the United States, the European Union and other markets if and when such product is approved. Even if the Group establishes sales and marketing capabilities, it may fail to launch a product effectively or to market a product effectively given its limited experience in the sales and marketing of pharmaceutical products. In addition, recruiting and training a sales force is expensive and time consuming and could delay any product launch. In the event that any such launch is delayed or does not occur for any reason, the Group may have prematurely or unnecessarily incurred these commercialisation expenses, and the Group’s investment in such product may be lost if it cannot retain or reposition its sales and marketing personnel until they are needed.

16 Factors that may inhibit the Group’s efforts to commercialise its product candidates on its own include: • the Group’s inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; • the lack of complementary products to be offered by sales personnel, which may put the Group at a competitive disadvantage relative to companies with more extensive product lines; • unforeseen costs and expenses associated with creating an independent sales and marketing organisation; and • costs of marketing and promotion above those anticipated by the Group.

If the Group enters into arrangements with third parties to perform sales and marketing services, the Group’s product revenues or the profitability of these product revenues to the Group could be lower than if the Group were to market and sell or commercialise any products that it develops itself. In addition, the Group may not be successful in entering into arrangements with third parties to sell, commercialise or market its products or may be unable to do so on favourable terms. Acceptable third parties may fail to devote the necessary resources and attention to sell, commercialise or market the Group’s products effectively.

If the Group does not establish sales and marketing capabilities successfully, either on its own or with third parties, it may not be successful in realising value on its product candidates.

Even if the Group’s product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use and market acceptance necessary for commercial success. Even if the Group obtains FDA, EMA or other regulatory approvals for its product candidates, the commercial success of such products will depend significantly on their broad adoption and use by physicians and other medical professionals for approved indications.

The degree and rate of physician and patient adoption of a product candidate, if approved, will depend on a number of factors, including: • the clinical indications for which the product candidate is approved; • the safety and efficacy of the Group’s product candidate as compared to existing therapies or newly developed therapies for those indications; • the prevalence and severity of adverse side effects; • patient satisfaction with the results and administration of the Group’s product candidates and overall treatment experience, including relative convenience, ease of use and avoidance of, or reduction in, adverse side effects; • patient demand for the treatment for approved indications; • physician and patient willingness to adopt new therapies for approved indications; • the cost of treatment in relation to alternative treatments, the extent to which these costs are reimbursed by third-party payers, and patients’ willingness to pay for the Group’s product candidates; and • proper training and administration of the Group’s products by medical staff.

If any of the Group’s product candidates are approved for use but fail to achieve the broad degree of physician adoption and market acceptance necessary for commercial success, the Group’s operating results and financial condition will be adversely affected.

Insurance coverage and reimbursement may be limited, unavailable or may be reduced over time in certain market segments for the Group’s products, which could make it difficult for the Group to sell its products profitably. Market acceptance and sales of any approved products will depend significantly on the availability of adequate coverage and reimbursement from third-party payers and may be affected by existing and future healthcare reform measures. Government authorities and third-party payers, such as private health insurers, decide which pharmaceutical products they will cover and the amount of reimbursement. Reimbursement by a third-party payer may depend upon a number of factors, including the third-party payer’s determination that use of a product is: • a covered benefit under its health plan; • safe, effective and medically necessary;

17 • appropriate for the specific patient; • cost-effective; and • neither experimental nor investigational.

In addition, because each third-party payer individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming and costly process. The Group may be required to provide scientific and clinical support for the use of any product to each third-party payer separately with no assurance that approval would be obtained, and it may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of its products. The Group cannot be certain that its product candidates will be considered cost-effective. This process could delay the market acceptance of any product candidates for which it may receive approval.

In some countries, particularly in Europe, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, the Group may be required to conduct additional clinical trials that compare the cost-effectiveness of its products to other available therapies.

The Group may not be able to conduct the studies necessary or provide data sufficient to gain acceptance with respect to government or third-party coverage and reimbursement. If reimbursement of the Group’s future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, the Group may be unable to achieve or sustain profitability. Also, the Group cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, any of its future products.

Decisions or policies of certain governments may impact the profitability of selling the Group’s products. The Group may seek approval to market some of its products in the United States, the European Union, Japan, China, Canada, Australia, and possibly other jurisdictions. In the European Union, the pricing of prescription pharmaceuticals is subject to governmental control and pricing negotiations with governmental authorities, which can, in some circumstances, take several years after obtaining marketing approval for a product. Recently, many European countries have come under significant political pressure to reduce their overall spending (including spending on healthcare), which in turn is generating pressure on pharmaceutical companies to reduce the prices they charge national healthcare systems. In addition, market acceptance and sales of the Group’s products will depend significantly on the availability of adequate coverage and reimbursement from third-party payers and may be affected by existing and future healthcare reform measures.

There have been, and likely will continue to be, legislative and regulatory proposals directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. For example, in 2010 in the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the Healthcare Reform Act), was enacted. The Healthcare Reform Act, among other things, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate programme to individuals enrolled in Medicaid managed care organisations, establishes annual fees that manufacturers of certain branded prescription drugs can charge and requires manufacturers to participate in a discount programme for certain outpatient drugs under Medicare Part D. An expansion in the U.S. government’s role in the U.S. healthcare industry may further lower rates of reimbursement for pharmaceutical products in the United States.

The Group cannot predict the initiatives in the European Union, the United States or elsewhere that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organisations and other payers of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect the Group’s ability to set prices for its products, generate revenues and achieve or maintain profitability. Any reduction in reimbursement government programmes may result in a similar reduction in payments from private payers.

Adverse decisions of a regulator, including tax authorities, or changes in tax treaties, laws, rules or interpretations could reduce or eliminate research and development tax relief that Mereo 1, Mereo 2 and/or Mereo 3 may be eligible for in the United Kingdom. The Group, including each of Mereo 1, Mereo 2 and/or Mereo 3, may be eligible for tax relief for qualifying research and development expenditure in the United Kingdom. It is anticipated that each entity will, where available, claim such relief, but this will depend on tax planning as the business develops. However, the tax laws and regulations in the United Kingdom may be subject to change, and there may be a change in the interpretation

18 and enforcement of the law (in each case possibly with retroactive effect) although no such change in law, interpretation or enforcement has been announced as at the date of this document. As a result, Mereo 1, Mereo 2 and/or Mereo 3 may not, or may not in the future, be eligible for research and development tax relief in the United Kingdom, which could have a negative effect on the Group’s profit and cash flow. The UK has introduced a patent box regime in relation to certain income derived from UK or European patents. By electing to enter into the patent box regime, the relevant company making such election would benefit from a lower effective corporation tax rate on relevant income from assets inside the patent box. Entry into the patent box regime is subject to detailed rules, including ensuring that each entity is actively involved in the plans and decisions relating to the exploitation or development of the patent and/or performs a significant amount of activity for the purposes of developing the patent. Mereo 1, Mereo 2 and Mereo 3 may, where available, make an election to participate in such regime, but this will require further analysis as to eligibility as the business develops. However, the patent box regime has been subject to intense scrutiny both by the European Commission and the OECD. As a result, the original patent box regime will be closed to new entrants from June 2016 and will be replaced by a revised regime with tighter eligibility requirements. Further changes may also be made to the regime as a result of the OECD’s Base Erosion and Profit Shifting project and HMRC and HM Treasury have launched a consultation on changes to the patent box regime to ensure that it is consistent with the OECD’s proposals on this area. All of these changes could potentially result in the entities failing to be eligible for the regime in the future, which may have a negative effect on the Group’s profit and cash flow.

The Group faces significant competition from other biotechnology and pharmaceutical companies and its operating results will suffer if it fails to compete effectively. The biotechnology and pharmaceutical industries are intensely competitive. The Group has competitors in the United Kingdom, the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies, universities and other research institutions. These competitors are engaged in developing products for similar disease areas, including the following: • each of Verona, GlaxoSmithKline and AstraZeneca are conducting Phase 2 trials on drugs for the treatment of COPD, which may compete with BCT-197; • the Directors believe BGS-649 will compete with currently marketed testosterone therapies. The Directors believe the primary competitors of BGS-649 for the treatment of hypogonadal hypogonadism in development include, Repros’ selective oestrogen receptor modulator (SERM) and Takeda’s kisspeptin agonist analog, which is in early Phase 2a trials. Repros has submitted an NDA for its SERM but subsequently received a Complete Response Letter and has initiated the Formal Approval Process by the European Medicines Agency; and • Amgen and UCB are conducting Phase 3 programmes for an anti-sclerostin antibody for post- menopausal osteoporosis, Amgen is conducting an exploratory open-label trial for denosumab for paediatric osteogenesis imperfecta, and Eli Lilly has blosozumab, an anti-sclerostin antibody in Phase 1 development for osteoporosis, each of which may compete with BPS-804. Many of the Group’s competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organisations and well- established sales forces. The Group’s competitors may succeed in developing, acquiring or licensing drug product candidates that are more effective or less costly than any product candidate that the Group is currently developing or which it may develop. Established biopharmaceutical companies may invest heavily to accelerate the discovery and development of product candidates that could make the Group’s product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, its competitors may succeed in obtaining patent protection, receiving FDA and EMA approval or discovering, developing and commercialising pharmaceutical products before the Group does, which would have a material adverse impact on the Group’s business. The availability and price of the Group’s competitors’ products could limit the demand, and the price the Group is able to charge, for any of its product candidates, if approved. The Group will not achieve its objectives if acceptance is inhibited by price competition or the reluctance of physicians to switch from existing drug products to the Group’s products or if physicians switch to other new drug products or choose to reserve its products for use in limited circumstances. Competition from lower-cost generic or biosimilar pharmaceuticals, especially when the Group’s intellectual property protection expires, may also result in significant reductions in sales volumes or sales prices for the Group’s products.

19 If the Group’s product candidates are approved, the Group may face competition from similar drug products, such as competitors’ approved generic or biosimilar products. Generic competitors often operate without large research and development expenses, as well as without costs of conveying medical information about products to the medical community. The FDA, the EMA and other regulatory approval processes exempt generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy, allowing generic manufacturers to rely on the safety and efficacy data of the innovator product, which means that generic competitors can market a competing version of an innovator product after the expiration or loss of the Group’s patent and often charge much less. If the Group’s small molecule products achieve market approvals, it is likely that generic competition will pose a substantial competitive challenge upon the expiration or loss of patent protection, data exclusivity or other forms of protection for a product.

As part of the ongoing efforts of governmental authorities to lower healthcare costs by facilitating generic competition to pharmaceutical products, abbreviated regulatory approval pathways have been developed for large molecule biological products that are found to be biosimilar to or interchange with a biological “reference product” that has previously been licensed, for example under a BLA. This abbreviated approval pathway is intended to permit a biosimilar to come to market more quickly and less expensively by relying to some extent on the data generated by the reference product’s sponsor and the applicable regulator’s previous review and approval of the reference product. For example, in the United States, a biosimilar sponsor’s ability to seek or obtain approval through the abbreviated pathway is limited by periods of exclusivity granted by the FDA to the holder of the reference product’s BLA, and no biosimilar application may be accepted by the FDA for review until four years after the date the reference product was first licensed by the FDA, and no biosimilar application, once accepted, may receive final approval until 12 years after the reference product was first licensed.

Once approved, biosimilars likely would compete with, and in some circumstances may be deemed under applicable laws to be “interchangeable with,” the previously approved reference product. To date, relatively few biosimilars have been licensed, and the extent to which a biosimilar, once approved, will be substituted for any one of the Group’s product candidates, if approved, in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. Although there is uncertainty regarding the impact of this new programme, it seems likely that if any of the Group’s product candidates are approved by the FDA, the EMA or other regulatory authorities, there is risk that the approval of a biosimilar competitor to one of the Group’s products could have an adverse impact on the Group’s business.

The Group may be unable to maintain orphan product designation or exclusivity for its product candidates. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such a disease or condition will be recovered from sales in the United States for that drug. In the European Union, the European Commission may designate a product candidate as an orphan medicinal product if it is a medicine for the diagnosis, prevention or treatment of life-threatening or very serious conditions that affect not more than five in 10,000 persons in the European Union, or it is unlikely that marketing of the medicine would generate sufficient returns to justify the investment needed for its development. Mereo 3 has obtained orphan designation for BPS-804 in the United States and the Committee of Orphan Medicinal Products (COMP) has issued a positive opinion with respect to orphan drug designation for the product in the European Union, however there is no assurance that the Group will be able to receive orphan drug designation for any additional product candidates. Further, the granting of a request for orphan drug designation does not alter the standard regulatory requirements and process for obtaining marketing approval.

With respect to the United States, generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which, subject to certain exceptions, precludes the FDA from approving any other application to market the same product for the same indication for a period of seven years. Competitors may receive approval of different drugs or biologics for the indications for which the orphan product has exclusivity. With respect to the European Union, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, this generally precludes the EMA, and other national drug regulators in the European Union, from accepting the marketing application for any other medicinal product for the same indication for a period of 10 years, and so during this period of market

20 exclusivity a similar product for the same indication will not be authorised. With respect to the biosimilar pathway, under the Biologics Price Competition and Innovation Act of 2009, if a reference biological product is granted orphan designation, a biosimilar may not be approved by the FDA for the protected orphan indication until after the expiration of the seven-year orphan drug exclusivity period or the 12-year reference product exclusivity period, whichever is later. The applicable period is 10 years in the European Union, but this period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. In the European Union, orphan exclusivity may also be extended for an additional two years (i.e., a maximum of 12 years’ orphan exclusivity) if the product is approved on the basis of a dossier that includes pediatric clinical trial data generated in accordance with an approved paediatric investigation plan. Orphan drug exclusivity may be lost in the United States if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

Mereo 3 has obtained orphan designation for BPS-804 in the United States and has received a positive opinion of the COMP in the European Union, however even with orphan drug exclusivity for one or more of its products, that exclusivity may not effectively protect the product from competition. For example, in the European Union, orphan exclusivity will not prevent a marketing authorisation being granted for a similar medicinal product in the same indication if the new product is safer, more effective or otherwise clinically superior to the first product or if the marketing authorisation holder of the first product is unable to supply sufficient quantities of the product.

The Group must comply with data privacy and security laws and regulations, and failure to comply with these laws and regulations could expose the Group to significant liabilities. The Group must operate in compliance with various data privacy and security regulations in the United States by both the federal government and the states in which the Group conducts its business, as well as in other jurisdictions outside of the United States, such as the United Kingdom, where it conducts clinical trials. For example, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology Clinical Health Act (HITECH), and its implementing regulations, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information, such as information that identifies individuals who participate in the Group’s clinical trials as research subjects. HITECH increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts.

In the United Kingdom, the collection and use of “personal data” is primarily governed by the Data Protection Act 1998 (the DPA), which implemented EU Directive (95/46/EEC) on data protection. Breach of UK data protection laws can result in criminal as well as civil liability. The DPA applies to the “processing” of personal data: that is, individually identifiable data relating to living individuals. All obligations under the DPA fall on the “data controller,” which is the person who determines the purposes for which and the manner in which any personal data is, or is to be, processed. A person may be a data controller even if the information is held by a third party. If the Group is the data controller for any personal data (for example, for clinical trials carried out in the UK), the Group will need to comply with the DPA, including ensuring compliance by any third party that holds any relevant personal data.

The Group is subject to extensive government regulatory compliance and ethics oversight. The Group’s business is subject to extensive government regulation and oversight, which will become more complex and extensive if the Group succeeds in commercialising products. The Group has enacted anticorruption, privacy, healthcare and corporate compliance policies and procedures that govern its business practices and those of its distributors and suppliers. These policies and procedures are implemented through education, training and monitoring of the Group’s employees, distributors and suppliers. In addition, to enhance compliance with applicable healthcare laws and mitigate potential liability in the event of non-compliance, regulatory authorities have recommended the adoption and implementation of a comprehensive healthcare compliance programme. The Group expects to adopt U.S. healthcare compliance and ethics programmes that incorporate relevant recommendations as necessary, and may be subject to additional regulations. The Group’s adoption and enforcement of these various policies and procedures may be costly and time consuming and does not ensure that it will avoid investigation or the imposition of penalties by applicable government agencies or reputational damage.

21 Certain business practices associated with the Group’s business are subject to scrutiny by regulatory authorities, as well as to lawsuits brought by private citizens under federal and state laws. Failure to comply with applicable law or an adverse decision in lawsuits may result in adverse consequences to the Group. A complex set of laws will govern the Group’s planned conduct in the United States, including upon the commercialisation of the Group’s product candidates, and failure to comply with these requirements may result in significant adverse consequences to the Group’s business. For example, violations of laws such as the Federal Food, Drug and Cosmetic Act (the FDCA), the Federal False Claims Act, the Public Health Service Act (the PHS Act), or provisions of the U.S. Social Security Act known as the “Anti-Kickback Law” and the “Civil Monetary Penalties Law,” or any regulations promulgated under their authority, may result in jail sentences, fines or exclusion from federal and state programmes, as may be determined by Medicare, Medicaid and other regulatory authorities and the courts. There can be no assurance that the Group’s activities will not come under the scrutiny of regulators and other government authorities or that the Group’s practices will not be found to violate applicable laws, rules and regulations or prompt lawsuits by private citizen “relators” under federal or state false claims laws. For example, under the Anti-Kickback Law, and similar state laws and regulations, even common business arrangements, such as discounted terms and volume incentives for customers in a position to recommend or choose drugs and devices for patients, such as physicians and hospitals, can result in substantial legal penalties, including, among others, exclusion from Medicare and Medicaid programs, and arrangements with referral sources must be structured with care to comply with applicable requirements. Also, certain business practices, such as payment of consulting fees to healthcare providers, sponsorship of educational or research grants, charitable donations, interactions with healthcare providers that prescribe products for uses not approved by the FDA and financial support for continuing medical education programs, must be conducted within narrowly prescribed and controlled limits to avoid the possibility of wrongfully influencing healthcare providers to prescribe or purchase particular products or as a reward for past prescribing. A provision of the Health Care Reform Law, generally referred to as the Physician Payment Sunshine Act or Open Payments Program, imposed new reporting and disclosure requirements for pharmaceutical and medical device manufacturers with certain FDA-approved products, such as approved drug products, with regard to payments or other transfers of value made to certain U.S. healthcare practitioners, such as physicians and academic medical centres, and with regard to certain ownership interests held by physicians in reporting entities. Under the Physician Payment Sunshine Act, details of these financial relationships, including, for example, specific amounts paid for services rendered, are now disclosed on a publicly available government website, thus increasing scrutiny and potential liability with respect to these arrangements. Significant enforcement activity has been the result of actions brought by regulators, who file complaints in the name of the United States (and if applicable, particular states) under federal and state False Claims Act statutes. “False claims” can result not only from non-compliance with the express requirements of applicable governmental reimbursement programs, such as Medicaid or Medicare, but also from non-compliance with other laws, such as the Anti-Kickback Law, FDA laws on off-label promotion, or laws that require quality care in service delivery. The qui tam and whistleblower provisions of the Federal False Claims Act allow private individuals to bring actions on behalf of the government alleging that the government was defrauded, with tremendous potential financial gain (up to 30% of the government’s recovery plus legal fees) to private citizens who prevail. When a private party brings a whistleblower action under the Federal False Claims Act, the defendant is not made aware of the lawsuit until the government starts its own investigation or makes a decision on whether it will intervene. Many states have enacted similar laws that also apply to claims submitted to commercial insurance companies. The bringing of any action under the Federal False Claims Act could require the Group to devote resources to investigate and defend the action. Violations of the Federal False Claims Act can result in treble damages, and each false claim submitted can be subject to a penalty of up to $11,000 per claim. The FDA and comparable regulatory authorities elsewhere, in addition to prohibiting the promotion of the safety or effectiveness of product candidates not yet approved for commercialisation (known as “pre-approval promotion”), also generally restrict companies from promoting approved products for indications other than those indications for which a product is approved (known as “off-label use”). This means, for example, that the Group may not make claims about the use of the Group’s products, should they be approved for sale, outside of their approved indications, and the Group may not proactively discuss or provide information regarding any of their off-label uses subject to very specific and limited exceptions. In the United States, pharmaceutical companies have, to a limited extent, been recognised by the FDA, and by the courts, as permitted to disseminate to physicians certain truthful and accurate information regarding unapproved uses of approved products, or results of studies involving investigational products, but the particular acceptable content of those statements is not always clear, thus involving risk.

22 If the Group or the Group’s business partners fail to comply with applicable laws and regulations governing off- label uses of the Group’s product candidates, if approved, then the Group could be subject to administrative or judicially imposed sanctions, including, but not limited to: (i) enforcement proceedings by regulatory agencies; (ii) reduced demand for the Group’s products; and (iii) civil or criminal sanctions. Furthermore, actions under the Federal False Claims Act have recently been brought against companies for allegedly promoting off-label uses of drugs, because such promotion induces the use and subsequent claims for reimbursement under Medicare and other federal programs. Similar actions for off-label promotion have been initiated by several states for Medicaid fraud. The Health Care Reform Law significantly strengthened provisions of the Federal False Claims Act, Medicare and Medicaid Anti-Kickback provisions, and other healthcare fraud provisions, leading to the possibility of greatly increased qui tam suits by regulators for perceived violations. Violations or allegations of violations of the foregoing restrictions could materially and adversely affect the Group’s business.

If the Group’s product candidates are commercialised, then the Group would also be required to report detailed and complex pricing information, net of included discounts, rebates and other concessions, to the Centers for Medicare & Medicaid Services (CMS) for the purpose of calculating national reimbursement levels, certain federal prices and certain federal and state rebate obligations, and the Group would need to develop the expertise, as well as the systems for collecting and reporting this data accurately to CMS and have instituted a compliance programme to assure that the information collected is complete in all respects. Companies that fail to accurately report this kind of pricing information to the U.S. government could be subject to fines and other sanctions (including potential False Claims Act liability) that could adversely affect their business.

Efforts to ensure that the Group’s business arrangements will comply with applicable healthcare laws and codes of practice may involve substantial costs. The Group has adopted, and will continue to adopt, policies and practices that are designed to help ensure that the Group, the Group’s employees, officers, agents, intermediaries and other third parties comply with applicable laws, but it is not always possible to assure compliance with applicable requirements, and the precautions the Group takes to achieve compliance may not be effective in controlling unknown or unmanaged risks or losses or in protecting the Group from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. It is possible that governmental and enforcement authorities will conclude that the Group’s business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If the Group’s operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to the Group, the Group may be subject to penalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of the Group’s operations.

Risks Relating to the Group’s Dependence on Third Parties The Group relies upon third-party contractors and service providers for the execution of most aspects of its development programmes. Failure of these third parties to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of its development programmes. The Group currently outsources certain functions, tests and services to ICON, a leading global CRO in connection with the development of its product candidates. The Group relies on ICON for quality assurance, clinical monitoring, clinical data management, clinical trial management, pharmacovigilance (the process of detection, assessment, monitoring and prevention of the adverse effects or any other drug-related problem) and regulatory expertise. If the Group’s relationship with ICON were terminated, the Group would be required to enter into new arrangements with alternative third parties, which could be difficult or costly, and the Group’s clinical trials may be extended, delayed or terminated or may need to be repeated, which would increase the Group’s development costs.

The Group may in the future engage other CROs, medical institution or specialist providers for quality assurance, clinical monitoring, clinical data management and regulatory expertise, or to run all aspects of clinical studies on its behalf. The Group’s reliance on these third parties for research and development activities will reduce the Group’s control over these activities but will not relieve it of its responsibilities. Although the Group will rely on these third parties to conduct certain aspects of any other studies and clinical trials, the Group will remain responsible for ensuring that each of its clinical trials and pre-clinical studies is conducted in accordance with its investigational plan and protocol. Moreover, the FDA, the EMA and foreign regulatory authorities will require the Group to comply with regulations and standards, commonly referred to as current good clinical practices, for

23 conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. The Group may also rely on consultants to assist in the execution, including data collection and analysis of its clinical trials.

In addition, the execution of clinical trials and pre-clinical studies, and the subsequent compilation and analysis of the data produced, will require co-ordination among these various third parties. In order for these functions to be carried out effectively and efficiently, it will be imperative that these parties communicate and coordinate with one another, which may prove difficult to achieve. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with the Group.

If the third parties or consultants that will assist the Group in conducting its clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with the Group or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to the Group’s clinical trial protocols or current good clinical practices, or for any other reason, the Group may need to conduct additional clinical trials or enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and the Group’s clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, the Group may not be able to obtain, or may be delayed in obtaining, regulatory approval for the product candidates being tested in such trials, and will not be able to, or may be delayed in its efforts to, successfully commercialise these product candidates.

These third parties will not be the Group’s employees, and except for contractual duties and obligations, the Group will have limited ability to control the amount or timing of resources that they devote to its programmes. Such individuals or organisations may: • experience work stoppages; • fail to meet expected deadlines; • make errors in the design, management or retention of data or data systems, leading to loss of data; • compromise the quality or accuracy of clinical data due to the failure to adhere to the Group’s clinical trial protocols or current good clinical practices; or • fail FDA, EMA or other regulatory audits.

If these third parties do not successfully carry out their contractual duties or meet expected deadlines, the Group may be delayed or prevented in obtaining regulatory approval for manufacturing and commercialisation of its product candidates.

The Group relies on third parties to supply and manufacture its product candidates, and it expects to rely on third parties to manufacture its products, if approved. If the Group is unable to have its product candidates manufactured in sufficient quantities, or at sufficient yields, or is unable to obtain regulatory approvals for a manufacturing facility for its product candidates, it may experience delays in product development, clinical trials, regulatory approval and commercial distribution. The Group does not currently have nor does it plan to acquire the infrastructure or capability to manufacture its product candidates for use in the conduct of its clinical studies or to manufacture its products, if approved. Instead, the Group relies on, and expects to continue to rely on third-party manufacturers. The Group does not control the manufacturing processes of the third parties it contracts with but retains responsibility for product quality and regulatory compliance, and the Group is dependent on those third parties for the production of its product candidates in accordance with relevant regulations, which include, among other things, quality control, quality assurance and the maintenance of records and documentation. Efforts to establish these capabilities may not meet expectations as to scheduling, scale-up, reproducibility, yield, purity, cost, potency or quality.

On 16 November 2015, each of Mereo 1, Mereo 2 and Mereo 3 entered into a Supply Services Agreement with Novartis for BCT-197, BGS-649 and BPS-804, respectively (the Supply Services Agreements). Pursuant to the Supply Services Agreements, Novartis will supply drug substance, drug product and placebo for the Group’s manufacture and supply of clinical materials. Novartis will supply such inventory “as is” with no warranties, express or implied, including any warranty that such inventory complies with the specifications or quality agreement attached to the applicable Supply Services Agreement. Indemnities under these Supply Services Agreements expire 18 months after the date the applicable assets were purchased.

24 The Group expects to continue to rely on third parties for the manufacture of clinical and, if necessary, commercial quantities of its product candidates. The Group’s products may be in competition with other products for access to these facilities and may be subject to delays in manufacture if third parties give other products greater priority. If the Group were to experience an unexpected loss of supply of or if any supplier were unable to meet its demand for any of its product candidates, the Group could experience delays in its development programmes, planned clinical studies or value realisation. The Group could be unable to find alternative suppliers of acceptable quality, in the appropriate volumes and at an acceptable cost, and the long transition period necessary to implement an alternative supplier arrangement would significantly delay the Group’s clinical studies and the value realisation of any approved product candidate. In addition, the Group may have to enter into technical transfer agreements and share its know-how with the third-party manufacturers, which can be time- consuming and may result in delays. Any of these factors would negatively affect the Group’s ability to continue to develop, produce and then market a product candidate on time and on a competitive basis.

Moreover, the Group’s suppliers of any product candidate would be subject to strict manufacturing requirements and rigorous testing requirements, which could limit or delay production. Product manufacturers and their facilities must receive FDA, EMA or other applicable governmental authority approval before they can produce clinical material or commercial products, and they are subject to payment of user fees and continual review and periodic inspections by the FDA, the EMA and other regulatory authorities for compliance with current good laboratory practice and current good manufacturing practices. If the Group or a regulatory agency were to discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including suspension of manufacturing or requiring recall or withdrawal of the product from the market.

The Group may seek to establish collaborations in the future and its inability to do so on acceptable terms or at all may negatively affect its development and value realisation plans. For some product candidates, the Group may seek to collaborate with pharmaceutical and biotechnology companies for the development and commercialisation of those product candidates. The Group may face significant competition as well as risks in seeking and maintaining appropriate collaborators.

Whether the Group reaches a definitive agreement for collaboration will depend upon, among other things, its assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of studies, the likelihood of approval by regulatory authorities, the potential market for the product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing product candidates, the existence of uncertainty with respect to the Group’s ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with the Group for its product candidate.

Any collaboration agreement into which the Group may enter may call for licensing or cross-licensing of potentially blocking patents, know-how or other intellectual property. Due to the potential overlap of data, know- how and intellectual property rights, the Group’s collaborators could potentially dispute its right to use, licence or distribute such data, know-how or other intellectual property rights, which may potentially lead to disputes, liability or termination of the collaboration. In addition, the Group may be restricted under future licence agreements from entering into agreements on certain terms with potential collaborators.

Should the Group seek to enter into collaboration agreements, but not be able to negotiate the terms of such agreements on a timely basis, on acceptable terms, or at all, it may have to curtail the development of a product candidate or reduce or delay its development programme or one or more of its other development programmes. This would delay its potential realisation of value on product candidates or reduce the scope of any sales or marketing activities, or increase its expenditures to develop and realise value on its product candidates.

A breakdown in the Group’s information technology systems could result in a significant disruption to the Group’s business. The Group’s information technology systems include third parties, such as CROs and others that manage sensitive data, such as personal medical information regarding patients involved in the Group’s clinical studies,

25 and the Group’s business may be adversely affected if these third parties are subject to data security breaches. In addition, procedures and safeguards must continually evolve to meet new data security challenges, and enhancing protections, and conducting investigations and remediation, may impose additional costs on the Group. If the Group were to suffer a breakdown in the Group’s systems, storage, distribution or tracing, the Group could experience significant disruptions affecting the Group’s business, reputational harm or claims against the Group by private parties and/or governmental agencies.

Risks Relating to the Group’s Intellectual Property Changes in U.S., European or other patent law could diminish the value of patents in general, thereby impairing the Group’s ability to protect its products. As is the case with other companies in the markets in which the Group participates, the Group’s success is heavily dependent on intellectual property, particularly patents. The strength of patents in the pharmaceutical field involves complex legal, factual and scientific questions. In the United States and many other jurisdictions patent policy also continues to evolve and the issuance, scope, validity, enforceability and commercial value of the Group’s patent rights are highly uncertain. This uncertainty includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law in ways affecting the scope or validity of issued patents, or both. Particularly in recent years in the United States, there have been several major legislative developments and court decisions that have affected patent laws in significant ways and there may be more developments in the future that may weaken or undermine the Group’s ability to obtain new patents or to enforce its existing and future patents.

The Group may not be able to obtain, maintain, defend or enforce the intellectual property rights covering its product candidates, which could adversely affect its ability to compete. The Group’s commercial success depends, in large part, on its ability to obtain, maintain, defend or enforce its patents, trademarks and other intellectual property rights covering its product candidates, and to operate without having third parties circumvent such rights which it owns, has licensed or has been licensed. For example, if the Group is unable to obtain, maintain, defend or enforce its intellectual property rights covering its product candidates, third parties may be able to make, dispose (or offer to dispose) of, use, import, commercialise or keep products that would otherwise infringe the Group’s patents, which would materially adversely affect its ability to compete in the market. The Group currently owns and licenses certain patents and patent applications in jurisdictions it considers to be important to its business. However, the Group cannot predict: • the degree and range of protection any patents will afford against competitor and competing technologies, including whether third parties will find ways to invalidate or otherwise circumvent the patents by producing a competitive product that falls outside its scope; • whether pending patent applications will result in issued patents with claims that cover the Group’s product candidates; • if, when and where additional patents will be granted; • even if patents are granted, whether they will be contested, invalidated or found unenforceable; • whether or not others will obtain patents claiming aspects similar to those covered by the Group’s patent and patents applications; • whether the Group will need to initiate litigation or administrative proceedings, or whether such litigation or proceedings will be initiated by third parties against the Group, which may be costly and time consuming, regardless of whether the Group wins or loses; and • whether third parties will claim that the Group’s technology infringes upon their rights.

The Group cannot guarantee the degree of future patent protection that it will have in respect of its product candidates and technology. Patent protection is deemed by the Group to be of importance to its competitive position in its planned product candidates. Any loss of, or failure to obtain, patent protection could have a material adverse impact on the Group’s business.

26 Patent terms may be inadequate to protect the Group’s competitive position on its product candidates for an adequate amount of time. Patents have a limited lifespan. In the United States and Europe, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent and the protection it affords is limited. Depending upon the timing, duration and conditions of FDA marketing approval of the Group’s product candidates, one or more of the Group’s U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch- Waxman Amendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, the Group may not receive an extension if it fails to apply within applicable deadlines, fails to apply prior to expiration of relevant patents or otherwise fails to satisfy applicable requirements. Moreover, the length of the extension could be less than the Group requests. If the Group is unable to obtain patent term extension or the term of any such extension is less than it requests, the period during which the Group can enforce its patent rights for that product will be shortened and its competitors may obtain approval to market competing products sooner. As a result, the Group’s revenue from applicable products could be reduced, possibly materially. Even if patents covering the Group’s product candidates are obtained, once the patent life has expired for a product, the Group may be open to competition from generic or biosimilar products.

The Group has limited geographical protection with respect to its patents and patent applications. The Group does not have patent protection in all national and regional jurisdictions where such protection may be available for the product candidates acquired to date. In addition, the Group may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national/regional patent is an independent proceeding that may lead to situations in which applications might be refused in some jurisdictions by the relevant registration authorities, while granted by others. It is also common that depending on the country, the scope of patent protection may vary for the same product candidate. The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in Europe or the United States, and many businesses have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If the Group or its licensors encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for the Group’s business in such jurisdictions, the value of these rights may be diminished and the Group may face additional competition from others in those jurisdictions. Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licences to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If the Group or any of its licensors is forced to grant a licence to third parties with respect to any patents relevant to the Group’s business, the Group’s competitive position may be impaired and its business and results of operations may be adversely affected.

If the Group is not able to prevent disclosure of its know-how or other proprietary information, the value of its technology and product candidates could be significantly diminished. The Group relies on protection of its interests in proprietary know-how and in processes for which patents are difficult to obtain or enforce. The Group may not be able to protect such information adequately. The Group has a policy of requiring its consultants, contract personnel, advisers and third-party partners to enter into confidentiality agreements and its employees to enter into invention, non-disclosure and non-compete agreements. However, no assurance can be given that the Group has entered into appropriate agreements with all parties that have had access to its know-how or other proprietary information (Confidential Information). There is also no assurance that such agreements will provide for a meaningful protection of Confidential Information in the event of any unauthorised use or disclosure of information. Furthermore, the Group cannot provide assurance that any of its employees, consultants, contract personnel or third-party partners, either accidentally or through wilful misconduct, will not cause serious damage to its programmes and/or its strategy, by, for example, disclosing Confidential Information to its competitors. It is also possible that Confidential Information could be obtained by third parties as a result of breaches of its physical or electronic security systems, including as a result of cybercrimes. Any disclosure of confidential data into the public domain or to third parties could allow the Group’s competitors to learn Confidential Information and use it in competition against the Group. In addition, others may independently discover the Group’s Confidential Information. Any action to enforce the Group’s rights against any misappropriation or unauthorised use and/or disclosure of Confidential Information is likely to be time-consuming and expensive, and may ultimately be unsuccessful, or may result in a remedy that is not commercially valuable.

27 The Group’s product candidates could infringe or be alleged to infringe patents and other intellectual property rights of third parties, which may result in costly litigation, the Group having to pay substantial damages, costs and other financial remedies or limitations on the Group’s ability to realise value on its product candidates. The Group’s commercial success depends upon its ability, and the ability of any third party with which it may partner, to develop, manufacture, market and sell its product candidates and use its technologies without infringing the patents of third parties. There is considerable patent litigation in the biotechnology and pharmaceutical industries. As the biotechnology and pharmaceutical industry expands and more patents are issued, the Group faces greater risk that there may be patents issued to third parties that relate to its product candidates and technology of which the Group is not aware or that it must challenge to continue its operations as currently contemplated.

The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including the Group, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable. If the Group is sued for patent infringement, it would need to demonstrate that its products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and the Group may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing by clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if the Group is successful in these proceedings, it may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on it. If the Group is unable to avoid infringing the patent rights of others, it may be required to seek a licence (if one is even available), defend an infringement action or challenge the validity or enforceability of the patents in court or before an administrative agency. The Group may not have sufficient resources to bring these actions to a successful conclusion, and there is no assurance that the court or administrative tribunal would find in its favour. In addition, if the Group does not obtain a licence, develop a non-infringing technology, fail to defend an infringement action successfully or have infringing patents declared invalid or unenforceable, it may incur substantial monetary damages, encounter significant delays in bringing its products to market and be precluded from manufacturing or selling its product candidates.

The cost of any patent litigation or other proceeding, even if resolved in the Group’s favour, could be substantial. Some of the Group’s competitors may be able to sustain the cost of such litigation and proceedings more effectively than the Group because of their substantially greater resources. Uncertainties resulting from the initiation and, continuation of patent litigation or other proceedings could have a material adverse effect on the Group’s ability to compete in the marketplace.

The Group’s product candidates may infringe or may be alleged to infringe existing patents or patents that may be granted in the future. Because some patent applications in Europe and the United States and other jurisdictions may be maintained in secrecy until the patents are issued, patent applications in Europe, the United States and many other jurisdictions are typically not published until 18 months after filing, and publications in the scientific literature often lag behind actual discoveries, the Group cannot be certain that others have not filed patents that may cover its technologies, its product candidates or the use of its product candidates. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover the Group’s technologies, its product candidates or the use of its product candidates. As a result, the Group may become party to, or threatened with, future adversarial proceedings or litigation regarding patents with respect to its product candidates and technology.

If the Group is sued for patent infringement, the Group would need to demonstrate that its product candidates or methods either do not infringe the patent claims of the relevant third-party patent or that such patent claims are invalid, and the Group may not be able to do this. If the Group is found to infringe a third-party patent, the Group could be required to obtain a licence from such third party to continue developing and marketing its product candidates and technology or the Group may elect to enter into such a licence in order to settle litigation or in order to resolve disputes prior to litigation. However, the Group may not be able to obtain any required licence on commercially reasonable terms or at all. Even if the Group is able to obtain a licence, it could be non- exclusive, thereby giving its competitors access to the same technologies licensed to the Group, and could require the Group to make substantial royalty and other payments. The Group could also be forced, including by court order, to pay substantial damages, costs and other financial remedies and to cease selling or commercialising the infringing technology or product candidate. A finding of infringement could prevent the Group from realising

28 value on its product candidates or force the Group to cease some of its business operations, which could materially harm its business. Claims that the Group has misappropriated the confidential information or trade secrets of third parties could have a similarly negative impact on its business. Any such claims are likely to be expensive to defend, and some of its competitors may be able to sustain the costs of complex patent litigation more effectively than the Group because they have substantially greater resources. Moreover, even if the Group is successful in defending any infringement proceedings, it may incur substantial costs and divert management’s time and attention in doing so.

If the Group fails to comply with its obligations under the agreements pursuant to which it licenses intellectual property rights from third parties, or otherwise experiences disruptions to its business relationships with its licensors, the Group could lose the rights to third-party intellectual property rights that are important to its business. The Group is a party to agreements under which it is granted rights to third-party intellectual property rights that are important to the Group’s business and the Group expects that it may need to enter into additional licence agreements in the future. Existing agreements with Novartis, which relate to BCT-197, BGS-649 and BPS-804, impose various obligations, including those related to development and payment of royalties and fees based on achieving certain milestones. If the Group fails to comply with its obligations under existing and future agreements of this nature, the licensor may have the right to terminate the licence. In addition, if the licensor fails to maintain and defend its intellectual property, the licensed rights may not remain in force which may allow third parties to make, dispose (or offer to dispose) of, use, import, commercialise or keep products that would otherwise infringe the licensor’s patents. Even if the Group has been granted an exclusive licence, if the licensor fails to enforce its intellectual property or the Group is unable to enforce the licensed intellectual property, third parties may again be able to make, dispose (or offer to dispose) of, use, import, commercialise or keep products that would otherwise infringe the licensor’s patents, which would materially adversely affect the Group’s ability to compete in the market. The termination of any licence agreements, including as a result of the actions of the Group, the failure of the Group to adequately maintain such licence agreements or the failure of the Group or its licensors to protect the licensed intellectual property could prevent the Group from realising value on product candidates covered by the licensed intellectual property.

The Group may be subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. The Group employs individuals who were previously employed at other biotechnology or pharmaceutical companies. The Group may be subject to claims that it or its employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of its employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if the Group does not prevail, the Group could be required to pay substantial damages and could lose rights to important intellectual property. Even if the Group is successful, litigation could result in substantial cost and divert the time and attention of its management and other employees.

The Group may be subject to claims challenging the inventorship or ownership of its patents and other intellectual property. The Group may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in the Group’s patents or other intellectual property. The Group may be subject to ownership disputes in the future arising from, for example, conflicting obligations of consultants or others who are involved in developing the Group’s product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If the Group fails in defending any such claims, in addition to paying damages, costs and other financial remedies, the Group may lose valuable intellectual property rights. Such an outcome could have a material adverse effect on the Group’s business. Even if the Group is successful in defending against such claims, litigation could result in substantial costs and divert the time and attention of its management and employees.

Risks Related to Managing Growth, Employee Matters and Other Risks Related to the Group’s Business Growth may place significant demands on the Group’s management and resources. The Group expects to experience growth in the number of its employees and the scope of its operations in connection with the continued development and commercialisation of its product candidates. In particular, the

29 Group may establish its own sales and marketing capabilities and promote its product candidates in the United States or the European Union with a targeted sales force if and when the relevant product candidate is approved. This potential growth will place a significant strain on its management, operations and financial resources, and the Group may have difficulty managing this future potential growth.

The Group is dependent on its current management team. The Group is highly dependent on its current management team. The services of the Group’s management team are critical to the successful implementation of its product development and regulatory strategies. Members of the Group’s management team may terminate their employment with the Group at any time, and the Group may be unable to find suitable replacements.

The Group is subject to competition for its skilled personnel and challenges in identifying and retaining key personnel could impair the Group’s ability to conduct and grow its operations effectively. The Group’s ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon its ability to attract and retain highly qualified management, scientific and medical personnel. Many of the other biotechnology and pharmaceutical companies and academic institutions that it competes against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than the Group does. In order to induce valuable employees to continue their employment with the Group, it has provided share options that vest over time. The value to employees of share options that vest over time is significantly affected by movements in its share price that are beyond the Group’s control, and may at any time be insufficient to counteract more lucrative offers from other companies.

Furthermore, the Group will need to recruit new managers and qualified scientific personnel to develop its business as and when the Group expands into fields that will require additional skills, such as marketing and commercialising the product candidates. The Group competes with other companies, research entities and academic institutions to recruit and retain highly qualified scientific, technical and management personnel. If this competition is very intense, the Group might not be able to attract or retain these key persons on conditions that are economically acceptable. The inability of the Group to attract and retain these key persons could prevent it from achieving its objectives overall.

The Group may become subject to product liability claims. The Group faces an inherent risk of product liability and associated adverse publicity as a result of the clinical testing of its product candidates and will face an even greater risk if it or any future partners sell or commercialise any product candidates. Criminal or civil proceedings might be filed against the Group by study subjects, patients, the regulatory authorities, pharmaceutical companies and any other third party using or marketing its product candidates. These actions could include claims resulting from acts by its partners, licensees and subcontractors, over which the Group has little or no control. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability and a breach of warranties.

If the Group cannot successfully defend itself against product liability claims, it may incur substantial liabilities or be required to limit selling or commercialisation of its product candidates, if approved. Even successful defence could require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: • decreased demand for its products due to negative public perception; • injury to its reputation; • withdrawal of clinical study participants or difficulties in recruiting new study participants; • initiation of investigations by regulators; • costs to defend or settle the related litigation; • a diversion of management’s time and its resources; • substantial monetary awards to patients, study participants or subjects; • product recalls, withdrawals or labelling, marketing or promotional restrictions;

30 • loss of revenues from product sales; or • the inability to out-license, sell, commercialise or otherwise realise value on any of its product candidates, if approved.

Although the Group maintains a level of insurance which it believes is customary for its industry to cover its potential product liability, any claim that may be brought against the Group could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by its insurance or that is in excess of the limits of its insurance coverage. The Group’s insurance policies also have various exclusions, and it may be subject to a product liability claim for which it has no coverage. In such cases, the Group would have to pay any amounts awarded by a court or negotiated in a settlement that exceed its coverage limitations or that are not covered by its insurance, and the Group may not have, or be able to obtain, sufficient capital to pay such amounts. If the Group’s liability or that of its partners, licensees and subcontractors was thus incurred, if the Group or its partners, licensees and subcontractors were unable to obtain and maintain appropriate insurance coverage at an acceptable cost, or to protect itself in any way against actions for damages, this would seriously affect the marketing of the Group’s product candidates.

The Group’s employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards. The Group is exposed to the risk of employees, independent contractors, principal investigators, consultants, commercial partners or vendors engaging in fraud or other misconduct. Misconduct by employees, independent contractors, principal investigators, consultants, commercial partners and vendors could include intentional failures to comply with FDA or EMA regulations, to provide accurate information to the FDA or EMA or to comply with manufacturing standards the Group has established. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programmes and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and serious harm to the Group’s reputation. It is not always possible to identify and deter employee misconduct, and the precautions the Group takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting the Group from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against the Group, and the Group is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business, including the imposition of significant fines or other sanctions, and its reputation.

The Group’s financial results could be adversely affected by changes in foreign currency exchange rates. The Group’s financial statements are expressed in pounds sterling and, for all companies within the Group, the functional currency is pounds sterling. As the Group’s business grows, it expects that a significant part of its revenues and expenses will be denominated in U.S. dollars and euros. In an attempt to reduce the impact of currency fluctuations and the volatility of returns that may result from the Group’s currency exposure, the Group may seek to hedge its short-term and medium-term currency risks with a combination of short-term currency purchased options, interest-bearing deposits in the currency in which expenses are expected to be incurred and foreign exchange currency forward contracts. There can be no assurance that such hedging will be fully effective or beneficial in protecting the Group from adverse foreign currency exchange rate movements.

Failure to comply with the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines and/or criminal penalties and have an adverse effect on our business. The Group operates in a number of countries throughout the world, including countries known to have a reputation for corruption. The Group is committed to doing business in accordance with applicable anti- corruption laws. It is subject, however, to the risk that its Directors, senior managers, employees, agents and collaborators may take action determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977 and the U.K. Bribery Act of 2010, as well as trade sanctions administered by the Officer of Foreign Assets Control and the U.S. Department of Commerce. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect results of operations. In addition, actual or alleged violations could damage the Group’s reputation and its ability to do business.

31 Risks Relating to the Private Placement and the Ordinary Shares A liquid market for the Ordinary Shares may fail to develop. Prior to Admission, there has been no public trading market for the Ordinary Shares. The Private Placement Price may not be indicative of the market price for the Ordinary Shares following Admission. Although the Company has applied to the London Stock Exchange for admission of the Ordinary Shares to trading on AIM, an active trading market for the Ordinary Shares might not develop or, if developed, may not be sustained following Admission. The significant shareholding by Novartis, Woodford, Invesco and the Founders reduces the Company’s available public float and may further impact the development of an active trading market. If an active trading market is not developed or maintained, the liquidity and trading price of the Ordinary Shares could be materially and adversely affected.

The Ordinary Shares are traded on AIM and not on the Main Market of the London Stock Exchange. The Ordinary Shares will be quoted on AIM rather than the Official List. The rules of AIM are less demanding than those of the Official List, and an investment in shares quoted on AIM may carry a higher risk than an investment in shares quoted on the Official List.

The value of the Ordinary Shares may fluctuate significantly and investors could lose all or part of their investment. The share price of companies traded on AIM can be highly volatile, which may prevent Shareholders from being able to sell their Ordinary Shares at or above the price they paid for them. The Private Placement Price may not be indicative of prices that will prevail in the trading market and investors may not be able to resell the Ordinary Shares at or above the price they paid for them. The market price for the Ordinary Shares could fluctuate significantly for various reasons, many of which are outside the Company’s control. These factors could include performance of the Group, large purchases or sales of the Ordinary Shares, legislative changes and general economic, political or regulatory conditions. Other than in connection with the Private Placement or pursuant to employee share plans or other similar incentive arrangements, the Company has no current plans for an offering of Ordinary Shares. It is possible that the Company may decide to offer additional Ordinary Shares or convertible equity securities in the future to raise financing and for other purposes, such as in connection with share incentive and share option plans. Future sales or the availability for sale of substantial amounts of the Ordinary Shares in the public market could dilute the holdings of Shareholders, adversely affect the prevailing market price of the Ordinary Shares and impair the Company’s ability to raise capital through future sales of equity securities.

The market price of the Ordinary Shares could be negatively impacted by sales of substantial amounts of Ordinary Shares following the expiry of the lock-up period. Pursuant to the Private Placement Agency Agreement and the Lock-up Agreement, the Company, the Founders that are party thereto, each of the Directors and Novartis has agreed that, subject to certain exceptions, during the period of 180 days (in the case of the Company) and 365 days (in the case of the Founders that are party to the Private Placement Agency Agreement, the Directors and Novartis) from the date of Admission, it will not, without the prior written consent of the Global Co-ordinator on behalf of the Private Placement Agents (in the case of the Company) and the Private Placement Agents (in the case of the Founders that are party thereto, each of the Directors and Novartis), offer, sell or contract to sell, or otherwise dispose of any Ordinary Shares (or any interest therein in respect thereof) or enter into any transaction with the same economic effect as any of the foregoing. Sales of a substantial number of Ordinary Shares by shareholders in the Company (including Novartis), the Company, the Founders that are party to the Placement Agency Agreement or the Directors after these restrictions expire, or the knowledge that they will, or the perception that these sales may occur, could depress the market price of the Ordinary Shares and could impair the Company’s ability to raise capital through the sale of additional equity securities.

The Company may invest the net proceeds from the Private Placement in a manner that does not produce income or loses value. From Admission to such time as the net proceeds from the Private Placement are applied to their intended purposes, the Company may invest the net proceeds from the Private Placement in a manner that does not produce income or loses value. The Company has a policy of placing funds with financial institutions that meet minimum credit rating criteria as well as across a portfolio of institutions in order to diversify its investments where this is consistent with achieving competitive rates of return. Pursuant to such policy, the Company may invest funds in deposits, certificates of deposit and treasury bills. Nonetheless, there can be no assurance that funds placed with these institutions will maintain value over time and the Company could lose a significant

32 portion of the net proceeds from the Private Placement. The failure by the Company’s management to invest these funds effectively could result in financial losses that could have a material adverse effect on the Group’s business, cause the price of its Ordinary Shares to decline and delay the development of the Group’s product candidates.

The Company does not currently anticipate paying dividends and, accordingly, Shareholders must rely on capital appreciation for any return on investment. The Company has never declared or paid dividends on its shares. The Company currently intends to retain all of its future earnings, if any, to finance the growth and development of its business.

Any of the foregoing could limit the payment of dividends to Shareholders or, if the Company does pay dividends, the amount of such dividends. Any return to Shareholders will therefore be limited to appreciation of their investment for the foreseeable future.

Shareholders outside the United Kingdom may not be able to participate in future equity offerings. The Companies Act provides for pre-emptive rights to be granted to shareholders in the Company, unless such rights are disapplied by a special resolution. However, securities laws of certain jurisdictions may restrict the Company’s ability to allow the participation of Shareholders in future offerings. In particular, Shareholders in the United States may not be entitled to exercise these rights unless either the rights and Ordinary Shares are registered under the Securities Act, or the rights and Ordinary Shares are offered pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act. Any Shareholder who is unable to participate in future equity offerings may suffer dilution.

Raising additional capital may cause additional dilution of the percentage ownership of the Company’s shareholders or restrict the Group’s operations. The Group expects that significant additional capital may be needed in the future to continue its planned operations, including conducting clinical trials, expanding development activities and commercialising products. To raise capital, the Company may issue new Ordinary Shares, convertible securities or other equity securities in one or more transactions at prices and in a manner as it determines from time to time. If the Company issues new ordinary shares, convertible securities or other equity securities, investors may be materially diluted by such issuances. Such issuances or sales may also result in material dilution to the Company’s existing shareholders, and new investors could gain rights, preferences and privileges senior to the holders of the Ordinary Shares, including Ordinary Shares sold in the Private Placement. The incurrence of indebtedness could result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on the Group’s ability to incur additional debt and other operating restrictions that could adversely impact the Group’s ability to conduct its business. Except in the case of any new product acquisitions, the Group does not anticipate requiring additional funding prior to achievement of key clinical data points with BCT-197 and BGS-649, expected by the end of 2017. The Directors believe the proceeds from the Capital Raise and funds to be received pursuant to the exercise of the Company’s option under the Subscription Agreement, together with the Group’s existing cash resources, are sufficient to fund BCT-197 and BGS-649 to the next stage of development and BPS-804 to interim data from the initial part of the potential registration study in the first quarter of 2018.

33 PART III

DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS

Directors Peter Fellner, age 72 (Independent Non-Executive Chairman) Denise Scots-Knight, age 57 (Chief Executive Officer and Co-Founder) Richard Bungay, age 46 (Chief Financial Officer and Chief Operating Officer) Frank Armstrong, age 59 (Non-Executive Director) Paul Blackburn, age 61 (Non-Executive Director) Peter Bains, age 58 (Non-Executive Director) Anders Ekblom, age 61 (Non-Executive Director) Kunal Kashyap, age 51 (Non-Executive Director)

Company Secretary Charles Sermon

Registered Office of the Company Fourth Floor One Cavendish Place London W1G 0QF United Kingdom

Global Co-ordinator, Private Placement Agent and Broker RBC Europe Limited Riverbank House 2 Swan Lane London EC4R 3BF United Kingdom

Nominated Adviser, Private Placement Agent and Cantor Fitzgerald Europe Broker One Churchill Place Canary Wharf London E14 5RB United Kingdom

Financial Adviser to the Company Evercore Partners International LLP 15 Stanhope Gate London W1K 1LN United Kingdom

Legal advisers to the Company Proskauer Rose (UK) LLP 110 Bishopsgate London EC2N 4AY United Kingdom

English and U.S. legal advisers to the Global Linklaters LLP Co-ordinator, Nominated Adviser, Private Placement 1 Silk Street Agents and Brokers London EC2Y 8HQ United Kingdom

Auditor and Reporting Accountant Ernst & Young LLP 1 More London Place London SE1 2AF United Kingdom

Registrar Capita Asset Services The Registry 34 Beckenham Road Kent BR3 4TU

34 PART IV

EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND PRIVATE PLACEMENT STATISTICS

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Receipt of completed Application Forms by 11am on 2 June 2016 Publication of this document 3 June 2016 Deadline for funding of Subscription Account by 11am on 8 June 2016 Admission and commencement of unconditional dealings on AIM 8am on 9 June 2016 CREST accounts credited 9 June 2016 Despatch of definitive share certificates (where applicable) 9 June 2016

Each of the times and dates in the above timetable is subject to change. References to times are to London time unless otherwise stated. Temporary documents of title will not be issued.

PRIVATE PLACEMENT STATISTICS

Private Placement Price per Private Placement Share £2.21 Number of Ordinary Shares in issue immediately prior to Admission 57,960,356 Number of Private Placement Shares 5,135,962 Number of bonus shares issued to Novartis in connection with the Private Placement 1,244,480 Percentage of the Company’s issued share capital immediately following Admission being issued pursuant to the Private Placement 8.0 per cent. Number of Ordinary Shares in issue immediately following Admission(1) 64,340,798 Net proceeds of the Private Placement £9.1 million Net proceeds from issue of convertible loan notes £3.5 million Expected market capitalisation of the Company at the Private Placement Price following Admission £142.2 million ISIN GB00BZ4G2K23 SEDOL BZ4G2K2 TIDM MPH

35 PART V PRESENTATION OF INFORMATION General Prospective investors should rely only on the information in this document. No person has been authorised to give any information or to make any representations in connection with the Private Placement other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Company, the Directors or the Private Placement Agents. No representation or warranty, express or implied, is made by any of the Private Placement Agents or any of their respective agents or affiliates as to the accuracy or completeness of such information, and nothing contained in this document is, or shall be relied upon as, a promise or representation by any of the Private Placement Agents or any of their respective agents or affiliates or any selling agent as to the past, present or future. Neither the delivery of this document nor any subscription or sale made under this document shall, under any circumstances, create any implication that there has been no change in the business affairs of the Company or of the Group since the date of this document, or that the information contained herein is correct as at any time subsequent to its date. The Company will update the information provided in this document by means of a supplement hereto if a significant new factor that may affect the evaluation by prospective investors of the Private Placement occurs prior to Admission or if this document contains any material mistake or inaccuracy. The contents of this document are not to be construed as legal, business or tax advice. Each prospective investor should consult his or her own lawyer, financial adviser or tax adviser for legal, financial or tax advice in relation to any purchase or proposed purchase of Ordinary Shares. Each prospective investor should consult with such advisers as needed to make its investment decision and to determine whether it is legally permitted to hold shares under applicable legal investment or similar laws or regulations. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. This document is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by any of the Company, the Directors, any of the Private Placement Agents or any of their representatives that any recipient of this document should purchase the Ordinary Shares. Prior to making any decision as to whether to purchase the Ordinary Shares, prospective investors should read this document in its entirety and, in particular, Part II: “Risk Factors”. In making an investment decision, prospective investors must rely upon their own examination of the Company and the terms of this document, including the risks involved. Investors that subscribe for Private Placement Shares in the Private Placement will be deemed to have acknowledged that: (i) they have not relied on any representations, warranties or statements made by any of the Company, the Directors, the Private Placement Agents or any of their agents or any person affiliated with any of them in connection with the Private Placement other than information contained in this document; and (ii) no person has been authorised to give any information or to make any representation, warranty or statement and, if given or made, any such other information, representation, warranty or statement should not be relied upon as having been authorised by the Company, the Directors or any of the Private Placement Agents. None of the Company, the Directors or any of the Private Placement Agents or any of their representatives is making any representation to any offeree or subscriber of Private Placement Shares regarding the legality of an investment by such offeree or subscriber. In connection with the Private Placement, the Private Placement Agents or any of them and any of their respective affiliates, acting as investors for their own accounts, may subscribe for Private Placement Shares and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in the Private Placement Shares, any other securities of the Company or other related investments in connection with the Private Placement or otherwise. Accordingly, references in this document to the Private Placement Shares being issued, offered, subscribed for, sold, purchased or otherwise dealt with should be read as including any issue offer or sale to, or subscription for, purchase or dealing by the Private Placement Agents or any of them and any of their respective affiliates acting as an investor for its or their own account(s). The Private Placement Agents do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so. The Private Placement Agents and any of their respective affiliates may have engaged in transactions with, and provided various investment banking, financial advisory and other services to, the Company, for which they would have received customary fees. The Private Placement Agents and any of their respective affiliates may provide such services to the Company and any of its affiliates in the future.

36 Presentation of financial information Unless otherwise indicated, the financial information included in this document is based on International Financial Reporting Standards (IFRS) and International Financial Reporting Standards Interpretations Committee interpretations as adopted by the International Accounting Standards Board, and those parts of the Companies Act applicable to the companies reporting under IFRS.

The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. Further details are set out in “Critical accounting policies” of Part IX: “Operating and Financial Review”. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial information are disclosed in the notes to the financial information set out in Part X: “Financial Information”.

The Company’s financial year runs from 1 January to 31 December. The financial information included in this document is not intended to comply with the applicable accounting requirements of the Securities Act and the related rules and regulations that would apply if the Shares were to be registered in the United States. Compliance with such requirements would require the modification or exclusion of certain information included in this document and the presentation of certain information which is not included in this document.

The financial information presented in this document was not prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) or audited in accordance with U.S. Generally Accepted Auditing Standards (U.S. GAAS) or the standards of the Public Company Accounting Oversight Board (PCAOB Standards). No opinion or any other assurance with regard to any financial information was expressed under U.S. GAAP, U.S. GAAS or PCAOB Standards and the financial information is not intended to comply with SEC reporting requirements. Compliance with such requirements would require the modification, reformulation or exclusion of certain financial measures. In addition, changes would be required in the presentation of certain other information. In particular, no reconciliation to U.S. GAAP is provided.

Rounding Percentages and certain amounts included in this document have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not be the precise sum of the figures that precede them.

Currencies Unless otherwise indicated, in this document, all references to: • pounds sterling or £ are to the lawful currency of the United Kingdom; • U.S. dollars or $ are to the lawful currency of the United States; and • euros or € are to the lawful currency of the European Union (as adopted by certain member states).

Unless otherwise indicated, the financial information contained in this document has been expressed in pounds sterling. For all members of the Group in the United Kingdom, the functional currency is pounds sterling and the Group presents its financial information in pounds sterling.

The basis of translation of foreign currency transactions and amounts in the financial information set out in Part IX: “Operating and Financial Review” is described in that Part. Information derived from this financial information set out elsewhere in this document has been translated on the same basis.

Forward-looking statements This document includes statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “plans”, “may”, “will” or “should” or, in each case, their negative or other variations or comparable terminology. All statements other than statements of historical fact included in this document are forward-looking statements. They appear in a number of places throughout this document and include statements regarding the Directors’ or the Group’s intentions, beliefs or current expectations concerning, among other things, its operating results, financial condition, prospects, growth, expansion plans, strategies, the industry in which the Group operates and the general economic outlook.

37 Forward-looking statements include, but are not limited to, statements about: • the Group’s estimates regarding expenses, future revenue, and future capital requirements, including funding to commercialise BCT-197, BGS-649 or BPS-804; • the Group’s plans to develop and commercialise its product candidates; • the Group’s ability to develop additional product candidates; • the Group’s planned clinical trials; • the timing and the Group’s ability to obtain and maintain regulatory approval for its product candidates; • the Group’s commercialisation, marketing and manufacturing capabilities and strategy; • competition in the Group’s industry; • the performance of the Group’s third-party suppliers and manufacturers; • costs of litigation and the failure to successfully defend lawsuits and other claims against the Group; • the Group’s intellectual property position; • the costs of compliance and the Group’s ability to comply with new and existing governmental regulations; and • the continued involvement of key members of management.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and therefore are based on current beliefs and expectations about future events. Forward-looking statements are not guarantees of future performance and the Group’s actual operating results and financial condition, and the development of the industry in which it operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if the Group’s operating results, financial condition and liquidity, and the development of the industry in which the Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Accordingly, prospective investors should not rely on these forward-looking statements.

Any forward-looking statements that the Group makes in this document speak only as of the date of this document, and none of the Company, the Directors or the Private Placement Agents undertakes any obligation to update such statements unless required to do so by applicable law, the AIM Rules or any appropriate regulatory authority. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Market, economic and industry data This document includes market share, industry and scientific data and forecasts that the Company has obtained from industry publications, surveys and internal company sources. As noted in this document, the Company has commissioned market and industry data relating to the Group’s business from providers of market data, including ClearView Healthcare Partners (ClearView).

Third-party reports The Company has commissioned Stratagem IPM Limited to produce a report, a copy of which can be found in Part XVIII: “Intellectual Property Expert Report”.

The Company has not independently verified any of the data from third-party sources nor has it ascertained the underlying economic assumptions relied upon therein. Statements or estimates as to the Group’s market position, which are not attributed to independent sources, are based on market data or internal information currently available to the Company. The Company confirms that information sourced from third parties has been accurately reproduced and, as far as the Company is aware and is able to ascertain from information published from third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. Estimates extrapolated from this data involve risks and uncertainties and are subject to change based on various factors, including those discussed in Part II: “Risk Factors”.

No incorporation of website information The contents of the Group’s website does not form any part of this document.

38 Information not contained in this document No person has been authorised to give any information or make any representation other than those contained in this document and, if given or made, such information or representation must not be relied upon as having been so authorised. Neither the delivery of this document nor any subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this document or that the information in this document is correct as of any time subsequent to the date hereof.

Certain terms used in this document are defined, and certain technical and other terms used in this document are explained, in Part XVI: “Definitions” and Part XVII: “Glossary”.

39 PART VI

INFORMATION ON THE COMPANY AND THE GROUP

1. Business overview Mereo is a UK-based specialty biopharmaceutical company focused on the development of innovative medicines that aim to address unmet medical needs in rare and specialty disease areas and improve patient quality of life. The Group will seek to selectively acquire clinical-stage product candidates with demonstrated clinically meaningful data from large pharmaceutical companies and to further develop these product candidates to subsequent key value inflection points or to commercialisation. The Group is an early adopter of a novel business model that aligns its interests with those of large pharmaceutical companies. By selectively acquiring and further developing promising product candidates, the Group and its product candidate provider can jointly participate in the value realisation through any future sale, licensing or commercialisation of the product candidate. Since its inception in March 2015, the Group has acquired three product candidates from Novartis, which comprise its initial portfolio. In the near term, the Group aims to develop this existing portfolio, while in the medium to long- term the Group intends to build a broader pipeline of product candidates which fulfil Mereo’s selection criteria. Ultimately, Mereo’s goal is to leverage its innovative business model and resources to develop additional product candidates that address a broad range of rare and specialty diseases with significant unmet clinical needs and to become an innovative leader in the specialty biopharmaceutical sector.

The Directors believe the ongoing high productivity at the discovery and early clinical development phase of large pharmaceutical companies has resulted in increasing numbers of research and development product candidates available for further development. However, the Directors believe pressure to meet profitability targets is constraining large pharmaceutical companies’ ability to fund their entire pipeline of research and development product candidates, requiring them to focus their resources on a sub-set of product candidates. By identifying and selectively acquiring product candidates from large pharmaceutical companies and funding their further development, Mereo aims to advance promising product candidates to key value inflection points or to commercialisation.

Mereo’s business model is highly flexible and scalable, allowing efficient integration of new product candidates. The Group has an efficient and light infrastructure, including a services agreement with ICON, a leading global CRO, to assist with the clinical development of its initial portfolio. The Group intends to leverage its global network of experts with expertise across multiple clinical disciplines to optimise the development strategies for the selected product candidates. Mereo’s Directors and senior management have long-standing relationships with senior executives of large pharmaceutical companies, which the Directors believe will enhance the Group’s process for identifying and acquiring additional product candidates. The Group’s alignment of interests with product candidate providers can be enhanced by its flexibility to use alternative transaction structures, including those in which the Group does not make an upfront cash payment for product candidate acquisitions and a pharmaceutical company retains economic interest in a product candidate, including through potential equity participation.

Mereo has a highly disciplined approach in acquiring selective product candidates for further development. The product candidates will typically originate from large pharmaceutical companies in rare and specialty indications with unmet medical need and compelling market potential. Additionally, the product candidates need to have a strong scientific rationale, demonstrated clinically meaningful data, a clear and manageable clinical and regulatory strategy and a favourable competitive landscape. This is exemplified by Mereo’s initial pipeline, which comprises three well characterised, novel clinical Phase 2 product candidates acquired from Novartis in July 2015: BCT-197 for AECOPD, BGS-649 for hypogonadal hypogonadism in obese men and BPS-804 for osteogenesis imperfecta. Each product candidate has a strong pre-clinical and clinical dataset, including clinically meaningful data for the relevant indication. Further, because BCT-197, BGS-649 and BPS-804 are in different drug classes and are for different indications, the risk profile of the portfolio is well diversified enabling the Group to optimise the commercial strategy for each product candidate based on clinical trial results.

BCT-197 is being developed for AECOPD. COPD is a non fully reversible, progressive lung disease that was the third largest cause of death in the world in 2010 according to the Global Burden of Disease Study, resulting in annual direct and indirect costs of approximately $50 billion in the United States. BCT-197 aims to treat inflammation and improve patient symptoms and potentially result in shorter hospital stays with fewer readmissions, thereby providing tangible benefits for both patients and payers. BGS-649 is being developed for hypogonadal hypogonadism in obese men. BGS-649 aims to restore normal levels of testosterone without causing excessively high testosterone levels and is being developed as a once-weekly pill, conferring potential safety and convenience benefits as compared to current testosterone treatments. BPS-804 is being developed for

40 osteogenesis imperfecta, a rare, usually inherited condition that results in bones that can break easily. BPS-804 aims to demonstrate a benefit compared to placebo in terms of fractures in osteogenesis imperfecta patients.

Mereo’s senior management has extensive experience in the pharmaceutical and biotechnology sector in investment in and development, manufacturing and commercialisation of product candidates in multiple therapeutic areas. The Company also benefits from a strong board of directors that is comprised primarily of current and former senior leaders in the pharmaceutical and biotechnology industry.

The Company is backed by leading institutional shareholders Invesco and Woodford, each of which has significant pharmaceutical and biotechnology industry knowledge and relationships and a history of long-term supportive investments. Both participated in an equity financing round in July 2015, committing £76.5 million, with £20 million funded upon closing of the financing round. In addition, Novartis holds a stake in the Company of 19.5% immediately prior to Admission, and is expected to hold a stake of 12.5% following Admission thus ensuring alignment of interests.

The Company is incorporated in England and Wales, and the Group has its headquarters in London.

2. Key strengths Product candidates selected based on strong scientific rationale and clear path to significant value generating inflection points through further development The Group has sourced its initial product candidates from Novartis, a global pharmaceutical company with a history of robust product development and a reputation for product study data quality. For BCT-197, Novartis’ Phase 1 study data showed a statistically significant reduction of the inflammatory marker TNFα, and in a Phase 2 study, a clinically meaningful increase in the amount of air forcibly exhaled by an AECOPD patient in one second (Forced Expiratory Volume in One Second), a clinically relevant endpoint in the treatment of COPD. For BGS-649, Novartis’ Phase 2 data established proof of concept in obese men with hypogonadal hypogonadism, because it showed that BGS-649, delivered as a pill, restored testosterone levels to a normal range without causing excessively high levels, boosted luteinising hormone (LH) and follicle stimulating hormone (FSH) and was well tolerated. For BPS-804, Novartis’ Phase 2 data in osteogenesis imperfecta patients demonstrated proof of concept data showing a statistically significant improvement in bone biomarkers and bone mineral density.

The Group has a diversified investment risk because each of BCT-197, BGS-649 and BPS-804 has different mechanisms of action, regulatory frameworks and pricing and reimbursement considerations, and each product has a potential value-generating next step in development. The diversified portfolio of product candidates with clinically meaningful data maximises the Group’s potential to achieve multiple product milestones and build significant value through achieving clinical milestones.

Early mover advantage in a new model of pharmaceutical development The Group is an early adopter of a novel business model that aligns its interests with those of large pharmaceutical companies. These companies’ profit and loss pressures make it very difficult for them to fund their entire portfolio of research and development assets, leading them to focus on a sub-set of product candidates. The Group’s focus is on selectively acquiring clinical stage products in rare and specialty disease areas and funding their development. The Group’s focus on rare and specialty diseases is exemplified by the initial product candidates: BCT-197, for the treatment of AECOPD; BGS-649, for the treatment of hypogonadal hypogonadism in obese men; and BPS-804, for the treatment of osteogenesis imperfecta.

This business model can be scaled for the future purchase of asset portfolios or individual product candidates that target other medical needs in rare and specialty indications. The Group plans to utilise its management expertise and the CROs with which it works to optimise clinical development strategies for additional product candidates.

The portfolio of product candidates acquired from Novartis has no buyback restrictions limiting the Group’s available strategies to maximise value for each of the product candidates. The Group’s preferred strategy is to acquire product candidates through this type of flexible deal structure, although it may selectively choose fixed upside deals in the future if the opportunity is compelling. The Directors believe the long-standing relationships of the Group’s Directors and senior management with large pharmaceutical companies, including Novartis, will facilitate the sourcing and acquisition of additional product candidates and portfolios by the Group.

41 Developing pipeline product candidates with novel mechanisms of action that target rare and specialty diseases with unmet medical need BCT-197 is being developed to treat inflammation and ultimately reduce an AECOPD patient’s hospital stay, with tangible benefits for all stakeholders, including patients and payers. Current treatments for AECOPD are supportive therapies that do not treat the underlying disease and corticosteroids have been the long-standing mainstay of treatment for AECOPD. The Directors believe no therapies treating the underlying condition of AECOPD have been introduced. BGS-649, a pill, is designed to be more convenient than the intramuscular injections, gels and patches currently used to treat hypogonadal hypogonadism. The Directors believe BGS-649 is expected to have a better safety profile than existing treatments, which have notable adverse side effects, because it is being developed to address both symptoms and normalise underlying endocrine response in hypogonadal hypogonadism patients. BPS-804 aims to demonstrate a benefit compared to placebo in terms of fractures in osteogenesis imperfecta patients. Recurrent fractures are the key clinical issues faced by these patients.

Highly experienced management team and board The Company’s senior management has extensive experience in the pharmaceutical and biotechnology sector, both in the investment in and development, manufacturing and commercialisation of product candidates. Moreover, the Company’s management and directors have significant experience in clinical trials for a wide range of product candidates across multiple therapeutic areas and extensive experience with CROs. The Company benefits from a strong board of directors that is comprised primarily of current and former senior leaders in the pharmaceutical and biotechnology industry, including individuals with healthcare capital markets expertise. In addition, the Directors and senior management have long-standing relationships with senior officers of global pharmaceutical companies, which the Directors believe will facilitate the sourcing and acquisition of future product candidates.

Backed by leading institutional shareholders The Company is backed by leading institutional shareholders Invesco and Woodford, each of which has significant pharmaceutical and biotechnology industry knowledge, relationships and a history of long-term supportive investments. Both participated in an equity financing round in July 2015, committing £76.5 million, with £20 million funded upon closing of the financing round. In addition, Novartis holds a stake in the Company of 19.5% immediately prior to Admission and is expected to hold a stake in the Company of 19.5% following Admission, thus ensuring alignment of interests.

3. Strategy Advance the initial pipeline product candidates through the clinical pathway The Group is focused on progressing the clinical development of its product candidates and: • has commenced a Phase 2 dose ranging trial of BCT-197 in AECOPD patients, with results expected to be reported in the second half of 2017; • has commenced a Phase 2b dose confirmation trial of BGS-649, with results expected to be reported in the second half of 2017; and • intends to commence a potential registration study for BPS-804 in the second half of 2016. Mereo 3 received orphan designation for BPS-804 in the United States in March 2016 and received a positive opinion of the COMP with respect to orphan drug designation for the product in the European Union in May 2016, ratification of which is expected to be a formality.

Realise value of product portfolio through multiple avenues The Group has global commercialisation rights for all of its initial product candidates, giving it the flexibility to determine appropriate value realisation strategies. With its initial portfolio, the Group has the flexibility to out- license, sell, commercialise or combine various strategies to maximise value for each of the product candidates it acquired from Novartis. Further, because BCT-197, BGS-649 and BPS-804 are in different drug classes and for different indications, their diversification enables the Group to optimise the commercial strategy for each product candidate based on clinical trial results. The Group will evaluate risk, cost and market opportunity throughout each product candidate’s development to create a value maximising strategy and may select one or more of its product candidates for direct commercialisation, which would require a targeted salesforce and operational infrastructure. The Group may also consider alternative ways of commercialising its product candidates, including partnering with other companies that have an existing sales force and operational infrastructure.

42 Leverage existing business model for future scaling up of product portfolio The Group plans to selectively acquire additional novel product candidates with demonstrated clinically meaningful data from large pharmaceutical companies. Using a disciplined approach, the Group will focus on building a diverse portfolio with product candidates that have compelling market potential, robust pre-clinical, clinical and manufacturing data packages, and a clear path to a significant value inflection point using reasonable resources within its capacity.

4. Initial product candidates 4.1 Summary of initial product candidates The following table summarises information about the Group’s product candidates:

Product Therapeutic Indication Target Preclinical Development Clinical Development Estimated Affected Status/Next Candidate Area Population Development Stage Discovery Preclinical Phase I Phase II Phase III (US+EU5)

Acute p38 * Phase 2 trial BCT-197 Respiratory Exacerbations in 4,135,000 MAPK commenced COPD in 2016

Hypogonadal Phase 2b trial Aromatase BGS-649 Endocrine Hypogonadism in 10,474,000 commenced Obese Men in 2016

Phase 3 potential Orphan Osteogenesis registration trial BPS-804 Sclerostin 40,000 **, ‡ Disease Imperfecta expected to start in H2 2016

* Number of episodes ** Defined as orphan disease ‡ Number of diagnosed osteogenesis imperfecta patients

BCT-197 is being developed for AECOPD. Chronic obstructive pulmonary disease is a non fully reversible, progressive lung disease that was the third largest cause of death in the world in 2010 according to the Global Burden of Disease Study, and the WHO forecasts that it will remain the third largest cause of death in the world in 2030. The yearly costs of COPD in the United States are approximately $50 billion, including $29.5 billion of direct costs of hospitalisation and treatment and $20.4 billion of indirect costs (morbidity and mortality caused by the disease). The total yearly direct costs of COPD in the European Union are estimated at €38.6 billion. On average, COPD patients suffer one to three AECOPDs per year. Each episode of AECOPD poses significant risk to the patient, including potential hospitalisation and an increased risk of death. Currently available treatments only manage AECOPD and comprise supportive therapies (primarily oxygen therapy, corticosteroids and bronchodilators), which do not treat the underlying disease. BCT-197 is being developed to treat inflammation that is a key feature of AECOPDs and aims to deliver tangible benefits for patients and payers by improving symptoms and potentially resulting in shorter hospital stays with fewer readmissions. In clinical studies performed by Novartis, BCT-197 demonstrated a statistically significant reduction of the inflammatory marker TNFα and a clinically meaningful increase in Forced Expiratory Volume in One Second. In total, 260 subjects, 116 patients and 144 volunteers, received BCT-197 in the clinical studies undertaken by Novartis. Mereo has initiated a Phase 2 dose ranging trial in 255 patients with data expected in the second half of 2017. BGS-649 is being developed for hypogonadal hypogonadism in obese men. Hypogonadal hypogonadism is a clinical syndrome that results from inadequate levels of testosterone. Symptoms commonly associated with testosterone deficiency include reduced or loss of libido, absent morning erections and erectile dysfunction as well as tiredness, fatigue, impaired physical endurance, loss of vitality, lack of motivation and mood disturbance. There are approximately six million cases of hypogonadism in obese men in the United States and approximately four million cases of hypogonadism in obese men in Europe. Current treatment for hypogonadal hypogonadism is testosterone replacement therapy by intramuscular injection, gel or patches. U.S. sales for Androgel marketed by Abbvie for testosterone replacement peaked at $1,152 million in 2012, but has been subsequently eroding mainly due to safety concerns and generic availability; Androgel’s sales accounted for $694 million in 2015 and Eli Lilly’s Axiron had worldwide sales of approximately $155 million in 2015. Testosterone replacement is associated with significant side effects including excessively high levels of testosterone (known as “T overshoot”), which the FDA and health professionals associate with a possible higher risk of stroke and heart attack. BGS-649 is being developed as a once-weekly pill offering greater convenience than the testosterone replacement therapies. Additionally, BGS-649 aims to restore normal levels of testosterone without causing excessively high

43 testosterone levels, and the Directors therefore expect it to have a better safety profile than existing treatments. Novartis conducted a two-part Phase 2 proof of concept trial for hypogonadal hypogonadism in obese men, in which testosterone levels normalised and LH and FSH levels increased, implying maintenance of the normal negative feedback loop, which controls the normal testosterone level. In total, 130 subjects, 39 patients and 91 volunteers, received BGS-649 in the clinical studies undertaken by Novartis. Mereo has initiated a Phase 2b dose confirmation trial in approximately 260 patients in the first half of 2016 with data expected in the second half of 2017. BPS-804 is being developed for osteogenesis imperfecta, a chronic condition that is usually genetically inherited and results in bones that can break easily. Osteogenesis imperfecta is a rare condition that the Osteogenesis Imperfecta Foundation estimates affects a minimum of approximately 20,000 and possibly as many as 50,000 patients in the United States. In Europe, approximately 7.5 out of 100,000 people have the condition, according to Orphanet. Current treatment largely relies on the acute management of fractures as they occur and the use of bisphosphonate drugs, although the Directors believe there is no clear data demonstrating that bisphosphonate drugs reduce fractures. Treatment is directed toward preventing or controlling the symptoms, maximising independent mobility, and improving bone mass and muscle strength. BPS-804 aims to demonstrate a benefit compared to placebo in terms of fractures in osteogenesis imperfecta patients. BPS-804 works by inhibiting sclerostin, which inhibits the activity of bone-forming cells, known as osteoblasts. The Directors believe that by blocking sclerostin, BPS-804 will induce or increase osteoblast function and maturation of these cells, increasing bone formation and reducing bone resorption, thereby reducing fractures in osteogenesis imperfecta patients. Novartis’ Phase 2 data in osteogenesis imperfecta patients has demonstrated statistically significant proof of concept data in bone biomarkers and bone mineral density. In total, 83 patients and volunteers received BPS-804 in the clinical studies undertaken by Novartis: nine patients had moderate osteogenesis imperfecta, eight patients had hypophosphatasia (a rare heritable metabolic disorder characterised by the abnormal development of bones and/or teeth), 36 patients were post-menopausal women with low mineral density and 30 patients were healthy post-menopausal volunteers. In studies to date, BPS-804 has been shown to be safe and well tolerated. Mereo intends to initiate a potential registration trial of BPS-804 in approximately 250 osteogenesis imperfecta patients in the second half of 2016. Mereo 3 received orphan designation for BPS-804 in the United States in March 2016 and received a positive opinion of the COMP with respect to orphan drug designation for the product in the European Union in May 2016, ratification of which is expected to be a formality.

4.2 BCT-197 Overview Chronic obstructive pulmonary disease is a non fully reversible, progressive lung disease that was the third largest cause of death in the world in 2010 according to the Global Burden of Disease Study, and the WHO forecasts that it will remain the third largest cause of death in the world in 2030. The National Heart Lung Blood Institute estimates that 12 million people in the United States have been diagnosed with the disease, and the European COPD Coalition estimates that 13 million people in Europe have been diagnosed with COPD. In 2012, according to the WHO, there were over three million deaths from the disease worldwide. The yearly costs of COPD in the United States are approximately $50 billion, including $29.5 billion of direct costs of hospitalisation and treatment and $20.4 billion of indirect costs (morbidity and mortality caused by the disease). The total yearly direct costs of COPD in the European Union are estimated at €38.6 billion. The standard of care for the management of chronic COPD includes inhaled ß2 agonists, anticholinergics and inhaled corticosteroids. Tobacco smoking and air pollutants are the most common causes of the disease and lead to a chronic inflammatory response, narrowing the airways and resulting in breakdown of lung tissue. In milder cases, COPD can be controlled with inhaled steroids and bronchodilators. AECOPDs occur when a patient with COPD experiences a sustained increase in cough, sputum production or dyspnea (shortness of breath), and may require hospitalisation. Increased inflammation is a core feature of an AECOPD. This is demonstrated by inflamed airways and the influx of white blood cells that respond to and can propagate inflammation, such as eosinophils, lymphocytes and neutrophils. On average, COPD patients suffer one to three AECOPDs per year. There are significant risks associated with AECOPD with approximately 8% of patients admitted to hospital for COPD dying while in hospital. Long-term consequences include reduction in lung function and quality of life and a reduced lifespan. The five-year survival rate for patients suffering three AECOPDs a year is 30%, significantly worse than the survival rate for many common cancer types.

44 Current pharmacologic treatments for AECOPD include bronchodilators, corticosteroids, and in the case of AECOPD triggered by bacterial infection, broad spectrum antibiotics. The bronchodilators reduce the patients’ breathlessness by opening up the airways, and corticosteroids reduce the inflammation. The Directors believe these therapies have been used for decades and there have been no new treatments that have been approved in the United States or Europe for the treatment of AECOPD. The Group’s product candidate for treating the underlying condition of AECOPD is BCT-197, which inhibits p38 mitogen-activated protein kinase (p38 MAP kinase). P38 MAP kinase activity is inversely correlated with measures of lung function, and inhibition of this enzyme has been shown to have anti- inflammatory effects. The Directors believe a drug that can reduce AECOPD and also has anti-inflammatory effects has the potential to significantly improve the quality of life of AECOPD patients through improved lung function, shorter hospital stays and possibly reduced likelihood of rehospitalisation. Given that the five year mortality rate of those suffering three exacerbations a year or more is significantly higher than those who have few exacerbations, the Directors believe it might also be demonstrated that a drug reducing the AECOPDs would reduce mortality from COPD. Studies undertaken by Novartis have shown that BCT-197 treatment results in a statistically significant reduction of the inflammatory marker TNFα and a clinically meaningful increase in Forced Expiratory Volume in One Second, a clinically relevant endpoint in the treatment of COPD. The Group has commenced a Phase 2 trial in AECOPD patients, with results expected to be reported in the second half of 2017. Following the Phase 2 trial, the Group intends to progress to a Phase 2b/3 study.

Indication background Chronic obstructive pulmonary disease describes a group of progressive lung diseases including chronic bronchitis, emphysema, refractory (non-reversible) asthma, and some forms of bronchiectasis. In chronic bronchitis, the lining of the airways is constantly irritated and inflamed. This causes the epithelium to thicken, resulting in an increased formation of thick mucus in the airways or epithelium, thus blocking the airways. In emphysema, the walls between many of the small air sacs in the lungs are damaged, leading to instability and finally a destruction of the walls of the air sacs, and fewer and larger air sacs. As a result, the transfer of gas from the lungs into the bloodstream is reduced. Most cases of COPD are caused by inhaling pollutants, including tobacco smoke. Due to the disease’s slow progression and predisposing factors, it is frequently diagnosed in people aged 40 or older. The prevalence of COPD increases with age, with a five-fold increased risk in those aged over 65 compared to those under 40 years old. The disease is characterised by increasing breathlessness, often accompanied by coughing that produces large amounts of mucus and chest pain. In COPD patients, less air flows in and out of the airways due to one or more of the following reasons: • the airways are narrowed, the air sacs lose their elastic quality and the transfer of gas from the lungs into the bloodstream is reduced; • the walls between many of the air sacs are destroyed; • the walls of the airways become thick and inflamed; or • the airways make more mucus than usual, thus clogging them. COPD is usually diagnosed by a patient history of breathing difficulty, chronic cough or sputum production and a history of tobacco smoking or chronic exposure to inhaled pollutants. Spirometry, a set of tests measuring how much air a person can inhale and exhale, and how fast air can move into and out of the lungs, is performed to confirm the diagnosis and determine disease severity. Spirometry measures Forced Expiratory Volume in One Second and Forced Vital Capacity. These measure the volume of air that the patient can blow out in one second after full inspiration and the maximum amount of air that can be blown out after maximal inspiration, respectively. A ratio of Forced Expiratory Volume in One Second to Forced Vital Capacity of less than 0.7 after a bronchodilator is given confirms the diagnosis. Forced Expiratory Volume in One Second and Forced Vital Capacity decline gradually as COPD progresses and during an AECOPD.

45 Patients are classified by the Global Initiative for Chronic Obstructive Lung Disease (GOLD) criteria. Patients with a confirmed ratio of Forced Expiratory Volume in One Second to Forced Vital Capacity of less than 0.7 are classified based on the percentage of their Forced Expiratory Volume in One Second as compared to the Forced Expiratory Volume in One Second that would be predicted for a person with normal lung function (of a comparable height and age) as follows:

% patients Forced Expiratory Volume in One Second / predicted Forced Expiratory Volume Three-year Classification in One Second mortality rate GOLD 1: mild >80% N/A GOLD 2: moderate >50%, < 80% 11% GOLD 3: severe >30%, < 50% 15% GOLD 4: very severe <30% 24%

An AECOPD is defined as an acute event characterised by a worsening of the patient’s symptoms beyond normal day-to-day variations and that requires a change in medication. Typical symptoms would include an increase in breathlessness and / or increase in sputum production, which would lead to an increase in the frequency or dose of bronchodilators or an increase in corticosteroid use, or the need to seek further medical attention either from the patient’s general practitioner or hospital. The risk of AECOPD increases with disease progression and increases following exacerbations. The most common trigger of an AECOPD is viral upper respiratory tract infection. In its milder forms, an AECOPD can be controlled with inhaled steroids and bronchodilators. In more severe cases, AECOPD requires hospitalisations, where patients are typically treated with oral or intravenous steroids and antibiotics. On average, patients suffer one to three exacerbations per year with an average hospital stay of three to 10 days. Moderate to severe cases of AECOPD can result in greatly diminished quality of life, disability, and serious co-morbidities, including heart disease, and death. After an AECOPD many patients do not return to their pre-AECOPD baseline respiratory function. The five-year survival rate for those suffering three or more AECOPDs per year is 30% but those who do not suffer AECOPDs have an 80% survival rate. The Directors believe there is a significant unmet medical need for improved treatment of AECOPD.

Current standard of care The management of AECOPD is directed at relieving symptoms and restoring functional capacity of the airways. The recommended management for AECOPD in general includes ß2 agonists, the addition of anticholinergics (or an increase in their dosage), the systemic administration of corticosteroids and the intravenous administration of methylxanthines, such as aminophylline. Additionally, supporting oxygen therapy is used in order to provide the patient with sufficient blood oxygen levels. Given an AECOPD is often triggered by bacterial or viral pathogens and also pollutants, antibiotics are often used to treat the acute exacerbations. Antibiotic therapy is directed at the most common pathogens, including Streptococcus pneumoniae, Haemophilus influenzae and Moraxella catarrhalis. Furthermore, a patient who has several AECOPDs a year is exposed to large quantities of systemic corticosteroids, which can lead to osteoporosis and diabetes.

Mechanism of action BCT-197 is an orally administered small molecule that inhibits p38 MAP kinase. P38 MAP kinase is an enzyme that plays a key role in the cellular response to external stress signals. Inhibition of p38 MAP kinase has been shown to have anti-inflammatory effects, primarily through the inhibition of the expression of inflammatory mediators or molecules called cytokines. The inflammatory cytokines are key to initiating and escalating the inflammatory response by attracting inflammatory cells (macrophages and neutrophils) and inducing further release of the cytokines by these cells. Key cytokines released in the inflammatory response are tumour necrosis factor alpha (TNFα) and interleukin-8 (IL-8), which are released in the blood stream, and interleukin-6 (IL-6), which is released from bronchial epithelial cells. P38 MAP kinase is activated in COPD and AECOPD and is inversely correlated with measures of lung function, in particular, Forced Expiratory Volume in One Second and Forced Vital Capacity. The higher the p38 MAP kinase activation, the lower lung function is expected to be. COPD patients are treated with corticosteroids, to control the inflammation. Despite this treatment, the Directors believe that AECOPDs still occur frequently. BCT-197 offers a secure path to controlling the

46 inflammation. Also, if some patients do not respond to the increase in dose in corticosteroids that is used to treat an AECOPD, the Directors believe this indicates that an alternative treatment through a different mechanism is needed.

Market opportunity By 2030, COPD is predicted to be the third leading cause of death globally, representing 8.6% of global deaths at that time. The National Heart Lung Blood Institute estimates that 12 million people in the United States have been diagnosed with COPD and the same amount is likely to suffer from the disease without being aware of it. In the United States, COPD accounts for more than 1.5 million hospital visits per year. The yearly cost of COPD in the United States is approximately $50 billion, including $29.5 billion of direct costs of hospitalisation and treatment and $20.4 billion of indirect costs (morbidity and mortality caused by the disease). The total yearly direct costs of COPD in the European Union are estimated at €38.6 billion. AECOPDs account for the greatest proportion of COPD costs. Based on current estimates of U.S. COPD rates, the direct costs are estimated at $4,000 per patient per year. Costs increase in correlation with each progressive stage of the disease, as defined in the GOLD guideline. In the United States in 2010, stage I COPD patients had median direct costs of $1,681 per patient per year, stage II patients had direct costs of $5,037 per patient per year and stage III patients had direct costs of $10,812 per patient per year. Hospital stays account for the greatest proportion of the total COPD burden on the healthcare system, accounting for approximately 45% to 50% of the total direct cost generated by COPD patients. AECOPD patients account for 62.5% of all hospital admissions related to COPD. The frequency and severity of exacerbations increase with age, disease severity and history of prior AECOPD. The mean length of hospital stay varies but is typically about 4.7 days. In the United States, the average cost of admission is $7,500. As no therapies treating the underlying AECOPD itself have been approved for use in the United States or EU, the Directors believe that novel therapeutics to treat and reduce exacerbations have the potential to improve quality of life, slow the progression of the disease and significantly reduce direct healthcare costs. Thus, the Directors believe there is a significant medical need for a drug which is disease-modifying and can prevent AECOPDs instead of treating the symptoms. In addition, the Directors believe that a drug that can prevent or reduce AECOPDs and also has anti-inflammatory effects would significantly improve the quality of life of AECOPD patients due to improved lung function, fewer infections, shorter hospital stays and possibly reduced risk of rehospitalisation. BCT-197 aims to increase lung function and quality of life for patients and reduce hospital stays. Furthermore, it offers the possibility of reducing exacerbations and re-hospitalisations. Based upon interviews with payers and secondary research conducted by ClearView on behalf of the Group, ClearView considers an average of $2,800 and €1,250 per treatment to be an achievable price for BCT-197 in the United States and the EU5, respectively.

Clinical development of BCT-197 The studies undertaken by Novartis for BCT-197 demonstrated a statistically significant reduction of the inflammatory marker TNFα and a clinically meaningful increase in Forced Expiratory Volume in One Second, a clinically relevant endpoint in the treatment of COPD. In studies to date, BCT-197 has been shown to be safe and well tolerated in the target patient population. The Group has commenced a Phase 2 dose ranging trial in AECOPD patients to establish the optimal dose, with results expected to be reported in the second half of 2017. Following the Phase 2 trial, the Group intends to progress to a Phase 2b/3 study. The Group filed an Investigational New Drug application in respect of BCT-197 in the fourth quarter of 2015 and received notice of its approval in the first quarter of 2016.

Phase 1 study Novartis performed a three-part Phase 1 study in healthy volunteers to demonstrate safety and determine the anti-inflammatory properties of BCT-197 by using a lipopolysaccharide challenge. Lipopolysaccharide is a constituent of the outer cell membrane of Gram-negative bacteria and is a highly potent pro-inflammatory substance. It can be used to stimulate an inflammatory response, as measured by cytokine TNFα increase. The extent of the suppression of this TNFα response is a measure of the anti-inflammatory property of a drug. The lipopolysaccharide challenge was performed ex vivo in Parts 1 and 2, and in vivo in Part 3a of the study. In the ex vivo studies blood was exposed to the lipopolysaccharide and the concentration of TNFα

47 measured. In the in vivo exposure, a volunteer was given an intravenous injection of the lipopolysaccharide approximately three hours after a dose of BCT-197. TNFα concentrations were measured before LPS- challenge dosing on Day 1 and at 0.25, 0.5, 1, 2, 4, 6, 8, 12 and 24 hours to measure the effect. This study was performed in three parts as described below: Part 1 of the study assessed the safety, tolerability and pharmacokinetic parameters of a single ascending dose of BCT-197. Novartis also conducted an ex vivo lipopolysaccharide challenge, which measured the suppression of TNFα. The Part 1 study recruited 63 healthy volunteers and evaluated eight different doses of BCT-197 ranging from 0.1 milligrams to 75 milligrams. The half-life (period of time required for the concentration or amount of a drug in the body to be reduced by one half) was estimated to be 30 to 34 hours. The lipopolysaccharide study showed that TNFα levels (as compared to a placebo) were suppressed by 50% by doses of at least 30 milligrams. Part 2 was a multiple ascending dose study that also assessed BCT-197’s ability to suppress TNFα also using an ex vivo lipopolysaccharide study. The Part 2 study recruited 48 healthy volunteers and evaluated doses of three, five, seven and 10 milligrams, taken orally daily for 14 days. The Part 2 lipopolysaccharide study showed that for days one through 15, the five, seven and 10 milligram doses showed a statistically significant reduction in TNFα levels as compared to placebo (except on day 15 for the seven milligram group, which did not maintain significance). The reduction was proportional to dose, with 10 milligrams achieving a 70% reduction in TNFα levels. The reduction in the three milligram group achieved statistical significance from days seven through 14. Part 3 investigated the effects of two doses of BCT-197 on TNFα, in parallel with an in vivo lipopolysaccharide study and a food effect study. The Part 3 study recruited 30 healthy volunteers and evaluated 20 milligram and 75 milligram doses of BCT-197 as compared to a placebo. The BCT-197 20 milligram and 75 milligram doses demonstrated a statistically significant reduction in TNFα levels of 96% and 97%, respectively. The graph below demonstrates this. The food effect part of the study showed that the absorption of BCT-197 was not affected in either the fed or fasted states.

Source: Company

Phase 2 study Novartis conducted a double-blind, Phase 2 study comparing BCT-197 to the steroid prednisolone and a placebo control. The study was designed to assess the effect of single and a repeated dose of BCT-197 in

48 AECOPD patients. The primary endpoint / outcome measure was to demonstrate an improvement in Forced Expiratory Volume in One Second relative to placebo. Secondary endpoints were the assessment of safety and tolerability, measurement of the time to recovery using the EXACT-PRO scores, assessment of (i) the time to the next exacerbation, (ii) the number of responders at day 30, (iii) dyspnea as measured by the Borg CR10 scale at day five, (iv) quality of life, and (v) the length of hospitalisation following initial admission. The determination of the pharmacokinetic properties of BCT-197 was also a secondary endpoint. The study was split into four parts and included 183 patients: • Part 1: 91 patients were randomised to receive either: • one dose of 75 milligrams BCT-197 on day one plus prednisolone placebo daily for 10 days; or • one dose of BCT-197 placebo on day one plus prednisolone placebo daily for 10 days; or • one dose of BCT-197 placebo on day one plus 40 milligrams prednisolone for 10 days daily. • Part 2: 30 patients were randomised to receive 20 milligrams of BCT-197 or placebo on day one of the study. The ratio of patients receiving BCT-197 to patients receiving placebo was five to one. • Part 3: 32 patients were randomised to receive 20 milligrams of BCT-197 or placebo on days one and six of the study. The ratio of patients receiving BCT-197 to patients receiving placebo was five to one. • Part 4: 30 patients were randomised to receive 75 milligrams of BCT-197 or placebo on days one and six of the study. The ratio of patients receiving BCT-197 to patients receiving placebo was five to one. The data on Forced Expiratory Volume in One Second were recorded on days three, five, eight, 10, 14 and 30 and showed a clinically meaningful increase in Forced Expiratory Volume in One Second (of greater than 100 millilitres) on measuring dates in patients receiving two doses of BCT-197, during a 14-day period, consistent with the duration of most AECOPDs. The following graph summarises the mean change from baseline in Forced Expiratory Volume in One Second values for each dose arm. On analysis of the area under the curve to Day 14 the 75mg x 2 dose revealed a statistically significant improvement versus placebo and prednisolone (p=0.0198 and 0.0102 respectively).

Source: Company

49 The following chart details the data that produced the graph above, showing the increases in FEV1 in the high dose groups and the statistically significant effect achieved on Day 8.

Change from Baseline Comparison with Day Group LS mean (95% Cl) Mean 95% Cl placebo P value

BCT 197 75mg D1 (n=30) 138 (58, 218) 87 (-16, 190) 0.097 Prednisolone (n=30) 37 (-43,117) -14 (-117, 90) 0.798 BCT 197 20mg D1 (n=25) 144 (56, 232) 93 (-16, 202) 0.094 Day 3 BCT 197 20mg Dl,6 (n=27) 95 (9,180) 44 (-64, 152) 0.423 BCT 197 75mg Dl,6 (n=25) 143 (55, 231) 92 (-18, 202) 0.099 Placebo (n=45) 51 (-15,116)

BCT 197 75mg Dl (n=30) 155 (81, 229) 54 (-42, 150) 0.266 Prednisolone (n=30) 49 (-26,123) -52 (-149, 45) 0.289 BCT 197 20mg Dl (n=25) 106 (25,188) 5 (-96, 107) 0.916 Day 5 BCT 197 20mg Dl,6 (n=26) 134 (55, 214) 34 (-67, 134) 0.511 BCT 197 75mg Dl,6 (n=25) 201 (119, 282) 100 (-2, 202) 0.056 Placebo (n=45) 101 (40,162)

BCT 197 75mg Dl (n=14) 191 (87, 296) 113 (-21, 246) 0.098 Prednisolone (n=15) 96 (-7,199) 17 (-116, 150) 0.797 BCT 197 20mg Dl (n=8) 28 (-99,154) -51 (-202, 100) 0.507 Day 8 BCT 197 20mg Dl,6 (n=26) 138 (40, 236) 59 (-69, 188) 0.364 BCT 197 75mg Dl,6 (n=25) 231 (130, 331) 152 (21, 283) 0.023 Placebo (n=24) 79 (-5,162)

BCT 197 75mg Dl (n=14) 165 (51, 278) 38 (-107, 183) 0.608 Prednisolone (n=15) 55 (-57,167) -72 (-216, 72) 0.324 BCT 197 20mg Dl (n=7) 55 (-89,198) -72 (-242, 97) 0.400 Day 10 BCT 197 20mg Dl,6 (n=26) 109 (6, 212) -18 (-155, 119) 0.797 BCT 197 75mg Dl,6 (n=25) 250 (145, 356) 124 (-16, 263) 0.082 Placebo (n=24) 127 (37, 217)

BCT 197 75mg D1 (n=30) 119 (18, 220) -12 (-143, 118) 0.851 Prednisolone (n=30) 81 (-20,183) -50 (-182, 81) 0.449 BCT 197 20mg Dl (n=25) 41 (-70,152) -90 (-228, 48) 0.198 Day 14 BCT 197 20mg Dl,6 (n=26) 95 (-13, 204) -37 (-173, 100) 0.597 BCT 197 75mg Dl,6 (n=25) 229 (118, 340) 97 (-42, 236) 0.168 Placebo (n=45) 132 (49, 214)

BCT 197 75mg D1 (n=30) 156 (51, 261) 60 (-75, 196) 0.381 Prednisolone (n=28) 103 (-4, 209) 7 (-131, 145) 0.920 BCT 197 20mg D1 (n=25) 118 (2, 233) 22 (-122, 165) 0.764 Day 30 BCT 197 20mg Dl,6 (n=24) 82 (-33,196) -14 (158, 129) 0.845 BCT 197 75mg Dl,6 (n=24) 164 (48, 280) 68 (-77 214) 0.356 Placebo (n=44) 96 (9,182)

The EXACT-PRO score demonstrated a rapid improvement in patients receiving one dose of 75 milligrams of BCT-197 and patients receiving two doses of BCT-197 in the first 10 days of an AECOPD.

50 The following graph demonstrates the rapid improvement from baseline in EXACT-PRO in particular in patients receiving the 75mg dose of BCT-197 either on day one or day 1 and 6.

Source: Company

Additional clinical studies A single ascending dose study was also performed in 40 healthy male volunteers. BCT-197 doses of five to 75 milligrams were administered and were demonstrated to be safe and well tolerated. In addition to AECOPD, BCT-197 was tested in acute kidney injury associated with the use of the cardio pulmonary bypass machine in cardiac surgery procedures. The study was performed to ascertain whether BCT-197 could reduce the severity of acute kidney injury. The initial part of the study involved eight patients. An additional 66 patients were assessed at a planned interim analysis during the second part of the study but because the interim analysis did not show efficacy, it was not expanded to completion, which would have enrolled a total of 132 patients. Additionally, a radiolabelled pharmacology study was performed in four healthy volunteers. The Directors believe this demonstrated that BCT-197 had pharmacology appropriate for an oral drug.

Safety profile In studies to date, BCT-197 has been shown to be safe and well tolerated in the target patient population. In the Phase 2a studies, 54% of patients (out of 183) experienced one or more adverse events. There were six deaths: one caused by COPD, one caused by myocardial infarction and two caused by cardiac death/cardiac failure, one caused by cardiopulmonary failure and one caused by decompensated chronic respiratory failure. According to the investigator at the relevant trial site, none of the deaths were deemed to be caused by BCT-197. Over the six month follow up, 13 patients experienced 15 significant adverse events (excluding deaths): 10 cases of COPD (worsening or re-exacerbation), three pneumonia, one sinusitis and one bladder cancer. Six of the COPD adverse events were in the placebo and prednisolone arms, two in the 20mg repeat dose and two in the 75mg repeat dose; none of which were considered, by the investigators, to be related to BCT-197. There were also two cases of rash in the 75mg repeat dose arm, two cases of mild (less than two times the upper limit of normal) and transient transaminase elevations were reported as adverse events, one in the 20-milligram dose group and the other in the 75-milligram repeat dose group. Other events were mild to moderate.

51 In Phase 1 studies, the main adverse event observed was a mild acne-like rash (other adverse events observed were dizziness and headache), which occurred in Part 2 and Part 3 of the study. In Part 2a, where volunteers were dosed daily for 14 days, 27 reported the rash, five in the placebo group, one in the three milligram group and seven in each of the five milligram, seven milligram and 10 milligram groups. Two patients in the Part 3 group also experienced the rash. In the Phase 1 studies, the time to onset of a rash varied from protocol day eight to day 21 (seven days after completing dosing). The rashes in participants receiving BCT-197 and placebo resolved spontaneously. The Phase 1 study was performed in young males, with a mean age of 29 years old, who may be prone to developing acne-like rashes, and a similar rash has been observed with other p38 MAP kinase inhibitors. Other p38 MAP kinase inhibitors have been associated with transaminase rises, but in this study only two cases of mild (less than two times the upper limit of normal) and transient transaminase elevations were reported as adverse events, one in the 20- milligram dose group and the other in the 75-milligram repeat dose group.

Future development Phase 2 dose ranging study In 2016, the Group commenced a Phase 2 trial in AECOPD patients to establish the most effective dosing regimen for an AECOPD patient, with results expected to be reported in the second half of 2017. The aim of the study is to demonstrate the most biologically active dose regimen of BCT-197 based on a primary end point of Forced Expiratory Volume in One Second. Following the Phase 2 trial, the Group intends to progress to a Phase 2b/3 study. The Directors believe pharmacokinetic data indicates that a three dose regimen over five days will be optimal for an AECOPD of a ten- to 14-day duration. The dose ranging study will assess two dosing regimens of BCT-197 and placebo in combination with standard of care steroids and combined antibiotics. Patients will be followed for 26 weeks to explore recurrence rates of AECOPD and number of hospitalisations. The primary endpoint of the study will be the change in Forced Expiratory Volume in One Second, to define the most biologically active dose of BCT-197. The study is designed to detect a clinically significant difference in Forced Expiratory Volume in One Second. The secondary endpoints will measure Forced Expiratory Volume in One Second and relative risk over time, reduction in length of hospital stay, as well as the endpoints of the EXACT-PRO score and the BODE index (body mass index, airflow obstruction, dyspnoea and exercise). The reduction in clinical failure rate will also be explored as an endpoint. Clinical treatment failure is defined as a composite endpoint in which any patient fulfils one of more of the following criteria: • worsening of respiratory symptoms requiring the addition of another antibiotic or substitution of a new antibiotic; • worsening of respiratory symptoms requiring an increase in dose of oral corticosteroids or initiation of new corticosteroids; • worsening of respiratory symptoms requiring an additional treatment regimen of systemic corticosteroids and / or antibiotics, after completion of the first regimen; • hospitalisation or re-hospitalisation due to worsening respiratory symptoms; • COPD-related death; or • any new exacerbation (moderate or severe) after a period of seven days of resolution from the index AECOPD. Novartis discussed the use of this endpoint with the relevant health authorities. However, the Group may decide that the endpoint is inappropriate for future studies, based on further data from the Phase 2 study and future conversations with key opinion leaders and health authorities. Important exclusion criteria include the following: (i) age of less than 40 years; (ii) asthmatics; (iii) having received a course of systemic steroids in the four weeks preceding the study; (iv) having received a course of PDE4, p38 MAP Kinase or PDE3/4 inhibitors within their respective defined washout periods;

52 (v) having other significant respiratory disorders, such as tuberculosis, a-1 antitrypsin deficiency, and others; or (vi) having a significant cardiac disease including NYHA III/IV.

4.3 BGS-649 Overview BGS-649 is the Group’s product candidate for the treatment of hypogonadal hypogonadism in obese men. Hypogonadal hypogonadism in men is a clinical syndrome that results from inadequate levels of testosterone. Low testosterone or male hypogonadism is classified in two different types: primary testicular failure and secondary hypogonadism (or hypogonadal hypogonadism). Primary hypogonadism generally results from the failure of the testes to produce sufficient levels of testosterone, due to testicular trauma, disease (such as mumps) or genetic defects. Hypogonadal hypogonadism is due to the disruption of the hypothalamic-pituitary-testicular (the HPT) axis, an endocrine pathway, and is typically associated with obesity, aging, stress or as a side effect of medications. The symptoms of testosterone deficiency are non-specific, which can make the diagnosis difficult. Symptoms that are most commonly associated with testosterone deficiency include reduced or loss of libido, absent morning erections and erectile dysfunction. Other common symptoms include tiredness, fatigue, impaired physical endurance, loss of vitality, lack of motivation and mood disturbance. There are approximately six million cases of hypogonadal hypogonadism in obese men in the United States and approximately four million cases of hypogonadism in obese men in Europe. Of men with clinical testosterone deficiency, over 85% are untreated despite access to care. The mainstay of current therapy for hypogonadal hypogonadism is direct replacement of testosterone administered by daily gel formulations applied to the skin, which risk transference to anyone in close contact, including partners and children, and intramuscular injections every two to 10 weeks, which can be painful and inconvenient. Less commonly, patches are used, which also risk transference, and injected depots (long-acting doses) of testosterone, which are given by a doctor or other healthcare professional. In addition to being inconvenient to administer, testosterone can reduce fertility due to a reduction in key sex hormones, LH and FSH, resulting in testicular atrophy (shrinkage) and reduced sperm production. Furthermore, testosterone use has been recognised by the FDA and health professionals as causing a possible increased risk of stroke and heart attack. The Group therefore believes that there is a significant market opportunity for a treatment of hypogonadal hypogonadism that can be administered in a convenient manner and that restores normal levels of testosterone without causing excessively high testosterone levels. BGS-649 inhibits aromatase, an enzyme that converts testosterone to oestradiol, therefore resulting in increased testosterone levels. BGS-649 has been shown in clinical studies to normalise testosterone and increase LH and FSH, implying maintenance of the normal negative feedback loop, which controls testosterone levels. Novartis conducted a two-part Phase 2 proof of concept trial for hypogonadal hypogonadism in obese men, in which BGS-649 was shown to normalise testosterone levels and increase FSH and LH levels in all patients. The Group has commenced a Phase 2b trial of BGS-649 and expects results in the second half of 2017. The primary objective of the Phase 2b trial will be to demonstrate the normalisation of testosterone in a significantly greater percentage of patients receiving BGS-649 (compared to those receiving placebo) and the lowest effective dose of BGS-649. There will be an interim analysis that aims to identify any dose that has not normalised testosterone and this dosing arm will then be stopped. This analysis is expected to report in the second half of 2016.

Indication background Hypogonadism in men is a clinical syndrome that results from inadequate levels of testosterone. This can be primary, where there is a failure of the testis to produce sufficient levels of testosterone or secondary due to disruption of one of more levels of the HPT axis. Both age and obesity are common causes of secondary hypogonadal hypogonadism. In middle aged men, the level of testosterone decreases by about 1% to 2% per year. In obese men, the decline in testosterone is exacerbated by high levels of the aromatase enzyme in the fat tissue. Aromatase enzyme converts testosterone to oestradiol, thereby reducing testosterone levels.

53 Patients with low testosterone present with numerous symptoms and signs, which are summarised in the following tables:

SYMPTOMS SIGNS Erectile dysfunction Absence / regression of secondary sexual characteristics Reduced libido Oligospermia Diminished penile sensation Abdominal adiposity Difficulty attaining orgasm Muscle wasting Reduced energy and stamina Decreased lean body mass to fat ratio Depressed mood Anaemia Irritability Osteoporosis Difficulty in concentrating Changes in cholesterol Diagnosis is confirmed through a combination of symptoms and low testosterone level, as measured by a blood test. In assessing the symptoms of hypogonadal hypogonadism, patients rate decreased energy levels and impaired sexual function as having the greatest negative impact on quality of life, and physicians consider these as important symptoms in coming to a diagnosis. Low levels of testosterone have been related to a range of health outcomes including increasing levels of obesity, cardiovascular disease, hypertension, insulin resistance, type 2 diabetes, depression, and osteoporosis. In one study, hypogonadal patients had higher co-morbidity rates (likelihood of concomitant or secondary disease), significantly higher prescription drug use, higher rates of disability and medically related absenteeism and higher mean number of work-loss days.

Current treatment The primary treatment for hypogonadal hypogonadism is testosterone replacement therapy, in which testosterone is administered aiming to normalise testosterone levels. FDA guidance suggests a normal range of 300 to 1,000 nanograms per decilitre. There are several available routes of administration for testosterone, and the following preparations of testosterone have been approved by the FDA for clinical use: • intramuscular preparations, which are injected every two to 10 weeks, depending on the preparation; • scrotal patches, which are applied daily to the scrotal skin after preparation of the scrotum with dry shaving; • transdermal patches (or patches applied to the skin); • transdermal gel, administered once-daily onto the skin; and • implants, which remain in the body for four to six months. The leading testosterone replacement products on the market are Abbvie’s AndroGel, with annual sales of $694 million in the U.S. in 2015, and Eli Lilly’s Axiron, with annual sales of approximately $155 million worldwide in 2015. Both products are administered transdermally by applying a gel formulation. Allergan’s Androderm is the leading patch on the market. The most frequently prescribed injections are Bayer’s Nebido and Endo’s Aveed. The leading implant on the market is Endo’s Testopel. As these drugs are approved only for testosterone deficiency, use in hypogonadal hypogonadism is off-label.

Mechanism of action Testosterone is a hormone that is regulated by three organs in the body, the hypothalamus, anterior pituitary gland and testes, known as the HPT axis. The initial stimulus for hormone formation begins in the hypothalamus with the formation of gonadotropin-releasing hormone (GnRH), which stimulates the pituitary to release LH and FSH. The LH, in turn, stimulates the testicular production of testosterone, while FSH stimulates sperm production (spermatogenesis). As the testosterone levels rise, they feedback to the hypothalamus and anterior pituitary glands, reducing the stimulation to produce more hormones (negative feedback loop), thereby maintaining normal testosterone levels.

54 Exogenous testosterone is not controlled by the natural HPT negative feedback loop and therefore, supraphysiological (excessively high) levels can be achieved. Exogenous testosterone inhibits the entire HPT axis, inhibiting FSH and LH and spermatogenesis. The diagram below illustrates this process:

In obese hypogonadal hypogonadism patients, with increased aromatase expression, there is inhibition of the release of LH and FSH by the increased oestradiol levels. Administering exogenous testosterone on top of this already abnormal system rapidly leads to further down regulation of LH and FSH secretion and inhibition of testicular function as measured by levels of spermatogenesis and testosterone. BGS-649 is an orally administered drug that inhibits the enzyme aromatase. Aromatase converts testosterone to oestradiol, hence inhibiting aromatase leads to an increase in testosterone levels. Aromatase is expressed at high levels in fat tissue therefore obese men are potentially more prone to hypogonadal hypogonadism due to degradation of endogenous testosterone and more suitable candidates for BGS-649 therapy than non-obese men. In clinical studies, BGS-649 has been shown to result in a restoration of testosterone to normal levels and increase LH and FSH and the Directors believe this is due to the preservation of the negative feedback loop.

Market opportunity Obesity rates continue to increase in the United States and in other developed and developing countries around the world. In 2014, the WHO estimated that more than 1.9 billion (38%) of adults worldwide were overweight and over 600 million (11%) of these were obese. In 2014, of males in the United States and the European Union, 72.1% and 62.6%, respectively, are overweight and 32.6% and 21.5%, respectively, are obese. There are approximately six million cases of hypogonadal hypogonadism in obese men in the United States and approximately four million cases of hypogonadism in obese men in Europe. The rate of hypogonadal hypogonadism is estimated at 12% to 49%, depending upon age. Other co- morbidities, such as age, obesity and other chronic disorders also contribute to its prevalence. The largest group affected by hypogonadal hypogonadism is comprised of men over the age of 40 who suffer from chronic diseases, such as obesity or type 2 diabetes. A recent study showed that hypogonadal hypogonadism was present in 36% of male patients referred for medical or surgical treatment of obesity, and the prevalence of hypogonadal hypogonadism increased linearly from 7.4% in those with a body mass index (BMI)of30 to 35 kilograms per meter squared to 59.2% in those with a BMI of over 50 kilograms per meter squared. While rates of testosterone deficiency continue to increase, this condition remains under-treated, with treatment rates below 13% in the United States. This study demonstrated a negative economic and quality-of-life impact on males with hypogonadal hypogonadism, which several studies associate with premature mortality, regardless of the cause. A comparison study by Anna Kaltenboeck, MA, Shonda Foster, MS et al. assessed the direct healthcare costs and the indirect (disability leave or medical absence) costs between privately insured U.S. men with

55 hypogonadal hypogonadism and study participants without hypogonadal hypogonadism. The costs incurred by patients with hypogonadal hypogonadism were substantial compared to the costs incurred by patients in the control group without hypogonadal hypogonadism. Patients with hypogonadal hypogonadism had more inpatient hospitalisations, emergency department visits and prescription drug use, and significantly higher rates of disability, medically related absenteeism and number of work-loss days compared to males in the control group without hypogonadal hypogonadism. The study demonstrated that men affected by the disease had higher direct and indirect costs compared to controls, of $14,118 and $5,272, respectively. The mainstay of current therapy for hypogonadal hypogonadism is direct replacement of testosterone, which exposes the patient to significant side effects. Complications of all of these treatments include: • gynecomastia (or breast development in males) due to the excessive conversion of exogenous testosterone to oestradiol; • infertility due to suppression of gonadotropins (sex hormones) and spermatogenesis (chemical castration); • mood swings due to wide fluctuations in testosterone levels following intramuscular injections; and • problems of “T overshoot” with excess testosterone leading to complications such as prostate enlargement, sleep apnea, and worsening heart failure. Besides these side effects of testosterone, each of the delivery methods also has considerable drawbacks, including the following: • intramuscular injections can be painful and inconvenient; • gels have the inherent risk of transmission to other persons via the skin; and • patches carry the same risk as gels and can additionally cause skin irritation. Thus, the Directors believe there is a need for a drug that is safe and better tolerated and more convenient than commonly used treatments. Due to its mechanism of action, BGS-649 is expected to be safer and better tolerated as it normalises testosterone, without inhibiting the LH and FSH, or pushing the levels of testosterone to supraphysiological levels that have been associated with current therapies. Furthermore, as an oral drug taken once weekly, the Directors believe it is likely to induce compliance. Based upon Androgel 1.62% as an annual reference price, the Directors consider $5,700 per year to be an achievable price for BGS-649 in the United States.

Clinical development of BGS-649 Novartis’ Phase 2 data established proof of concept for BGS-649 in obese men with hypogonadal hypogonadism because it showed that BGS-649 normalised testosterone levels, increased LH and FSH, and was well tolerated. Overall, BGS-649 has been well tolerated with no BGS-649 related serious adverse events. The Group has commenced a Phase 2b trial of BGS-649 and expects results in the second half of 2017. The Directors believe that two studies will be needed after the Phase 2b trial in order to obtain approval for BGS-649 in the indication, one study demonstrating normalisation of testosterone and a second study demonstrating improvement in patient reported symptoms. An IND for BGS-649 was previously approved and transferred by Novartis to Mereo 2.

Phase 2 proof of concept study Novartis conducted a two-part Phase 2 proof of concept trial for hypogonadal hypogonadism in obese men. Part 1 was an open-label dose study to establish the pharmacokinetics and pharmacodynamics in obese men. Fourteen participants were enrolled in this 12-week study, with a three month follow up phase. Patients received a first dose of BGS-649, and testosterone was measured on days five through seven to allow the physicians to choose subsequent doses with the aim of achieving and maintaining normal testosterone levels. Following the first dose, a range of doses were administered. The average BMI of participants was 34 kilograms per meter squared (a BMI of 30 kilograms per meter squared or more is considered obese). Consistent with the aim of the study, BGS-649 treatment increased testosterone robustly into the normal range in all patients exposed in Part 1. Both FSH and LH levels also increased in the BGS-649 group.

56 Part 2 was a two-arm, randomised, placebo-controlled, double-blind 12 week study, with a three month follow up phase. The primary objectives were to demonstrate the ability of BGS-649 to normalise testosterone and examine if normalised testosterone benefits insulin sensitivity. The Directors believe that Novartis intended to investigate whether BGS-649 could increase patient insulin sensitivity as a potential treatment for type 2 diabetes. The secondary endpoints were safety, tolerability, pharmacodynamic effects on glucose, insulin and lipid metabolism. The treated patients received a loading dose of BGS-649 on day one, followed by a lower weekly dose of BGS-649. The testosterone levels of all patients treated with BGS-649 normalised after one dose and remained in the normal range throughout the treatment period, with the exception of one patient on day 21, whose level dropped to 279 nanogrammes per decilitre but recovered to a level of 480 nanogrammes per decilitre on day 27. Testosterone levels in the placebo patients occasionally reached the normal range, but this effect was not consistent or sustained. This is demonstrated in the following graph, where the percentage of patients in the normal testosterone range is plotted against time:

Graph of percentage patients in the normal testosterone range versus time

Source: Company

57 The following graph illustrates the percentage increase in testosterone level relative to baseline in patients receiving a weekly dose of BGS-649 or placebo. The testosterone increase was statistically significant in the BGS-649 group from day 4 (p=0.012 at day 4), with a trend towards return to baseline by the end of the study, with no evidence of increased total testosterone levels beyond the upper limit of the normal range in any patient exposed to BGS-649.

Graph of the percentage change in testosterone from baseline versus time

Source: Company

58 The following graph illustrates the percentage change in LH levels in patients receiving a weekly dose of BGS-649 or placebo, showing a trend towards an increase in LH levels in the treated group with a return to baseline by end of study. These results, combined with the observed upregulated FSH levels in the treated group (described below), indicate that the negative feedback loop controlling the gonadotropin levels in the HPT is not abnormal.

Graph of the percentage change in LH from baseline versus time

Source: Company These data demonstrate that BGS-649 treatment caused a trend towards enhanced LH levels during the study period. The following graph illustrates the percentage change in FSH levels in patients receiving a weekly dose of BGS-649 or placebo. The trend towards an increase in FSH as compared to placebo indicates that the production of FSH increased in the treatment group and that production was sustained during the study period, in contrast to placebo.

Graph of the percentage change in FSH from baseline versus time

Source: Company

59 Fifteen participants were enrolled in Part 2 of the study, eight in the placebo group and seven in the treatment arm. Originally, 30 patients were to be enrolled. Enrolment was terminated early due to a dosing error at a study site, which resulted in three placebo patients receiving an active dose of BGS-649. The error was identified after testosterone levels in these three patients normalised, and was confirmed by the presence of BGS-649 in these patients’ plasma. The patients who were inadvertently given an initial dose of BGS-649 continued to the end of the trial on placebo; their results were included in the safety database, but were not included in the efficacy analysis. Therefore, there were five placebo patients. Due to the early termination, one completed per protocol, two completed week 10, one completed week seven and one completed week six. Of the seven patients treated with BGS-649, five completed all 11 doses, one completed week eight and one completed week six prior to termination of the study. Their subsequent testosterone levels were recorded and included in efficacy analyses, though one patient missed the end of study blood test as he withdrew consent. Despite the early termination, BGS-649 demonstrated efficacy on its ability to normalise testosterone levels in all patients treated. Testosterone normalisation was accompanied by a reduction in oestradiol levels and a trend towards an increase in LH and FSH levels, in support of the underlying mechanism of action of an aromatase inhibitor.

Phase 1 pharmacology study Novartis conducted a Phase 1 study of BGS-649 in healthy women, because the initial focus of the development programme was for the indication of refractory endometriosis. In this study, 52 women were exposed to BGS-649 at a range of doses from 0.01 to 20 mg. The study demonstrated that BGS-649 was rapidly absorbed (tmax approximately one hour), with over 80% absorption in total. The elimination half- life of BGS-649 was 22 to 28 days, supporting weekly dosing in subsequent studies. Five further studies were performed on women, including a pharmacokinetic radionucleotide study, two studies to determine if BGS-649 altered the activity of the oral contraceptive pill and two studies in endometriosis patients. A total of 106 patients were exposed to BGS-649 across these studies.

Safety profile Overall, BGS-649 has been well tolerated with no BGS-649 related serious adverse events. In the Part 2 study there were 41 adverse events, 16 in the BGS-649 group and 25 in the placebo group. One patient in the placebo group experienced two significant adverse events, a malignant neoplasm of the tongue during the study and a pulmonary embolism after the study, which were considered unrelated to the placebo. Another common adverse event only seen in the placebo group was asthenia, a feeling of low energy. In the BGS-649 group, six of the adverse events were moderate and 10 were mild. Other than asthenia, the most common adverse events in Part 2 were headache, nasal congestion, somnolence, and spontaneous penile erection, which were distributed broadly across the BGS-649 and placebo groups. None of these adverse events occurred in more than three patients. Special safety parameters, including prostate specific antigen, haematocrit, haemoglobin, high-density lipoprotein and bone turnover markers showed no significant effect of BGS-649. All of these will be monitored in trials going forward. In the Part 1 study there were 59 adverse events, 16 of which were moderate and 43 of which were mild. These adverse events were mild or moderate, transient and resolved spontaneously. Four patients reported spontaneous penile erection, three patients reported an episode of a headache and two patients reported abnormal hair growth, which were suspected of being related to BGS-649. Other common adverse events were oropharyngeal pain, nasal congestion, diarrhoea, arthralgia, cough, dizziness and frequent bowel movements. There were no deaths or drug-related significant adverse events. A reproductive toxicology study was also performed in rats to evaluate the risk of potential transference of BGS-649 in the semen, and no reproductive toxicology risk was identified. Exposure levels to BGS-649 were one, 10 and 100 times greater than the BGS-649 levels to which a human female would be exposed normally. Taking into account body surface area, the dosage of 100 times greater in rats would equate to a maximum of 4,700 times the human exposure, providing a significant safety margin.

Future development Phase 2b plans In 2016, the Group commenced a Phase 2b trial of BGS-649 and expects results in the second half of 2017.

60 The Phase 2b study is a multi-centre, randomised double-blind, dose ranging, placebo-controlled study of BGS-649 in obese males with hypogonadal hypogonadism. The Group is enrolling approximately 260 participants in the Phase 2b study. The primary endpoint measures the percentage of patients whose testosterone levels normalise (as compared to placebo). The study is designed to detect when at least 75% of patients have normalised testosterone levels. The secondary objectives of the Phase 2b study are: • to follow the time course of normalisation in total testosterone levels; • to determine a lowest effective dose of BGS-649; • to demonstrate the efficacy of BGS-649 to normalise testosterone in at least 90% of patients; • to assess body composition by impedance; and • to evaluate the effects of BGS-649 on LH and FSH. Further endpoints that will be assessed are: • to investigate the benefit on two patient reported outcomes, the International Index of Erectile Function and the Brief Fatigue Inventory, which examine the most common complaints the patients present to a doctor, sexual dysfunction and fatigue; • to assess the effects of BGS-649 on semen analysis (sperm count and motility), in a sub-set of patients; and • to confirm safety and tolerability which will include analysis of lipid profiles, haematocrit bone turnover markers and bone mineral density (measured by DEXA score). This double-blind study is enrolling approximately 260 patients in four dosage arms, a placebo arm and three BGS-649 arms. The study will involve a four-week screening phase, a 24-week treatment phase and an eight-week follow-up period. A sub set of patients will be offered to enter into a six month extension study, to gain long-term data on both efficacy and safety. There will be an interim analysis at four weeks to evaluate if any of the active doses may be discontinued because they are not efficacious.

Other studies The Directors believe that two Phase 3 trials will be needed after the Phase 2b trial in order to obtain approval for BGS-649 in the indication, one study demonstrating normalisation of testosterone and a second study demonstrating improvement in patient reported outcomes.

4.3 BPS-804 Overview Osteogenesis imperfecta is a genetic disorder characterised by fragile bones and reduced bone mass, resulting in bones that break easily, loose joints and weakened teeth. In severe cases, patients may experience hundreds of fractures in a lifetime. In addition to an increased risk of fractures, people with osteogenesis imperfecta often suffer from muscle weakness, early hearing loss, fatigue, loose joints, curved bones, scoliosis (curved spine), brittle teeth, respiratory problems and short stature. The disease can be extremely debilitating and even fatal in newborn infants with a severe form of the disease. Osteogenesis imperfecta is a rare condition that affects a minimum of approximately 20,000 and possibly as many as 50,000 patients in the United States. In Europe, approximately 7.5 out of 100,000 people have the condition. As osteogenesis imperfecta is a rare disease. Mereo 3 received orphan designation for BPS-804 in the United States in March 2016 and received a positive opinion of the COMP with respect to orphan drug designation for the product in the European Union in May 2016, ratification of which is expected to be a formality. For approximately 85% of patients, osteogenesis imperfecta is caused by a genetic defect which results in reduced or poor quality collagen type 1. Collagen is the body’s major protein in connective tissue, including bone. Reduction in the amount or quality of collagen results in bone fragility, which is characteristic of osteogenesis imperfecta. Current treatment of osteogenesis imperfecta focuses on reducing the number of fractures, maintaining mobility and managing pain. There are no currently available treatments that address the underlying bone weakness. Bisphosphonate drugs are licensed for use in osteoporosis and are used off-label in some patients.

61 They work by reducing the rate of bone resorption, but the Directors believe there are no studies which show a clear reduction in fractures and that there is therefore a need for a treatment which strengthens bones, prevents fractures and improves quality of life. BPS-804 is an antibody that inhibits sclerostin, a protein that inhibits the activity of bone-forming cells, known as osteoblasts. The Directors believe that by blocking sclerostin, BPS-804 will induce or increase osteoblast function and maturation of these cells, increasing bone formation and reducing bone resorption, thereby reducing fractures in osteogenesis imperfecta patients. Novartis conducted a Phase 2 multiple dose escalating, proof of concept study in adults with osteogenesis imperfecta, which demonstrated a statistically significant increase on all anabolic bone biomarkers for treated patients and a statistically significant increase in lumbar spine bone mineral density. Biomarkers are measured to indicate the turnover of bone. They measure the by-products of the chemical reactions that occur during bone turnover. Therefore, the impact of a drug on bone can be demonstrated with bone biomarkers, however further endpoints, such as bone mineral density or fractures, are needed to confirm benefit to the patient. The Directors believe that a study will be needed after the Phase 2 study, which will measure fractures, bone biomarkers and bone mineral density.

Indication background Osteogenesis imperfecta is a rare condition that affects a minimum of approximately 20,000 and possibly as many as 50,000 patients in the United States. The condition is a genetic disorder that is chronic and affects connective tissue, resulting in bones that can break easily. The disease is caused by a genetic defect affecting the body’s ability to create sufficiently strong bones. There are eight recognised forms of osteogenesis imperfecta, designated type I through type VIII. They can be distinguished by their signs and symptoms, although some characteristic features do overlap. Type I is the least severe form, while type II is the most severe, with few infants surviving beyond a few weeks. Genetic factors may be used to differentiate between the different types too. The most prevalent form of osteogenesis imperfecta is type I, which occurs in approximately 50% - 60% of patients. The less severe forms such as type I are characterised by broken bones, often as a result of minor trauma. Patients typically have a blue or grey tint to the part of the eye that is usually white (the sclera), and are at risk of hearing loss in adulthood. Individuals affected by such less severe types are usually of normal height. In addition to these features, more severe forms of osteogenesis imperfecta are characterised by frequent bone fractures starting even before birth, respiratory problems, short stature, and a disorder of tooth development called dentinogenesis imperfecta. The most severe forms of osteogenesis imperfecta, particularly type II, may be characterised by an extremely small, fragile rib cage and underdeveloped lungs. Infants with these abnormalities have life-threatening problems related to breathing and often die shortly after birth. The mode of inheritance can also be different in the types of osteogenesis imperfecta. An estimated 85% to 90% have a dominant pattern of inheritance, whereby one copy of the altered gene in each cell is sufficient to cause the condition. Many people with type I or type IV inherit a mutation from a parent suffering from osteogenesis imperfecta. Most infants with more severe forms (such as type II and type III) have no history of the condition in their family. In these infants, the condition is caused by new (sporadic) mutations in the COL1A1 and COL1A2 genes responsible for protein production. Less commonly, osteogenesis imperfecta has an autosomal recessive pattern of inheritance: two copies of the gene in each cell are altered. The parents of a child with such an inheritance are typically not affected, but each carry one copy of the altered gene. Some cases of type III osteogenesis imperfecta are autosomal recessive. These cases usually result from mutations in genes other than COL1A1 and COL1A2. When osteogenesis imperfecta is caused by mutations in the CRTAP or P3H1 gene (genes responsible for processing collagen into its mature form), the condition also has an autosomal recessive pattern of inheritance.

Current treatment The only treatments available to osteogenesis imperfecta patients are the acute management of fractures as they occur and bisphosphonate drugs. Treatment is directed towards management of fractures with casting or surgical fixation. Following either of these, physical therapy will often be required. Preventative surgeries, such as intramedullary nailing (in bone) fixation are also undertaken. Supportive care for the disease involves surgery to correct deformities

62 “rodding”, bracing to support weak limbs and decrease pain, physical therapy, both muscle strengthening and aerobic conditioning to improve bone mass and strength. Mobility aids such as wheelchairs are used in more severe patients. Many patients are treated with drugs indicated for osteoporosis. Bisphosphonate drugs slow down the rate at which osteoclasts (cells which resorb or take bone away) reduce the bones’ mass. These include Aredia (pamidronate), Fosamax (alendronate) and Reclast (zoledronic acid). However, bisphosphonate drugs are not approved by the FDA or the EMA for use in osteogenesis imperfecta. The Directors believe that there have been no long-term clinical studies demonstrating an improvement in fractures and the effect of long-term therapy with these drugs especially for children, remains unclear. Therefore, the Directors believe the effect of bisphosphonate drugs on fractures, growth, bone deformity, mobility, and pain remains unclear in both adults and children.

Mechanism of action BPS-804 is a fully human monoclonal antibody that inhibits sclerostin. Sclerostin is produced in osteocytes, which are mature bone cells that are thought to be the mechanoreceptor cells that regulate the activity of bone building osteoblasts and bone reducing cells. Sclerostin inhibits the activity of bone-forming cells. The Directors believe that by blocking sclerostin, BPS-804 will induce or increase osteoblast activity and maturation of these cells, increasing bone formation and reducing bone resorption, thereby reducing fractures in osteogenesis imperfecta patients.

Market opportunity Osteogenesis imperfecta is an orphan disease, which is usually genetically inherited and in some cases is due to a newly identified gene mutation, that is chronic and affects connective tissue. The majority of cases (approximately 90%) are a result of a dominant gene mutation that produces abnormal type 1 collagen. The Osteogenesis Imperfecta Foundation estimates that there are a minimum of approximately 20,000 and possibly as many as 50,000 cases of osteogenesis imperfecta in the United States. In Europe, approximately 7.5 out of 100,000 people have the condition. Osteogenesis imperfecta type I is the least severe and most common form of the disorder, which occurs in approximately 50%–60% of the total osteogenesis imperfecta population. It is expected that a high proportion of these patients will seek treatment, depending on the type and severity of their disease. There is a significant unmet need for drugs to treat osteogenesis imperfecta, as there is no pharmacological agent specifically approved for the reduction in fractures for children or adults with osteogenesis imperfecta and no treatment or cure is available. Currently available therapies, which are largely surgical, reduce pain or address the complications associated with this disorder. Bisphosphonate drugs originally designed for osteoporosis are used off-label for the treatment of osteogenesis imperfecta; however, the Directors believe that the data available for the use of these agents in osteogenesis imperfecta patients is inconsistent, as it primarily examines bone mineral density and does not demonstrate a reduction in fractures. Therefore, the Directors believe that osteogenesis imperfecta is an underserved patient group and represents a significant market opportunity. The Directors believe that by blocking sclerostin, BPS-804 will strengthen bone by building bone and reducing the resorption of bone, thereby reducing fractures—in their view, this is a key difference from the bisphosphonate drugs which only reduce the resorption of bone. Based upon interviews with payers and secondary research conducted by ClearView on behalf of the Group, ClearView considers an average price of $90,000 and €55,000 per year to be achievable for BPS-804 in the United States and the EU5, respectively.

Clinical development of BPS-804 Novartis’ Phase 2 data in osteogenesis imperfecta patients established proof of concept by demonstrating a statistically significant data in bone formation biomarkers and lumbar spine bone mineral density. In studies to date, BPS-804 has been shown to have the potential to be safe and well tolerated. The Group intends to commence a potential registration trial of BPS-804 in the second half of 2016. An IND for BPS-804 was previously approved and transferred by Novartis to Mereo 3.

Phase 2 Study Novartis conducted a Phase 2 randomised, open-label, intra-patient dose escalating proof of concept study in adults with osteogenesis imperfecta with an untreated reference group. The objective was (i) to evaluate

63 safety and tolerability of BPS-804, (ii) to determine the pharmacodynamic effect of BPS-804 when administered as multiple dose escalating intravenous infusions on serum bone formation markers, including procollagen I N-terminal propeptide (PINP), procollagen I C terminal propeptide (PICP), osteocalcin (OC) and bone-specific alkaline phosphatase (BSAP), and serum bone resorption markers, including C- telopeptides of type I collagen cross-links (CTX-1) and N-telopeptides of type I collagen cross-links and (iii) to evaluate the effect of BPS-804 on lumbar spine bone mineral density measured by dual-energy X-ray absorptiometry (by DEXA scan). The study included 14 patients, nine of which were treated and five of which were observed as a reference group in parallel during the study, to provide comparative data. The reference patients did not receive drug or placebo. The patients were treated with three doses of BPS-804 every two weeks, over four weeks therefore received BPS-804 a total of three times and were followed up for a total of 21 weeks following the last dose. The bone biomarkers were measured on days eight, 15, 29, 36, 43, 57, 85, 113 and 141, and dual- energy X-ray absorptiometry studies were performed at week 21 (day 141) for both groups. Treatment with BPS-804 was a statistically significant improvement in all bone biomarkers, as shown in the table and graphs below:

Day 43 of study BPS-804 Reference Geometric Geometric Ratio of Number of mean to Number of mean to geo means Bone biomarker patients baseline P value patients baseline P value 90% CI PINP 9 1.84 <0.001* 5 1.06 0.651 1.75 PICP 9 1.53 0.003* 5 1.05 0.6 1.45 BSAP 9 1.59 <0.001* 5 0.87 0.582 1.83 OC 9 1.44 0.012* 5 0.86 0.436 1.78

*= statistical significance The results described in the table and graphs below show the effects of BPS-804 on the biomarkers of bone formation, showing a statistically significant upregulation in the activity of procollagen I N-terminal propeptide, procollagen I C terminal propeptide and bone-specific alkaline phosphatase and increased osteocalcin levels at day 43 after administration of BPS-804, while the corresponding biomarkers remained unchanged or declined moderately in the reference group. These results also demonstrate a reduction in the C-telopeptides of type I collagen cross-links biomarker of bone resorption. The Directors believe these results demonstrate the potency of BPS-804’s ability to stimulate formation and reduce bone resorption after three doses of BPS-804.

64 The following graph illustrates the change from baseline in the geometric mean of procollagen I N terminal propeptide levels over time versus placebo:

Graph of the ratio of geometric mean of P1NP to baseline P1NP versus time

Source: Company

65 The following graph illustrates the change from baseline in the geometric mean of procollagen I C terminal propeptide levels over time versus placebo:

Graph of the ratio of geometric mean of P1CP to baseline P1CP versus time

Source: Company

66 The following graph illustrates the change from baseline in the geometric mean of bone-specific alkaline phosphatase over time versus placebo:

Graph of the ratio of geometric mean of BSAP to baseline BSAP versus time

Source: Company

67 The following graph illustrates the change from baseline in the geometric mean of osteocalcin over time versus placebo:

Graph of the ratio of geometric mean of OC to baseline OC versus time

Source: Company

68 The following graph illustrates the change from baseline in the geometric mean of C-telopeptides of type I collagen cross-links, which are a marker of resorption, over time versus placebo:

Graph of the ratio of geometric mean of CTX-1 to baseline CTX-1 versus time

Source: Company The increase in lumbar spine bone mineral density was also statistically significant and sustained at day 141, 21 weeks after the last dose of BPS-804, with a mean increase in lumbar spine bone mineral density in treated patients of 4%, as shown in the table below:

Day 141 of study BPS-804 Reference Ratio Ratio of geometric Number geometric Number of mean to of mean to Parameter patients baseline P value patients baseline P value BMD...... 9 1.04 0.038* 4 1.01 0.138

*statistically significant

In addition to the bone biomarker data, the observed increase in lumbar spine bone mineral density in patients treated with BPS-804 confirms the bone anabolic effects of BPS-804 in adult patients with moderate osteogenesis imperfecta.

Additional clinical studies A single ascending dose study was performed in 30 healthy female volunteers. A range of doses of BPS-804 were administered and were demonstrated to be safe and well tolerated.

69 Three ascending dose studies were performed in eight adult patients with hypophosphatasia. Three different BPS-804 doses were administered and were demonstrated to have a positive effect on biomarkers. There was one patient who suffered an adverse effect, which was a case of angina pectoris that was not considered drug related. There were no deaths in the study. Additionally, a study was performed in 44 postmenopausal women with osteoporosis. The study had four arms, with patients dosed weekly, monthly and quarterly, and a placebo group. This study demonstrated that the maximum BPS-804 increased bone mineral density by was 7.8, 7.3 and 4.3% in the weekly, monthly and quarterly groups, respectively. There were no deaths or significant adverse events, and no subjects developed an adverse immune response to BPS-804.

Safety profile In studies to date, BPS-804 has been shown to have the potential to be safe and well tolerated. In the Phase 2 study, there were no deaths, and there was one significant adverse event in the placebo group (i.e., in a patient that had not received any BPS-804). The most common adverse events were headaches, influenza, arthralgia and fatigue in patients who received either BPS-804 or reference treatment. In the Phase 2 study, nine serum samples tested positive for anti-drug antibodies, four of them at baseline, prior to dosing with BPS-804. All nine of the samples were below the lower limit of quantifiable. There was no impact on the pharmacokinetic and pharmacodynamic relationship of the patients.

Future development The Group intends to initiate a potential registration study for BPS-804 in patients with types, I, III and IV osteogenesis imperfecta during the second half of 2016. The Group is in discussions with regulators, with the data from the Phase 2 trials described above to discuss the final design of this study. The Group expects the study to be in two parts. The initial part will deliver interim data following 12 months treatment and will be used to confirm the dose for the second part of the study (each of the four arms will have up to 30 patients). The second part of the study will be event driven, with time to first fracture as the primary end point and will have two arms as follows: • 125 patients receiving intravenous placebo (including the patients from the first part); and • 125 patients receiving intravenous BPS-804 at the selected dose (including the patients from the first part). Patients will be treated with BPS-804 or placebo for the greater of one year or time to first fracture (both vertebral and non vertebral). Patients would then be converted to active treatment and followed for a total of three years (including the initial phase before conversion to active treatment). Dosing will be monthly for the first year and quarterly thereafter (quarterly for the patients who participated in the first part). The Directors believe this design has the benefits of being a scientifically robust placebo controlled study that is attractive to patients as they are likely to receive therapy, and has the potential for early data at an interim analysis and when enough events have occurred. The Group also intends to discuss with regulators further approaches to accelerate the path to approval based on biomarker data (High Resolution Peripheral CT and DEXA BMD), but with the commitment to continue the study for its planned duration and endpoint. Furthermore, a plan to develop BPS-804 for use in paediatrics is also being developed and will also be discussed with the relevant regulators during 2016.

5. Future product candidates The Group will continue to review opportunities to expand its initial portfolio by acquiring additional product candidates. The Group is actively developing a deal pipeline with large pharmaceutical companies with a history of robust product development and a reputation for product data quality. The Group may also acquire product candidates from large biotechnology companies in certain circumstances using its criteria for product candidate acquisitions. The Group’s focus on acquiring additional product candidates will continue to be based on selection criteria that include the following: • demonstrated clinically meaningful data; • a strong scientific rationale; • an indication with high unmet medical need and compelling market potential;

70 • a robust pre-clinical, clinical and manufacturing data package; • a clear clinical and regulatory strategy; • manageable clinical trials to reach a value creation milestone; and • a favourable competitive landscape and pricing and reimbursement positioning. The Directors believe that the Group’s scalable business model allows it to be involved in many different therapeutic areas, enabling further diversification of the Group’s product portfolio and successfully creating sustainable value through intelligent growth, with a preference for rare and specialty diseases with high unmet medical need that may be developed through to product approval. The Group has also established a light, flexible infrastructure which in combination with its strategic agreements with CROs and CMOs means that only modest increases in the Group’s internal resources are required if additional product candidates are acquired.

6. Development The Group currently outsources certain functions, tests and services in connection with the development of its product candidates and selected ICON to perform these development services. ICON is a global CRO with strong industry experience in providing drug development solutions and services to the pharmaceutical and biotechnology industries. The Company entered into a master services agreement with ICON (the Master Services Agreement) that creates the flexibility to add additional product candidates to the existing platform to further leverage the Group’s core resources. ICON assigned a dedicated senior team to work closely with the Group in the due diligence of the initial product candidates BCT-197, BGS-649 and BPS-804, and the ICON team has been involved with study design and project planning for the Group’s product candidates. ICON will contract with the Group for its product candidate services through separate statements of work specifying the services to be provided as well as key performance indicators or targets. Under the Master Services Agreement, the Group and ICON have established a number of committees at both the operational and strategic level. The operational committees will meet on a monthly basis to deal with routine project management issues, and the joint operations and executive oversight committees will meet bi-monthly and quarterly, respectively. These committees are already working with the Directors and Mereo’s senior management.

7. Commercialisation and marketing Given the Group’s stage of product development, it does not have any internal sales, marketing or distribution infrastructure or capabilities. The Company intends to further develop its portfolio of product candidates to their next value inflection point and has the flexibility to out-license, sell, commercialise or combine various strategies to realise maximum value for its shareholders. If the Group sells or out-licenses a product candidate, then the product would be marketed by the sales and marketing operations of the licensee or acquirer. In these cases the Group would expect to receive a return from a combination of upfront, milestone and sales-based royalty payments. The Company may determine that maximum value for its shareholders would be obtained by retaining commercial rights for a selected product candidate and marketing it through an internal sales and marketing operation or a contract sales force. Factors the Group may consider in deciding to retain and commercialise a product candidate itself could include: • lower expected development costs to approval due to smaller registration trials for a particular indication; • lower regulatory risk through a combination of an indication with lower regulatory hurdles such as some orphan indications or particularly compelling clinical data; and • smaller projected commercial sales and marketing costs due to smaller defined target populations. The Group may also consider alternative ways of commercialising its product candidates, including partnering with other companies that have the requisite sales force and operational infrastructure. As further described under paragraph 12 (Material contracts) of Part XV: “Additional Information”, in July 2015, Mereo 1, Mereo 2 and Mereo 3, each separate wholly owned subsidiaries of the Company, entered into the purchase agreements (collectively, the Purchase Agreements) to acquire Novartis’ rights to BCT-197, BGS-649 and BPS-804 (collectively, the Compounds) and certain related assets (together, the Purchased Assets). The acquisitions of the Purchased Assets closed on 29 July 2015.

71 Under the respective Purchase Agreements, each of Mereo 1, Mereo 2 and Mereo 3 agreed to make future payments to Novartis comprising amounts equal to ascending specified percentages of tiered annual worldwide net sales (beginning at high single digits and reaching into double digits at higher sales) by such subsidiary of products that include the Compounds. The levels of ascending percentages of tiered annual worldwide net sales are the same for each of Mereo 1, Mereo 2 and Mereo 3 under the respective Purchase Agreements. Each of Mereo 1, Mereo 2 and Mereo 3 further agreed that in the event it transfers, licenses, assigns or leases all or substantially all of its assets, including a Compound and related assets, it will pay Novartis a percentage of the proceeds of such transaction. The Company will retain the majority of the proceeds from such a transaction. Such percentage is the same for each of Mereo 1, Mereo 2 and Mereo 3 under the respective Purchase Agreements. A percentage of proceeds is not payable with respect to any transaction involving equity interests of Mereo, a merger or consolidation of Mereo, or a sale of any assets of Mereo. The rights to future payment to Novartis from the Group arising from the Purchase Agreements are the same across all three products.

8. Manufacturing The Group does not own or operate manufacturing facilities for the production of its product candidates, nor does it have plans to develop its own manufacturing operations in the foreseeable future. The Group outsources certain aspects of manufacturing of its required raw materials, active ingredients and finished products for clinical trials pursuant to the Supply Services Agreements until 29 January 2017, and it continues to enter into additional manufacturing agreements as necessary. The Group intends to outsource product formulation studies related to clinical trials pursuant to development agreements. The Group expects that drug product pre-validation and validation batches will be manufactured to satisfy regulatory requirements where the Group progresses products to late stage trials. The Group does not have any current contractual relationships for the manufacture of commercial supplies of BCT-197, BGS-649 or BPS-804 if any such product candidate is approved. Prior to or during Phase 3 trials for a product candidate, the Group intends to enter into agreements with third-party contract manufacturers for the commercial production of such product candidate. Development and production of commercial quantities of any product candidates that the Group commercialises will need to be manufactured in facilities, and by processes, that comply with the requirements of the FDA, the EMA and the regulatory agencies of other jurisdictions in which the Group is seeking approval. The Group expects to employ internal resources to manage its manufacturing contractors and ensure they are compliant with current good laboratory practice and current good manufacturing practices.

9. Competition The development and commercialisation of new drug products is highly competitive. While the Directors believe that the Group’s technology and processes, product candidates, know-how, expertise and scientific resources provide it with competitive advantages, it faces potential competition from many sources, including major pharmaceutical and biotechnology companies, academic institutions and public and private research organisations. Any product candidates that the Group successfully develops and commercialises will compete with currently approved therapies and any new therapies that may be approved in the future. The Group’s product candidates will face competition based on their safety and effectiveness, the timing and scope of regulatory approvals, the availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price, patent position and other factors. The Group’s competitors may succeed in developing competing products before the Group does, obtaining regulatory approval for products or gaining acceptance for the same markets that the Group is targeting.

9.1 AECOPD The primary competitors of BCT-197 for the treatment of AECOPD are the following: • Verona Pharma’s RPL554, a PDE3 / PDE4 dual inhibitor that is currently being developed as a bronchodilator for COPD and asthma patients. RPL554 is in Phase 2a trials in COPD and AECOPD patients. Verona states that the mechanisms of action are bronchodilator and

72 anti-inflammatory. However, the Directors believe the primary mechanism is as a bronchodilator, and therefore, RPL554 would not be competitive in treating AECOPD; • GlaxoSmithKline’s oral losmapimod, an oral p38 MAP Kinase inhibitor that is in Phase 2b development for patients with moderate to severe COPD but does not treat AECOPD; and • AstraZeneca’s AZD7624, an inhalable p38 MAP Kinase inhibitor that has completed a Phase 2 trial for chronic COPD with a primary endpoint of time to first moderate to severe COPD exacerbation.

9.2 Hypogonadal Hypogonadism The Directors believe BGS-649 will compete with currently marketed testosterone therapies. The Directors believe BGS-649 has a superior profile to testosterone therapies, because BGS-649 aims to restore normal levels of testosterone without causing excessively high testosterone levels while increasing LH and FSH levels and is being developed as a once-weekly pill. Oral testosterone therapies have been developed, but none have been approved in the United States. Merck’s Andriol is approved in Europe, but like other testosterone therapies, the Directors believe it may cause “T overshoot” and result in the reduction of key sex hormones, LH and FSH. Andriol is also taken twice a day and must be taken with food. The primary competitors of BGS-649 for the treatment of hypogonadal hypogonadism in development are the following: • Antares QST, which is a subcutaneous injectable testosterone replacement therapy in Phase 3 development. The Directors believe QST will remain undifferentiated from current testosterone replacement therapies, except that it is a subcutaneous injection, which is preferable to an intramuscular injection; • Clarus Pharmaceuticals oral testosterone, Rextoro. In September 2014, following a review of the Phase 3 data, the FDA advisory committee concluded that the overall risk and benefit of Rextoro did not support approval, Clarus Pharmaceuticals initiated a new open label phase 3 study in the U.S. in patients with hypogonadism in March 2016; • Lipocine’s oral testosterone. The NDA submission for this drug was made to the FDA in August 2015, and accepted in October 2015. 6.6% of patients treated with this drug reached testosterone levels over 1,800 nanograms per decilitre, as compared to the upper limit of normal in the trial of 1,140 nanograms per decilitre. • MonoSol MSRX-110, which is a testosterone replacement therapy delivered by a thin film applied to the inside of the mouth. It entered clinical trials in a 36-patient Phase 1 / Phase 2 study in August 2014 in Canada. The Directors are not aware of any further public announcements about the development of MSRX-110; • Repros’ SERM, Androxal, on which it has obtained data through four Phase 3 studies without patient reported outcomes as an endpoint, of which the largest was only 181 patients. A new drug application package was filed, with a goal date under the Prescription Drug User Fee Act of the end of November 2015; however, the FDA advisory committee review was cancelled on 29 October 2015. On 1 December 2015, Repros announced that it had received a complete response letter from the FDA stating that the NDA for Androxal cannot be approved in the present form and recommending that Repros conduct one or more additional Phase 3 studies to support approval in the target population. Subsequently, Repros has recently begun enrolling men with acquired hypogonadism for a new phase 2 study seeking to compare changes in body composition and metabolic parameters with diet and exercise in conjunction with Androxal treatment. In addition, Repros initiated the approval process for obtaining market authorisation for enclomiphene in treatment of secondary hypogonadism with the EMA on 15 March 2016; and • Takeda’s TAK-448 is a kisspeptin agonist analog that has been in Phase 2a trials. TAK-448 stimulates GnRH release in the brain and therefore may increase FSH and LH. It is given either once or twice a week by injection. The Directors are not aware of any further public announcements about the development of TAK-448.

9.3 Osteogenesis Imperfecta The primary competitors of BPS-804 for the treatment of osteogenesis imperfecta are the following: • Amgen’s denosumab, Prolia, for which it is conducting an exploratory open-label trial for paediatric osteogenesis imperfecta and currently recruiting patients under the age of 17, with data

73 expected in 2020. Prolia is an anti-resorptive agent that is not bone building; therefore, the Directors believe BPS-804 will be a more effective treatment for osteogenesis imperfecta; because BPS-804 is bone building and reduces resorption activity; • Amgen and UCB’s anti-sclerostin antibody, romosozumab, which is in development for post- menopausal osteoporosis and may also have utility for osteogenesis imperfecta. Amgen and UCB are conducting two Phase 3 studies on approximately 11,000 osteoporosis patients. The first study results were reported in February 2016 with romosozumab meeting all primary endpoints of the study. Results from the second study are awaited. No ongoing studies in osteogenesis imperfecta have been disclosed; and • Eli Lilly’s anti-sclerostin antibody, blosozumab, which is in development for osteoporosis. Blosozumab was recently downgraded from Phase 2 development to a Phase 1 development for formulation optimisation issues.

10. Intellectual property and data / market exclusivity The Group’s success depends in part on its ability to obtain and maintain proprietary protection for its product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing its proprietary rights. The Group acquired its initial patent portfolio by assignment and in-licensing from Novartis and the Group’s proprietary position may depend on additional in-licensing opportunities in the future. The Group intends to protect its proprietary position further by, among other methods, filing patent applications in Europe, the United States and other relevant jurisdictions related to its proprietary technology, inventions and improvements that are important to the development of its business, where patent protection is available. The Group also relies on know-how, continuing technology innovation and in-licensing opportunities to develop and maintain its proprietary position. See also Part XVIII: “Intellectual Property Expert Report”. In July 2015, the Group entered into the BCT-197 Purchase Agreement, the BGS-649 Purchase Agreement and the BPS-804 Purchase Agreement (each as defined in section 10.1, and collectively, the Purchase Agreements) with Novartis, pursuant to which the Group acquired BCT-197, BGS-649 and BPS-804 and related intellectual property. In connection with this transaction, the Company and Novartis entered a side letter (the Product Exclusivity Agreement) dated as of 29 July 2015, pursuant to which until 29 July 2016 the Group may not directly or indirectly, acquire or in-license and conduct drug development activities with respect to any product (each, an Additional Product) other than the Compounds and any other Novartis products, unless (i) Novartis has given its prior written consent thereto, or (ii) the Group has raised funds that are reasonably sufficient to fund the drug development activities the Group has committed to conduct with respect to such Additional Product. The Group has proceeded to file applications (which are presently unpublished) relating to specific dosage regimens of both BCT-197 and BPS-804.

10.1 Acquired patents and patent applications BCT-197 Under the BCT-197 Asset Purchase Agreement dated as of 28 July 2015 by and between Mereo 1 and Novartis, as amended on 12 April 2016 (the BCT-197 Purchase Agreement), Mereo 1 acquired by assignment from Novartis a portfolio of patents and patent applications that protect BCT-197, including composition of matter claims in EP 1,641,764 and US Patent No. 7,863,314, and methods of treatment of p38 kinase mediated diseases and disorders, including COPD, in EP 2,298,743 and US Patent No. 8,242,117 and 8,410,160. Counterparts to these patents are issued and/or pending in several jurisdictions including Japan and China. EP Patents 1,641,764 and 2,298,743 are expected to confer protection until June 2024 and US Patent No. 7,863,314 is expected to confer protection until April 8, 2025, in each case, without taking into consideration any patent term extensions which may be available. The portfolio also included a European national phase patent application, EP Application No. 13,710,851.0 (which has been allowed and will shortly proceed to grant following payment of a fee by the Company) and a US application, which has now granted as US Patent No. 9,339,491, covering the use of the compound for the treatment for AECOPD. Counterparts to these patent applications are pending in several jurisdictions, including Japan, China and Israel. Claims issuing from these patent applications would confer protection to at least March 2033. Pursuant to an amendment to the BCT-197 Purchase Agreement dated as of 12 April 2016, the parties further agreed that certain patent applications jointly filed by Mereo 1 and Novartis subsequent to 28 July 2015 shall be governed by the terms and conditions of the BCT-197 Purchase Agreement.

74 BGS-649 Pursuant to the BGS-649 Asset Purchase Agreement dated as of 28 July 2015 by and between Mereo 2 and Novartis (the BGS-649 Purchase Agreement), Mereo 2 acquired by assignment from Novartis a portfolio of pending patent applications that relate to BGS-649, its product candidate for hypogonadal hypogonadism in obese men. The BGS-649 patent portfolio includes granted patents and allowed and pending applications relating to formulations and use of BGS-649. The portfolio includes European national phase patent applications, EP Application No. 12,758,966.1 and EP Application No. 12,758,965.3 (which have been allowed and will shortly proceed to grant following payment of a fee by the Company), and US Application No. 14/342813 (which has been allowed and will shortly proceed to grant following payment of a fee by the Company) and US Patent No. 9,295,668 which was issued in March 2016). Counterparts to these applications are pending or allowed in several jurisdictions, including Japan, China and Israel. Claims issuing from these applications will confer protection to at least 2032.

BPS-804 Pursuant to the BPS-804 Asset Purchase Agreement dated as of 28 July 2015 by and between Mereo 3 and Novartis (the BPS-804 Purchase Agreement), Mereo 3 acquired by assignment from Novartis a portfolio of patents and patent applications that protect BPS-804, including composition of matter claims in EP 2,203,478 and US Patent Nos. 7,879,322, 8,246,953 and 8,486,661. These patents are due to expire in October 2028, without taking into consideration any patent term extensions which may be available. Counterparts to these patents are issued and/or pending in several jurisdictions, including Japan, China, India and South Korea.

10.2 Intellectual property rights licensed from Novartis BCT-197 In connection with the purchase of assets pursuant to the BCT-197 Purchase Agreement, Mereo 1 obtained an irrevocable, transferable and worldwide licence of any intellectual property rights controlled by Novartis that would be commercially reasonable to use in connection with the development, manufacture, and commercialisation of BCT-197 and products containing BCT-197.

BGS-649 Under the BGS-649 Purchase Agreement, Mereo 2 obtained the same licence with respect to BGS-649 as Mereo 1 obtained with respect to BCT-197 under the BCT-197 Purchase Agreement.

BPS-804 Under the BPS-804 Purchase Agreement, Mereo 3 obtained the same licence with respect to BPS-804 as Mereo 1 obtained with respect to BCT-197 under the BCT-197 Purchase Agreement. In addition, Mereo 3 and Novartis entered into a sublicence agreement dated as of 29 July 2015, pursuant to which Mereo 3 obtained an exclusive, worldwide sublicence under certain patent rights and know-how to develop, manufacture, and commercialise certain therapeutic antibody product candidates. Under this Agreement, Mereo 3 agreed to pay to Novartis milestone payments based on achievement by Mereo 3 of key developments and regulatory milestones and low single digit royalty payments based on net sales of BPS-804 for a specified period following commercial launch. The purchase of assets and licences granted pursuant to the Purchase Agreements and the Product Exclusivity Agreement are further described in paragraphs 12.6 (BCT-197, BGS-649 and BPS-804 Asset Purchase Agreements) and 13.6 (Novartis Product Exclusivity Agreement) of Part XV: “Additional Information” below.

10.3 Trademarks The Group has a registered trademark for “Mereo” in the United Kingdom. An international trademark application has also been filed designating US and Europe.

10.4 Data and market exclusivity In the European Union, the first applicant for approval of a new medicinal product is protected by eight years of data exclusivity and 10 years of market exclusivity, each from the date of grant of the marketing authorisation. An additional one year of market exclusivity may be obtained in a number of circumstances, such as where the innovator company is granted a marketing authorisation for a significant new indication for the relevant medicinal product. The data and market exclusivity provisions in Europe are an automatic right. The data exclusivity period runs concurrently with any remaining patent term for the medicinal

75 product, meaning that data exclusivity may provide additional protection to the innovator when the remaining patent length is shorter than the data exclusivity period at the time of approval or to the extent that the patent term is circumvented by a generic prior to its expiry. The Directors believe that all three product candidates, BCT-197, BGS-649 and BPS-804 will, if approved, be entitled to data exclusivity in Europe. The data exclusivity provisions in the United States (Regulatory Data Protection) are similar, typically allowing for a period of five years of market exclusivity following FDA approval of an NDA applicant, provided that the product involves a new chemical entity. The Directors believe that, as new chemical entities, product candidates BCT-197 and BGS-649 would be entitled to this exclusivity in the United States. One of the Group’s product candidates, BPS-804 is classified as a “biologic”. Under the United States Patient Protection and Affordable Care Act, a biosimilar sponsor’s ability to seek or obtain approval through the abbreviated pathway is limited by periods of exclusivity granted by the FDA to the holder of the reference product’s BLA. No biosimilar application may be accepted by the FDA for review until four years after the date the reference product was first licensed by the FDA, and no biosimilar application, once accepted, may receive final approval until 12 years after the reference product was first licensed by the FDA. This exclusivity extends from the date of product approval, and this protection period runs concurrently with any remaining patent term protection for the biologic meaning that data exclusivity may provide additional protection to the innovator when the remaining patent length is shorter than the data exclusivity period at the time of approval or to the extent that the patent term is circumvented by a biosimilar prior to its expiry. While the Group would expect to be granted a 12-year period of exclusivity for this product candidate, if approved, this period of reference product market exclusivity applies only to the biosimilar pathway and will not, for example, provide protection against any biological product for a similar indication that achieves FDA approval under a traditional BLA based on the sponsor’s own research data. There is also a risk that the 12-year period of biological reference product exclusivity could be shortened due to congressional action, or that the FDA will not consider the Group’s product candidates, if they are approved, to be reference products for competing products, potentially creating the opportunity for competition sooner than anticipated.

10.5 Proprietary technology and processes The Group seeks to protect its proprietary technology and processes, in part, by confidentiality agreements with its employees, consultants, scientific advisers and contractors.

11. Regulatory approval (marketing authorisation) 11.1 Overview Prior to marketing a medicinal product, a marketing authorisation (product licence) must be obtained. Government authorities in the United States, the European Union and most other jurisdictions where the Group intends to distribute its licensed products extensively regulate, among other things, the research, development, clinical testing, manufacture, approval, distribution, marketing and monitoring and reporting of pharmaceutical products. Obtaining regulatory approvals and ensuring subsequent compliance with applicable laws and regulations can be a lengthy process involving substantial financial and managerial resources. Regulatory requirements vary from jurisdiction to jurisdiction, and the timing and success of efforts to obtain regulatory approvals can be highly uncertain. Development of a successful product candidate, from identification, through pre-clinical testing and clinical studies, to registration, typically takes more than 10 years.

11.2 Pre-clinical testing Pre-clinical testing generally includes an evaluation of a product candidate’s safety profile through laboratory and animal testing according to good laboratory practices and applicable requirements for the humane use of laboratory animals or other applicable regulations. The primary purpose of pre-clinical work is to develop adequate data to support a decision that it is reasonably safe to proceed with human studies of the product candidate.

11.3 Clinical studies Clinical studies for pharmaceutical products generally involve the administration of the product candidate to healthy volunteers and patients to evaluate its safety, tolerability and efficacy. Clinical studies are generally conducted in temporal phases. Prior to conducting clinical studies, a sponsor must submit to the FDA, the

76 EMA or other regulatory authority an application for an investigational new drug (IND) or similar application, which must become effective before human clinical trials may begin and which must include approval by an independent research board at each clinical site before the trials may be initiated. The studies then involve the performance of adequate and well controlled human clinical trials, according to the applicable FDA, EMA or other regulations commonly referred to as good clinical practices, and any additional requirements for the protection of human research subjects and their health information, to establish the safety and efficacy of the proposed product for its intended use. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA, the EMA or other applicable regulatory authority as part of the IND or similar application. Clinical trials must be conducted and monitored in accordance with applicable regulations comprising good clinical practice requirements, including the requirement that all research subjects provide informed consent. Further, each clinical trial must be reviewed and approved by an independent research board at or servicing each institution at which the clinical trial will be conducted. An independent research board is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical studies are minimised and are reasonable in relation to anticipated benefits. The independent research board also approves the form and content of the informed consent that must be signed by each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: An IND is commenced in a Phase 1 study typically using 20 to 100 healthy human volunteers. Phase 1 studies are typically closely monitored and are designed to determine the metabolism and pharmacologic actions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. During Phase 1 studies, sufficient information about the drug’s pharmacokinetics and pharmacological effects are obtained to permit the design of well-controlled, scientifically valid, Phase 2 studies. In a Phase 2 study, a new product candidate is studied in trials in a relatively homogenous population of subjects who have the relevant condition. These studies are undertaken to identify possible adverse effects and safety risks, and to explore the preliminary or potential efficacy of the product candidate, as well as dosage tolerance and the optimal effective dose. Phase 2 studies are sometimes further divided into two phases: Phase 2a trials are designed to assess dosage (how much product candidate subjects should be given); and Phase 2b trials are specifically designed to study efficacy (how well the product candidate works at a prescribed dose). Often Phase 2 trials are designed as randomised clinical studies, where some subjects receive the product candidate and others receive a placebo/standard of care treatment. Randomised Phase 2 trials typically have fewer subjects than randomised Phase 3 trials. When Phase 2 trials demonstrate that a specific dosage range of the product candidate is likely to be effective and has an acceptable safety profile, Phase 3 trials are undertaken. These studies are intended to provide an adequate basis for establishing the benefit/risk ratio for a subsequent application for marketing approval. Therefore, a sufficiently high number of subjects must be enrolled and exposed to the product candidate for a duration that will provide adequate efficacy and safety data for the envisaged clinical use. The studies must be controlled, they must compare the product candidate to placebo and/or to active treatment depending on the medical condition and the product candidate under investigation. As a result of their size and duration, Phase 3 trials are the most expensive to design and run. Post-approval clinical studies, sometimes referred to as Phase 4 clinical studies, may be conducted after initial marketing approval. These clinical studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up. During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data and clinical trial investigators. For example, annual progress reports detailing the results of the clinical studies must be submitted to regulatory authorities, and written safety reports must also be promptly submitted to regulatory authorities and the investigators, for example, for serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing and other sources that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical studies may not be completed successfully within any specified period, if at all. The FDA, the EMA or other regulatory authorities, or the sponsor, may suspend a

77 clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an independent research board can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the independent research board’s requirements or if the biological product has been associated with unexpected serious harm to patients.

11.4 Regulatory approval Regulation in the European Union Overview Medicines can be authorised in the European Union by using either the centralised authorisation procedure or national authorisation procedures. To be permitted to market a new pharmaceutical active ingredient in more than one country in the European Union, application can be made for a Community marketing authorisation through a centralised procedure, consisting of a single application which, when approved, grants marketing authorisation that is valid throughout the European Economic Area. This procedure is mandatory for biotechnology-derived products (including monoclonal antibodies) and for a new active substance for treating auto-immune diseases and other immune dysfunctions. This procedure is optional for products that contain new active substances for certain indications, that represent significant therapeutic, scientific or technical innovations or for which the granting of a Community marketing authorisation would be in the interests of European Union public health. Inspections may be requested in connection with an application for a marketing authorisation at national or a Community level. The sites to be inspected (manufacturing and quality control sites and/or non-clinical study sites and/or clinical trials sites) should be “inspection ready” at the time of submission of the application and throughout the assessment. Assuming successful completion of the required clinical testing, the results of the pre-clinical and clinical studies, together with other detailed information, are submitted to the EMA. Following this application, a single scientific evaluation is carried out through the EMA’s Committee for Medicinal Products for Human Use. If the committee concludes that the quality, safety and efficacy of the medicinal product are sufficiently proven, it adopts a positive opinion. This is sent to the European Commission, which grants a single marketing authorisation that allows the product to be put on the market in all Member States. As in the United States, a post-marketing monitoring stage may be required, and failure to comply with post-marketing regulatory requirements can result in the suspension of a regulatory approval, as well as in civil and criminal sanctions.

National authorisation procedures Each European Union member state has its own procedures for the authorisation, within its own territory, of medicines that fall outside the scope of the Community authorisation procedure. There are two possible routes available to companies for the authorisation of such medicines in several countries simultaneously. • Decentralised procedure: Using the decentralised procedure, companies may apply for simultaneous authorisation in more than one European Union country of medicines that have not yet been authorised in any European Union country and that do not fall within the mandatory scope of the centralised procedure. • Mutual-recognition procedure: In the mutual-recognition procedure, a medicine is first authorised in one European Union member state, in accordance with the national procedures of that country. Following such authorisation, further marketing authorisations can be sought from other European Union member states in a procedure whereby the countries concerned agree to recognise the validity of the original, national marketing authorisation. In some cases, disputes arising in these procedures can be referred to the EMA for arbitration as part of a “referral procedure”.

EMA orphan drug designation Applications for designation of orphan medicines are reviewed by the EMA through the Committee for Orphan Medicinal Products. The criteria for orphan designation are as follows: 1. either (i) the medicinal product is intended for the diagnosis, prevention or treatment of a life threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the European Union at the time of submission of the designation application or (ii) the medicinal

78 product is intended for the diagnosis, prevention or treatment of a life threatening, seriously debilitating or serious and chronic condition, and without incentives it is unlikely that the revenues after marketing of the medicinal product would cover the investment in its development; and 2. either (i) no satisfactory method of diagnosis, prevention or treatment of the condition concerned is authorised or (ii) if such method exists, the medicinal product will be of significant benefit to those affected by the condition. Companies with an orphan designation for a medicinal product shall be eligible for incentives such as the following: • protocol assistance (scientific advice for orphan medicines during the product development phase); • direct access to centralised marketing authorisation; • ten-year market exclusivity during which a similar product for the same indication will not be authorised; • financial incentives (fee reductions or exemptions); and • national incentives detailed in an inventory made available by the European Commission. Since December 2011, orphan medicinal products are eligible for the following level of fee reductions: • full (100%) reduction for small and medium sized enterprises, or SMEs, for protocol assistance and follow up, full reduction for non SME sponsors for paediatric related assistance and 40% reduction for non SME sponsors for non-paediatric assistance; • full reduction for pre authorisation inspections and 90% reduction for post authorisation inspections for SMEs; • full reduction for SMEs for new applications for centralised marketing authorisation; and • full reduction for post authorisation activities including annual fees only to an SME in the first year after granting a marketing authorisation. To qualify for assistance, companies must be established in the European Economic Area, employ fewer than 250 employees and have an annual revenues of not more than 50 million euros or an annual balance sheet total of not more than 43 million euros. While the same product can receive centralised marketing authorisation for both orphan and “non orphan” indications, orphan and “non orphan” indications cannot be covered by the same marketing authorisation, and the product would have to go through a second authorisation process to receive marketing authorisation for the second indication. In addition, a pediatric investigation plan will need to be submitted to the EMA in order to enable Phase 3 work to be conducted in Europe.

Regulation in the United States Overview In the United States, the FDA specifies requirements covering the testing, safety, effectiveness, manufacturing, labelling, approval and marketing of prescription pharmaceuticals, pursuant to the Food, Drug and Cosmetic Act and its implementing regulations, and with respect to biological products, the Public Health Safety Act. Following pre-clinical tests and before starting human clinical studies, a company must submit an IND application to the FDA. Assuming successful completion of the required clinical testing for a drug product, the results of the pre- clinical testing and clinical studies, together with other detailed information, are submitted to the FDA in the form of an NDA (generally for small molecule products) or a BLA (generally for large molecule products), requesting approval to market the product candidate. The FDA reviews an NDA or BLA to determine, among other things, whether a product candidate is safe and effective for its intended use. With respect to a BLA, in light of the importance of the complex manufacturing involved, before approving a BLA, the FDA will also inspect the facility or facilities where the product candidate is to be manufactured to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength, quality and purity and, if applicable, the FDA’s current good tissue practices for the use of human cells, tissues and cellular and tissue-based products.

79 Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the NDA or BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than the sponsor interprets the same data. The agency may decide not to approve the NDA or BLA in its present form, noting deficiencies, which may be minor, for example, requiring labelling changes, or major, for example, requiring additional clinical trials. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labelling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialised. After regulatory approval of a product is obtained, holders of an approved NDA or BLA are required to keep extensive records, to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labelling for their products. Also, quality control and manufacturing procedures must continue to conform to current good manufacturing practice regulations and practices, as well as the manufacturing conditions of approval set forth in a BLA. The FDA periodically inspects manufacturing facilities to assess compliance with current good manufacturing practice, which imposes certain procedural, substantive and recordkeeping requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with current good manufacturing practice and other aspects of regulatory compliance. Future FDA inspections may identify compliance issues at manufacturer facilities or at the facilities of third- party suppliers that may disrupt production or distribution, or require substantial resources to correct and prevent recurrence of any deficiencies, and could result in fines or penalties by regulatory authorities. In addition, discovery of problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA or BLA, including voluntary or mandatory recalls of the product from the market or other voluntary, FDA-initiated or judicial action, including fines, injunctions, civil penalties, licence revocations, seizure, total or partial suspension of production or criminal penalties, any of which could delay or prohibit further marketing. Newly discovered or developed safety or efficacy data may require changes to a product’s approved labelling, including the addition of new warnings and contraindications.

FDA orphan drug designation The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such a disease or condition will be recovered from sales in the United States for that drug. Orphan drug, or orphan product designation must be requested before submitting an application for marketing approval. Mereo 3 received orphan designation for BPS-804 in the United States in March 2016. Orphan product designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. Orphan product designation can provide opportunities for grant funding towards clinical trial costs, tax advantages and FDA user fee exemptions. In addition, if a product that has an orphan product designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan product exclusivity, which means the FDA may not approve any other application to market the same product for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or a meaningfully different mode of administration. Competitors may receive approval of different drugs or biologics for the indications for which the orphan product has exclusivity.

U.S. regulations affecting certain federally funded-programs, such as Medicare and Medicaid Pharmaceutical manufacturers with products that are reimbursed by U.S. federally funded programs, such as Medicare and Medicaid, are subject to regulation by CMS, which is part of the U.S. Department of Health and Human Services, and enforcement by the U.S. Department of Health and Human Services Office of Inspector General (HHS OIG), and in the event the Group’s product candidates are approved, regulation by

80 CMS and enforcement by HHS OIG would be relevant to the Group. The provisions of the U.S. Social Security Act known as the “Anti-Kickback Law” prohibits providers and others from directly or indirectly soliciting, receiving, offering or paying any remuneration with the intent of generating referrals or orders for services or items covered by a government healthcare programme. Many states have similar laws. Courts have interpreted this law very broadly, including by holding that a violation has occurred if even one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. There are statutory and regulatory exceptions, or safe harbours, that outline arrangements that are deemed lawful. However, the fact that an arrangement does not fall within a safe harbour does not necessarily render the conduct illegal under the Anti-Kickback Law. In sum, even legitimate business arrangements between the companies and referral sources could lead to scrutiny by government enforcement agencies and require extensive company resources to respond to government investigations. Violations of the Anti-Kickback Law may be punished by civil and criminal penalties or exclusion from participation in federal healthcare programs, including Medicare and Medicaid. The Healthcare Reform Act strengthened provisions of the Anti-Kickback Law. The Federal False Claims Act is violated by any entity that “presents or causes to be presented” knowingly false claims for payment to the federal government. In addition, the Healthcare Reform Act amended the Federal False Claims Act to create a cause of action against any person who knowingly makes a false statement material to an obligation to pay money to the government or knowingly conceals or improperly decreases an obligation to pay or transmit money or property to the government. For the purposes of these recent amendments, an “obligation” includes an identified overpayment, which is defined broadly to include “any funds that a person receives or retains under Medicare and Medicaid to which the person, after applicable reconciliation, is not entitled ….” The Federal False Claims Act is commonly used to sue those who submit allegedly false Medicare or Medicaid claims, as well as those who induce or assist others to submit a false claim. “False claims” can result not only from non-compliance with the express requirements of applicable governmental reimbursement programs, such as Medicaid or Medicare, but also from non-compliance with other laws, such as the Anti-Kickback Law (which was explicitly confirmed in the Healthcare Reform Act), or laws that require quality care in service delivery. The qui tam and whistleblower provisions of the Federal False Claims Act allow private individuals to bring actions on behalf of the government alleging that the government was defrauded, with tremendous potential financial gain to private citizens who prevail. When a private party brings a whistleblower action under the Federal False Claims Act, the defendant is not made aware of the lawsuit until the government starts its own investigation or makes a decision on whether it will intervene. Many states have enacted similar laws that also apply to claims submitted to commercial insurance companies. The bringing of any FCA action could require the Group to devote resources to investigate and defend the action. Violations of the Federal False Claims Act can result in treble damages, and each false claim submitted can be subject to a penalty of up to $11,000 per claim. A provision of the Healthcare Reform Act known as the “Physician Payment Sunshine Act” imposes new reporting and disclosure requirements for pharmaceutical and medical device manufacturers that have at least one product that is reimbursed by Medicare, Medicaid or the Children’s Health Insurance Program with regard to payments or other transfers of value made to certain U.S. healthcare practitioners, such as physicians and academic medical centres, and with regard to certain ownership interests held by physicians in reporting entities. Data collection activities under the Physician Payment Sunshine Act began on 1 August, 2013, and as required under the Physician Payment Sunshine Act, CMS published information from these reports on a publicly available website, including amounts transferred and the physician and teaching hospital identities, on 30 September, 2014. Beginning in 2014 and each year thereafter, data collection for each calendar year must be submitted by 30 June of the subsequent year and will be published annually. It is difficult to predict how the new requirements, which also pre-empt similar state law reporting requirements, may impact the Group’s relationships with physicians and teaching hospitals.

(a) Regulation and approval in other jurisdictions Other jurisdictions throughout the world impose their own regulatory requirements with respect to the studies that must be undertaken and the data that must be presented in order to receive approval. Such requirements could delay access to these markets, above and beyond the delays in gaining access to markets in the United States and in the European Union. Regulatory procedures in all jurisdictions are changed from time to time, and such changes can delay or prevent regulatory approval of product candidates under development.

81 PART VII

DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE

1. Directors, Senior Management and employees 1.1 Directors The current members of the Board are: Name Position Date of Birth Peter Fellner Independent Non-Executive Chairman 31/12/1943 Denise Scots-Knight Chief Executive Officer and Co-Founder 02/05/1959 Richard Bungay Chief Financial Officer and Chief Operating Officer 07/08/1969 Frank Armstrong Non-Executive Director 14/01/1957 Peter Bains Non-Executive Director 26/07/1957 Anders Ekblom Non-Executive Director 26/09/1954 Kunal Kashyap Non-Executive Director 15/03/1965 Paul Blackburn Non-Executive Director 03/10/1954

The business address of each director is: Fourth Floor, One Cavendish Place, London W1G 0QF, United Kingdom. Dr Peter Fellner (Independent Non-Executive Chairman). Dr Fellner is the Chairman of Mereo. Dr Fellner also serves as chairman of the biotech and medical technology companies Ablynx NV, Vernalis plc and Consort Medical plc. He was also chairman of Optos until its recent acquisition by Nikon Corporation. In addition, he is a member of the Novo A/S Advisory Group. He has previously served on the boards of a wide range of life science companies, including as vice chairman of Astex Pharmaceuticals Inc. until its sale to Otsuka in 2013, director of the global biopharmaceutical company UCB SA from 2005 to 2014 and chairman of Acambis plc from 2006 until its acquisition by Sanofi in 2008. He was chairman of Celltech Group plc until its acquisition by UCB in 2004, having been chief executive officer from 1990. Before joining Celltech he was chief executive officer of Roche UK from 1986 to 1990. Dr Denise Scots-Knight (Chief Executive Officer and Co-Founder). Dr Scots-Knight is Chief Executive Officer, a board member and co-founder of Mereo. Prior to Mereo, she led Phase4 Partners’ management buyout from Nomura in 2010, becoming Phase4 Partners’ managing partner. Prior to becoming a venture capitalist, she was in research and development management at Amersham and Fisons and a senior executive at Scientific Generics. At Nomura, she became managing director after leading the life science investment team. Prior to Nomura, she was an investment manager at Rothschild Asset Management. She is chairman of Nabriva Therapeutics AG and a board member of OncoMed Pharmaceuticals, Inc., and Albireo Limited. She has served on many European and U.S. private and public company boards, including Idenix Pharmaceuticals, Inc. (until it was acquired by Merck for $3.85 billion). Dr Scots-Knight has a PhD and BSc (Honours) from Birmingham University and was a Fulbright scholar at the University of California Berkeley. Richard Bungay (Chief Financial Officer and Chief Operating Officer). Mr Bungay is Chief Financial Officer, Chief Operating Officer and a board member (with effect from Admission) of Mereo, with responsibility for finance, manufacturing and non-clinical development activities. He has over 20 years’ experience in senior finance and strategic roles within the pharmaceutical and biotechnology sector, mostly recently as chief financial officer of Glide Technologies. Mr Bungay’s prior experience includes chief financial officer of Verona Pharma, chief executive officer of Chroma Therapeutics, director of corporate communications at Celltech and finance director of the Respiratory and Inflammation therapy area at AstraZeneca. He qualified as a chartered accountant with Deloitte and has a BSc in Chemistry from Nottingham University. Mr Bungay is a non-executive director of Glide Technologies. Mr Bungay will be appointed as an Executive Director of the Company upon Admission. Dr Frank Armstrong (Independent Non-Executive Director). Dr Armstrong has served as chief executive officer to a number of healthcare and biopharmaceutical companies, including CuraGen and Fulcrum Pharma. He held senior management positions, including executive vice president of product development at Bayer AG, senior vice president of medical research at Zeneca Pharmaceuticals (now AstraZeneca), and senior vice president at Merck Serono. Dr Armstrong holds a MBChB from the University of Edinburgh and became a member of the Royal College of Physicians in 1984. He was elected Fellow of the Royal College of Physicians, Edinburgh in 1993 and Fellow of the Faculty of Pharmaceutical Physicians in 1994. Peter Bains (Independent Non-Executive Director). Mr Bains has over two decades of experience in the pharmaceutical industry encompassing strategic and operational leadership expertise across global

82 geographies, functions and business segments. He is currently representative executive officer and chief operating officer of Sosei Group Corporation, a Tokyo listed biotech company. It is expected that Mr Bains will become representative executive officer, president and chief executive officer upon approval by Sosei’s board of directors in June 2016 following the group’s annual general meeting. Previously, he was chief executive officer of Syngene International, where he continues to be a non-executive director. He also currently serves as non-executive director for Phase4 Partners. He is also chairman of Fermenta Biotech, a subsidiary of DIL, a Mumbai listed company. Previously, he had a 23-year career at GlaxoSmithKline, where he held multiple senior roles. Mr Bains received a BSc Combined (Honours) in Physiology/Zoology from Sheffield University. Paul Blackburn (Independent Non-Executive Director). Mr Blackburn has over 38 years of experience in the field of finance. He has previously held the positions of Senior Vice President Strategic Finance Projects and Financial Controller at GSK gaining extensive emerging markets, corporate finance and change experience. He also recently served on the GSK Audit and Risk Committee. He is currently a board member of Syngene International and also a member of Syngene’s Audit and Risk Committee and Stakeholder Relationships Committee. He holds a BSc in Management Sciences from Warwick University and also a professional accounting qualification from the Chartered Institute of Management Accountants. Dr Anders Ekblom (Independent Non-Executive Director). Dr Ekblom has extensive experience as an executive and leader with broad business knowledge from senior roles in the biopharmaceutical industry, with global experience delivering products, projects, productivity and change management. He is currently chairman of the Board at Karolinska University Hospital and a non-executive board member of several biotech companies. During two decades at AstraZeneca, he was a member of global executive teams, including executive vice president of global drug development, executive vice president of global medicines development, global head clinical development, global therapy area head, global head science & technology integration and chief executive officer AstraZeneca AB Sweden. Dr Ekblom is also a board certified MD (Anaesthesiology and Intensive Care), PhD, DDS, and associate professor at Karolinska Institute, Stockholm, Sweden and a fellow of the Royal Swedish Academy of Engineering Sciences. Kunal Kashyap (Non-Executive Director). Mr Kashyap is a chartered accountant and is currently chairman and managing director of Allegro Capital Advisors, a leading Indian investment bank. Mr Kashyap has a deep understanding of the life sciences industry, built over two decades of advising companies in the industry on fund raising, initial public offerings, mergers and acquisitions, and intellectual property licensing. He is an independent director of GlaxoSmithKline Consumer Healthcare Ltd and a director of Phase4 Partners. He was also founder and executive director of Celstream Technologies, a software product engineering organisation. From 1994 to 2000, he was a global partner at Arthur Andersen responsible for building and developing the firm’s practice in Southern India.

1.2 Senior Management In addition to the Executive Directors, the current members of the senior executive management team with responsibility for day-to-day management of the Group’s business are: Name Position Date of Birth Alastair MacKinnon Chief Medical Officer and Co-Founder 10/11/1970 John Richard Head of Corporate Development and Co-Founder 20/10/1957 Charles Sermon General Counsel, Secretary and Co-Founder 03/05/1969 Dr Alastair MacKinnon (Chief Medical Officer and Co-Founder). Dr MacKinnon is Chief Medical Officer and a co-founder of Mereo. Prior to Mereo, he worked for Phase4 Partners, a global life science venture capital firm, having originally joined Nomura in 2005. Before Nomura, he was a practising physician in the United Kingdom for 10 years. Dr MacKinnon received a BSc and MBBS from King’s College London, is a Member of the Royal College of Surgeons of Edinburgh and has a Diploma in Corporate Finance from the London Business School. Dr MacKinnon is a board member of Phase4 Partners. John Richard (Head of Corporate Development and Co-Founder). Mr Richard is Head of Corporate Development and a co-founder of Mereo. Prior to Mereo, he worked with the co-founders at Nomura and then Phase4 Partners since 2000. He has significant corporate, operational and transactional experience, having served in various executive, director and advisory roles throughout his career. He is a board member of Aviragen, Phase4 Partners, QUE Oncology and Catalyst Biosciences. He is a corporate development adviser to Albireo. Previously, he was executive vice president of business development at SEQUUS, where he was responsible for negotiating SEQUUS’ acquisition by ALZA. Mr Richard also headed business development for VIVUS and Genome Therapeutics, where he established numerous alliances. He was also chief executive officer and co-founder of Impath (subsequently acquired by Genzyme). Mr Richard holds an MBA from Harvard Business School and a BS from Stanford University.

83 Charles Sermon (General Counsel, Secretary and Co-Founder). Mr Sermon is General Counsel, Secretary and a co-founder of Mereo. He has over 20 years’ experience in corporate law. Prior to Mereo, he worked for Phase4 Partners. He was also involved in Phase4 Partners’ management buy out and the sale of Nomura’s life science portfolio in 2010. He joined Nomura as an associate director in 1998 and worked for Nomura’s life science investment team. Before joining Nomura, Mr Sermon was a corporate lawyer with Freshfields. Mr Sermon has an LLB (Honours) from Hull University and is a member of the Mayor of London Enterprise Panel’s Digital, Science and Technology Working Group. He is a board member of Phase4 Partners.

1.3 Employees The Company relies on a team of experienced professionals in all areas required to meet its strategic objectives, including development, medical and regulatory, manufacturing, business development, product development, infrastructure, intellectual property and finance. As of 31 December 2015 and 31 March 2016, the Company had a total of 14 and 15 employees, respectively on a full-time equivalent basis. 2. Corporate governance The UK Corporate Governance Code, dated September 2014 and published by the Financial Reporting Council (the UK Corporate Governance Code), provides that the board of directors of a company with a premium listing should include a balance of executive and non-executive directors (and in particular independent non-executive directors), with independent non-executive directors (excluding the Chairman) comprising at least one-half of the board. The UK Corporate Governance Code states that the board should determine whether a director is independent in character and judgement and whether there are any relationships or circumstances which are likely to affect, or could appear to affect, the director’s judgement. Although the UK Corporate Governance Code is not compulsory for AIM quoted companies, the Directors support high standards of corporate governance. Notwithstanding the foregoing, the Directors believe that the Company will benefit from having the current Directors on the Board to take advantage of their expertise and knowledge of the Company and the industry. For this reason, the Company does not intend to alter its board composition for the purpose of complying with UK Corporate Governance Code following Admission. On Admission, the Board will comprise eight members, including the Chairman, two executive directors, four independent non-executive directors and one non-independent non-executive director. Under the UK Corporate Governance Code, the board of directors of the Company should determine whether a director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director’s judgement and should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination. The Board has determined that it regards Dr Armstrong, Mr Bains, Mr Blackburn, Dr Ekblom and Dr Fellner as independent non-executive directors, within the meaning of “independent” as defined in the UK Corporate Governance Code. The UK Corporate Governance Code recommends that the board should appoint one of its independent non-executive directors to be the senior independent director (the SID). The SID should be available to shareholders if they have concerns that the normal channels of Chairman, Chief Executive Officer or other executive directors have failed to resolve or for which such channel of communication is inappropriate. The Company’s SID is Dr Armstrong.

3. Audit and Risk, Remuneration, Nomination and Research and Development Committees As envisaged by the UK Corporate Governance Code, the Board has established Audit and Risk, Remuneration and Nomination Committees. The UK Corporate Governance Code requires that the Audit and Risk Committee and Remuneration Committee should each have at least three independent non- executive directors and that, in the case of the Nomination Committee, a majority of the members should be independent non-executive directors. The Board has also established a Research and Development Committee.

3.1 Audit and Risk Committee The Audit and Risk Committee is made up of three members, Mr Blackburn and Dr Ekblom, who are independent non-executive directors, and Mr Kashyap. While Mr Kashyap is not considered to be independent by the Board, he has recent and relevant financial experience. The Company is otherwise in

84 compliance with the UK Corporate Governance Code in relation to its Audit and Risk Committee. The Audit and Risk Committee is chaired by Mr Blackburn. The Audit and Risk Committee will normally meet at least three times a year at the appropriate times in the reporting and audit cycle. The committee has responsibility for, amongst other things, the monitoring of the financial integrity of the financial statements of the Group, the involvement of the Group’s auditor in that process, reviewing the effectiveness of the Group’s internal control systems and risk management systems and overseeing the process for managing risks across the Group, including reviewing the Group’s corporate risk profile. It focuses in particular on compliance with legal requirements, accounting standards and the rules of the FCA and ensuring that an effective system of internal financial control is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports, remains with the Board. The terms of reference of the Audit and Risk Committee cover such issues as membership and the frequency of meetings, as mentioned above, together with requirements of any quorum for and the right to attend meetings. The duties of the Audit and Risk Committee covered in the terms of reference are: financial and regulatory reporting, internal controls, internal audit, external audit, risk management and reporting responsibilities. The terms of reference also set out the authority of the committee to carry out its duties.

3.2 Remuneration Committee In accordance with the requirements of the UK Corporate Governance Code, the Remuneration Committee is made up of three members who are all independent non-executive directors. The Remuneration Committee will initially comprise Dr Armstrong, Mr Bains and Dr Ekblom, all of whom are independent non-executive directors. The Remuneration Committee is chaired by Dr Ekblom. The Remuneration Committee, which meets at least two times a year, has responsibility for the determination of specific remuneration packages for each of the Executive Directors and any applicable senior executives of the Group, including pension rights and any compensation payments and recommending and monitoring the level and structure of remuneration for senior management, and the implementation of share option, or other performance related, schemes. The terms of reference of the Remuneration Committee cover such issues as membership and frequency of meetings, as mentioned above, together with the requirements for quorum for and the right to attend meetings. The duties of the Remuneration Committee covered in the terms of reference relate to the following: determining and monitoring policy on and setting level of remuneration, contracts of employment, early termination, performance-related pay, pension arrangements, reporting and disclosure, share schemes and remuneration consultants. The terms of reference also set out the reporting responsibilities and the authority of the committee to carry out its duties.

3.3 Nomination Committee The Nomination Committee is responsible for considering and making recommendations to the Board in respect of appointments to the Board. It is also responsible for keeping the structure, size and composition of the Board under regular review, and for making recommendations to the Board with regard to any changes necessary. The Nomination Committee also considers succession planning, taking into account the skills and expertise that will be needed on the Board in the future. In accordance with the requirements of the UK Corporate Governance Code, the Nomination Committee is made up of three members, the majority of whom are independent non-executive directors. The Nomination Committee will initially comprise Dr Armstrong, Mr Bains, Dr Ekblom, Dr Fellner and Mr Blackburn (all of whom are independent non-executive directors) and Mr Kashyap. The Nomination Committee is chaired by Dr Fellner. The Nomination Committee meets at least twice a year at appropriate times in the reporting cycle.

3.4 Research and Development Committee The Research and Development Committee is responsible for providing oversight of the research and development activities of the Group, including overseeing relationships with key research and development suppliers, and strategic development plans for products in the Group’s portfolio and the acquisition of new products. The Committee is also tasked with keeping informed of strategic issues and commercial changes affecting the Group’s research and development activities, and providing guidance and making recommendations to the Board in respect of such activities.

85 The Research and Development Committee will initially be comprised of Dr Armstrong, Mr Bains and Dr Ekblom. The Research and Development Committee will be chaired by Dr Armstrong. The Research and Development Committee meets at least twice a year at appropriate times in the reporting cycle.

4. Takeover regulation Overview No public takeover bid has been made in relation to the Company.

Under Rule 9 of the City Code on Takeovers and Mergers (the City Code), which is issued and administered by the Panel on Takeovers and Mergers (the Takeover Panel), when (i) a person acquires an interest in shares which (taken together with shares he and persons acting in concert with him are interested) carry 30% or more of the voting rights of a company subject to the City Code, or (ii) any person who, together with persons acting in concert with him, is interested in shares which in the aggregate carry not less than 30% of the voting rights of a company, but does not hold shares carrying more than 50% of the voting rights of the company subject to the City Code, and such person, or any persons acting in concert with him, acquires an interest in any other shares which increases the percentage of the shares carrying voting rights in which he is interested, then, in either case, that person, together with the person acting in concert with him, is normally required to extend offers in cash, at the highest price paid by him (or any persons acting in concert with him) for shares in the company within the preceding 12 months, to the other holders of shares, unless the Takeover Panel has granted a waiver of the obligation to make a mandatory bid under Rule 9 of the City Code if the Company has obtained the approval of over 50% of its independent shareholders in advance of such increase. The Company is subject to the City Code and therefore its shareholders are entitled to the protections afforded by the City Code.

The shareholders in a private company, who, following the re-registration of that company as a public company in connection with an initial public offering or otherwise, become shareholders in a company to which the City Code applies, will be acting in concert with each other unless the contrary can be established (the Category 9 Presumption).

As a result of the Category 9 Presumption, each of Invesco, Woodford, Novartis and the Founders (the Presumed Concert Party Group) would be presumed to be acting in concert with each other (and any of them) for the purposes of the City Code. However, notwithstanding the Category 9 Presumption, each member of the Presumed Concert Party Group has confirmed to the Company that they are not acting in concert with any other Shareholder and that there is no agreement or understanding (whether formal or informal) in place between any of them and between any of them and any other person on or following Admission to co-operate to obtain or consolidate control (as defined in the City Code) of the Company or to frustrate the successful outcome of an offer for the Company following Admission. Further, the Takeover Panel has agreed based on information provided by the Company to the Takeover Panel that the relationships between Invesco, Woodford, Novartis and the Founders are such that none of them shall be required to make a mandatory offer to the other holders of Ordinary Shares under Rule 9 of the City Code as a result of the Private Placement.

A fund manager will be presumed to be acting in concert with any investment company, unit trust or other person whose investments such fund manager manages on a discretionary basis, in respect of the relevant investment accounts unless the contrary can be established (the Category 4 Presumption).

The Company accepts that, under the Category 4 Presumption, CF Woodford Equity Income Fund and Woodford Patient Capital Trust plc should each be presumed to be acting in concert with Woodford Investment Management LLP. Immediately prior to the Private Placement, CF Woodford Equity Income Fund and Woodford Patient Capital Trust plc are expected to hold in aggregate approximately 46.99% of the Ordinary Shares. Each of CF Woodford Equity Income Fund and Woodford Patient Capital Trust plc will also subscribe for Private Placement Shares in the Private Placement. The Takeover Panel has agreed based on information provided by the Company that an increase in the aggregate shareholding of CF Woodford Equity Income Fund and Woodford Patient Capital Trust plc as a result of the subscription for Private Placement Shares in the Private Placement will not trigger an obligation to make a mandatory offer to the other holders of Ordinary Shares because the aggregate percentage shareholding of CF Woodford Equity Income Fund and Woodford Patient Capital Trust plc (and any persons acting in concert with them) will be diluted following Admission as a result of the issue of the Private Placement Shares in the Private Placement (albeit the aggregate shareholding following Admission is expected to remain above 30%).

86 The Company also accepts that, under the Category 4 Presumption, Invesco Perpetual High Income Fund and Invesco Perpetual UK Strategic Income Fund should be presumed to be acting in concert with each other and each of them should also be presumed to be acting in concert with Invesco Asset Management Limited. Each of Invesco Perpetual High Income Fund and Invesco Perpetual UK Strategic Income Fund may subscribe for Private Placement Shares in the Private Placement. However, the increase in the aggregate shareholding of Invesco Perpetual High Income Fund and Invesco Perpetual UK Strategic Income Fund as a result of any subscription for the Private Placement Shares in the Private Placement will not trigger an obligation to make a mandatory offer to the other holders of Ordinary Shares because, following Admission, such aggregate Invesco shareholding will not exceed 30%.

The Company also accepts that the Founders should be presumed to be acting in concert with each other. However, the aggregate shareholding of the Founders will not increase, and will remain less than 30%, both prior to and following Admission. There is no event either prior to or following Admission which could trigger an obligation on the Founders to make a mandatory offer to the other holders of Ordinary Shares.

Acquisitions of further shares following Admission Immediately following Admission, with the exception of CF Woodford Equity Income Fund and Woodford Patient Capital Trust plc as outlined above, none of the Company’s Shareholders will (i) be interested in shares carrying 30% or more of the Company’s voting rights, or (ii) together with persons acting in concert with him, be interested in shares which in the aggregate carry 30% or more of the Company’s voting rights. Prospective investors should be aware that: (i) any person (together with any persons acting in concert with him) who acquires interests in shares carrying 30% or more of the voting rights attached to the issued share capital of the Company; or (ii) any person (together with any persons acting in concert with him) who has an interest in shares carrying not less than 30% of the Company’s voting rights but does not hold shares carrying more than 50% of the voting rights attached to the issued share capital of the Company and who acquires an interest in any other shares which increases the percentage of the shares in which the person has an interest, may, pursuant to Rule 9.1 of the City Code, be required by the Takeover Panel to make an offer (Mandatory Offer) for the shares in the Company not owned or controlled by such person at that time. In this regard, prospective investors should take particular note of the restrictions on the voting rights (Voting Rights Restrictions) of certain Shareholders under the articles of association, which are summarised at section 4.3(a) of Part XV: “Additional information” of this document, and which operate so as to reallocate voting rights to other Shareholders (or prospective investors who become shareholders) to whom the Voting Rights Restrictions do not apply. The reallocation of voting rights as a result of Voting Rights Restrictions may result in a person or persons, together with any persons acting in concert with them, increasing their interest in shares carrying voting rights with the effect of incurring an obligation to make a Mandatory Offer as set out above. In such circumstances, the Panel must be consulted as soon as possible in advance.

5. Model Code From Admission, the Company shall require the Directors and other persons discharging managerial responsibilities within the Group to comply with the Model Code, and shall take all proper and reasonable steps to secure their compliance. Such steps shall include the introduction of a code for dealing in securities applicable to relevant individuals and the monitoring of such individuals’ compliance with that code.

87 PART VIII

CAPITALISATION AND INDEBTEDNESS

As at 31 December 2015 Capitalisation and indebtedness(1) £ Total current debt Guaranteed — Secured — Unguaranteed/unsecured — Total current debt — Total non-current debt Guaranteed — Secured — Unguaranteed/unsecured — Total non-current debt — Total indebtedness — Shareholders’ equity (excluding accumulated losses) Ordinary shares 59,221 Share premium 26,212,880 Other reserves 21,660,105 Total capitalisation 47,932,206

Note: (1) This statement of indebtedness has been extracted without material adjustment from the historical financial information set out in Part X: “Financial Information”. On 22 March 2016, the Company completed a reduction of its share premium account from £26,212,880 to £19,212,880 by means of the solvency statement procedure under the Companies Act. Save for the above, there has been no other material change to the Group’s capitalisation since 31 December 2015.

The following table sets out the net consolidated indebtedness of the Group as at 29 February 2016, which has been extracted without material adjustment from the unaudited management accounts:

As at 29 February 2016 (unaudited) £ Net indebtedness Cash at bank and in hand 10,043,082 Total liquidity 10,043,082 Current financial debt Current financial debt — Net current liquidity 10,043,082

88 PART IX

OPERATING AND FINANCIAL REVIEW

The section that follows should be read in conjunction with Part VI: “Information on the Company and the Group”. Prospective investors should read the entire document and not just rely on the information set out below. The financial information considered in this Part IX is extracted without material adjustment from the Group’s historical financial information included in Part X: “Financial Information” of this document.

The financial information presented in this document has been prepared for the consolidated group which comprises the Company and its subsidiaries. As described in note 1 (Summary of significant accounting policies—Basis of Preparation) in Part X: “Financial Information”, the financial information has been prepared in accordance with IFRS as adopted by the European Union.

In addition to historical information, the following discussion and other parts of this document contain forward- looking information that involves risks and uncertainties. Accordingly, the results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and the Group’s actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth under Part II: “Risk Factors”.

Overview Mereo is a UK-based specialty biopharmaceutical company focused on the development of innovative medicines that aim to address unmet medical needs in rare and specialty disease areas and improve patient quality of life. The Group will seek to selectively acquire clinical-stage product candidates with demonstrated clinically meaningful data from large pharmaceutical companies and to further develop these product candidates to subsequent key value inflection points or to commercialisation. The Group is an early adopter of a novel business model that aligns its interests with those of large pharmaceutical companies. By selectively acquiring and further developing promising product candidates, the Group and its product candidate provider can jointly participate in the value realisation through any future sale, licensing or commercialisation of the product candidate. Since its inception in March 2015, the Group has acquired three product candidates from Novartis, which comprise its initial portfolio. In the near term, the Group aims to develop this existing portfolio, while in the medium to long- term the Group intends to build a broader pipeline of product candidates which fulfil Mereo’s selection criteria. Ultimately, Mereo’s goal is to leverage its innovative business model and resources to develop additional product candidates that address a broad range of rare and specialty diseases with significant unmet clinical needs and to become an innovative leader in the specialty biopharmaceutical sector.

The Directors believe the ongoing high productivity at the discovery and early clinical development phase of large pharmaceutical companies has resulted in an increasing number of research and development product candidates available for further development. However, the Directors believe pressure to meet profitability targets is constraining large pharmaceutical companies’ ability to fund their entire pipeline of research and development product candidates, requiring them to focus their resources on a sub-set of product candidates. By identifying and selectively acquiring product candidates from large pharmaceutical companies and funding their further development, Mereo aims to advance promising product candidates to key value inflection points or to commercialisation.

Mereo’s business model is highly flexible and scalable, allowing efficient integration of new product candidates. The Group has an efficient and light infrastructure, including a services agreement with ICON, a leading global CRO, to assist with the clinical development of its initial portfolio. The Group intends to leverage its global network of experts with expertise across multiple clinical disciplines to optimise the development strategies for the selected product candidates. Mereo’s Directors and senior management have long-standing relationships with senior executives of large pharmaceutical companies, which the Directors believe will enhance the Group’s process for identifying and acquiring additional product candidates. The Group’s alignment of interests with product candidate providers can be enhanced by its flexibility to use alternative transaction structures, including those in which the Group does not make an upfront cash payment for product candidate acquisitions and a pharmaceutical company retains economic interest in a product candidate, including through potential equity participation.

Mereo has a highly disciplined approach in acquiring selective product candidates for further development. The product candidates will typically originate from large pharmaceutical companies in rare and specialty indications with unmet medical need and compelling market potential. Additionally, the product candidates

89 need to have a strong scientific rationale, demonstrated clinically meaningful data, a clear and manageable clinical and regulatory strategy and a favourable competitive landscape. This is exemplified by Mereo’s initial pipeline, which comprises three well characterised, novel clinical Phase 2 product candidates acquired from Novartis in July 2015: BCT-197 for AECOPD, BGS-649 for hypogonadal hypogonadism in obese men and BPS-804 for osteogenesis imperfecta. Each product candidate has a strong pre-clinical and clinical dataset, including clinically meaningful results for the relevant indication. Further, because BCT-197, BGS-649 and BPS-804 are in different drug classes and are for different indications, the risk profile of the portfolio is well diversified enabling the Group to optimise the commercial strategy for each product candidate based on clinical trial results.

BCT-197 is being developed for AECOPD. COPD is a non fully reversible, progressive lung disease that was the third largest cause of death in the world in 2010 according to the Global Burden of Disease Study, resulting in annual direct and indirect costs totalling approximately $50 billion in the United States. BCT-197 aims to treat inflammation and improve patient symptoms and potentially result in shorter hospital stays with fewer readmissions, thereby providing tangible benefits for both patients and payers. BGS-649 is being developed for hypogonadal hypogonadism in obese men. Hypogonadal hypogonadism, a clinical syndrome that results from inadequate levels of testosterone, is currently treated by testosterone replacement therapies. Testosterone replacement is associated with significant side effects, including excessively high levels of testosterone, which has been associated with higher risk of stroke and heart attack. BGS-649 aims to restore normal levels of testosterone without causing excessively high testosterone levels and is being developed as a once-weekly pill, conferring potential safety and convenience benefits as compared to current testosterone treatments. BPS-804 is being developed for osteogenesis imperfecta, a rare, usually inherited condition that results in bones that can break easily. BPS-804 aims to demonstrate a benefit compared to placebo in terms of fractures in osteogenesis imperfecta patients.

Mereo’s senior management has extensive experience in the pharmaceutical and biotechnology sector in the investment in and development, manufacturing and commercialisation of product candidates in multiple therapeutic areas. The Company also benefits from a strong board of directors that is comprised primarily of current and former senior leaders in the pharmaceutical and biotechnology industry.

The Company is backed by leading institutional shareholders Invesco and Woodford, each of which has significant pharmaceutical and biotechnology industry knowledge and relationships and a history of long-term supportive investments. Both participated in an equity financing round in July 2015, committing £76.5 million, with £20 million funded upon closing of the financing round. In addition, Novartis holds a stake in the Company, which shall be 19.5% immediately prior to Admission, thus ensuring alignment of interests.

The Company is incorporated in England and Wales, and the Group has its headquarters in London.

Certain factors that may affect the Group’s financial condition and results of operations Revenues The Group is a clinical stage company with a limited operating history. The Group has only recently commenced clinical trials for only one of its product candidates. The Group has not generated any revenues, and it has only obtained limited regulatory approvals.

The Group may generate revenues in the future from out-licensing, selling, commercialising or otherwise realising value on one or more of its product candidates. The Group’s ability to achieve revenues and profitability is dependent on its ability to develop its product candidates to key value inflection points or to commercialisation and obtain necessary regulatory approvals.

The Group does not expect to generate any revenues from licensing prior to the achievement of key clinical data with each of its product candidates in development. The Group does not expect to earn revenues from product sales unless its product candidates become commercially available.

If the Group fails to complete the development of its product candidates in a timely manner or to obtain regulatory approval for them, its ability to generate future revenues, and its financial results and position, would be materially adversely affected.

90 Operating expenses Development and other expenses The Group continues to incur significant development and other expenses related to its ongoing clinical trials and operations. The Group’s expenses consist primarily of: • the costs of manufacturing and developing the Group’s product candidates, and conducting pre-clinical and clinical trials; • the costs involved in obtaining regulatory approvals for the Group’s product candidates; • the cost of selling, commercialising or otherwise realising value on any product candidates approved for sale, including marketing, sales and distribution costs; • the cost of manufacturing any product candidates the Group commercialises; • the expenses needed to attract and retain skilled personnel; • the costs associated with evaluation of the Group’s product candidates; • the costs associated with evaluation of third-party intellectual property; • the costs associated with obtaining and maintaining licences; and • the costs associated with obtaining, protecting and enforcing intellectual property, such as costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, litigation costs and the outcome of such litigation. The Group expects to incur further significant expenses in connection with its ongoing development activities in relation to its product candidates, including for funding pre-clinical and clinical studies, registration, manufacturing, marketing, sales and distribution. Any delays in completing clinical trials will increase the Group’s costs. Because the outcome of any clinical trial is highly uncertain, the Group cannot reasonably estimate the actual costs involved in completing the development of any of its product candidates, including any future trials. The Group may select one or more of its product candidates for direct commercialisation, which would require a targeted salesforce and operational infrastructure that would increase the Group’s expenses. The Group may acquire and develop additional product candidates, which would further increase the Group’s expenses. In addition, given its limited operating history, the Group may encounter unforeseen expenses.

Administrative expenses Administrative expenses consist primarily of salaries and related costs for personnel in executive, finance and business development functions. The Group expects to incur additional costs associated with operating as a public company. The Group expects that these costs will include legal, accounting, investor relations and other expenses that it did not incur as a private company.

Taxation The Group has only completed one accounting period and was loss-making during that period. Mereo 1, Mereo 2 and/or Mereo 3 may be eligible for tax relief for qualifying research and development expenditure in the United Kingdom. It is anticipated that each entity will, where available, claim such relief, but this will depend on tax planning as the business develops. The UK has introduced a patent box regime in relation to certain income derived from UK or European patents. By electing to enter into the patent box regime, the relevant company would benefit from a lower effective corporation tax rate on relevant income from assets inside the patent box. Entry into the patent box regime is subject to detailed rules, including ensuring that each entity is actively involved in the plans and decisions relating to the exploitation or development of the patent and/or performs a significant amount of activity for the purposes of developing the patent. Mereo 1, Mereo 2 and Mereo 3 may, where available, make an election to participate in such regime, but this will require further analysis as to eligibility as the business develops.

Pro forma financial information The unaudited pro forma statement of net assets of the Company included in Part XI “Unaudited Pro Forma Financial Information” illustrates the receipt of the net proceeds of £12.6 million raised in the Capital Raise including £3.5 million received upon issuance of the convertible loan notes to Novartis as detailed in paragraph 12.5 of Part XV “Additional Information”, and the Company’s exercise in full of its option under the Subscription Agreement to require Invesco and Woodford to subscribe for Ordinary Shares in the amount of £56.5 million (£54.9 million after fees).

91 After giving effect to the pro forma adjustments described above, at 31 December 2015, the Company would have had tangible assets of £0.2 million, intangible assets of £25.8 million, receivables of £1.6 million and £79.7 million in cash, resulting in total assets of £107.3 million, and payables of £2.8 million, borrowings of £2.8 million and long-term provisions of £0.1 million, resulting in total liabilities of £5.7 million, and net assets of £101.6 million.

Liquidity and capital resources The Group’s principal sources of liquidity will be the proceeds of the Private Placement and the equity financing round in July 2015 and, eventually, cash flows generated from the Group’s operations.

To date, the Group has financed its operations through the equity financing round in July 2015. From inception through 31 December 2015, the Group has received net cash proceeds of £19.1 million from the sale of ordinary shares. Net cash used in operations in the period from inception to 31 December 2015 was due primarily to expenditure on the expenses of completing the equity financing round in July 2015, accrued start up expenses (including preparation for clinical studies with BCT-197, BGS-649 and BPS-804), feasibility and initiation activities for clinical studies with BCT-197, BGS-649 and BPS-804 (including manufacturing of clinical trial materials) securing and fitting out the Company’s premises, the Group’s share of a payment due from Novartis to a third party in relation to BCT-197 upon acquisition of the programme from Novartis and ongoing operating costs, including payroll-related expenses.

As at 31 December 2015, the Group had cash, cash equivalents and short-term bank deposits of £12.2 million. Net proceeds raised in the Capital Raise were £12.6 million, after deducting the estimated private placement agency fees, taxes and other offering related fees and expenses (including any VAT) payable by the Group. The Group is party to a cash management agreement pursuant to which a third party manages the Group’s liquid assets.

Recent Developments As at 29 February 2016, the Company had cash and short-term deposits of £10.0 million, a decrease of £2.2 million, compared to cash and short-term deposits of £12.2 million as at 31 December 2015. The decrease in cash and short-term deposits was primarily a result of administrative expenses and research and development expenses.

Funding requirements The Directors believe, based on the Group’s current objectives, that the Group’s existing cash, cash equivalents and marketable securities, together with the funds to be received pursuant to the Company’s option under the subscription agreement to require Invesco and Woodford to subscribe for ordinary shares in the amount of £56.5 million (£54.9 million after fees) and the expected net proceeds from the Capital Raise, will enable the Group to fund its operating expenses and capital expenditure requirements throughout the Phase 2 study for BCT-197, the Phase 2b study for BGS-649 and the interim data from the initial part of the potential registration study for BPS-804, which the Directors expect to be completed by 2017, 2017 and 2018, respectively.

The Group has based this estimate on assumptions that may prove to be wrong, and it could use its capital resources sooner than the Group currently expects.

The Group’s present and future funding requirements will depend on many factors, including, among other things: • the progress, timing and completion of such clinical trials for the Group’s current product candidates or any future product candidates; • the time and costs involved in obtaining regulatory approval for BCT-197, BGS-649, BPS-804 or future product candidates and any delays the Group may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these product candidates; • selling, marketing and patent-related activities undertaken in connection with the commercialisation of BCT-197, BGS-649, BPS-804 or any other product candidates and costs involved in the development of an effective sales and marketing organisation; • the number of potential future product candidates the Group identifies and decides to develop; • the costs involved in filing and prosecuting patent applications and obtaining, maintaining and enforcing patents or defending against claims or infringements raised by third parties, and licence royalties or other amounts the Group may be required to pay to obtain rights to third-party intellectual property rights; and

92 • the amount of revenues, if any, the Group may derive either directly or in the form of royalty payments from future sales of BCT-197, BGS-649, BPS-804 or income from licensing BCT-197, BGS-649, BPS-804 or any future product candidates.

For more information as to the risks associated with the Group’s future funding needs, see “Risks Relating to the Group’s Business and Financial Position—The Group will require additional financing in the long-term and may be unable to raise sufficient capital, which could lead it to delay, reduce or abandon development programmes of some of its product candidates”.

Contractual obligations The following table sets forth the Group’s total outstanding contractual commitments as of 31 December 2015:

Within After 5 one year 1-5 years years Total Operating Lease Obligation(1) 293,328 1,063,708 0 1,357,036 Total 293,328 1,063,708 0 1,357,036

(1) The Company’s commitment for operating leases relates to the Company’s lease of office space in One Cavendish Place, London, United Kingdom.

Off-balance sheet arrangements The Group has no off-balance sheet arrangement.

Dividend policy The Group has never declared or paid any cash dividends on its shares. The Group intends to retain future earnings, if any, to finance the operation of its business and does not anticipate paying any cash dividends in the foreseeable future. Any future determination related to the Group’s dividend policy will be made at the discretion of the Board after considering the Group’s financial condition, results of operations, capital requirements, business prospects and other factors the Board deems relevant, and subject to the restrictions contained in any future financing instruments.

Quantitative and qualitative disclosure about market risk The Group is exposed to a variety of market risks but is principally exposed to foreign currency exchange risk.

Foreign currency exchange risk The Group is primarily exposed to market risk related to fluctuations in foreign currency rates. The Group currently outsources certain functions, tests and services to ICON, a leading global CRO in connection with the development of its product candidates, and incurs expenses based on contractual obligations denominated in U.S. dollars. At the end of each reporting period, these liabilities are converted to pounds sterling at the then- applicable foreign exchange rate. The Group is subject to fluctuations in foreign currency rates in connection with associated payment of expenses in connection with these arrangements. As a result, the Group’s business is affected by fluctuations in exchange rates between pounds sterling and foreign currencies.

The Group may in the future seek to hedge its short-term currency risks with either short-term currency purchased options or interest-bearing deposits of US dollars and to hedge its medium-term currency risks with respect to the U.S. dollar with foreign exchange currency fixed forward contracts and spot purchases.

Liquidity risk Liquidity risk is the risk that the Group will be unable to meet its liabilities as they fall due. The Directors believe that in the short to medium term, the proceeds of the Private Placement along with the equity financing that will be available to the Group for its development projects will provide sufficient headroom to cover its requirements.

Interest rate risk The Group’s policy in relation to interest rate risk is to monitor short-term and medium-term interest rates and to place cash on deposit for periods that optimise the amount of interest earned while maintaining access to sufficient funds to meet day-to-day cash requirements.

93 The Group does not have any committed external borrowing facility, as its cash and cash equivalents and short- term deposit balances are sufficient to finance its current operations. Consequently, there is no material exposure to interest rate risk in respect of interest payable.

Credit risks The Group’s policy is to place funds with financial institutions that have a minimum long-term credit rating with S&P of A. The Group does not allocate a quota to individual institutions but seeks to diversify its investments, where this is consistent with achieving competitive rates of return. It is the Group’s policy to place not more than £10 million with any one counterparty.

Critical accounting policies Certain of the Group’s accounting policies will be particularly important to the presentation of its results of operations and may require the application of significant judgment by its Directors. In applying these policies, the Directors will use their judgment about future events to determine appropriate assumptions to be used in the determination of certain estimates used in the preparation of the Group’s results of operations. Future events and their effects cannot be determined with certainty. These estimates will be based on the Directors’ previous experience, contractual terms, information provided by customers, current and future expected economic conditions, information available from outside sources and other factors as appropriate.

The Directors believe that, amongst others, the following accounting policies will be the most critical to understanding and evaluating the Group’s reported financial results.

Financial instruments The Group’s financial instruments comprise cash and cash equivalents, short-term bank deposits, debtors and creditors arising directly from operations. Cash and cash equivalents comprise cash in hand and short-term deposits which have an original maturity of one month or less and are readily convertible into known amounts of cash. Such assets are classified as current, where management intend to dispose of the asset within 12 months of the end of the reporting period.

Where derivatives exist in the financial year, they are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at each reporting date, with any resulting gain or loss recognised through profit or loss. The Group does not have any committed borrowing facilities, as its cash, cash equivalents and short-term deposits are sufficient to finance its current operations. Cash balances are held on short-term deposits with quality financial institutions, in line with the Group’s policy to minimise the risk of loss. The main risks associated with the Group’s financial instruments relate to interest rate risk and foreign currency risk.

Intangible assets Intangible fixed assets, relating to goodwill and intellectual property rights acquired through licensing or assigning patents and know-how are carried at historical cost, less accumulated amortisation, where the useful economic life of the asset is finite and the asset will probably generate economic benefits exceeding costs. Where a finite useful life of the acquired intangible asset cannot be determined, the asset is tested annually for impairment by allocating the assets to the cash generating units to which they relate. Amortisation would commence when product candidates underpinned by the intellectual property rights become available for commercial use. Amortisation would be calculated on a straight line basis over the shorter of the remaining useful life of the intellectual property or the estimated sales life of the product candidates. No amortisation has been charged to date, as the product candidates underpinned by the intellectual property rights are not yet available for commercial use.

Expenditure on product development is capitalised as an intangible asset and amortised over the expected useful economic life of the product candidate concerned. Capitalisation commences from the point at which technical feasibility and commercial viability of the product candidate can be demonstrated and the Group is satisfied that it is probable that future economic benefits will result from the product candidate once completed. Capitalisation ceases when the product candidate receives regulatory approval for launch. No such costs have been capitalised to date.

94 Expenditure on research and development activities that do not meet the above criteria, including ongoing costs associated with acquired intellectual property rights and intellectual property rights generated internally by the Group, is charged to the statement of comprehensive loss as incurred. Intellectual property and in-process research and development from acquisitions are recognised as intangible assets at fair value. Any residual excess of consideration over the fair value of net assets in an acquisition is recognised as goodwill in the financial statements.

Results of Operations The following table sets forth the Group’s results of operations for the period from the Company’s inception to 31 December 2015.

Period ended 31 December 2015 £ Research and development expenses (5,445,015) Administrative expenses (7,716,344) Operating loss (13,161,359) Finance income 25,717 Loss before tax (13,135,642) Taxation 946,681 Loss for the period, attributable to equity holders of the parent (12,188,961)

Research and development expenses Research and development expenses were £5.4 million for the period ended 31 December 2015 and primarily comprised payroll-related expenses for research and development staff of £0.7 million (including a non-cash charge for share-based payments of £0.3 million), a payment to Novartis of £1.0 million representing the Group’s share of a payment due from Novartis to a third party in relation to BCT-197, and clinical trial set-up expenses of £3.6 million. Research and development expenses are expected to increase significantly from the first quarter of 2016 as the Group progresses its three product candidates through clinical studies that have commenced or are expected to commence during 2016.

Administrative expenses Administrative expenses were £7.7 million for the period ended 31 December 2015 and were primarily comprised of payroll-related expenses for administrative staff of £4.2 million (including a non-cash charge for share-based payments of £2.7 million and recruitment fees of £0.3 million), pre-formation diligence and travel expenses of £0.6 million, accrued expenses related to preparation for a potential capital raising of £1.9 million and professional advisers’ fees in respect of agreements relating to the Group’s formation of £0.3 million. Underlying administrative expenses (i.e. expenses that are not related to the Group’s establishment, the private financing or the potential capital raising) are expected to increase through 2016, reflecting scaling up of the Group’s operations and additional costs associated with becoming a listed company.

Finance income Finance income relates to interest receivable on the Group’s cash deposits.

Taxation The Group is entitled to claim tax credits in the United Kingdom under the UK research and development (R&D) small or medium-sized enterprise scheme, which provides additional taxation relief for qualifying expenditure on R&D activities, and includes an option to surrender a portion of tax losses arising from qualifying activities in return for a tax credit from HM Revenue & Customs. The amount included in the financial information for the period ended 31 December 2015 represents the credit receivable by the Group for the period. The 2015 amounts have not yet been agreed with the relevant tax authorities.

95 PART X

FINANCIAL INFORMATION

SECTION A: ACCOUNTANT’S REPORT ON THE HISTORICAL FINANCIAL INFORMATION

The Directors 3 June 2016 Mereo BioPharma Group plc Fourth Floor One Cavendish Place London W1G 0QF United Kingdom

Dear Sirs Mereo BioPharma Group plc We report on the financial information of Mereo BioPharma Group plc (the Company) and its subsidiaries (together, the Group) set out in Section B of Part X: “Financial Information” for the period ended 31 December 2015 (the Financial Information). The Financial Information has been prepared for inclusion in the AIM admission document dated 3 June 2016 of the Company (the Admission Document) on the basis of the accounting policies set out in Note 2. This report is required by Schedule Two of the AIM Rules for Companies of the London Stock Exchange (the AIM Rules for Companies) and is given for the purpose of complying with that schedule and for no other purpose.

Save for any responsibility arising under Schedule Two of the AIM Rules for Companies to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Schedule Two of the AIM Rules for Companies, consenting to its inclusion in the Admission Document.

Responsibilities The Directors of the Company are responsible for preparing the Financial Information in accordance with International Financial Reporting Standards as adopted by the European Union.

It is our responsibility to form an opinion on the Financial Information and to report our opinion to you.

Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the Financial Information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the Financial Information and whether the accounting policies are appropriate to the entity’s circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Financial Information is free from material misstatement whether caused by fraud or other irregularity or error.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion In our opinion, the Financial Information gives, for the purposes of the Admission Document dated 3 June 2016, a true and fair view of the state of affairs of the Group as at 31 December 2015 and of its loss, cash flows and changes in equity for the period then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

96 Declaration For the purposes of Paragraph (a) of Schedule Two of the AIM Rules for Companies we are responsible for this report as part of the Admission Document and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Admission Document in compliance with Schedule Two of the AIM Rules for Companies.

Yours faithfully

Ernst & Young LLP

97 SECTION B: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR THE PERIOD ENDED 31 DECEMBER 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS for the period from 10 March 2015 to 31 December 2015

Period ended 31 December 2015 Notes £ Research and development expenses (5,445,015) Administrative expenses (7,716,344) Operating loss (13,161,359) Net finance income 8.1 25,717 Loss before tax (13,135,642) Taxation 9 946,681 Loss for the period, attributable to equity holders of the parent (12,188,961) Other comprehensive income/(loss) for the period, net of tax — Total comprehensive (loss) for the period, net of tax and attributable to the equity holders of the parent (12,188,961) Basic and diluted loss per share for the period 10 (£1.01)

98 CONSOLIDATED BALANCE SHEET as at 31 December 2015

As at 31 December 2015 Notes £ Assets Non-current assets Property, plant and equipment 11 204,517 Intangible assets 12 25,812,941 26,017,458 Current assets Prepayments 253,926 R&D tax credits 9 946,681 Other receivables 13 396,022 Cash and short-term deposits 16 12,247,986 13,844,615

Total assets 39,862,073 Equity and liabilities Equity Issued capital 17 59,221 Share premium 17 26,212,880 Other capital reserves 17 21,660,105 Accumulated losses (12,188,961) Total equity 35,743,245 Non-current liabilities Provisions 18 141,311 Current liabilities Trade and other payables 20 3,977,517 Total liabilities 4,118,828 Total equity and liabilities 39,862,073

99 CONSOLIDATED STATEMENT OF CASH FLOWS for the period ended 31 December 2015

Period ended 31 December 2015 Notes £ Operating activities Loss before tax (13,135,642) Adjustments to reconcile loss before tax to net cash flows: Depreciation and impairment of property, plant and equipment 11 11,361 Share-based payment expense 19 2,982,265 Provision for social security contributions on employee share options 18 141,311 Finance income 8.1 (25,717) Working capital adjustments: (Increase) in receivables (649,948) Increase in payables 3,977,517 Net cash flows from operating activities (6,698,853) Investing activities Purchase of property, plant and equipment 11 (215,878) Investment in subsidiaries 5 — Interest received 8.1 25,717 Net cash flows used in investing activities (190,161) Financing activities Proceeds from issue of ordinary shares 20,005,000 Transaction costs on issue of shares 17 (868,000) Net cash flows from financing activities 19,137,000 Net increase in cash and cash equivalents 12,247,986 Cash and cash equivalents at 10 March 0 Cash and cash equivalents at 31 December 16 12,247,986

Significant non cash transaction During the period 3,849,000 ordinary shares in the Company were issued in exchange for the Group’s development programmes (see Notes 12 and 17).

During the period the Company issued two bonus shares of £0.001 in nominal value for each ordinary held. The post-bonus share capital was consolidated such that each ordinary shareholder received one share for every three held. The total number of ordinary shares remained at 19,740,296 but the nominal value is now £0.003 (see Note 17).

100 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the period ended 31 December 2015

Other Issued Share capital capital premium reserves Accumulated Total (Note 18) (Note 18) (Note 18) losses equity ££ £ £ £ As at 10 March 2015 — — — — — Loss for the period ———(12,188,961) (12,188,961) Issue of share capital (Note 18) 19,740 27,067,420 ——27,087,160 Issue of bonus share capital (Note 18) 39,481 (39,481) ——— Share-based payments (Note 20) ——2,982,265 — 2,982,265 Shares to be issued ——18,677,840 — 18,677,840 Profit on transfer of loan notes for equity — 52,941 ——52,941 Transaction costs on issuance of share capital — (868,000) ——(868,000) At 31 December 2015 59,221 26,212,880 21,660,105 (12,188,961) 35,743,245

101 NOTES TO THE FINANCIAL INFORMATION

1. Corporate information Mereo BioPharma Group plc (the “Company” or the “parent”) is a public limited company incorporated and domiciled in United Kingdom. The registered office is located at Fourth Floor, 1 Cavendish Place, London, W1G 0QF.

The Group is principally engaged in the research and development of novel pharmaceuticals (see Note 4). Information on the Group’s structure is provided in Note 5. Information on other related party relationships of the Group is provided in Note 22.

2. Significant accounting policies 2.1. Basis of preparation The consolidated financial information of the Group has been prepared in accordance with the requirements of the Alternative Investment Market (“AIM”) Rules for Companies for the purposes of the AIM admission document and in accordance with this basis of preparation. The consolidated financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The accounting policies which follow set out those policies which apply in preparing the financial information for the period ended 31 December 2015.

The financial information is presented in Sterling.

2.2. Going concern Though the Group continues to make losses, the Directors believe it is appropriate to prepare the financial information on the going concern basis. This is because the Group’s research into new products continues to progress according to plan and the funding secured in July 2015 will allow it to meet its liabilities as they fall due for the foreseeable future.

2.3. Basis of consolidation The consolidated financial information comprise the financial results of Mereo BioPharma Group plc and its subsidiaries for the period ended 31 December 2015. Subsidiaries are fully consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

The financial statements of the subsidiaries are prepared with the same accounting reference date using consistent accounting policies. All intra-group transactions are eliminated in full.

2.4. Summary of significant accounting policies a) Current versus non-current classification The Group presents assets and liabilities in its balance sheet based on current/non-current classification. An asset is current when it is: • Expected to be realised or intended to be sold or consumed in its normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within 12 months after the reporting period Or • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period

All other assets are classified as non-current.

102 A liability is current when: • It is expected to be settled in its normal operating cycle • It is held primarily for the purpose of trading • It is due to be settled within 12 months after the reporting period Or • There is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period.

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities. b) Taxes Current income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of comprehensive loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each end of reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each end of reporting period and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply to the year when the asset is realised, based on tax rates (and tax laws) enacted or substantively enacted at the end of the reporting period. c) Foreign currencies i) Transactions and balances The functional currency of the Company and its subsidiaries is Sterling. Transactions in foreign currencies are initially recorded by the Group’s entities at the rate ruling on the date the transaction first qualifies for recognition.

Differences arising on settlement or translation of monetary items are recognised in profit or loss. d) Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment if the recognition criteria are met. All other repair and maintenance costs are recognised in profit or loss as incurred.

103 Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:

• Leasehold improvements 10 years • Office equipment 5 years • IT equipment 3 years

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive loss when the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. e) Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive loss on a straight line basis over the period of the lease.

The Company leases its premises (see Note 21). The Company recognises any lease incentives on a straight-line basis over the entire period of the lease, assuming that any break clauses available to the Company are not exercised. By not exercising any break clauses, the Company receives a 50% rent discount from the landlord for a fixed period of time as described in Note 21, and this also forms part of the accounting policy.

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. f) Intangible assets Intangible fixed assets, relating to goodwill and intellectual property rights acquired through licensing or assigning patents and know-how are carried at historical cost, less accumulated amortisation, where the useful economic life of the asset is finite and the asset will probably generate economic benefits exceeding costs. Where a finite useful life of the acquired intangible asset cannot be determined or the intangible asset is not yet available for use, the asset is tested annually for impairment by allocating the assets to the cash generating units to which they relate. Amortisation would commence when product candidates underpinned by the intellectual property rights become available for commercial use. Amortisation would be calculated on a straight line basis over the shorter of the remaining useful life of the intellectual property or the estimated sales life of the product candidates. No amortisation has been charged to date, as the product candidates underpinned by the intellectual property rights are not yet available for commercial use.

Expenditure on product development is capitalised as an intangible asset and amortised over the expected useful economic life of the product candidate concerned. Capitalisation commences from the point at which technical feasibility and commercial viability of the product candidate can be demonstrated and the Group is satisfied that it is probable that future economic benefits will result from the product candidate once completed. Capitalisation ceases when the product candidate receives regulatory approval for launch. No such costs have been capitalised to date.

Expenditure on research and development activities that do not meet the above criteria, including ongoing costs associated with acquired intellectual property rights and intellectual property rights generated internally by the Group, is charged to the statement of comprehensive loss as incurred. Intellectual property and in-process research and development from asset acquisitions are recognised as intangible assets at cost. g) Financial instruments—initial recognition and subsequent measurement The Group’s financial instruments comprise cash and cash equivalents, short-term bank deposits, and receivables and payables arising directly from operations. Cash and cash equivalents comprise cash in hand and short term

104 deposits which have an original maturity of one month or less and are readily convertible into known amounts of cash. Such assets are classified as current, where management intend to dispose of the asset within 12 months of the end of the reporting period.

The Group does not have any committed borrowing facilities, as its cash, cash equivalents and short-term deposits are sufficient to finance its current operations. Cash balances are held on short term deposits with quality financial institutions, in line with the Group’s policy to minimise the risk of loss. The main risks associated with the Group’s financial instruments relate to interest rate risk and foreign currency risk (see Note 15). h) Fair value measurement The Group does not record any financial instruments at fair value at each balance sheet date, nor discloses fair values in the notes. i) Impairment of non-financial assets Further disclosures relating to impairment of non-financial assets are also provided in the following notes:

• Disclosures for significant assumptions Note 3 • Property, plant and equipment Note 11 • Intangible assets not yet available for use Notes 12 and 14

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

Impairment losses of continuing operations are recognised in the statement of comprehensive loss in expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of comprehensive loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

Intangible assets not yet available for use are tested for impairment annually as at 31 December at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired. An impairment test was performed at 30 September 2015. j) Cash and short-term deposits Cash and short-term deposits in the balance sheet comprise cash at banks and on hand and short-term deposits with a maturity of one month or less, which are subject to an insignificant risk of changes in value.

105 k) Provisions General Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of comprehensive loss net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. l) Share-based payments Employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions).

Incentives in the form of shares are provided to employees under a share option plan. In accordance with IFRS 2 Share-based Payments, charges for these incentives are expensed through the consolidated statement of comprehensive loss on a straight line basis over their vesting period, based on the Group’s estimate of shares that will eventually vest. The total amount to be expensed is determined by reference to the fair value of the options or awards at the date they were granted.

3. Significant accounting judgements, estimates and assumptions The preparation of the consolidated accounts requires the Group to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, The Group bases its estimates and judgements on historical experience and on various other assumptions that it considers to be reasonable. Actual results may differ from these estimates under different assumptions or conditions.

Share-based compensation Incentives in the form of shares are provided to employees under a share option plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The expense is based upon a number of assumptions disclosed in Note 19: Share-based payments. The selection of different assumptions could affect the results of the Group.

Impairment of intangible assets and property, plant and equipment An assessment was made in respect of indicators of impairment in the carrying value of the Group’s intangible assets (see Note 14) and leasehold improvements, office equipment and IT equipment as at 31 December 2015. The assessment of intangible assets involves a number of judgements regarding the likelihood of successful product approval, the costs of reaching approval and the subsequent commercial profitability of the product, once approved.

4. Segment information For management purposes, the Group is organised into business units based on its products and has three reportable segments, as follows: • Respiratory Unit, which develops drugs to treat respiratory diseases • Endocrinology Disorders Unit, which develops drugs to treat endocrine disorders • Orphan Diseases Unit, which develops drugs to treat various orphan diseases

106 The Executive Management Committee monitors the operating results of its business units separately as part of the process for making decisions about resource allocation and performance assessment. Segment performance is evaluated based on progress of each development program and the related development expenditure. Expenditure is measured consistently with the total expenditure included in the consolidated financial statements. The Group’s financing (including finance costs and finance income) are managed on a Group basis and are only partially allocated to operating segments.

Endocrinology Orphan Respiratory Disorders Diseases Total Period ended 31 December 2015 Unit Unit Unit Segments Unallocated Consolidated ££££££ Expenses Research & Development (2,399,367) (1,393,860) (1,437,664) (5,230,891) (214,124) (5,445,015) Administrative (1,641,880) (1,695,991) (1,739,566) (5,077,437) (2,638,907) (7,716,344) Segment operating loss (4,041,847) (3,089,851) (3,177,230) (10,308,328) (2,852,431) (13,161,359) Assets Tax Credit 300,024 290,965 355,692 946,681 — 946,681 Intangible Assets (Note 12) 4,310,761 9,886,356 11,615,824 25,812,941 — 25,812,941

All non-current assets held by the group are located in the United Kingdom.

5. Group information

Information about subsidiaries

The consolidated financial information of the Group includes:

Equity and Loss Country of % equity interest reserves as at for the period to Name Principal activities incorporation 31 December 2015 31 December 2015 31 December 2015 ££ Mereo BioPharma 1 Pharmaceutical research United Limited and development Kingdom 100% 3,600,772 (3,741,223) Mereo BioPharma 2 Pharmaceutical research United Limited and development Kingdom 100% 2,660,856 (2,798,886) Mereo BioPharma 3 Pharmaceutical research United Limited and development Kingdom 100% 2,678,665 (2,821,538)

Each subsidiary has issued share capital of 1 ordinary share of £1 fully paid or credited as fully paid, total £3.

6. Auditor’s remuneration During the period the Group obtained the following services from the auditor and their associates:

Period ended 31 December 2015 £ Audit of group accounts 24,000 Audit of subsidiary accounts 12,000 Corporate finance transaction services 430,000 Taxation advisory services 22,925 Total 488,925

107 7. Employees and Directors The average monthly number of persons (including Executive Directors) employed by the Group during the period was:

Period ended 31 December 2015 Number By Activity Office and management 12 Research and development 3 Total 15

The Group contributes to defined contribution pension schemes for its Executive Directors and employees. Contributions of £17,612 (included in other liabilities) were payable to the funds at the period end.

The details of directors of Mereo BioPharma Group plc who received emoluments from the Group are shown in the table below:

Share based Salaries Benefits Pension payment/ Period ended 31 December 2015 & fees in kind contributions Bonus expense Total ££££££ Non-Executive Directors Dr Frank Armstrong 14,987 — — — 82,282 97,269 Peter Bains 14,987 — — — 270,357 285,344 Paul Blackburn 8,391 — — — — 8,391 Dr Anders Ekblom 14,987 — — — 82,282 97,269 Dr Peter Fellner 32,115 — — — 587,732 619,847 Kunal Kashyap 14,987 — — — 82,282 97,269 Executive Directors Dr Denise Scots-Knight 137,500 2,205 13,750 64,553 566,625 784,633

The directors’ interest in shares at 31 December 2015 is as follows:

Options over ordinary Interest in Date of share ordinary Appointment capital share capital Non-Executive Directors Dr Frank Armstrong 29 July 2015 236,974 337,000 Peter Bains 29 July 2015 778,630 125,000 Paul Blackburn 6 October 2015 — — Dr Anders Ekblom 29 July 2015 236,974 95,000 Dr Peter Fellner 29 July 2015 1,692,673 — Kunal Kashyap 29 July 2015 236,974 1,735,000 Executive Directors Dr Denise Scots-Knight 1 July 2015 1,692,673 1,050,000

Compensation of key management personnel of the Group Key management includes Directors (Executive and Non-Executive), the Chief Financial Officer / Chief Operating Officer (start date 1 July 2015), the General Counsel (start date 1 July 2015) and the Chief Medical Officer (start date 1 July 2015). The compensation paid or payable to key management is set out below.

Period ended 31 December 2015 £ Short term benefits 759,170 Post-employment benefits 47,000 Share-based payments 2,521,499 Total compensation paid to key management personnel 3,327,669

108 8. Other income/expense and adjustments 8.1. Finance income

Period ended 31 December 2015 £

Bank interest 25,717 Total finance income 25,717

8.2. Depreciation, amortisation, lease payments and foreign exchange differences included in the consolidated statement of comprehensive loss

Period ended 31 December 2015 £

Included in Administrative expenses: Depreciation on tangible assets 11,361 Minimum lease payments recognised as an operating lease expense 127,954 Net foreign exchange differences 37,164

8.3. Employee benefits expense

Period ended 31 December 2015 £

Included in Research & Development expenses: Salaries 317,862 Social security costs 50,107 Pension contributions 16,120 Share-based payment expense 327,559 Included in Administrative expenses: Salaries 779,540 Social security costs 188,684 Pension contributions 44,163 Share-based payment expense 2,654,706 Total employee benefits expense 4,378,741

8.4. Operating loss

Period ended 31 December 2015 £

Employee benefits expense (Note 8.3) 4,378,741 Externally contracted research and development 3,754,788 Legal & professional fees including patent costs 2,087,343 Net loss on foreign exchange 37,164 Operating lease expense 127,954 Depreciation 11,361 Other expenses 2,764,008 Total operating loss 13,161,359

109 9. Income tax The Group is entitled to claim tax credits in the United Kingdom under the UK research and development (R&D) small or medium-sized enterprise (SME) scheme, which provides additional taxation relief for qualifying expenditure on R&D activities, and includes an option to surrender a portion of tax losses arising from qualifying activities in return for a cash payment from HM Revenue & Customs (HMRC). The amount included in the financial information for the period ended 31 December 2015 represents the credit receivable by the Group for the year. The 2015 amounts have not yet been agreed with the relevant tax authorities.

Reconciliation of the accounting loss multiplied by United Kingdom’s domestic tax rate for 2015: Period ended 31 December 2015 £

United Kingdom Corporation Tax R&D credit 946,681 Income Tax Credit 946,681 The tax credit for the year is lower than the standard rate of corporation tax in the UK of 20%. The differences are explained below Loss on ordinary activities before income tax 13,135,642 Loss on ordinary activities before tax at United Kingdom’s statutory income tax rate of 20% 2,627,129 Expenses not deductible for tax purposes (permanent differences) (438,195) Temporary timing differences (599,975) Research development relief uplift 378,956 Tax losses carried forward to future periods (1,021,234) Tax credit for the period 946,681

A reduction in the rate of UK corporation tax to 19% from 1 April 2017 and to 18% from 1 April 2020 has been substantively enacted. UK deferred tax assets and liabilities are recognised at a rate of 18%.

At 31 December 2015, the Group had tax losses to be carried forward of approximately (£5,106,165).

Deferred tax Deferred tax relates to the following: 31 December 2015 £ Losses 919,110 Other 3,170 Net deferred tax asset 922,280

The deferred tax asset has not been recognised as there is uncertainty regarding when suitable future profits against which to offset the accumulated tax losses will arise. There is no expiration date for the accumulated tax losses.

10. Loss per share Basic loss per share is calculated by dividing the loss attributable for the period to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

As net losses from continuing operations were recorded in the period, the dilutive potential shares are anti- dilutive for the earnings per share calculation. Period ended 31 December 2015 £

Loss from continuing operations attributable to ordinary equity holders of the parent (12,188,961) Weighted average number of ordinary shares in issue 12,009,419 Basic and diluted loss per share (£1.01)

110 The Company operates share option schemes (see Note 19) which could potentially dilute basic earnings per share in future. In addition there exist within equity 10,151,000 shares to be issued which also have the potential to dilute basic earnings per share in future (see Note 17). There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorisation of other than as disclosed in Note 24 (Events after the reporting period).

11. Property, plant and equipment

Leasehold Office IT Improvements Equipment Equipment Total ££££ Cost or valuation At 10 March 2015 — — — — Additions 155,494 20,024 40,360 215,878 At 31 December 2015 155,494 20,024 40,360 215,878 Depreciation and impairment At 10 March 2015 — — — — Depreciation for the period (5,625) (1,335) (4,401) (11,361) At 31 December 2015 (5,625) (1,335) (4,401) (11,361) Net book value At 10 March 2015 ———— At 31 December 2015 149,869 18,689 35,959 204,517

12. Intangible assets

Acquired development programmes £ At 10 March 2015 — Acquisition of new programmes 25,812,941 At 31 December 2015 25,812,941 Amortisation and impairment At 10 March 2015 — Amortisation — Impairment (Note 15) — At 31 December 2015 — Net book value At 10 March 2015 — At 31 December 2015 25,812,941

The Group’s strategy is to acquire clinical-stage development programmes for the treatment of specialist and rare diseases from large pharmaceutical companies.

Acquisition during the period On 28 July 2015 the Group acquired three development programmes from Novartis Pharma AG (Novartis). In consideration of the products rights acquired ordinary shares were issued to Novartis contemporaneously with a private financing round involving the issue of ordinary shares to institutional investors (see Note 17). These assets have been tested for impairment at the balance sheet date (see Note 14).

111 13. Other receivables

31 December 2015 £ Rent deposit 293,328 Accrued income 4,010 VAT recoverable 98,684 396,022

14. Impairment testing of acquired development programmes not yet available for use Acquired development programmes not yet available for use are allocated to the Group’s operating segments and are assessed annually for impairment.

Carrying amount of acquired development programmes allocated to each of the operating segments:

Respiratory Endocrinology Orphan unit disorders unit diseases unit Total 31 December 31 December 31 December 31 December 2015 2015 2015 2015 ££££ Acquired development programmes 4,310,761 9,886,356 11,615,824 25,812,941

The Group considers the future development costs, the probability of successfully progressing each programme to product approval, and likely commercial returns after product approval, among other factors, when reviewing for indicators of impairment. The results of this testing did not indicate any impairment of the acquired products’ rights between acquiring the assets on 28 July 2015 and the balance sheet date.

The acquired development programmes are assets which are not used in launched products. These assets have not yet begun to be amortised but have been tested for impairment by assessing their value-in-use. Value-in-use calculations for each programme are utilised to calculate the recoverable amount. The calculations use pre-tax cash flow projections covering the period through product development to commercial sales up to the later of loss of patent protection or market exclusivity, which extend beyond 5 years from the balance sheet date; no cash flows are included after this date. Approved products are assumed to be out-licensed such that the Group receives signature fees, milestone receipts and royalties on sales; therefore the Company does not incur any costs of commercialisation after out-licensing.

Key assumptions for the value-in-use calculations are described as follows: • Development costs to obtain regulatory approval—costs are estimated net of any contributions expected from collaborative arrangements with future partners. The directors have developed cost estimates based on their previous experience and in conjunction with the expertise of their clinical development partner, ICON; • Launch dates of products—these reflect management’s expected date of launching products based on the timeline of development programs required to obtain regulatory approval. The assumptions are based on the directors’ and ICON’s prior experience; • Probability of successful development—management estimates probabilities of success for each phase of development based on industry averages and knowledge of specific programmes; • Outlicensing signature fees, milestones and royalty rates on sales—management estimates these amounts based on prior experience and access to values from similar transactions in the industry, which are collated and accessible from specialist third party sources; • Sales projections—these are based on management’s internal projections using external market data and market research commissioned by the Company; • Profit margins and other operational expenses—these are based on Company’s internal projections of current product manufacturing costings, with input from manufacturing partners where applicable, and estimates of operating costs based on management’s prior industry experience;

112 • Cash flow projections—the periods over which cash flows are forecast, are as follows: BCT-197 (respiratory) – 16 years; BGS-649 (endocrinology) – 14 years; BPS-804 (orphan diseases) – 16 years; and • Discount rates—the discount rate is estimated on a pre-tax basis reflecting the estimated cost of capital of the Group and is applied consistently across each of the operating segments. The cost of capital was calculated at 11.2%.

At this stage of product development, the key sensitivity for all three development programs is the probability of successful completion of clinical trials in order to obtain regulatory approval for sale. Therefore, full impairment of a development programme is expected should such related trials be unsuccessful.

15. Financial and capital risk management 15.1. Capital risk management For the purpose of the Group’s capital management, capital includes issued capital, share premium and all other equity reserves attributable to the equity holders of the parent.

The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern and ensure that sufficient capital is in place to fund the Group’s research and development activities. The Group’s principal method of adjusting the capital available is through issuing new shares. The Group’s share capital and share premium are disclosed in Note 17. The Group monitors the availability of capital with regard to its forecast future expenditure on an ongoing basis. The Group has extinguished its liability instruments (loan notes) through the issue of equity instruments during the period.

15.2. Financial risk management objectives and policies The Group’s simple structure, operating from a single location in the United Kingdom, and the lack of external debt financing reduces the range of financial risks to which it is exposed. Monitoring of financial risk is part of the Board’s ongoing risk management, the effectiveness of which is reviewed annually. The Group’s agreed policies are implemented by the Chief Financial Officer, who submits periodic reports to the Board.

The Group’s principal financial instruments comprise trade payables and trade receivables which arise directly from its operations and are not designed as a means of raising finance for the Group’s operations. The Group has various financial assets such as receivables and cash and short-term deposits, which arise directly from its operations. The Group does not consider that its financial instruments gave rise to any material financial risks during the period to 31 December 2015.

Interest rate risk The Group’s policy in relation to interest rate risk is to monitor short and medium term interest rates and to place cash on deposit for periods that optimise the amount of interest earned while maintaining access to sufficient funds to meet day to day cash requirements.

The Group does not have any committed external borrowing facilities, as its cash and cash equivalents and short- term deposit balances are sufficient to finance its current operations. Consequently, there is no material exposure to interest rate risk in respect of interest payable.

Foreign currency risk The Group currently has no revenue. The majority of operating costs are denominated in Sterling, Euros and United States dollars. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities. In relation to foreign currency risk, the Group’s policy is to hold the majority of its funds in Sterling, and to use short—medium term currency purchase options (including foreign currency deposits, spot purchases and forward contracts) to manage short—medium term fluctuations in exchange rates.

113 Credit risks The Group’s policy is to place funds with financial institutions which have a minimum long-term credit rating with S&P of A. The Group does not allocate a quota to individual institutions but seeks to diversify its investments, where this is consistent with achieving competitive rates of return. It is the Group’s policy to place not more than £10 million with any one counterparty.

Cash flow and liquidity risk Credit risk from balances with banks and financial institutions is managed by the Group’s finance department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Group’s Audit and Risk Committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through a counterparty’s potential failure to make payments.

The Group’s maximum exposure to credit risk for the components of the balance sheet at 31 December 2015 is the carrying amounts as illustrated in Note 16.

The Group monitors its funding requirements through preparation of short-term, mid-term and long-term forecasts. All short-term deposits are immediately convertible to liquid funds without penalty and are recorded in the balance sheet at their open market value. Please refer to Note 2.2 “Going Concern” regarding the Directors’ assessment of liquidity for further information.

16. Cash and short-term deposits

31 December 2015 £ Cash at banks and on hand 647,007 Short-term deposits 11,600,979 12,247,986

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term deposits are available immediately and earn interest at the respective short-term deposit rates.

17. Issued capital and reserves

Ordinary share capital £ Incorporation capital at 10 March 2015 1 Issuances in the period 59,220 Nominal share capital as at 31 December 2015 59,221

£ Nominal value at 31 December 2015 0.003 Ordinary shares issued and fully paid (post ordinary share split) At 10 March 2015—Incorporation capital 1,000 Founders Shares 4,999,000 Issued on 29 July 2015 for private financing round 14,740,296 Bonus shares issued on 27 November 2015 39,480,592 Consolidation of post-bonus share capital (39,480,592) At 31 December 2015 19,740,296 Nominal value at 31 December 2015 0.003 Issued capital at 31 December 2015 59,221

The Company was incorporated with an issued share capital of £1.00 divided into one Ordinary Share of £1.00 which was issued to the initial subscriber to the Company’s articles of association. Since incorporation, the following alterations to the Company’s share capital have been made: • issue and allotment of 4,999 ordinary shares of £1.00 in nominal value in the capital of the Company on 21 April 2015;

114 • subdivision of 5,000 ordinary shares of £1.00 in nominal value in the capital of the Company to 5,000,000 ordinary shares of £0.001 in nominal value in the capital of the Company on 29 July 2015 (the “ordinary share split”); • under a subscription agreement dated 28 July 2015, issue and allotment of 14,740,296 ordinary shares of £0.001 in nominal value in the capital of the Company on 29 July 2015 at a price of £1.84 per share. 21,730 of these ordinary shares were issued to WG Partners LLP, for no cash consideration, as payment for financial advisory services; • issue two bonus ordinary shares of £0.001 in nominal value for each ordinary held on the 27 November 2015; and • consolidation of the post-bonus share capital on 27 November 2015 such that each ordinary shareholder received one share for every three held. The total number of ordinary shares remains at 19,740,296 but the nominal value is now £0.003.

Under the subscription agreement dated 28 July 2015, as amended by an agreement dated 1 June 2016 (Note 24) (the Subscription Agreement), institutional investors (each an Investor) are committed to subscribe to further ordinary shares. On 27 May 2016, the board of directors of the Company caused the Company to issue a notice (Drawdown Notice) to each Investor, requiring that such Investor subscribe for additional Ordinary Shares at the price of £1.84 per Ordinary Share, up to an amount equal to such Investor’s remaining commitment under the Subscription Agreement. The full commitment is to subscribe to a further 30,727,361 shares at £1.84 per share. As these shares are subscribed at the directors’ discretion, no amounts have been recorded in the period to 31 December 2015.

£ Share premium At 10 March 2015 — Issuance of share capital for private financing round on 29 July 2015 27,067,420 Transaction costs for issued share capital (868,000) Profit on transfer of loan notes for equity 52,941 Consolidation of post-bonus share capital on 27 November 2015 (39,481) At 31 December 2015 26,212,880

Share option schemes The Group has a share option scheme under which options to subscribe for the Group’s shares have been granted to certain Executives, Non-Executive Directors and employees. (See Note 20 for further details).

Other capital reserves

Share-based payments £ At 10 March 2015 — Share-based payments expense during the period 2,982,265 Shares to be issued 18,677,840 At 31 December 2015 21,660,105

Share-based payments The share-based payment reserve is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to Note 19 for further details of these plans.

Shares to be issued Of the 14,740,296 ordinary shares issued on 29 July 2015, 3,849,000 shares were issued to Novartis Pharma AG (Novartis). A further 10,151,000 shares are to be issued to Novartis pro rata to their percentage shareholding as and when the Company issues further ordinary shares.

115 18. Provisions

Social security contributions on share options £ At 10 March 2015 — Arising during the period 141,311 At 31 December 2015 141,311 Current — Non-current 141,311

The provision for social security contributions on share options is calculated based on the number of options outstanding at the reporting date that are expected to be exercised. The provision is based on the estimated gain arising on exercise of the share options, using the best estimate of the market price at the balance sheet date. Since the Directors assume the options will be held for their full contractual life of 10 years (see Note 19) the liability has been classified as non-current. The provision has been discounted.

19. Share-based payments Option Plan Under the Mereo BioPharma Group Limited Share Option Plan (the Option Plan), the Group, at its discretion, may grant share options to all employees, including executive management, and non-executive directors. Share options vest over four years for executive management and employees and over three years for non-executive directors. There are no performance conditions attached to options issued under the Option Plan. The fair value of share options granted is estimated at the date of grant using a Black-Scholes pricing model, taking into account the terms and conditions upon which the share options were granted. The fair value calculation does not include any allowance for dividends as the Company has no available profits for distribution.

The exercise price of the share options is equal to the market price of the underlying shares on the date of grant, less a discount agreed with the Group’s institutional investors. The contractual term of the share options is ten years.

The expense recognised for employee services received during the period is £2,982,265.

The expense recognised by the Company for employee services received during the period is £2,560,916.

There were no cancellations or modifications to the awards in the period to 31 December 2015.

Movements during the period The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the period:

2015 2015 Number WAEP £ Granted during the period 8,964,394 1.29 Outstanding at 31 December 8,964,394 1.29 Exercisable at 31 December — 1.29

The weighted average remaining contractual life for the share options outstanding as at 31 December 2015 was 9.6 years.

The weighted average fair value of options granted during the period was £1.33.

All options outstanding at the end of the period had an exercise price of £1.29.

116 The following tables list the weighted average inputs to the models used for the fair value of share options granted during the period ended 31 December 2015:

Period ended 31 December 2015 Expected volatility (%) 56 Risk-free interest rate (%) 1.85-2.07 Expected life of share options (years) 10 Market price of ordinary shares (£) 1.84 Model used Black-Scholes

Since there is no historical data in relation to the expected life of the share options the contractual life of the options has been used in calculating the expense for the period.

Volatility is estimated by reference to the share price volatility of a group of comparable companies over a retrospective period equal to the expected life of the share options.

20. Trade and other payables

31 December 2015 £ Trade payables 1,263,747 Social security and other taxes 107,661 Other payables 17,612 Accruals 2,588,497 Intercompany payable — 3,977,517

Terms and conditions of the above financial liabilities: • Trade payables are non-interest bearing and are normally settled on 30-day terms; and • Other payables are non-interest bearing and have an average term of one month.

For explanations on the Group’s credit risk management processes, refer to Note 15.2.

21. Commitments and contingencies Operating lease commitments—Group as lessee The Company has entered into a lease for its premises at Fourth Floor, 1 Cavendish Place, London, W1G 0QF. The term of the Lease Agreement is from 17 August 2015 through 16 August 2025.

The Premises comprise approximately 4,000 square feet. The principal rent for the Premises is £162,960 per annum through 16 December 2016 and £325,920 per annum thereafter, subject to increase on 17 August 2020 based on the open market value of the Premises (the Principal Rent). In addition to the Principal Rent, the Company is responsible for value added tax on the Principal Rent and certain insurance costs and service charges incurred by the Landlord.

The Company may break the Lease Agreement on 16 August 2020 by providing six months’ prior written notice to the Landlord. If the Company does not exercise its break option, the Landlord will decrease by 50% the Principal Rent for the period from 16 August 2020 through 15 April 2021.

117 Future minimum rentals payable under non-cancellable operating leases as at 31 December are, as follows:

31 December 2015 £ Within one year 293,328 After one year but not more than five years 1,063,708 More than five years — 1,357,036

The Group does not have any other operating leases.

Finance leases—Group as lessee The Group did not have any leasing arrangements classifying as finance leases at 31 December 2015.

22. Related party disclosures Note 5 provides information about the Group’s structure, including details of the subsidiaries and the holding company. The following shows the transactions that have been entered into with related parties for the relevant financial period.

Dr Frank Armstrong is a director of Dr Frank Armstrong Consulting Ltd, and a director of the Company. During the period the Company made purchases, in the ordinary course of business, at a cost of £120,412 from Dr Frank Armstrong Consulting Ltd. These purchases were for assistance with diligence activities, contributed advice and reimbursement of travel costs prior to completion of the purchase agreements.

Dr Denise Scots-Knight, Kunal Kashyap and Peter Bains are directors of Phase4 Partners Ltd and directors of the company. During the period the Group made purchases, in the ordinary course of business, at a cost of £458,359 from Phase4 Partners Ltd. These purchases were for reimbursement of pre-establishment third party consultancy services and reimbursement of office and travel costs.

Novartis Pharma AG holds shares in the Company at 31 December 2015. On 28 July 2015, Mereo BioPharma 1 Ltd, Mereo BioPharma 2 Ltd and Mereo BioPharma 3 Ltd each acquired certain assets from Novartis Pharma AG, each company issuing a loan note to Novartis as consideration. The total amount was £25,812,941. The loan notes were interest bearing at a fixed rate of 2% above the Bank of England rate.

On 28 July 2015, Mereo BioPharma Group Ltd entered into the Subscription Agreement to obtain investor funding. A range of investors subscribed for ordinary shares in the Company for cash consideration at £1.84 per share. The Subscription Agreement also committed each institutional investor to further share purchases at £1.84 per share (each up to a stated commitment level), at the Company’s discretion. On 27 May 2016, the Company called upon this commitment by issuing a Drawdown Notice.

As part of the Subscription Agreement, Novartis Pharma AG assigned its loan notes with the three subsidiaries to Mereo BioPharma Group Ltd and extinguished the loan notes in return for the receipt of 3,849,000 ordinary shares in the Company. The number of shares issued to Novartis Pharma AG at that date provided Novartis Pharma AG a 19.5% equity share in the Company. Further, as part of the agreement, should further share issuances occur, Novartis Pharma AG will be issued with fully paid up bonus shares (for nil consideration), the number of which will be calculated to maintain its shareholding at 19.5%. The maximum number of shares which Novartis Pharma AG could obtain would be 14,000,000. If the contractual further commitment by institutional investors is called upon, 7,453,000 bonus shares would need to be issued to Novartis Pharma AG. The fair value of these would be £1.84 per share. Novartis Pharma AG’s remaining ‘uncalled’ bonus shares at that point would be 2,698,000. The fair value of these remaining shares would be variable.

As part of the BCT-197 Purchase Agreement, Novartis Pharma AG made a payment to a third party in settlement of future milestone and royalty payments due on BCT-197. The Group reimbursed Novartis a portion of this payment, amounting to $1,500,000.

118 Terms and conditions of transactions with related parties The purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. There have been no guarantees provided or received for any related party receivables or payables. For the period ended 31 December 2015 the Group has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

23. Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group financial information are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.

IFRS 16 Leases IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January 2019.

The Group is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date.

The following standards and interpretations, applicable for annual periods beginning on or after 1 January 2016, are not expected to have any impact on the results of the Group or the presentation of the financial statements: • IFRS 9 Financial Instruments • IFRS 10 Consolidated Financial Statements—Amendments regarding the sale or contribution of assets between an investor and its associate or joint venture and Amendments regarding the application of the consolidation exception • IFRS 11 Joint Arrangements—Amendments regarding the accounting for acquisitions of an interest in a joint operation • IFRS 12 Disclosure of Interests in Other Entities—Amendments regarding the application of the consolidation exception • IFRS 14 Regulatory Deferral Accounts • IAS 1 Presentation of Financial Statements—Amendments resulting from the disclosure initiative • IAS 7 Statement of Cash Flows—Amendments resulting from the disclosure initiative • IAS 12 Income Taxes—Amendments to recognition of deferred tax assets for unrealised losses

119 • IAS 16 Property, Plant and Equipment—Amendments regarding the clarification of acceptable methods of depreciation and amortisation and Amendments bringing bearer plants into the scope of IAS 16 • IAS 27 Separate Financial Statements (as amended in 2011)—Amendments reinstating the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements • IAS 28 Investments in Associates and Joint Ventures—Amendments regarding the application of the consolidation exception • IAS 38 Intangible Assets—Amendments regarding the clarification of acceptable methods of depreciation and amortisation • IAS 41 Agriculture—Amendments bringing bearer plants into the scope of IAS 16 • Amendments resulting from September 2014 Annual Improvements to IFRSs: • IFRS 5 Non-current Assets Held for Sale and Discontinued Operations • IFRS 7 Financial Instruments: Disclosures • IAS 19 Employee Benefits • IAS 34 Interim Financial Reporting

24. Events after the reporting period In February 2016, under the Option Plan, the Group granted a further 859,877 share options to employees.

In April and May 2016, under the Option Plan, the Group granted a further 50,000 and 236,974 share options to a consultant and director of the Group.

On 21 March 2016, the Directors signed a Solvency Statement with the agreement of all shareholders and undertook a capital reduction, reducing the share premium account by £7,000,000 and reducing the accumulated losses by the same amount.

On 27 May 2016, the Board of Directors of the Company caused the Company to issue a Drawdown Notice to each Investor, requiring that such Investor subscribe for additional Ordinary Shares at the price of £1.84 per Ordinary Share, up to an amount equal to such Investor’s remaining commitment under the Subscription Agreement.

On 1 June 2016, the Subscription Agreement was amended so as to: (i) constitute the drawdown notice requiring Invesco and Woodford to subscribe for ordinary shares equal to their remaining commitment; (ii) allow Invesco Perpetual UK Strategic Income Fund to subscribe for ordinary shares representing a certain proportion of Invesco Perpetual High Income Fund’s remaining commitment; and (iii) agree the amount of shares to be transferred from the Founders to Invesco Perpetual High Income Fund and Woodford.

On 2 June 2016 the Company received irrevocable subscriptions for 5,135,962 Ordinary Shares under the Private Placement at a price of £2.21 per share.

On 3 June 2016 the Company issued 3,463,563 unsecured convertible loan notes (Notes) to Novartis for proceeds of £3,463,563. The Notes attract interest of 4% per annum, payable annually. Novartis is entitled to convert the Notes at any time when it holds less than 19.5% of the aggregate voting rights in the Company within 36 months of the date of the Notes (Maturity Date). To the extent not converted at the Maturity Date, the outstanding principal amount of the Notes, together with any accrued interest, is redeemable. Upon conversion of any Note, Novartis is entitled to receive an additional 0.93 shares per conversion share issued, up to a maximum of 1,453,520 shares.

Pursuant to a side letter that will be entered into following Admission between the Company, Invesco and Woodford, the Company has agreed that 500,000 share options will be cancelled within 30 days following Admission.

120 PART XI UNAUDITED PRO FORMA FINANCIAL INFORMATION UNAUDITED PRO FORMA STATEMENT OF NET ASSETS AS AT 31 DECEMBER 2015 The unaudited pro forma statement of net assets is compiled on the basis set out in the notes below, from the balance sheet of the Group as at 31 December 2015, as set out in the historical financial information. The unaudited pro forma statement of net assets has been prepared to illustrate the effect on the net assets of the Group of (i) receipt by the Company of the net proceeds raised in the Capital Raise and (ii) the Company’s exercise in full of its option under the Subscription Agreement to require Invesco and Woodford to subscribe for Ordinary Shares in the amount of £56.5 million (£54.9 million after fees), as if these events had taken place on 31 December 2015. This unaudited pro forma statement of net assets has been prepared for illustrative purposes only and, because of its nature, the pro forma statement of net assets addresses a hypothetical situation and does not represent the actual financial position or results of the Group. The unaudited pro forma statement of net assets has been prepared on the basis set out in the notes below, consistent with the accounting policies of the Group set out in Note 2 to the historical financial information and in accordance with Annex II of the Prospectus Rules. Adjustments Net proceeds from the exercise of the Company’s option Net proceeds As at under the from the Unaudited 31 December Subscription Capital pro forma 2015(1) Agreement(2) Raise(3) total(4) £ Assets Non-current assets Property, plant and equipment 204,517 — — 204,517 Intangible assets 25,812,941 — — 25,812,941 26,017,458 — — 26,017,458 Current Assets Prepayments 253,926 — — 253,926 Other receivables 1,342,703 — — 1,342,703 Cash and short-term deposits 12,247,986 54,882,224 12,551,720 79,681,930 13,844,615 54,882,224 12,551,720 81,278,559 Total assets 39,862,073 54,882,224 12,551,720 107,296,017 Non-current liabilities Provisions 141,311 — — 141,311 Borrowings — — 2,798,052 2,798,052 Current liabilities Trade and other payables 3,977,517 — (1,160,000) 2,817,517 Total liabilities 4,118,828 — 1,638,052 5,756,880 Net assets 35,743,245 54,882,224 10,913,668 101,539,137

(1) The financial information of the Company has been extracted, without material adjustment, from the consolidated balance sheet as at 31 December 2015 as set out in the historical financial information. (2) As set out in paragraph 12.4 (Subscription Agreement) of Part XV: “Additional Information”, immediately prior to Admission, the Company will exercise its option under the Subscription Agreement requiring Invesco and Woodford to subscribe for additional Ordinary Shares. This will result in cash inflows of £54.9 million (£56.5 million less £1.6 million of associated fees). (3) The proceeds of the Capital Raise are £14.8 million comprising proceeds of the Private Placement of £11.4 million and £3.5 million received upon issuance of a convertible loan note to Novartis, as detailed in paragraph 12.5 of Part XV: “Additional Information”. The fair value of the liability components of the convertible loan note has been estimated at £2.8 million. The estimated costs of the Private Placement are £2.3 million, of which £1.2 million has been accrued as at 31 December 2015. As a result, the Company will receive net proceeds of £12.6 million.

121 The Capital Raise proceeds of £14.8 million are based on 5,135,962 Ordinary Shares being issued by the Company at a Private Placement Price of £2.21 and issue of convertible loan notes for proceeds of £3.5 million. Capital Raise costs and expenses are the estimated costs and fees incurred in respect of the Capital Raise relating principally to investment banking, placing, legal and accounting fees. (4) Other than the adjustments detailed above, no other adjustments have been made for events occurring after 31 December 2015.

122 PART XII

DETAILS OF THE PRIVATE PLACEMENT

1. Ordinary Shares subject to the Private Placement The Private Placement comprises 5,135,962 Ordinary Shares (the Private Placement Shares), which are to be issued by the Company for an amount of £11.4 million, representing 8.0% of the issued share capital of the Company immediately following Admission.

The Company will bear one-off fees and expenses of £2.3 million (including VAT) in connection with the Capital Raise and Admission.

2. The Private Placement Under the Private Placement, Ordinary Shares are being offered (i) to certain institutional and professional investors in the United Kingdom and elsewhere outside the United States in reliance on Regulation S under the Securities Act; and (ii) in the United States only to QIBs, as defined in Rule 144A under the Securities Act.

All of the Private Placement Shares will be issued at the Private Placement Price, which will be payable in full on or before 11:00 a.m. on 8 June 2016.

The distribution of this document and the offer of the Private Placement Shares are subject to the restrictions set out in paragraph 10 (Selling restrictions) below.

When admitted to trading, the Ordinary Shares will be registered with ISIN number GB00BZ4G2K23 and SEDOL number BZ4G2K2. The rights attaching to the Ordinary Shares will be uniform in all respects and they will form a single class for all purposes.

Immediately following Admission, it is expected that 12.4% of the Company’s issued ordinary share capital will be held in public hands.

3. Reasons for the Capital Raise and Admission The issue of the Ordinary Shares will provide additional funds that the Directors believe will allow the Group to bring its product candidates BCT-197, BGS-649 and BPS-804 to the next stage of development.

The net proceeds payable to the Company from the Capital Raise will be £12.6 million (after deducting the private placement agency fees, taxes and other offering-related fees and expenses (including VAT) of £2.3 million from the gross proceeds of the Capital Raise.

The Company intends to allocate the net proceeds from the Capital Raise of £12.6 million and proceeds resulting from the exercise of the option under the Subscription Agreement of £54.9 million, and its cash balances as of 31 December 2015 as follows: • development of product candidate BCT-197 of £18.1 million; • development of product candidate BGS-649 of £16.4 million; • development of product candidate BPS-804 of £26.2 million; and • other corporate costs covering a period to the end of 2018 estimated at £19.0 million.

5. Placing arrangements The Company, the Directors, certain of the Founders and the Private Placement Agents have entered into the Private Placement Agency Agreement pursuant to which, on the terms and subject to certain conditions contained in the Private Placement Agency Agreement which are customary in agreements of this nature, the Private Placement Agents have severally agreed to act as private placement agents to the Company in relation to the placement of the Private Placement Shares with subscribers.

6. Lock-up arrangements The Company, the Founders party thereto and each of the Directors have agreed to certain lock-up arrangements in the Private Placement Agency Agreement.

123 The Company has agreed that, subject to certain exceptions, during the period of 180 days from the date of Admission, it will not, without the prior written consent of the Global Co-ordinator on behalf of the Private Placement Agents, issue, offer, sell or contract to sell, or otherwise dispose of any Ordinary Shares (or any interest therein or in respect thereof) or enter into any transaction with the same economic effect as any of the foregoing.

Each of the Directors and the Founders that are party to the Private Placement Agency Agreement has agreed that, subject to certain exceptions, during the period of 365 days from the date of Admission, he/she will not, without the prior written consent of the Private Placement Agents, offer, sell or contract to sell, or otherwise dispose of any Ordinary Shares (or any interest therein in respect thereof) or enter into any transaction with the same economic effect as any of the foregoing.

In addition, in the Lock-up Agreement, Novartis has agreed that, subject to certain exceptions, during the period of 365 days from the date of Admission, it will not, without the prior written consent of the Private Placement Agents, offer, sell or contract to sell, or otherwise dispose of any Ordinary Shares (or any interest therein in respect thereof) which it held prior to Admission or enter into any transaction with the same economic effect as any of the foregoing.

Further details of these arrangements, which are contained in the Private Placement Agency Agreement and the Lock-up Agreement, are set out in paragraphs 12.1 (Private Placement Agency Agreement) and 12.2 (Lock-up Agreement) of Part XV: “Additional Information”.

7. Dealing arrangements It is expected that Admission will become effective and that unconditional dealings in the Ordinary Shares will commence on AIM at 8am on 9 June 2016.

Subscription Amounts will be required to be paid in Pounds Sterling in cleared funds into the Subscription Account on or before 11:00 a.m. (London time) on 8 June 2016 (or such later date as the Board may in its absolute discretion determine (the Payment Date)). The Subscription Account will be held by the Registrar. The Company reserves the right to withdraw the availability of the Private Placement at any time in its sole discretion. Further information about the application process and the Subscription Terms and Conditions are set out in Part XIII (Application Instructions and Procedures) and Part XIV (Subscription Terms and Conditions).

8. CREST CREST is a paperless settlement system enabling securities to be transferred from one person’s CREST account to another’s without the need to use share certificates or written instruments of transfer. The Company has applied for the Ordinary Shares to be admitted to CREST with effect from Admission and, also with effect from Admission, the articles of association will permit the holding of Ordinary Shares under the CREST system. Accordingly, settlement of transactions in the Ordinary Shares following Admission may take place within the CREST system if any shareholder so wishes. CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share certificates will be able to do so.

9. Conditionality of the Private Placement The Private Placement is subject to the satisfaction of conditions which are customary for transactions of this type contained in the Private Placement Agency Agreement, including Admission becoming effective by no later than 8am on 9 June 2016 (or such later date and time as the Company may agree with the Private Placement Agents) and the Private Placement Agency Agreement not having been terminated prior to Admission. See paragraph 12.1 (Private Placement Agency Agreement) of Part XV: “Additional Information” for further details about the placing arrangements.

10. Selling restrictions The distribution of this document and the offering and sale of Private Placement Shares in certain jurisdictions may be restricted by law and therefore persons into whose possession this document comes should inform

124 themselves about and observe any such restrictions, including those in the paragraphs that follow. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

None of the Private Placement Shares may be offered for subscription, sale or purchase or delivery, or be subscribed, sold or purchased or delivered, and this document and any other offering material in relation to the Private Placement Shares may not be circulated, in any jurisdiction where to do so would breach any securities laws or regulations of any such jurisdiction or give rise to an obligation to obtain any consent, approval or permission, or to make any application, filing or registration.

10.1 European Economic Area In relation to each Relevant Member State, an offer to the public of any Ordinary Shares may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any Ordinary Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: (a) to any legal entity which is a qualified investor as defined under the Prospectus Directive; (b) to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the Private Placement Agents; or (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Ordinary Shares shall result in a requirement for the Company or any Private Placement Agent to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive and each person who initially acquires any Ordinary Shares or to whom any offer is made will be deemed to have represented, warranted and agreed to and with the Private Placement Agents and the Company that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)I of the Prospectus Directive. For the purposes of this provision, the expression an offer to the public in relation to any Ordinary Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the Private Placement and any Ordinary Shares to be offered so as to enable a prospective investor to decide to purchase any Ordinary Shares, as the same may be varied for that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State. In the case of any Ordinary Shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have represented, warranted and agreed that (i) the Ordinary Shares acquired by it have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, or in circumstances in which the prior consent of the Private Placement Agents has been obtained to each such proposed offer or resale; or (ii) where Ordinary Shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those Ordinary Shares to it is not treated under the Prospectus Directive as having been made to such persons. The Company and the Private Placement Agents and each of their respective affiliates and others will rely upon the truth and accuracy of the foregoing representation, warranty and agreement. Notwithstanding the above, a person who is not a qualified investor and who has notified the Private Placement Agents of such fact in writing may, with the consent of the Private Placement Agents, be permitted to subscribe for or purchase Ordinary Shares.

10.2 United States of America This document is not an offer of securities for sale in the United States. The Ordinary Shares have not been, and will not be, registered under the Securities Act or with any securities regulatory authority of or under the applicable securities laws or regulations of any state or other jurisdiction of the United States and may not be offered or sold in the United States except in transactions exempt from, or not subject to, the registration requirements of the Securities Act. Accordingly, in the United States, only QIBs may subscribe to Private Placement Shares in the Private Placement. Outside the United States Private Placement Shares are being offered in offshore transactions within the meaning of and in reliance on Regulation S under the Securities Act.

125 In addition, until 40 days after Admission, any offer or sale of Ordinary Shares within the United States by any dealer (whether or not participating in the Private Placement) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A or another available exemption from registration under the Securities Act.

11. U.S. considerations 11.1 Available information The Company has agreed that, for so long as any of the Ordinary Shares are “restricted securities” as defined in Rule 144(a)(3) under the Securities Act, the Company will, during any period in which it is neither subject to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), nor exempt from reporting under the Exchange Act pursuant to Rule 12g3-2(b) thereunder, make available to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, upon the request of such holder, beneficial owner or prospective purchaser, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

11.2 Service of process and enforcement of civil liabilities The Company is incorporated under the laws of England and Wales. Service of process upon Directors and Senior Management of the Company, most of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, since most directly owned assets of the Company are outside the United States, any judgment obtained in the United States against it may not be collectible within the United States. There is doubt as to the enforceability of certain civil liabilities under U.S. federal securities laws in original actions in English courts, and, subject to certain exceptions and time limitations, English courts will treat a final and conclusive judgment of a U.S. court for a liquidated amount as a debt enforceable by fresh proceedings in the English courts.

11.3 Transfer restrictions Each purchaser of the Company’s securities in the United States will be deemed to have represented, agreed and acknowledged as follows: (i) The purchaser (a) is a qualified institutional buyer, or QIB, as defined in Rule 144A, or a broker- dealer acting for the account of a QIB, (b) is acquiring the securities for its own account or for the account of a QIB, and (c) is aware that the securities are restricted within the meaning of the Securities Act and may not be deposited into any unrestricted depositary facility, unless at the time of such deposit the securities are no longer restricted. (ii) The purchaser is aware that such securities have not been and will not be registered under the Securities Act and are being offered in the United States only to QIBs in a transaction not involving any public offering in the United States within the meaning of the Securities Act. (iii) The purchaser understands and agrees that such securities may not be offered, sold, pledged or otherwise transferred, except (a) to a person that the seller and any person acting on its behalf reasonably believe is another QIB purchasing for its own account or for the account of a QIB, (b) outside the United States in accordance with Regulation S under the Securities Act, (c) pursuant to an exemption from registration under the Securities Act or (d) pursuant to an effective registration statement under the Securities Act. (iv) The purchaser acknowledges that it has not purchased the Private Placement Shares as a result of any general solicitation or general advertising (as such terms are defined in Regulation D under the Securities Act).

11.4 Exchange rates The following tables show, for the periods indicated, the exchange rate between the U.S. dollar and pound sterling. The term “Noon Buying Rate” refers to the rate of exchange for pounds sterling, expressed in U.S. dollars per pound sterling, in the City of New York for cable transfers payable in foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes. The Noon Buying Rate for the pound sterling on 27 May 2016 was 1.4644 = £1.00. The following tables describe, for the periods and dates

126 indicated, information concerning the Noon Buying Rate for the pound sterling. Amounts are expressed in U.S. dollars per £1.00.

Period Average Year End Rate(1) High Low 2010 1.5612 1.5452 1.6362 1.4334 2011 1.5543 1.6039 1.6707 1.5343 2012 1.6255 1.5851 1.6279 1.5318 2013 1.6557 1.5649 1.6557 1.4867 2014 1.5577 1.6476 1.7166 1.5517 2015 1.4736 1.5285 1.5883 1.4632

(1) The average of the Noon Buying Rates for pounds sterling on the last day reported of each month during the relevant period.

Period Average Month End Rate High Low November 2015 1.5056 1.5194 1.5421 1.5036 December 2015 1.4736 1.4980 1.5213 1.4736 January 2016 1.4244 1.4404 1.4746 1.4158 February 2016 1.3913 1.4308 1.4587 1.3871 March 2016 1.4360 1.4253 1.4482 1.3952 April 2016 1.4625 1.4319 1.4625 1.4082 May 2016 1.4483 1.4525 1.4697 1.4365

127 PART XIII

APPLICATION INSTRUCTIONS AND PROCEDURES

The procedures contained in this Part XIII (Application Instructions and Procedures) apply to all investors in this Private Placement, unless the Company and the Private Placement Agents otherwise agree. The Company and the Private Placement Agents shall be entitled to vary the terms in this Part XIII (Application Instructions and Procedures) in respect of any such investors in their absolute discretion.

Investors may only apply once to subscribe for Private Placement Shares and investors who submit two or more Application Forms may have their Application Forms rejected.

Qualifying Shareholders wishing to apply to subscribe for Private Placement Shares must complete the following steps during the Private Placement Period in order for their Application Form to be considered:

Step One – Completing and Submitting the Application Form If you wish to subscribe for Private Placement Shares in the Private Placement, you will need to complete and send back the Application Form confirming your commitment to subscribe for the indicated number of Private Placement Shares in the Private Placement. By doing so, you will give a commitment to the Company to subscribe for the relevant number of Private Placement Shares at the Private Placement Price and to pay to the Company the necessary Subscription Amount to satisfy your subscription obligations.

From the Payment Date until Admission, if we provide to you supplementary disclosure, you will be allowed, for a period of time to be notified to you, to cancel or amend your application for Private Placement Shares. In such event, the date of Admission may change.

The Application Form should be returned by email to Charles Sermon, the Company Secretary, at [email protected], so as to arrive no later than 11:00 a.m. (London time) on 2 June 2016 (or such later date as the Board may in its absolute discretion determine).

The Application Form must be completed, executed and submitted correctly or it may not be accepted. If you have any questions about how to complete, execute and submit the Application Form, please contact the Company Secretary, Charles Sermon.

Step Two – Payment of the Subscription Amount The Subscription Amount must be paid in Pounds Sterling in cleared funds into the Subscription Account on or before 11:00 a.m. (London time) on the Payment Date (or such later time and date as the Board may in its absolute discretion determine).

(a) Electronic Bank Transfer (“CHAPS”) Subscription monies sent by electronic bank transfer (CHAPs) must be received no later than 11:00 a.m. on the Payment Date directly into the bank account detailed below. The payment instruction must also include a unique reference comprising your name and a contact telephone number, which should be entered in the reference field on the payment instruction (for example, MJ SMITH 01234 567 8910).

Bank: Royal Bank of Scotland Sort Code: 15-10-00 Account No: 32510151 Account Name: Capita Registrars Ltd re: Mereo BioPharma CHAPS A/C Swift Code: RBOSGB2L IBAN: GB34RBOS15100032510151

128 (b) CREST Settlement If you choose to settle your application within CREST (“DVP”), you or your settlement agent/custodian’s CREST account must allow for the delivery and acceptance of Private Placement Shares to be made against payment of the price per Private Placement Share, following the CREST matching criteria set out below:

Trade Date: 2 June 2016 Settlement Date: 9 June 2016 Company: Mereo BioPharma Group plc Security Description: Ordinary Shares of £0.003 each SEDOL: BZ4G2K2 ISIN: GB00BZ4G2K23

Should you wish to settle DVP, you will need to input your instructions to Capita Asset Services’ Participant account RA06 by no later than 11.00 a.m. on 8 June 2016. Capita will not take any action until a valid DEL message is alleged to our participant ID, RA06.

You must ensure that you or your agent/custodian have a sufficient “debit cap” within the CREST system to facilitate settlement in addition to your/their own daily trading and settlement requirements.

In the event of late settlement the Company reserves the right to deliver Private Placement Shares outside of CREST in certificated form provided that payment has been made in terms satisfactory to the Company and all other conditions in relation to the Private Placement have been satisfied.

Step Three – Confirmation of allocation Investors will be notified on or before 3 June 2016 as to whether their application has been accepted in whole or in part.

If the total number of Private Placement Shares applied for exceeds the number of Private Placement Shares available for subscription, the Company may, in its absolute discretion, reject, scale down or limit any application for Private Placement Shares.

In the event that an application is rejected in whole or in part, any Subscription Amount paid or the balance thereof will be returned to the investor in Pounds Sterling to the account details already supplied by the investor to the Company, at the risk and cost of the investor and without accounting for interest by no later than 9 June 2016.

All investors, as applicable, authorise and instruct the Company to refund all or part of Subscription Amounts by returning the funds to the bank account (details of which have been supplied by the investor to the Company in the Application Form).

129 PART XIV SUBSCRIPTION TERMS AND CONDITIONS References to the Company’s “advisers” in these Subscription Terms and Conditions shall, where the context permits, include the Private Placement Agents. The Subscription Terms and Conditions may vary depending on the jurisdiction of the potential investor. The Company reserves the right to modify the Subscription Terms and Conditions in its sole discretion and reserves the right to withdraw the availability of the Private Placement at any time in its sole discretion. By completing and delivering an Application Form in which you indicate that you wish to subscribe for Private Placement Shares, you, amongst other terms and conditions that may be set out in the Application Form, confirm that you:

Reliance on document only (a) understand that unless you withdraw your application for Private Placement Shares prior to 4.00 p.m. (London time) on the Payment Date, you will be deemed to have: (i) read and understood the Admission Document and any supplement thereto; and (ii) acknowledged that your investment decision is based solely upon the Admission Document, read together with any supplements thereto; (b) acknowledge and agree that the Admission Document has been, and any supplement thereto will be, prepared and provided to you by the Company for your reference and is the sole responsibility of the Company. Accordingly, you understand and acknowledge that none of the Company’s agents or advisers accept responsibility for or make any representation or give any warranty, express or implied, with respect to: (i) the accuracy, reliability or completeness of; (ii) the suitability for your purposes of; or (iii) the reasonableness of the grounds on which any assumptions are contained in, any information (including the Admission Document and any supplement thereto), whether written or oral, provided to you by the Company, the Directors or any of the Company’s agents or advisers in connection with your investment in the Private Placement Shares, and you will not hold the Company’s agents or advisers responsible or liable for any misstatements in or omission from the Admission Document and any supplement thereto; (c) understand and acknowledge that any information, whether written or oral, provided to you by the Company, the Directors or any of the Company’s agents or advisers in connection with your investment in the Private Placement Shares may contain certain projections, forecasts or forward-looking statements with respect to the business, strategy or plans of the Company, and expectations as to the future financial condition and performance of the Company. You understand and acknowledge that (i) by their nature, projections, forecasts and forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and (ii) neither the Company nor any of its agents or advisers makes any representation and gives no warranty, express or implied, that any such projections, forecasts or forward- looking statements will be realised; (d) understand and acknowledge that none of the Company’s advisers will treat you as their customer by virtue of your subscription being accepted, or owe you any duties or responsibilities concerning the price of the Private Placement Shares or the suitability for you of the Private Placement Shares, or be responsible to you for providing the protections afforded to their customers. In particular, each of the Private Placement Agents is acting as private placement agent in relation to the placement of Private Placement Shares to new investors and providing other assistance to the Company in respect of the Private Placement, but is acting solely for the Company and no one else in relation to the Private Placement and in doing so, is not acting as bookrunner or financial adviser to any person in respect of the Private Placement; (e) confirm that, in deciding to sign the Application Form and offer to subscribe for Private Placement Shares, you have not relied on, and hereby waive (to the extent permitted by law) all claims that you may have in relation to, any statement, representation or undertaking of the Company, the Directors or any of the Company’s agents or advisers, other than those statements made by the Company as set out in the Application Form, the articles of association of the Company and the Admission Document and any supplement thereto;

Capacity and compliance with laws (f) acknowledge and agree to the selling restrictions and transfer restrictions as set out in paragraph 10 and 11.3, respectively, of Part XII of the Admission Document; (g) represent and warrant that you have the power, legal capacity and authority, and are permitted by applicable law to acquire and hold the Private Placement Shares and to execute, deliver and comply with the terms of

130 the Application Form, and that such execution, delivery and compliance does not conflict with, or constitute a default under or violation of, any instrument governing you or any agreement to which you are a party or by which you or your assets may be bound, and if you sign the Application Form on behalf of somebody else or on behalf of a corporation, trust or other corporate entity, you have due authority to do so on behalf of that other person or entity, and such person or entity will also be bound accordingly and will be deemed also to have given the confirmations, warranties, undertakings and authorities contained herein and undertake to enclose your duly certified and notarised power of attorney, and a copy of the same, together with all other documents required to be submitted with your Application Form; (h) represent and warrant that you have such knowledge and experience in financial and business matters that you are capable of evaluating the merits and risks of acquiring Private Placement Shares, including the risk of the total loss of your investment in the Private Placement Shares; (i) confirm that you are not party to any agreements or arrangements which would have the effect of making you a “controller” (whether on the basis of acting in concert, deemed holdings or voting power or otherwise) of the Company for the purposes of Part XII of FSMA;

Acceptance of applications (j) agree to subscribe for the number of Private Placement Shares specified in the Application Form (or such lesser number for which your application is accepted by the Company) at the Private Placement Price under the Private Placement; (k) agree to pay in full your Subscription Amount in the manner described in Step Two in Part XIII (Application Instructions and Procedures) on or before 11.00 a.m. (London time) on the Payment Date; (l) agree that if you fail to pay your Subscription Amount in the manner described in Step Two in Part XIII (Application Instructions and Procedures) on or before 11.00 a.m. (London time) on the Payment Date, you will forfeit your right to subscribe for Private Placement Shares and you indemnify the Company for any loss associated therewith; (m) understand that the Company reserves the right to reject in whole or part, or to scale down or limit, any application for Private Placement Shares. If any application is not accepted in full, the whole or relevant part of any Subscription Amount paid, will be returned to the account, details of which have been provided by the investor to the Company at your own risk and with no interest payable thereon;

Anti-money laundering requirements (n) acknowledge that due to money laundering requirements operating within their respective jurisdictions, the Company and/or one of its agents or advisers may require further identification of the subscriber(s) and source of funds before applications for Private Placement Shares can be processed and accepted or before Subscription Amounts can be returned to any account specified in the Application Form, and you hold the Company and its respective agents and advisers harmless and indemnified against any loss arising from the failure to process your application for Private Placement Shares, if such information as has been required from you has not been provided within the allotted time to the satisfaction of the party requesting such information; (o) consent to the passing on of any information about you to any relevant regulatory authorities by the Company or their delegates to the extent required; (p) represent that the Private Placement Shares are to be purchased with funds that are from legitimate sources in connection with your regular business activities and which do not constitute the proceeds of criminal conduct within the meaning given in the Proceeds of Crime Act 2002 in the UK or in any other applicable anti-money laundering legislation and you agree to provide such further information and documentation as may be necessary for identification or other purposes pursuant to such anti-money laundering legislation; (q) acknowledge that you are: (i) not listed on the OFAC list of specifically designated nationals and blocked persons; (ii) not otherwise the target of economic sanctions administered by OFAC and (iii) not acting on behalf of any party that is on the OFAC list of specifically designated nationals and blocked persons or otherwise the target of economic sanctions administered by OFAC;

Continuing obligations (r) will notify the Company immediately if you become aware that any of these undertakings, representations and warranties are no longer accurate and complete in all respects, at any time up to completion of the Private Placement;

131 Indemnity (s) if you are acting as nominee, agent or trustee for a beneficial owner, you also agree to indemnify the Company, the Directors, each of the Company’s agents and advisers and each of their respective advisers, their affiliates and each other person, if any, who controls or is controlled by any thereof against any and all loss (including loss of profits, loss of reputation and consequential loss), liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses and costs (including attorneys’ fees) reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) in connection with any damages resulting from the beneficial owner’s assertion of lack of proper authorisation for you to enter into the Application Form or perform any obligations pursuant thereto and agree that this indemnity shall apply whether or not the Company, the Directors, each of the Company’s agents and advisers or any of their respective advisers, their affiliates and each other person, if any, who controls or is controlled by any thereof has been negligent or at fault;

Confidentiality (t) acknowledge that the Company, its agents or advisers and any of their respective delegates may present the Application Form and the information provided in it to such parties (for example, affiliates, attorneys, auditors, administrators, brokers and regulators) as they deem necessary or advisable to facilitate the acceptance (or rejection) and management of your subscription for Private Placement Shares. Furthermore, it is agreed and acknowledged that any of them may be required to disclose such information to any regulator or other competent governmental or other authority or where otherwise required by law. You confirm that you understand that any such sharing or disclosure of information regarding you and/or your investment in the Private Placement Shares shall not constitute a breach of any duty or obligation of confidentiality owed to you by the Company or by any of its agents or advisers and you consent to such sharing or disclosure of information regarding you or your investment in the Private Placement Shares;

Entire agreement (u) understand that these Subscription Terms and Conditions, the Application Form and all related terms, conditions and covenants shall be deemed to be given to and for the benefit of the Company, its agents and advisers and their respective advisers and their respective successors, permitted assigns, executors, administrators and heirs, provided that, except as specifically contemplated herein, neither the Application Form nor any of the rights, interests or obligations arising pursuant hereto shall be assigned or delegated by you without the prior written consent of the Company. The provisions of this Admission Document any other supplement thereto and the Application Form set forth the entire agreement and understanding between the parties as to the subject matter hereof and supersede all prior and contemporaneous discussions, agreements and understandings among them as to the subject matter hereof; and

Choice of law and submission to jurisdiction (v) agree that the execution of the Application Form constitutes your irrevocable submission, in relation to all matters arising out of this Admission Document and any other supplement thereto, or your subscription for the Shares, to the jurisdiction of the courts of England and Wales and your agreement that nothing shall limit the right of the Company or any of its agents or advisers to bring any suit, action or proceeding arising out of or in connection with this Admission Document and any other supplement thereto, or your subscription for the Shares in any other manner permitted by law or any court of competent jurisdiction. The Subscription Terms and Conditions and the Application Form shall be governed by and construed in accordance with the laws of England and Wales.

132 PART XV

ADDITIONAL INFORMATION

1. Persons responsible 1.1 The Directors, whose names appear in Part III: “Directors, Secretary, Registered Office and Advisers”of this document, and the Company accept responsibility for the information contained in this document. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.

2. Incorporation and registered office 2.1 The Company was duly incorporated and registered in England and Wales under the name Mereo BioPharma Group Limited with registered number 09481161 on 10 March 2015. Since the date of its incorporation, the Company has operated in conformity with its articles of association. On 3 June 2016, the Company re-registered as a public company and changed its name to Mereo BioPharma Group plc. At the time of Admission, the Shares will conform with the laws of England and Wales and the issuance of the Shares will have been duly authorised according to the requirements of the Company’s articles of association. All necessary statutory and other consents will have been obtained. 2.2 The registered office of the Company is Fourth Floor, One Cavendish Place, London W1G 0QF, United Kingdom (telephone number +44 (0)33 3023 7300). 2.3 The principal legislation under which the Company operates and under which the Ordinary Shares were created, is the Companies Act.

3. Share capital 3.1 The issued and fully paid share capital of the Company immediately following Admission is expected to be as follows:

Number Nominal Value (£) Ordinary Shares of £0.003 each 64,340,798(1) £193,022

(1) Reflects the Company’s exercise in full of its option under the Subscription Agreement to require Invesco and Woodford to subscribe for Ordinary Shares and the issue of bonus shares to Novartis Pharma AG immediately prior to Admission pursuant to the terms of the Subscription Agreement. 3.2 The Company was incorporated with an issued share capital of £1.00 divided into one Ordinary Share of £1.00 which was issued to the initial subscriber to the Company’s articles of association. Since incorporation, the following alterations to the Company’s share capital have been made: • issue and allotment of 4,999 ordinary shares of £1.00 in nominal value in the capital of the Company on 21 April 2015; • subdivision of 5,000 ordinary shares of £1.00 in nominal value in the capital of the Company to 5,000,000 ordinary shares of £0.001 in nominal value in the capital of the Company on 29 July 2015; • issue and allotment of 14,740,296 ordinary shares of £0.001 in nominal value in the capital of the Company on 29 July 2015; • issue and allotment of 39,480,592 ordinary shares of £0.001 in nominal value in the capital of the Company on 27 November 2015; and • consolidation of 59,220,888 ordinary shares of £0.001 in nominal value in the capital of the Company to 19,740,296 ordinary shares of £0.003 in nominal value in the capital of the Company on 27 November 2015. 3.3 By written resolution of the members of the Company dated 2 June 2016, the Company passed resolutions: (a) that the directors of the Company, for the purposes of section 551 of the Companies Act, be authorised (generally and unconditionally) to allot up to a maximum nominal amount of £350,000 of ordinary shares of £0.003 each in the capital of the Company;

133 (b) that the directors of the Company, be authorised (generally and unconditionally) to allot such ordinary shares to be allotted pursuant to the terms of the Company’s long-term incentive plan, deferred bonus share plan and/or share option scheme; Resolutions (a) and (b) shall, unless renewed, varied or revoked by the Company, expire on the fifth anniversary of the date of the Resolution, save that the Company may, before such expiry, make an offer or agreement which would or might require shares to be allotted and the directors may allot shares in pursuance of such offer or agreement notwithstanding that the authority conferred by the Resolution has expired. (c) that, subject to the passing of Resolutions (a) and (b) the directors of the Company be empowered pursuant to section 570 of the Companies Act, to allot the above equity securities as if the pre- emption rights under section 561 of the Companies Act did not apply to the allotment; (d) that the Company be re-registered as a public company in accordance with section 90 of the Companies Act with the name Mereo BioPharma Group plc; (e) that the new articles of association be adopted as the articles of association of the Company in substitution for, and to the exclusion of, the Company’s existing articles of association. 3.4 Section 561 of the Companies Act confers on shareholders certain rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up in cash other than by way of allotment to employees under an employee’s share scheme as defined in section 1166 of the Companies Act. Following Admission, the Company will be subject to the continuing obligations of the Listing Rules with regard to the issue of securities for cash and the statutory rights of pre-emption in section 561 of the Companies Act. The statutory rights of pre-emption apply to the issue of new Ordinary Shares which are not the subject of the disapplication referred to in paragraph 3.3(c) above or reserved for issue in connection with share options and schemes (and other arrangements) referred to in paragraph 8 (Share incentive plans) in this Part XV. The statutory rights of pre-emption have been disapplied as set out in paragraph 3.3(c) above to: (a) permit the Directors to allot the Ordinary Shares under the Private Placement; (b) give the Directors flexibility in relation to rights issues; and (c) permit the Directors to allot Ordinary Shares for cash following the Private Placement having a nominal value of up to 15% of the issued ordinary share capital following Admission. 3.5 Save as disclosed above and in paragraph 8 (Share incentive plans) below: (a) no share or loan capital of the Company or any of its subsidiaries has within the period covered by the historical financial information set out in this document (other than intra-group issues by wholly owned subsidiaries or pursuant to the Private Placement) been issued or been agreed to be issued fully or partly paid, either for cash or for a consideration other than cash and no such issue is now proposed; (b) no commissions, discounts, brokerages or other special terms have been granted by the Company or any of its subsidiaries within the period covered by the historical financial information set out in this document in connection with the issue or sale of any share or loan capital of any such company; and (c) no share or loan capital of the Company or any of its subsidiaries is under option or agreed, conditionally or unconditionally, to be put under option. 3.6 The Ordinary Shares are in registered form and, subject to the provisions of the CREST Regulations, the Directors may permit the holding of shares in any class of shares in uncertificated form and title to such shares may be transferred by means of a relevant system (as defined in the CREST Regulations). 3.7 When admitted to trading, the Ordinary Shares will be registered with the ISIN number GB00BZ4G2K23.

4. Summary of the articles of association The articles of association of the Company which were adopted on 3 June 2016.

4.1 Objects The objects of the Company, in accordance with section 31(1) of the Companies Act, are unrestricted.

134 4.2 Limited liability The liability of the members is limited to the amount, if any, unpaid on the Ordinary Shares held by them.

4.3 Rights attaching to Ordinary Shares (a) Voting rights of members—each share is entitled to one vote at any meeting of the members of the Company, provided that: (i) if CF Woodford Equity Income Fund’s Shares exceed 19.5% of the total voting share capital of the Company, CF Woodford Equity Income Fund’s Shares shall be limited in aggregate to 19.5% of the total number of votes, such votes to be split equally on a fractional basis amongst CF Woodford Equity Income Fund’s Shares; (ii) if Invesco Perpetual High Income Fund’s Shares exceed 19.5% of the total voting share capital of the Company, Invesco Perpetual High Income Fund’s Shares shall be limited in aggregate to 19.5% of the total number of votes, such votes to be split equally on a fractional basis amongst Invesco Perpetual High Income Fund’s Shares; and (iii) if Invesco Perpetual UK Strategic Income Fund’s Shares constitute more than 19.5% of the total voting share capital of the Company, Invesco Perpetual UK Strategic Income Fund’s Shares shall be limited in aggregate to 19.5% of the total number of votes, such votes to be split equally on a fractional basis amongst Invesco Perpetual UK Strategic Income Fund’s Shares provided further that any votes which would, but for the operation of the above paragraphs (i) to (iii), be exercisable by CF Woodford Equity Income Fund, Invesco Perpetual High Income Fund, or Invesco Perpetual UK Strategic Income Fund shall be deemed to be held and exercisable by the holders of Shares, other than CF Woodford Equity Income Fund, Woodford Patient Capital Trust plc, Invesco Perpetual High Income Fund, Invesco Perpetual UK Strategic Income Fund and Novartis, pro rata in proportion to the number of Shares held by them. A resolution put to the vote of a general meeting must be decided on a show of hands unless a poll is duly demanded in accordance with the articles of association. (b) Dividends—except insofar as the rights attaching to, or the terms of issue of, any share, all dividends must be apportioned and paid proportionately to the amounts paid up in respect of which the dividend is paid during any portion or portions of the period in respect of which the dividend is paid. (c) Return of capital—if the Company is in liquidation, the liquidator may, with the authority of a special resolution of the shareholders of the Company and any other authority required by any applicable statutory provision (A) divide among the members the whole or any part of the assets of the Company; or (B) vest the whole or any part of the assets in trustees upon such trusts for the benefit of members as the liquidator determines, but no member shall be compelled to accept any assets upon which there is any liability. (d) Capitalisation of reserves—the Board may, with the authority of an ordinary resolution of the Company (A) decide to capitalise any profits of the Company (whether or not they are available for distribution) which are not required for paying a preferential dividend, or any sum standing to the credit of the Company’s share premium account or capital redemption reserve; and (B) appropriate that sum to the persons who would have been entitled to it if it were distributed by way of dividend and in the same proportions. A capitalised sum may be applied in or towards paying up any amounts unpaid on existing shares held by the persons entitled or in paying up new debentures of the Company which are then allotted credited as fully paid to the persons entitled or as they may direct. Any capitalised sum may be applied in paying up new shares of a nominal amount equal to the capitalised sum which are then allotted credited as fully paid to the persons entitled or as they may direct.

4.4 Authority to allot shares and grant rights The Company may from time to time pass an ordinary resolution authorising, in accordance with section 551 of the Companies Act, the Board to exercise all the powers of the Company to allot shares or to grant rights to subscribe for, or to convert any security into, any shares.

135 4.5 Variation of rights Subject to the articles of association, but without prejudice to the rights attached to any existing share, the Company may issue shares with the rights and restrictions set out in the articles of association and any other shares with such rights or restrictions as may be determined by ordinary resolution. The Company may issue shares which are to be redeemed, or are liable to be redeemed at the option of the Company or the holder, and the directors may determine the terms, conditions and manner of redemption of any such shares. The articles do not include provisions for the variations of rights of holders of shares; the variation of the rights of holders of shares is therefore governed by the Companies Act which provides that if at any time the share capital is divided into different classes of shares, the rights attached to any class or any of such rights may be varied with the consent in writing of the holders of 75 per cent. in nominal value of the issued shares of that class (excluding treasury shares) or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. Any meeting of the holders of any class of shares shall be governed by the provisions relating to the meetings of shareholders set out under paragraph 4.7 (General Meetings) below.

4.6 Directors (a) The directors shall not, unless otherwise determined by an ordinary resolution of the Company, be less than two nor more than nine in number. (b) The directors are entitled to such remuneration as the directors determine for their services to the Company as directors and for any other service which they undertake for the Company. A director’s remuneration may take any form and include any arrangements in connection with the payment of a pension, allowance or gratuity, or any death, sickness or disability benefits, to or in respect of that director. (c) The Company may pay any reasonable expenses which the directors properly incur in connection with their attendance at meetings of directors or committees of directors, general meetings, separate meetings of the holders of any class of shares or of debentures of the Company or otherwise in connection with the exercise of their powers and the discharge of their responsibilities in relation to the Company. (d) The directors are responsible for the management of the Company’s business, for which purpose they may exercise all the powers of the Company other than those required by law or the articles of association to be exercised by the Company at a general meeting. (e) Transactions with the Company (i) Provided that he has declared at a directors’ meeting or in such other manner as the Directors may resolve to the other directors the nature and extent of any interest of his, a director notwithstanding his office may be a party to, or otherwise directly or indirectly interested in, any proposed or existing transaction or arrangement with the Company. (ii) A director will not count in the quorum and vote on a proposal under consideration concerning his appointment to an office or employment with the Company or any undertaking or proposal in which the Director (or a person connected with the Director) is interested. Where proposals are under consideration concerning the appointment of two or more directors to any such offices or employments the proposals may be divided and considered in relation to each director separately and (provided he is not for another reason precluded from voting) each of the directors concerned will be entitled to participate in the decision-making process and count in the quorum and vote in respect of each decision except that concerning his own appointment. (iii) Subject to the immediately preceding paragraph (ii) and provided that he has declared to the other directors the nature and extent of any interest of his and provided that a majority of the other directors consent, a director may participate in the decision-making process and count in the quorum and vote if a proposed decision of the directors is concerned with an actual or proposed transaction or arrangement with the Company in which the director is interested. (f) Conflicts of Interest (i) A director may be a director or other officer of, or employed by, or otherwise interested in, any company in the Group, any undertaking promoted by or advised by or managed by a company in the Group and any undertaking in which a company in the Group is otherwise interested (each, an Associated Undertaking), or be a party to, or otherwise interested in, any

136 contract, transaction or arrangement in which an Associated Undertaking is interested, provided that the director declares to the other directors the nature and extent of his interest as soon as practicable after such interest arises. (ii) A director may make full disclosure of any information relating to the Company to another company in the Group (or anyone acting on behalf of any such company in the Group, including its advisers). (iii) If a situation (a Relevant Situation) arises in which a director has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company (other than a situation that cannot reasonably be regarded as likely to give rise to a conflict of interest or a conflict of interest arising in relation to a transaction or arrangement with the Company), the directors may authorise in accordance with the Companies Act a Relevant Situation in respect of any director and the continuing performance by the relevant director of his duties as a director of the Company on such terms as they may determine. Such terms may permit the interested director to continue to participate in the decision making process and vote and count in the quorum at a meeting of the directors or of a committee of the directors in respect of resolutions relating to the subject matter of the Relevant Situation. Authorisation of a Relevant Situation may be withdrawn, and the terms of authorisation may be varied or subsequently imposed, at any time. Any resolution of the directors for the purposes of providing, varying the terms of or withdrawing such authorisation will not be effective unless: (A) the requirement as to the quorum at the meeting at which the resolution is proposed is met without counting the interested director or any other interested director (and for these purposes any other provisions of the articles of association that would require the interested Director or any other interested director to be present during such part of the meeting for the quorum requirement to be met will not apply); and (B) the resolution is passed without the interested director or any other interested director voting or would have been passed if their votes had not been counted. (iv) Notwithstanding the foregoing, if a Relevant Situation arises and the matter has not previously been duly authorised, a director may elect to deal with the Relevant Situation in the following manner: (A) he will declare to the other directors the nature and extent of his interest in the Relevant Situation (except as set forth in paragraph (D) below); (B) he will not vote (and will not be counted in the quorum at a meeting of the directors or of a committee of the directors) in respect of a resolution of the directors relating to the subject matter of the Relevant Situation; and (C) he may elect to be excluded from all information and discussion by the Company relating to the subject matter of the Relevant Situation; and (D) if he obtains (other than through his position as a director of the Company) information that is confidential to a third party, or in respect of which he owes a duty of confidentiality to a third party, or the disclosure of which would amount to a breach of applicable law or regulation, he may elect not to disclose it to the Company or to use it in relation to the Company’s affairs in circumstances where to do so would amount to a breach of that confidence or a breach of applicable law or regulation, and the provisions of the articles of association that would require him to be present for the quorum requirement for meetings of the directors to be met will not apply. (v) If a Relevant Situation has been duly authorised by the directors of the Company (or is otherwise permitted or dealt with in accordance with the articles of association, as described above) and its nature and extent has been disclosed to the other directors, a director may participate in the decision making process and count in the quorum and vote if a proposed decision of the directors is concerned with such situation (subject to any restrictions imposed under the terms on which it was authorised).

4.7 General meetings An annual general meeting shall be held in accordance with the applicable statutory provisions or on the requisition of shareholders in accordance with the Companies Act. An annual general meeting shall be called by not less than such minimum notice period as is permitted by the applicable statutory provisions. The requisite quorum for general meetings of the Company shall be two qualifying persons, as determined in accordance with the Companies Act.

137 4.8 Dividends (a) Declaration of dividends—the Company may, by ordinary resolution, declare a dividend and may fix the time for payment of such dividend, but no dividend shall exceed the amount recommended by the Board. (b) Fixed and interim dividends—the Board may pay such interim dividends as appear to the Board to be justified by the financial position of the Company and may also pay at intervals any dividend payable at a fixed rate if it appears to them that the profits available for distribution justify the payment. If the Board acts in good faith, none of the directors shall incur any liability to the holders of shares conferring preferred rights for any loss such holders may suffer in consequence of the lawful payment of an interim dividend on any shares having non-preferred or deferred rights. (c) Calculation of dividends—except as otherwise provided by the articles of association, by ordinary resolution, the directors decision to pay a dividend, the rights attached to, or the terms of issue of, any share: (A) all dividends shall be declared and paid according to the amounts paid up on the shares in respect of which the dividend is paid, and (B) all dividends shall be apportioned and paid proportionately to the amounts paid up on the shares in respect of which the dividend is paid during any portion or portions of the period in respect of which the dividend is paid. (d) Dividends not to bear interest—no dividend or other moneys payable by the Company on or in respect of any share shall bear interest as against the Company unless otherwise provided by the rights attached to the share or the provisions of another agreement between the holder of that share and the Company. (e) Deductions from dividends—if a share is subject to the Company’s lien and the directors are entitled to issue a lien enforcement notice in respect of it, they may, instead of issuing a lien enforcement notice, deduct from any dividend or other moneys payable in respect of a share any sum of money which is payable to the Company in respect of that share to the extent that they are entitled to require payment under a lien enforcement notice. (f) Non-cash dividends—subject to the terms of any share, with the authority of an ordinary resolution of the Company and on the recommendation of the Board, payment of any dividend may be satisfied wholly or in part by the distribution of non-cash assets of equivalent value (including, without limitation, shares or other securities in any company). (g) Unclaimed dividends—any dividend unclaimed for a period of 12 years after having become due for payment shall be forfeited and cease to remain owing by the Company.

4.9 Forfeiture of shares If a person is liable to pay a call and fails to do so by the call payment date, the directors may give a notice of intended forfeiture to that person and until the call is paid that person must pay the Company interest on the call from the call payment date at the relevant rate. Joint holders of a share are jointly and severally liable to pay all calls in respect of that share. Liability to pay a call is not extinguished or transferred by transferring the share(s) in respect of which it is required to be paid. If the requirements of a notice are not complied with before the date by which payment of the call is required in the notice of intended forfeiture, the directors may decide that any share in respect of which it was given is forfeited and the forfeiture shall include all dividends declared and other moneys payable in respect of the forfeited share and not actually paid before the forfeiture. Every share which is forfeited or surrendered shall become the property of the Company and (subject to the applicable statutory provisions) may be sold, re-allotted or otherwise disposed of, upon such terms and in such manner as the Board shall decide either to the person who was before the forfeiture the holder of the share or to any other person and whether with or without all or any part of the amount previously paid up on the share being credited as so paid up.

4.10 Directors’ indemnity, insurance and defence As far as the applicable statutory provisions allow, the Company may out of the Company’s assets indemnify any relevant director of the Company (or of an associated company) against: (a) any liability incurred by that director in connection with any negligence, default, breach of duty or breach of trust in relation to the Company or an associated company; (b) any liability incurred by that director in connection with the activities of the Company or an associated company in its capacity as a trustee of an occupational pension scheme;

138 (c) any liability incurred by that director as an officer of the Company or an associated company. The directors may purchase and maintain insurance, at the expense of the Company, for the benefit of any Relevant Director in respect of any Relevant Loss. A “Relevant Director” means any Director or former Director of the Company or an associated Company. A “Relevant Loss” means any loss or liability which has been or may be incurred by a Relevant Director in connection with that Director’s duties or powers in relation to the Company, any associated company or any pension fund or employees’ Share scheme of the Company or associated company; and companies are associated if one is a subsidiary of the other or both are subsidiaries of the same body corporate.

4.11 Board observers As long as Novartis is a shareholder holding at least 1 per cent. of the Company’s share capital, Novartis may appoint one observer of the Board, who may attend but not participate or vote in any meeting of the Directors.

5. Directors and Senior Management 5.1 The biographies of the Directors and Senior Management are set out in Part VII: “Directors, Senior Management and Corporate Governance”. 5.2 The business address of each of the Directors and each member of Senior Management is: Fourth Floor, One Cavendish Place, London W1G 0QF, United Kingdom. 5.3 In addition to their directorships of the Company and other members of the Group, the Directors and members of Senior Management hold, or have held, the following directorships and are or were members of the following partnerships, within the past five years:

Position still held Name Position Company/Partnership (Y/N) Peter Fellner Director Ablynx NV Y Director Bell St. Management Co. Y Director Consort Medical plc Y Director Vernalis plc Y Director Astex Therapeutics Ltd. N Director Astex Pharmaceuticals Inc. N Director Biotie Therapies Corp. N Director Evotec AG N Director Optos plc N Director Qinetiq Group plc N Director UCB SA N Denise Scots-Knight Director Albireo AB N Director Albireo Limited Y Director Nabriva Therapeutics AG Y Director OncoMed Pharmaceuticals Inc. Y Director Phase4 Partners Limited Y Director Phase4 Ventures III FP General Partner Limited Y Director Phase4 Ventures III General Partner Limited Y Director Phase4 Ventures GP Limited Y Partner Phase4 Ventures III GPLP Y Partner Phase4 Ventures III FPLP Y Director Idenix Pharmaceuticals Inc. N Richard Bungay Director Chroma Therapeutics Ltd Y Director Glide Pharmaceutical Technologies Ltd Y Director Macrotarg Ltd Y Director The Forest School Academy Trust Y Frank Armstrong Director Actinopharma Ltd Y Director Caldan Therapeutics Y Director AMS Sciences Limited Y Director Dr Frank M Armstrong Consulting Limited Y Director Love Africa Charitable Trust Y

139 Position still held Name Position Company/Partnership (Y/N) Director Juniper Pharmaceuticals Inc Y Director REDx Pharma PLC Y Director Summit Therapeutics PLC Y Director Faron Pharmaceuticals Y Director Asceneuron SA N Director Entelos Inc N Director Cardiorentis AG N Director Fulcrum Pharma Developments International Limited N Director Fulcrum Pharma Limited N Peter Bains Director Fermenta Biotech Limited Y Director Heptares Therapeutics Limited Y Director Kromek Group PLC N Director Mina Alpha Limited Y Director Mina Beta Limited Y Director Mina (Holdings) Limited Y Director Mina Therapeutics Limited Y Director Peter Bains Consulting Limited Y Director Phase4 Partners Limited Y Director Sosei Group Corporation Y Director Syngene International Limited Y Paul Blackburn Director Action Potential Venture Capital Limited N Director Adechsa GmbH N Director Affymax N.V. N Director Beecham Group P L C N Director Dealcyber Limited N Director Glaxo Group Limited N Director Glaxo Investments (UK) Limited N Director Glaxochem Pte Ltd N Director GlaxoSmithKline (Netherlands) B.V. N Director GlaxoSmithKline Caribbean Limited N Director GlaxoSmithKline Consumer Healthcare (Overseas) Limited N Director GlaxoSmithKline Consumer Healthcare (UK) IP Limited N Director GlaxoSmithKline Consumer Healthcare (UK) Trading Limited N Director GlaxoSmithKline Consumer Healthcare Finance Limited N Director GlaxoSmithKline Consumer Healthcare Holdings Limited N Director GlaxoSmithKline Consumer Healthcare Investments (Ireland) (No 3) Limited N Director GlaxoSmithKline Consumer Healthcare Investments (Ireland) Limited N Director GlaxoSmithKline Consumer Healthcare Investments (Ireland)(No 2) N Director GlaxoSmithKline Consumer Healthcare Ireland IP Limited N Director GlaxoSmithKline Consumer Healthcare Sri Lanka Holdings Limited N Director GlaxoSmithKline Export Limited N Director GlaxoSmithKline Holdings (Ireland) Limited N Director GlaxoSmithKline Holdings (One) Limited N Director GlaxoSmithKline IHC Limited N Director GlaxoSmithKline Investment Services Limited N Director GlaxoSmithKline Intellectual Property (No.2) Limited N Director GlaxoSmithKline Intellectual Property Development Limited N Director GlaxoSmithKline Intellectual Property Management Limited N Director GlaxoSmithKline Intellectual Property Limited N Director GlaxoSmithKline International (Luxembourg) S.A.R.L N Director GlaxoSmithKline Investment Holdings Limited N Director GlaxoSmithKline Investments (Ireland) Limited N Director GlaxoSmithKline Intellectual Property Holdings Limited N Director GlaxoSmithKline Trading Services Limited N Director GlaxoSmithKline Verwaltungs GmbH N

140 Position still held Name Position Company/Partnership (Y/N) Director Horlicks Limited N Director Leo Osprey Limited N Director Novartis Consumer Health UK Limited N Director Saxet (U.K.) Limited N Director SmithKline Beecham (Export) Limited N Director SmithKline Beecham (H) Limited N Director SmithKline Beecham (Investments) Limited N Director SmithKline Beecham Marketing and Technical Services Limited N Director SmithKline Beecham Nominees Limited N Director SmithKline Beecham Port Louis Limited N Director SmithKline Beecham Research Limited N Director SmtihKline Beecham (SWG) Limited N Director Stafford-Miller Limited N Director Stiefel Consumer Healthcare (UK) Limited N Director Saxet (UK) Limited N Director Syngene International Limited Y Anders Ekblom Director AnaMar AB Y Director Infant Bacterial Therapy AB Y Director Karolinska University Hospital Y Director Medivir AB Y Director RSPR Pharma AB Y Director Research! Sweden Y Director SwedenBio Y Director Viscogel AB Y Director TFS International AB Y Director Swedish Research Council Y Director Albireo AB N Director AstraZeneca AB N Kunal Kashyap Director Allegro Capital Advisors Pvt Ltd Y Director Allegro Capital Pvt Ltd Y Director Allegro Corporate Finance Advisors Ptv Ltd Y Director Allegro Insurance Brokers Pvt Ltd Y Director GlaxoSmithkline Beecham Consumer Healthcare Limited Y Director IATRICa Inc Y Director Mazumdar Shaw Medical Foundation Pvt Ltd Y Director Phase4 Partners Limited Y Director Zela Wellness Pvt Ltd Y Director Aummchi Advisors Private limited Y Director First American Securities Private Limited N Director GIBA Holdings Private Limited N Director Cmgrp (India) Private Limited N Director Xchanging Solutions Limited N Alastair MacKinnon Director Phase4 Partners Limited Y Partner Phase4 Ventures III GPLP Y Partner Phase4 Ventures III FPLP Y John Richard Director Aviragen Therapeutics, Inc. Y Director Catalyst Biosciences, Inc. Y Director Phase4 Partners Limited Y Director QUE Oncology, Inc. Y Partner Phase4 Ventures III GPLP Y Partner Phase4 Ventures III FPLP Y Partner GVP Management Partners, LLC Y Partner GVP Management Services, LLC Y Director John Richard & Associates, LLC Y Director Abeome Corporation N Director AerovectRx Corporation N Director Altiris Therapeutics, Inc. N Director AxoTect Inc. N Director InsectiGen Inc N Director Targacept, Inc. N Director Zirus, Inc. N Director Zosano Pharma Corporation N

141 Position still held Name Position Company/Partnership (Y/N) Partner Georgia Venture Partners N Charles Sermon Director Phase4 Partners Limited Y Director Phase4 Ventures GP Limited Y Director Phase4 Ventures III General Partner Limited Y Partner Phase4 Ventures III GPLP Y Partner Phase4 Ventures III FPLP Y 5.4 Save as disclosed below, at the date of this document, none of the Directors and members of the Senior Management has at any time within at least the past five years: (a) save as disclosed in paragraph 5.3 above, been director or partner of any companies or partnerships; or (b) had any convictions in relation to fraudulent offences (whether spent or unspent); or (c) been adjudged bankrupt or entered into an individual voluntary arrangement; or (d) been a director of any company at the time of, or within 12 months preceding, any receivership, compulsory liquidation, creditors voluntary liquidation, administration, company voluntary arrangement or any composition or arrangement with that company’s creditors generally or with any class of its creditors; or (e) been a partner in a partnership at the time of, or within 12 months preceding, any compulsory liquidation, administration or partnership voluntary arrangement of such partnership; or (f) had his assets form the subject of any receivership or has been a partner of a partnership at the time of, or within 12 months preceding, any assets thereof being the subject of a receivership; or (g) been subject to any official public incrimination and/or sanctions by any statutory or regulatory authority (including any designated professional body); or (h) ever been disqualified by a court from acting as a director of a company or from acting in the management or conduct of the affairs of any company.

6. Directors’ and Senior Managements’ interests in the Company 6.1 It is expected that immediately prior to Admission, and immediately following Admission, except as disclosed in paragraph 6.2 below, neither the Directors nor the Senior Management, and none of their respective immediate families, will have any interests in the share capital of the Company which: (a) are required to be notified to the Company pursuant to Chapter 3 of the Disclosure and Transparency Rules; (b) are interests of a connected person (within the meaning of Schedule 11B of FSMA) which would be required to be disclosed under paragraph (a) above and the existence of which is known to or could with reasonable diligence be ascertained by that Director or member of Senior Management, as at 2 June 2016, the latest practicable date prior to the publication of this document; or (c) would have been required to be disclosed by paragraph (a) or (b) above if the relevant member of Senior Management had been a PDMR of the Company. 6.2 The following table sets out the expected interests of the Directors and Senior Management immediately prior to Admission and immediately following Admission: Number of Proportion of Ordinary Proportion of Number of Ordinary voting capital Shares held voting capital Shares held immediately immediately immediately immediately prior to prior to following following Name Admission(1) Admission(2)(3) Admission(2)(3)(4) Admission(2)(4) Kunal Kashyap 1,735,000 5.6% 1,497,735 3.8% Denise Scots-Knight 1,050,000 3.4% 844,199 2.2% Charles Sermon 708,000 2.3% 524,504 1.3% Alastair MacKinnon 575,000 1.9% 425,974 1.1% John Richard 337,000 1.1% 249,658 0.6% Frank Armstrong 337,000 1.1% 256,444 0.7% NxtScience AB (on behalf of Anders Ekblom) 95,000 0.3% 93,002 0.2% Peter Bains 125,000 0.4% 107,906 0.3% Peter Fellner — — 10,000 0.0% Paul Blackburn — — 22,624 0.1% (1) Does not reflect the reduction of shares held by the Founders as described in footnote 4.

142 (2) Reflects the Company’s exercise in full of its option under the Subscription Agreement to require Invesco and Woodford to subscribe for Ordinary Shares. (3) Includes the issuance of fully paid up bonus shares to Novartis Pharma AG immediately prior to Admission in accordance with the terms of the Subscription Agreement in relation to the Company’s exercise of its option under the Subscription Agreement described in footnote (2) above. (4) Reflects a total reduction of 1,000,000 Ordinary Shares held by the Founders pursuant to the Subscription Agreement. See paragraph 12.4 (Subscription Agreement). 6.3 The following table sets out details of the share options expected to be held by the Directors and Senior Management immediately before Admission under the existing Option Plan (described at paragraphs 8.1 (Existing employee share incentive arrangements) and 8.2 (The Option Plan) below). Immediately prior to Name Admission Peter Fellner 1,692,673 Denise Scots-Knight 1,692,673 Richard Bungay 846,336 Alastair MacKinnon 846,336 John Richard 896,336 Charles Sermon 846,336 Peter Bains 778,630 Frank Armstrong 236,974 Kunal Kashyap 236,974 NxtScience AB (on behalf of Anders Ekblom) 236,974 Paul Blackburn 236,974 (1) 50,000 Ordinary Shares subject to the options held by Mr Richard have been granted such that they will lapse if Admission does not take place before 30 June 2016. (2) Pursuant to a side letter that will be entered into following Admission between the Company, Invesco and Woodford, the Company has agreed that 500,000 of the share options will be cancelled within 30 days following Admission. Except as disclosed in this paragraph 6.3, there are no share options expected to be held by the Directors and Senior Management immediately before Admission under the existing Option Plan. 6.4 The interests of the Directors and Senior Management are expected to together represent 8.6% of the issued share capital of the Company immediately prior to Admission and are expected to represent 6.3% of the issued share capital of the Company on Admission. 6.5 Save as set out in this Part XV, it is not expected that any Director will have any interest in the share or loan capital of the Company on Admission and there is no person to whom any capital of any member of the Group is under award or option or agreed unconditionally to be put under award or option. 6.6 Significant shareholders As at 2 June 2016 (being the latest practicable date prior to the publication of this document), insofar as it is known to the Company, the name of each person, other than a Director or member of Senior Management, who is expected to hold voting rights (within the meaning of Chapter 5 of the Disclosure and Transparency Rules) representing 3% or more of the total voting rights in respect of the Company’s issued share capital, and the amount of such person’s holding, immediately prior to Admission and immediately following Admission is expected to be as follows: Number of Number of Proportion of Ordinary Proportion of Ordinary Shares voting capital Shares held voting capital immediately immediately immediately immediately prior to prior to following following Name Admission(1)(2)(3) Admission(2)(3) Admission(2)(3)(4) Admission(2)(3)(4) CF Woodford Equity Income Fund 15,727,361 19.5% 16,105,450 19.5% Invesco Asset Management Limited acting as agent for and on behalf of its discretionary managed funds 15,000,000 25.9% 18,976,654 29.5% Novartis Pharma AG 11,302,000 19.5% 12,546,480 19.5% Woodford Patient Capital Trust plc 10,869,566 18.85% 11,130,873 17.3% (1) Does not reflect the reduction of shares held by the Founders as described in footnote 4.

143 (2) Reflects the Company’s exercise in full of its option under the Subscription Agreement to require Invesco and Woodford to subscribe for Ordinary Shares. (3) Includes the issuance of fully paid up bonus shares to Novartis Pharma AG immediately prior to Admission in accordance with the terms of the Subscription Agreement in relation to the Company’s exercise of its option under the Subscription Agreement described in footnote 2 above. (4) Reflects a total reduction of 1,000,000 Ordinary Shares held by the Founders pursuant to the Subscription Agreement. See paragraph 12.4 (Subscription Agreement). Save as disclosed in this paragraph, the Directors are not aware of any holdings of voting rights (within the meaning of Chapter 5 of the Disclosure and Transparency Rules) which will represent 3% or more of the total voting rights in respect of the issued share capital of the Company following Admission. 6.7 The Company and the Directors are not aware of any person who itself, directly or indirectly, could exercise or does exercise control over the Company. 6.8 There are no differences between the voting rights enjoyed by the shareholders described in paragraph 6.6 above and those enjoyed by any other holder of Ordinary Shares in the Company. 6.9 None of the Directors has any potential conflicts of interest between their duties to the Company and their private interests and/or their duties to third parties. 6.10 The Company and the Directors are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of the Company.

7. Remuneration and benefits 7.1 Executive Directors’ service contracts (a) General terms The following Executive Directors have a service agreement with the Company that is effective from Admission as follows: Date of service Name Position agreement Denise Scots-Knight Chief Executive Officer and Co-Founder 29/07/2015 Richard Bungay Chief Financial Officer and Chief Operating Officer 29/07/2015 Dr Scots-Knight is paid an annual base salary of £340,000 and Mr Bungay is paid an annual base salary of £230,000, each which is to be reviewed, but not necessarily increased, annually. Each of Dr Scots-Knight and Mr Bungay will be eligible to participate in the Company’s annual bonus plan, long-term incentive plan and in any employee’s share scheme (as defined in section 1166 of the Companies Act). The benefit package of each of Dr Scots-Knight and Mr Bungay includes participation in the Company’s medical insurance plan for Dr Scots-Knight and Mr Bungay and their respective immediate families. The Company also maintains for Dr Scots-Knight and Mr Bungay life assurance of four times their respective salaries. Dr Scots-Knight will receive a salary supplement of up to 15% of base salary by way of pension allowance, provided that she contributed 4% or more of her base salary to the Company’s pension plan. Mr Bungay will receive a salary supplement of up to 10% of base salary by way of pension allowance, provided that he contributed 4% or more of his base salary to the Company’s pension plan. In addition to normal public holidays, each of Dr Scots-Knight and Mr Bungay is entitled to 25 working days’ paid holiday in each complete holiday year.

(b) Termination provisions The service agreement of Dr Scots-Knight can be terminated by 12 months’ written notice, and the service agreement of Mr Bungay can be terminated by six months’ written notice. At the Company’s sole discretion it may make a payment in lieu of notice equivalent to the basic salary which the individual would have been entitled to receive following notice of termination. The employment of Dr Scots-Knight and Mr Bungay is terminable with immediate effect if he or she: (i) is guilty of any gross misconduct affecting the business of any company in the Group; (ii) commits any serious breach or repeated or continued (after warning) any material breach of his or her obligations under his or her service agreement; (iii) commits (by commission or omission) any act which brings or would tend to bring the Company or any company in the Group into disrepute; (iv) fails to perform his or her duties to a satisfactory standard after having received a written warning from the Company relating to the same; (v) is guilty of any dishonesty, gross misconduct or

144 wilful neglect of duty; (vi) damages Company property maliciously; (vii) falsifies attendance or sickness or other records; (viii) falsifies any data during the course of his or her employment; (ix) conducts himself or herself in a manner materially adverse to the interests of the Company or any company in the Group; (x) is, in the reasonable opinion of the Board, negligent and incompetent in the performance of his or her duties; (xi) has a bankruptcy order made against him or her or enters into a voluntary arrangement within the meaning of section 253 Insolvency Act 1986; (xii) consumes or distributes narcotics on Company premises; (xiii) is convicted of any criminal offence (other than an offence under any road traffic legislation in the United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed) whether or not in the course of his or her employment; (xiv) is, in the opinion of a medical practitioner who is treating him or her, physically or mentally incapable of performing his or her duties and may remain so for more than three months, and the medical practitioner has given a medical opinion to the Board to that effect; (xv) ceases to be eligible to work in the United Kingdom; (xvi) knowingly commits any deliberate act which amounts to discrimination, victimisation or harassment on any unlawful ground; (xvii) is in breach of the Company’s anti-corruption and bribery policy and related procedures; (xviii) is guilty of a serious breach of any rules issued by the Company from time to time regarding its electronic communications systems; (xix) is unable by reason of incapacity to perform his or her duties under his or her service contract for an aggregate period of 26 weeks in any 52-week period; or (xx) commits any other offence of a similar gravity to the examples under the preceding items (i) through (xix), which are neither exclusive nor exhaustive.

7.2 Remuneration strategy The Company’s remuneration strategy is to provide pay packages that will: • reward delivery of value to shareholders and achievement of the Company’s key strategic objectives; • motivate and retain business critical employees; and • enable the Company to continue to attract high quality recruits. The remuneration framework for Executive Directors intended to deliver this strategy post Admission will be a combination of base salary, benefits, an annual bonus and awards under the Mereo Long-Term Incentive Plan (the LTIP) as described in paragraph 8.3 below. A broadly similar pay structure as applies to the Executive Directors will also apply to other senior management. Annual bonuses for Executive Directors for the financial year ending 31 December 2016 will be determined by performance against goals relating to achievement of key clinical, regulatory and manufacturing milestones in respect of the Group’s development portfolio, in addition to goals relating to business development, financing and intellectual property. The maximum annual bonus opportunity for the financial year ending 31 December 2016 will be 100% of salary for each of Dr Scots-Knight and Mr Bungay. Annual bonus awards for the financial year ending 31 December 2016 will be paid 70% in cash and 30% will be deferred into awards over Ordinary Shares under the Mereo Deferred Bonus Share Plan (the DBSP) which is summarised in paragraph 8.3 below with such awards vesting three years post grant.

7.3 Non-Executive Directors’ terms of appointment (a) General terms The following Non-Executive Directors have agreed terms of appointment with the Company as follows:

Date of commencement of Name Position service as a Director Peter Fellner Independent Non-Executive Chairman 29/07/2015 Frank Armstrong Non-Executive Director 29/07/2015 Peter Bains Non-Executive Director 29/07/2015 Paul Blackburn Non-Executive Director 06/10/2015 Anders Ekblom Non-Executive Director 29/07/2015 Kunal Kashyap Non-Executive Director 29/07/2015 Each of the Non-Executive Directors will serve for an initial term of three years.

145 Dr Fellner, as Chairman of the Board, is entitled to an annual fee of £100,000. Each of the Non-Executive Directors is entitled to receive an annual fee of £40,000 per year. Non- Executive Directors acting as chair for any of the Audit and Risk Committee, Remuneration Committee or Research and Development Committee are entitled to receive an additional annual fee of £8,000. Non-Executive Directors who are a member of more than one subcommittee but not a chairperson are entitled to receive an additional annual fee of £4,000. Dr Armstrong, as Senior Independent Director, is entitled to receive an additional annual fee of £8,000. In addition, the Chairman and the Non-Executive Directors are entitled to be reimbursed for reasonable and properly documented expenses arising from the performance of their duties as a director of the Company.

(b) Termination provisions The appointment of each of the Non-Executive Directors is terminable by either the Non-Executive Director or the Company on three months’ written notice. The appointment of the Chairman or any Non-Executive Director may also be terminated with immediate effect by the Company if he: (i) committed a material breach of his obligations under his service agreement; (ii) committed any serious or repeated breach or non-observance of his obligations to the Company (which include an obligation not to breach his statutory, fiduciary or common-law duties); (iii) has been guilty of any fraud or dishonesty or acted in any manner which, in the Company’s opinion, brings or is likely to bring him or the Company into disrepute or is materially adverse to the Company’s interests; (iv) has been convicted of an arrestable criminal offence other than a road traffic offence for which a fine or non-custodial penalty is imposed; (v) has been declared bankrupt or has made an arrangement with or for the benefit of his creditors, or if he has a county court administration order made against him under the County Court Act 1984; (vi) has been disqualified from acting as a director; or (vii) did not comply with the Company’s anti-corruption and bribery policy and procedures.

7.4 Directors’ remuneration Under the terms of their service agreements, letters of appointment and applicable incentive plans, the remuneration and benefits to the directors of the Company who served during 2015, in respect of the period from the Company’s inception through 31 December 2015, were as follows:

Share Basic salary Benefits in Pension based Name Position and fees kind contribution Bonus payments Total (£) (£) (£) (£) (£) (£) Peter Fellner Independent Non- 32,115 — — — 587,732 619,847 Executive Chairman Denise Scots-Knight Chief Executive 137,500 2,205 13,750 64,553 566,625 784,633 Officer and Co- Founder Richard Bungay(1) Chief Financial 105,000 2,066 10,500 36,972 283,313 437,851 Officer and Chief Operating Officer Frank Armstrong Non-Executive 14,987 ———82,282 97,269 Director Peter Bains Non-Executive 14,987 ———270,357 285,344 Director Paul Blackburn Non-Executive 8,391 ————8,391 Director Anders Ekblom Non-Executive 14,987 ———82,282 97,269 Director Kunal Kashyap Non-Executive 14,987 ———82,282 97,269 Director

146 (1) Richard Bungay will be a director with effect from Admission. The remuneration disclosed relates to his service as an employee of the Company for the period from inception to 31 December 2015.

For the period from the Company’s inception through 31 December 2015, the aggregate remuneration (including salaries, fees, pension contributions, bonus payments and benefits in kind) granted to the Directors by the Group was £2,427,873. For the period from the Company’s inception through 31 March 2016, under arrangements in force at the date of this document, the remuneration of the Directors was £4.0 million.

7.5 Senior Management’s remuneration The aggregate amount of remuneration paid (including any contingent or deferred compensation), and all benefits in kind granted to each member of the Senior Management (General Counsel, Chief Medical Officer and Head of Corporate Development) by the Company and its subsidiaries for services in all capacities for the period from the Company’s inception through 31 December 2015 is as follows:

Share based Basic salary and fees Benefits in kind Pension contribution Bonus payments Total (£) (£) (£) (£) (£) (£) 296,580 2,814 22,750 80,105 849,939 1,252,188

The Head of Corporate Development is engaged under a consultancy agreement with the Company.

Other remuneration There is no arrangement under which a Director or a member of Senior Management has waived or agreed to waive future emoluments nor have there been any such waivers during the financial year immediately preceding the date of this document. There are no outstanding loans or guarantees granted or provided by any member of the Group to, or for the benefit of, any of the Directors and members of the Senior Management. Other than as described in paragraphs 7.1 (Executive Directors’ service contracts), 7.3 (Non-Executive Directors’ terms of appointment) and 7.4 (Directors’ remuneration) in this Part XV, no benefit, payment or compensation of any kind is payable to any Director or member of the Senior Management of the Company upon termination of his or her employment.

8. Share incentive plans 8.1 Existing employee share incentive arrangements The Company currently operates the Mereo BioPharma Group Limited Share Option Plan (the Option Plan), which was adopted by the Board on 8 July 2015. The Company has granted options to acquire Ordinary Shares to Executive Directors, Non-Executive Directors, employees and consultants under the Option Plan. Under normal circumstances, options vest between the first and fourth anniversary (between the first and third anniversary for Non-Executive Directors) of the vesting start date (typically the date of commencement of employment). Options may be exercised until the day immediately preceding the tenth anniversary of the date of grant, subject to the Company either being admitted to trading on a recognised investment exchange or upon a sale of the Company. The options may be subject to performance conditions as set forth in the relevant option agreement. Save for the option granted to John Richard on 14 April 2016 and the options granted to Paul Blackburn and certain employees on 11 May 2016 which were granted at a price of £1.84 per Ordinary Share, all options have been granted with an exercise price of £1.29 per Ordinary Share. Mr Richard is not currently eligible to participate in the LTIP and he was therefore granted the option subject to Admission, with an exercise price per Ordinary Share equal to the Private Placement Price. The rules of the Option Plan are described in further detail below.

8.2 The Option Plan (a) Eligibility No further grants will be made under the Option Plan following Admission.

147 (b) Performance conditions The right to exercise an option (an Option) under the Option Plan may be subject to the satisfaction of a performance condition. Details of any performance conditions attached to subsisting Options are set out in each option agreement (Option Agreement) pursuant to the Option Plan. A performance condition may be amended, relaxed or waived if events occur which cause the Board to consider that it has become unreasonable, unfair or impractical. Such amended or relaxed performance condition may not be more difficult to satisfy. The Board may also waive any performance condition on the occurrence of the optionholder’s death, on cessation of employment, or on a Takeover or Trade Sale, each as defined in the Option Plan.

(c) Vesting and Exercise Options will normally vest on the vesting date or dates set by the grantor at the date of grant, although the Board may accelerate vesting of any Option if it thinks fit.

(d) Impact of the Private Placement on Options The Private Placement will not impact outstanding Options under the Option Plan.

(e) Impact of Admission on unvested Options Admission will not automatically accelerate the vesting of Options. Unvested Options will continue to vest in accordance with their original vesting schedule and subject to the rules of the Option Plan.

(f) Impact of Admission on vested Options Vested Options will be exercisable at any time after Admission. The period during which such Options may be exercised is not shortened by Admission.

(g) Impact of subsequent corporate events post Admission Whilst Admission does not accelerate the vesting of Options, certain corporate events, namely a Takeover and a Trade Sale will do so, such that all unvested Options vest on the occurrence of such an event. Options that were already exercisable (as a result of Admission or otherwise) and Options that have vested as a result of the Takeover or Trade Sale will then be exercisable for a period of 40 days thereafter, after which time, they will lapse.

(h) Impact of cessation of employment post Admission If an optionholder dies whilst holding vested but unexercised Options (both whilst holding employment with the Company and thereafter) his Options will remain exercisable for one year from the date of his death, at which point they will lapse. If an optionholder ceases to hold employment with a group company other than for one of the reasons set out below, his Options (whether vested or unvested) will lapse at that time. The reasons are: • illness, injury or disability; • redundancy; • the sale of the optionholder’s employer out of the group; and • any other reason which the Board considers appropriate. The Board will also determine the period during which the Options may be exercised in these circumstances.

(i) Overall limits The Option Plan is subject to an overall limit, such that the number of Ordinary Shares which may be issued under it and under any other employee share plan adopted by the Company may not exceed the limit set out in the Subscription Agreement dated 28 July 2015.

148 Adjustments In the event of any capitalisation, rights issue, consolidation, subdivision, reduction or any other variation of the Company’s share capital, the number of Ordinary Shares subject to an Option and the exercise price applying to an Option may be varied in such manner as the Board shall determine.

Amendment and termination The Board may alter or add to all or any of the rules of the Option Plan with effect from a current, future or past date by a resolution of the Board. No amendment may be made which would abrogate or adversely affect the subsisting rights of optionholders unless consent is sought from the affected optionholders and given by a majority of them (by reference to Ordinary Shares under Option). However, any amendment to benefit the administration of the Option Plan, to take account of legislative changes, take account of Admission, a Takeover or a Trade Sale, or to obtain or maintain favourable tax treatment or regulatory treatment may be made by the Board without the consent of optionholders.

8.3 Proposed share incentive arrangements following Admission Summaries of the principal terms of the LTIP, the DBSP (together the Executive Plans) and the Mereo BioPharma Group plc Share Option Scheme (SOS) are set out below. Certain provisions which apply to the Executive Plans and all three arrangements (the Plans) are summarised at the end of the individual summaries below.

8.3.1 The Long Term Incentive Plan Performance conditions Unless the Remuneration Committee determines otherwise, the vesting of awards will be subject to the satisfaction of a performance condition and the period over which any performance condition will be assessed will not be less than three years. Any award granted to an Executive Director will be subject to the satisfaction of a performance condition. Any performance condition may be amended or substituted if one or more events occur which cause the Remuneration Committee to consider that an amended or substituted performance condition would be more appropriate and would not be materially less difficult to satisfy.

Individual limit Awards will not be granted under the LTIP which would, at the time they are granted, cause the market value (as determined by the Board) of all Ordinary Shares subject to awards granted to such eligible employee in respect of a particular financial year of the Company to exceed 300% of salary. To the extent any award exceeds the limit, it will be scaled back accordingly.

Vesting and exercise of awards The Remuneration Committee intends that initial awards subject to a performance condition will normally vest in line with the following schedule, subject to the cessation of employment and corporate events provisions: 25% of the total award will be subject to strategic targets, of which each target will have a time period of up to five years within which it must be achieved. This portion of the award will vest on the fifth anniversary of grant, conditional on the extent to which the performance targets are achieved. 75% of the total award will be based on share price targets which will be measured over a three month average ending on each of three testing dates. This award will vest: • up to one third on the third anniversary of grant; • up to two thirds on the fourth anniversary of grant (reduced to take into account the portion of the award which has already vested); and

149 • in full on the fifth anniversary of grant (reduced to take into account the portion of the award which has already vested). Nil-cost options will be exercisable from the point of vesting for up to 12 months after the award has vested, or such shorter period as the Remuneration Committee may determine prior to granting such nil-cost option.

Cessation of employment Awards will usually lapse on the participant’s cessation of office or employment with the Group, unless cessation results from the participant’s death, ill health, injury or disability, where the participant’s employer is no longer a member of the Group or for any other reason that the Remuneration Committee determines, except where a participant is summarily dismissed (Good Leavers). Unvested awards held by Good Leavers will usually continue until the normal vesting date, unless the Remuneration Committee determines that the award will vest as soon as reasonably practicable following the date of cessation. The Remuneration Committee will take into account the satisfaction of any performance condition and, unless it determines otherwise, the proportion of the period of time between grant and the normal vesting date that has elapsed.

8.3.2 The Deferred Bonus Share Plan The DBSP will operate in conjunction with the Company’s annual bonus plan. Under the DBSP, part of any bonus payable to the Company’s management may be deferred into an award over Ordinary Shares.

Individual limit Awards will not be granted under the DBSP which would, at the time they are granted, cause the market value (as determined by the Board) of all Ordinary Shares subject to awards granted to such eligible employee in respect of a particular financial year of the Company to exceed 100% of salary. To the extent any award exceeds the limit, it will be scaled back accordingly.

Vesting and exercise Awards are not subject to performance conditions. Awards will normally vest on the third anniversary of grant (or such other date as the Remuneration Committee determines at the grant date), subject to the cessation of employment and corporate events provisions. Awards that are structured as nil-cost options will usually be exercisable for a period of up to 12 months after the award has vested.

Cessation of employment Except for where a participant is summarily dismissed, in which case awards will be forfeited, awards will continue upon cessation of employment and vest in full at the normal time, unless the Remuneration Committee decides that the award will vest as soon as reasonably practicable following the date of cessation. Nil-cost options are usually exercisable for 12 months from the point at which they vest. Vested nil-cost options may be exercised for the remainder of the original exercise period.

8.3.3 The Share Option Scheme The SOS will be operated on an ad hoc basis to grant options to selected employees of the Group.

Structure of awards Options will be granted with an exercise price equal to the market value of an Ordinary Share at the time of grant. Options held by UK taxpayers may qualify for beneficial tax treatment, subject to the conditions of the applicable UK legislation.

Performance conditions The Remuneration Committee may determine that the vesting of options will be subject to the satisfaction of a performance condition. However, no performance conditions will usually apply.

150 Individual limit Options will not be granted under the SOS which would, at the time they are granted, cause the market value (as determined by the Board) of all Ordinary Shares subject to options granted to such eligible employee in respect of a particular financial year of the Company to exceed 200% of salary. To the extent any option exceeds the limit, it will be scaled back accordingly.

Vesting and exercise Options not subject to a performance condition will normally vest on the third anniversary of grant (or such other date as the Remuneration Committee determines at the grant date) and be exercisable between the third and tenth anniversaries of the grant date, subject to the cessation of employment and corporate events provisions. Participants may pay the exercise price in full, or make arrangements to have the exercise price deducted from the proceeds of sale of a number of shares (a cashless exercise). Alternatively participants may receive such number of Ordinary Shares as are equal to the growth in value (net settlement).

Cessation of employment Options will usually lapse on the participant’s cessation of office or employment with the Group, unless the participant is a Good Leaver (as defined in the SOS). Options held by Good Leavers will usually continue until the normal vesting date, unless the Remuneration Committee determines that the option will vest as soon as reasonably practicable following the date of cessation. Unless it determines otherwise, the Remuneration Committee will take into account the extent to which any performance condition has been satisfied at the normal vesting date, if relevant, and unless it determines otherwise, the Remuneration Committee will take into account the proportion of the period of time that has elapsed between the grant date and the date of cessation of office or employment. Vested options will then be exercisable for a period of six months, or, in the case of a participant’s death, a period of 12 months, after which time they will lapse. The share options are transferable on death and may in certain circumstances pass to the relevant personal representative.

8.3.4 Common terms Administration The Plans will be administered by the Board or by any duly authorised committee thereof. Decisions in relation to participation in the Plans by the Company’s Executive Directors will always be taken by the Company’s Remuneration Committee.

Eligibility Any employee of the Company or any of its subsidiaries will be eligible to participate in the Plans at the discretion of the Board.

Form of awards Awards under the Executive Plans may be made in the form of: • a conditional right to acquire Ordinary Shares at no cost to the participant; • an option to acquire Ordinary Shares at no cost to the participant (nil-cost option); or • a right to acquire a cash amount which relates to the value of a certain number of notional Ordinary Shares.

Dividend equivalents In respect of awards granted under the Executive Plans, the Remuneration Committee may decide to apply dividend equivalents. Dividend equivalents may be delivered in Ordinary Shares or cash and are payable on vesting or, for nil-cost options, exercise, in respect of vested Ordinary Shares.

151 The Remuneration Committee will retain the discretion to determine the method used to calculate the amount of dividend equivalents to be made, which may exclude or include special dividends and may assume the reinvestment of the dividends in Ordinary Shares. No dividend equivalents will be payable on options granted under the SOS.

Cash equivalent In respect of awards granted under the Executive Plans, at any time before or after the point at which an award has vested, or a nil-cost option has been exercised, but the underlying Ordinary Shares have yet to be issued or transferred to the participant, the Remuneration Committee may decide to pay a participant a cash amount equal to the value of some or all of the Ordinary Shares he would otherwise have received.

Dilution limit In any 10 year period, the number of Ordinary Shares which may be issued under the Plans and under any other employee share plan adopted by the Company may not exceed 10 per cent. of the issued share capital of the Company from time to time. Ordinary Shares held in treasury will be treated as newly issued for the purpose of this limit until such time as guidelines published by institutional investor representative bodies determine otherwise. Ordinary Shares issued or committed to be issued to satisfy any awards granted prior to Admission will not count towards this limit.

Malus and clawback In certain circumstances where the Remuneration Committee considers such action is appropriate, the Remuneration Committee may decide to operate the malus and clawback provisions applicable to awards made under the Executive Plans. The provisions will continue to be applicable after the termination of a participant’s office or employment with a member of the Group for any reason whether or not the termination is lawful. The circumstances in which the Remuneration Committee may consider operating these provisions are: • a material misstatement of the Company’s accounts; • an error whereby: a) there was an overpayment of a bonus in respect of which a DBSP award was granted; or b) an LTIP award vested at too high a percentage; or • if a participant’s actions amount to fraudulent or material misconduct occurring within three years of the grant of awards under the DBSP and within two years of the end of the performance periods in respect of LTIP awards. The malus provision may be implemented by reducing the number of Ordinary Shares under an award or imposing further conditions on it prior to the earlier of the delivery of the cash or Ordinary Shares in satisfaction of the award or the end of the applicable period described above. The clawback provisions may be implemented at any time after the delivery of the cash or Ordinary Shares in satisfaction of the award and before the end of the applicable period described above, by a reduction in (i) the vesting of any subsisting share awards under the Executive Plans and/or (ii) the number of Ordinary Shares under any vested but unexercised nil-cost option granted under the Executive Plans and/or (iii) the participant being required to return the cash or Ordinary Shares delivered under the award to the Company or to make a cash payment in respect of that cash or those Ordinary Shares. The Remuneration Committee will retain the discretion to calculate the amount subject to recovery, including whether or not to claw back awards gross or net of any tax or social security contributions applicable to the award.

152 Corporate events Where there is a change of control of the Company, unvested awards will vest immediately thereafter. Except in respect of the DBSP, awards will vest to the extent determined by the Remuneration Committee, subject to the performance conditions being satisfied and, unless the Remuneration Committee determines otherwise, the proportion of the period of time between grant and the normal vesting date that has elapsed at the date of the relevant event. Alternatively, the awards may be exchanged for awards in a different company (either the acquiring company or otherwise). If other corporate events occur such as a winding-up of the Company, demerger, delisting, special dividend or other event which, in the opinion of the Remuneration Committee, may affect the current or future value of Ordinary Shares, the Remuneration Committee may determine that awards will vest at that time. Where awards vest in these circumstances, except in respect of the DBSP, the Remuneration Committee will determine the extent to which they will vest, taking into account the satisfaction of any performance condition and, unless the Remuneration Committee determines otherwise, the proportion of the period of time between grant and the normal vesting date that has elapsed at the date of the relevant event.

Adjustment of awards In the event of any variation of share capital, demerger, delisting, special dividend, rights issue or other event, which may, in the Remuneration Committee’s opinion, affect the current or future value of Ordinary Shares, the Remuneration Committee may make such adjustments as they consider appropriate to the number of Ordinary Shares subject to an award, any exercise price applicable to an option and/or any performance condition applicable to awards.

Amendment The Remuneration Committee may amend the Plans or the terms of any award at any time. No amendment may be made to the material disadvantage of participants in the Plans unless consent is sought from the affected participants and given by a majority of them. This does not apply to any amendments to any performance condition applicable to any awards.

Termination The Plans will terminate, at the latest, on the tenth anniversary of Admission but the rights of existing participants will not be affected by any termination.

Benefits not pensionable Participation in the Plans does not form part of the terms of a participant’s contract of employment and participants have no rights to pension in respect of Plan benefits.

Awards not transferable Awards granted under the Plans are not transferable other than to the participant’s personal representatives in the event of death.

Satisfying awards Awards may be satisfied using newly issued Ordinary Shares, Ordinary Shares held in treasury or Ordinary Shares purchased in the market. Any Ordinary Shares or cash that are to be issued, transferred or paid (as appropriate) to a participant in respect of a vested award or an exercised option will be issued, transferred or paid (as appropriate) as soon as reasonably practicable after the date of vesting or exercise (as appropriate).

9. Pension schemes In the period from the Company’s inception through 31 December 2015, the Company contributed £47,000 to defined contribution money purchase pension schemes for the Directors and senior management. For the period from the Company’s inception through 31 March 2016, under arrangements in force at the date of this document, the pension contribution by the Company for the Directors and Senior Management was £73,625.

153 10. Subsidiary undertakings The Company is the principal operating and holding company of the Group. The subsidiary undertakings of the Company are as follows:

Class of share Proportion of Proportion of Country of capital (issued capital voting power Name incorporation and fully paid held held Principal activity Mereo BioPharma 1 Limited England and Wales Ordinary 100% 100% Future development of BCT-197 Mereo BioPharma 2 Limited England and Wales Ordinary 100% 100% Future development of BGS-649 Mereo BioPharma 3 Limited England and Wales Ordinary 100% 100% Future development of BPS-804

11. Properties, investments, assets The following are the principal establishments of the Group:

Name and location Type of facility/Investment Tenure

Fourth Floor Office Underlease One Cavendish Place London W1G 0QF United Kingdom The Company leases this office for use as its registered office and principal place of business. The Company does not own or lease any other fixed assets.

12. Material contracts Set out below is a summary of (i) each material contract (other than a contract entered into in the ordinary course of business) to which the Company or any member of the Group is or has been a party within the two years immediately preceding the date of this document; and (ii) any other contract (other than a contract entered into in the ordinary course of business) that has been entered into by the Company or any member of the Group which contains any provision under which any member of the Group has any obligation or entitlement which is material to the Group as at the date of this document.

12.1 Private Placement Agency Agreement The Company, certain of the Founders (Charles Sermon, Alastair MacKinnon and John Richard), the Directors and the Private Placement Agents entered into the Private Placement Agency Agreement on 3 June 2016, pursuant to which:

(a) the Company has appointed Cantor Fitzgerald Europe to act as Nominated Adviser for the purposes of the Company’s application for Admission;

(b) on the terms and subject in each case to certain conditions as are customary in an agreement of this nature (the last condition being Admission) contained in the Private Placement Agency Agreement and described below: (i) the Company has agreed to allot and issue, at the Private Placement Price, the new Ordinary Shares to be issued in connection with the Private Placement; and (ii) the Private Placement Agents have severally agreed to use reasonable endeavours to procure subscribers for the new Ordinary Shares to be issued pursuant to the Private Placement;

154 (c) in consideration for their services and subject to Admission occurring the Company has agreed to pay to the Private Placement Agents a commission of four per cent. and an additional discretionary commission of up to one per cent., exclusive of any applicable VAT, of the amount equal to the product of the Private Placement Price and the aggregate number of new Ordinary Shares issued by the Company pursuant to the Private Placement exclusive of any new Ordinary Shares issued to the Institutional Shareholders or their affiliates and a commission of one per cent., exclusive of any applicable VAT, of the amount equal to the product of the Private Placement Price and the aggregate number of new Ordinary Shares issued to the Institutional Shareholders or their affiliates. At its discretion, the Company may also pay the Private Placement Agents an additional fee of up to £250,000. In addition, the Company has agreed to pay to Cantor Fitzgerald Europe a corporate finance fee; (d) the Company’s obligation to issue new Ordinary Shares under the Private Placement Agency Agreement is, and the several obligations of the Private Placement Agents to procure subscribers and purchasers for the Ordinary Shares are, subject to certain conditions that are customary for an agreement of this nature. These conditions include, amongst others, the absence of any breach of warranty under the Private Placement Agency Agreement and Admission becoming effective by no later than 8am on 9 June 2016. In addition, the Private Placement Agents have the right to terminate the Placement Agency Agreement prior to Admission in certain specified circumstances that are customary in an agreement of this nature; (e) the Company has agreed to pay the costs, charges, fees and expenses of the Private Placement Agents (together with any related VAT); (f) the Company and the Directors have each given customary representations, warranties and undertakings to the Private Placement Agents, and the Company has given customary indemnities to the Private Placement Agents. The liability of the Company under the Private Placement Agency Agreement is not limited as to time or amount. The liability of the Founders that are party to the Private Placement Agency Agreement and the Directors under the Private Placement Agency Agreement is limited by both time and amount; (g) the Company has agreed not to issue, offer, sell, issue options in respect of, contract to sell or otherwise dispose of, directly or indirectly, any Ordinary Shares or any securities of the Company that are substantially similar to the Ordinary Shares including, but not limited to, any securities that are convertible into or exchangeable for, Ordinary Shares or enter into any transaction with the same economic effect as any of the foregoing (other than pursuant to the Private Placement or Ordinary Shares issued pursuant to employee stock option plans existing on the date of this document) during the period beginning on the date of this document and ending 180 days after the date of Admission, without the prior written consent of the Global Co-ordinator on behalf of the Private Placement Agents; and (h) the Founders that are party to the Private Placement Agency Agreement and the Directors have agreed not to issue, offer, sell, issue options in respect of, contract to sell or otherwise dispose of, directly or indirectly, any Ordinary Shares or any securities of the Company that are substantially similar to the Ordinary Shares including, but not limited to, any securities that are convertible into or exchangeable for, Ordinary Shares or enter into any transaction with the same economic effect as any of the foregoing during the period beginning on the date of this document and ending 365 days after the date of Admission, without the prior written consent of the Private Placement Agents. 12.2 Lock-up Agreement Pursuant to the Lock-up Agreement, Novartis has agreed that, subject to certain exceptions, during the period of 365 days from the date of Admission, it will not, without the prior written consent of the Private Placement Agents, offer, sell or contract to sell, or otherwise dispose of any Ordinary Shares which it held prior to the Private Placement (or any interest therein in respect thereof) or enter into any transaction with the same economic effect as any of the foregoing. 12.3 Nominated Adviser Agreement The Company and Cantor Fitzgerald Europe have entered into a Nominated Adviser Agreement dated 3 June 2016 pursuant to which, subject to certain conditions (including as to Admission occurring), the Company has appointed Cantor Fitzgerald Europe to act as its Nominated Adviser for the purposes of the AIM Rules for Companies. The Nominated Adviser Agreement contains among others, the following provisions: • the Company has agreed to pay Cantor Fitzgerald Europe an annual retainer fee of £70,000 exclusive of any applicable VAT;

155 • the Company has given certain customary representations, warranties and undertakings to Cantor Fitzgerald Europe in respect of, among others, compliance with all applicable regulations. In addition, the Company has agreed to indemnify Cantor Fitzgerald Europe against certain liabilities; • the Nominated Adviser Agreement entitles Cantor Fitzgerald Europe or the Company to terminate the agreement without cause on not less than 90 days’ prior written notice; and • the Nominated Adviser Agreement is governed by English law.

12.4 Subscription Agreement Pursuant to the Subscription Agreement, the Company issued: • 3,848,913 Ordinary Shares to Invesco Perpetual High Income Fund for an aggregate purchase price of £7,082,000; • 3,218,126 Ordinary Shares to Woodford Patient Capital Trust plc for an aggregate purchase price of £5,921,351; • 3,802,527 Ordinary Shares to CF Woodford Equity Income Fund for an aggregate purchase price of £6,996,649; and • 3,849,000 Ordinary Shares to Novartis in exchange for £25,812,941 loan notes (the Loan Notes). Pursuant to the Subscription Agreement, the Company will, immediately prior to Admission, require Invesco and Woodford to subscribe for Ordinary Shares at a price of £1.84 per Ordinary Share. The Company may require Invesco to purchase up to an aggregate of £20,518,000 in Ordinary Shares. The Company may require Woodford to purchase up to an aggregate of £36,020,344 in Ordinary Shares. Further, pursuant to the Subscription Agreement, upon the occurrence of a share issuance or other dilutive event, as defined therein, Novartis is entitled to require the Company to issue to it such number of fully paid Ordinary Shares necessary to maintain its shareholding at 19.5% of the total economic and voting rights in the Company. Novartis will be issued bonus shares immediately prior to Admission in connection with the drawdown of the commitment under the Subscription Agreement and the issuance of Ordinary Shares in the Private Placement. The maximum number of Ordinary Shares that may be issued by the Company to Novartis is 14,000,000 pursuant to the terms of the Subscription Agreement. In addition, because the Private Placement is expected to result in an amount of gross proceeds which is less than an agreed threshold specified in the Subscription Agreement, the parties have agreed that the Founders shall transfer certain of their Ordinary Shares to Woodford, Invesco and Novartis immediately prior to Admission at a price per share of £0.001. The Subscription Agreement will terminate upon Admission in accordance with its terms.

12.5 Convertible Loan Note Instrument Pursuant to a convertible loan note instrument and a resolution of the board of directors passed on 2 June 2016, the Company created 3,463,563 £1 unsecured convertible loan notes. The Notes will be issued, conditional on the Company securing £6,000,000 of additional funding prior to 1 July 2016, concurrently with the Private Placement Shares and are fully convertible into Ordinary Shares in the Company at the option of the noteholder. On closing of the Private Placement it is expected that the Company will have satisfied the conditionality of the instrument. The Notes will be issued to Novartis on terms that are customary to convertible loan notes of this nature. A summary of such terms is as follows: (a) The Notes attract an interest rate of 4% per annum payable annually on each anniversary of the date of the instrument and accruing daily and constitute direct, unsecured indebtedness of the Company ranking ahead of any other unsecured obligations of the Company, and without any preference among themselves. (b) To the extent not previously converted, the notes in issue shall be redeemed at the principal amount, together with interest, on the date 36 months from the date of the instrument. (c) Novartis shall be entitled, at any time when it holds 19.5% or less of the aggregate voting rights in the Company within 36 months of the date of the instrument, on one or more occasions, to serve a conversion notice on the Company to convert all or some only of the outstanding Notes into fully paid Ordinary Shares at a conversion price of £2.21 per share. (d) Upon conversion of any Note, in addition to the relevant number of conversion shares, Novartis is entitled to receive an additional number of Ordinary Shares in the Company as is equal to the number of conversion shares into which such Notes are to convert, multiplied by 0.93, up to a maximum aggregate number of 1,453,520 such bonus shares.

156 (e) It is a condition of the exercise of the Notes that such an exercise must not cause Novartis to hold more than 19.5% of the aggregate voting rights in the Company. (f) To the extent not previously converted or redeemed, the principal amount of all outstanding Notes shall automatically convert immediately prior to and conditional upon the occurrence of any Change of Control. For the purposes of the instrument a “Change of Control” means the acquisition of control of the Company (as defined in section 1124 of the Corporation Tax Act 2010) by any person or persons acting in concert (as defined in the City Code on Takeovers and Mergers) with them. (g) The Notes shall be immediately redeemed at the principal amount, together with interest, if the Company becomes subject to an insolvency event, enters into an insolvency arrangement, stops payment of its debts generally, ceases to carry on its business or if the Company breaches its undertaking not to issue further convertible loan notes or other debt that would rank above the Notes on insolvency. (h) The Company has warranted to Novartis that the board of directors has the relevant authority to enter into the instrument and issue and allot the conversion shares and bonus shares free from rights of pre-emption. (i) The Company has given undertakings to Novartis including agreeing not to, while the Notes remain in issue, issue any further convertible loan notes or other debt that would rank above the Notes on insolvency and to maintain sufficient shareholder authority to satisfy in full, without the need for the passing of any further resolutions of its shareholders, the most onerous of the outstanding rights of conversion for the time being attaching to the Notes without first having to offer the same to any existing shareholders of the Company or any other person. (j) The Company has undertaken to Novartis, while the Notes remain in issue, to notify Novartis as soon as practicable after the board or shareholder meeting (whichever is earliest) has resolved to implement an adjustment event including the issue, cancellation, purchase, redemption or division of equity securities, specifying the date and terms of the event. (k) The instrument contains anti-dilution provisions applicable on adjustment events including the issue, cancellation, purchase, redemption or division of equity securities in the Company which entitle Novartis to receive an adjustment to the number and nominal value of the shares to which they are entitled under the instrument so that they maintain the same proportion of the issued share capital and votes exercisable at general meetings and the same entitlement to participate in distributions, as would have been the case if no adjustment event had occurred. 12.6 BCT-197, BGS-649 and BPS-804 Asset Purchase Agreements In July 2015, Mereo 1, Mereo 2 and Mereo 3, each separate wholly owned subsidiaries of the Company entered into the Purchase Agreements to acquire Novartis’ rights to BCT-197, BGS-649 and BPS-804 (collectively, the Compounds) and certain related assets, including, among others, regulatory filings, inventory, books and records (collectively, the Purchased Assets). The acquisitions of the Purchased Assets closed on 29 July 2015. Under the respective Purchase Agreements, in consideration for the Purchased Assets, each of Mereo 1, Mereo 2 and Mereo 3 issued to Novartis the Loan Notes (which were assigned by Novartis to the Company in exchange for Ordinary Shares pursuant to the Subscription Agreement) and each of Mereo 1, Mereo 2 and Mereo 3 agreed to make future payments to Novartis comprising amounts equal to ascending specified percentages of tiered annual worldwide net sales (beginning at high single digits and reaching into double digits at higher sales) by such subsidiary of products that include the Compounds (Products). The levels of ascending percentages of tiered annual worldwide net sales are the same for each of Mereo 1, Mereo 2 and Mereo 3 under the respective Purchase Agreements. Each of Mereo 1, Mereo 2 and Mereo 3 further agreed that in the event it transfers, licenses, assigns or leases all or substantially all of its assets, including a Compound and related assets, it will pay Novartis a percentage of the proceeds of such transaction. The Company will retain the majority of the proceeds from such a transaction. Such percentage is the same for each of Mereo 1, Mereo 2 and Mereo 3 under the respective Purchase Agreements. The payment of a percentage of proceeds is not payable with respect to any transaction involving equity interests of Mereo, a merger or consolidation of Mereo, or a sale of any assets of Mereo. The rights to future payment to Novartis from the Group arising from the Purchase Agreements are the same across all three products. Pursuant to each of the Purchase Agreements, each of Mereo 1, Mereo 2 and Mereo 3 granted Novartis an irrevocable, transferable, royalty-free, worldwide and non-exclusive licence to use know-how included within the Purchased Assets for Novartis’ activities unrelated to the Products. Each of Mereo 1, Mereo 2

157 and Mereo 3 is also under an obligation to use commercially reasonable efforts to develop at least one Product under each of the Purchase Agreements. In addition, Novartis agreed to a three-year non- competition restriction in relation to clinical trial activities with respect to hypogonadal hypogonadism in obese men and osteogenesis imperfecta, subject to exceptions including where Novartis does not have the ability to control such clinical trial activities and any existing contracts or relationships of Novartis. Under the Purchase Agreements, Novartis agreed to indemnify each of Mereo 1, Mereo 2 and Mereo 3 for losses arising from breaches of its representations, warranties and covenants in the Purchase Agreements, and from Novartis’ activities prior to the closing date with respect to the Compounds, Products and Purchased Assets. Each of Mereo 1, Mereo 2 and Mereo 3 agreed to indemnify Novartis for losses arising from breaches of its representations, warranties and covenants in the respective Purchase Agreement, and from its activities after the closing date with respect to the Compounds, Products and Purchased Assets.

12.7 Novartis Product Exclusivity Agreement In connection with the Purchase Agreements, the Company and Novartis entered into the Product Exclusivity Agreement. Until 29 July 2016 the Group may not, directly or indirectly, acquire or in-license and conduct drug development activities with respect to any product (each, an Additional Product) other than the Compounds and any other Novartis products, unless (i) Novartis has given its prior written consent thereto, or (ii) the Group has raised funds that are reasonably sufficient to fund drug development activities the Group has committed to conduct with respect to such Additional Product.

12.8 Novartis Supply Services Agreements On 16 November 2015, each of Mereo 1, Mereo 2 and Mereo 3 entered into a supply services agreement with Novartis (the Supply Services Agreements). Pursuant to each Supply Services Agreement, Novartis will perform services related to the manufacture and supply of clinical materials for each of BCT-197, BGS-649 and BPS-804 (the Novartis Supply Services). Each subsidiary and Novartis will enter into work orders containing detailed descriptions of Novartis services to be performed, payment schedules and other commercial terms applicable to the relevant Supply Services Agreement. Novartis will provide an initial supply of clinical materials “as is” with no warranties, express or implied, including any warranty that such inventory complies with the specifications or quality agreement attached to the applicable Supply Services Agreement. Novartis will indemnify each subsidiary for, among other items, losses arising from third-party claims related to supplies of clinical materials not complying with the relevant specifications or current good manufacturing practices set forth in the applicable quality agreement only if such clinical material (i) was not manufactured from drug substance inventory as set forth in the applicable Asset Purchase Agreement that did not comply with the specifications, (ii) was supplied by or on behalf of Novartis and (iii) the relevant subsidiary complied with certain acceptance and refusal provisions enumerated in the applicable Asset Purchase Agreement. The Supply Services Agreements expire 18 months after the date the applicable assets were purchased. Other than as described above, the Supply Services Agreements contain customary representations and warranties and confidentiality provisions. Novartis’ obligation to indemnify each subsidiary under the Supply Services Agreements does not survive the expiration of the Supply Services Agreements.

12.9 ICON Master Services Agreement On 29 July 2015, the Company and ICON entered into the Master Services Agreement. The Master Services Agreement is a master form of contract for research and research-related services ICON may provide to the Group, including (i) regulatory, chemistry, manufacturing and controls and clinical development testing, (ii) pre-clinical and clinical trials, (iii) medical and safety services and reporting, (iv) data management and analysis, (v) central and bioanalytical laboratory services, (vi) interactive technologies, (vii) certain legal representation and local sponsorship services, (viii) consultative commercialisation and reported outcomes, (ix) medical imaging, (x) portal set up, (xi) portal reporting, (xii) medical writing and publishing, (xiii) quality assurance, (xiv) data storage and (xv) documentation and staffing (collectively, the ICON Services). The Group and ICON are to contract for ICON Services through separately executed statements of work (SOWs), specifying the ICON Services to be provided and any ICON Service-specific terms and conditions and key performance indicators or targets. The Company will pay ICON (i) fees in respect of any ICON Services in accordance with the terms and conditions of the applicable SOW and (ii) reasonable costs incurred by ICON on behalf of and approved by the Company (the Pass-through Costs). In connection with the entry into any SOW, the Company will provide an upfront payment to ICON equal to a mutually agreed proportion (but not less than 15%) of the estimated Pass-through Costs under such SOW.

158 For a period of one year from the date of the Master Services Agreement, the Group may not: • subject to certain exceptions, engage any business that carries out clinical research or related activities in the same geographical area as ICON or that is in competition with ICON; or • enter into any commitment to proceed with any third-party CRO for clinical research or related activities in the same geographical area as ICON immediately after the expiration of the one-year period. ICON will indemnify the Group for losses arising out of third-party claims arising out of ICON’s gross negligence or intentional misconduct, alleging that ICON’s performance or the Group’s use of the ICON Services violate third-party rights or arising out of a violation of applicable law, including data protection laws. The Group will indemnify ICON for losses arising out of the Group’s gross negligence or intentional misconduct, alleging that the Group’s use of any study materials provided by ICON violates third-party rights, arising out of a violation of applicable law, including data protection laws or arising from the use or administration of the applicable product candidate. To the extent the indemnified party’s losses arise from the negligence or intentional misconduct of such indemnified party, then the amount of the indemnified loss will be reduced in proportion to the percentage of the indemnified party’s responsibilities. The Master Services Agreement contains customary provisions concerning data protection, confidentiality and regulatory matters. The Master Services Agreement has a five-year term, unless it is terminated earlier by either party upon 90 days’ prior written notice, on 30 days’ written notice if the other party commits a material breach of any provision of the Master Services Agreement or any SOW which, if capable of remedy, is not remedied within 30 days of written notice, or immediately on notice if the other party undergoes an insolvency related event. A SOW may be terminated by either party on 60 days’ written notice (or shorter if for safety reasons) or in accordance with the applicable SOW.

12.10 One Cavendish Place Lease Agreement On 17 August 2015, the Company, as tenant, entered into an underlease (the Lease Agreement) with O&H (Cavendish Place) Limited (the Landlord) for the Company’s lease of Fourth Floor, One Cavendish Place, London W1G 0QF, United Kingdom (the Premises). The term of the Lease Agreement is from 17 August 2015 through 16 August 2025. The Premises comprise approximately 4,000 square feet. The principal rent for the Premises is £162,960 per annum through 16 December 2016 and £325,920 per annum thereafter, subject to increase on 17 August 2020 based on the open market value of the Premises (the Principal Rent). In addition to the Principal Rent, the Company is responsible for value added tax on the Principal Rent and certain insurance costs and service charges incurred by the Landlord. The Company may break the Lease Agreement on 16 August 2020 by providing six months’ prior written notice to the Landlord. If the Company does not exercise its break option, the Landlord will decrease by 50% the Principal Rent for the period from 16 August 2020 through 15 April 2021. The Lease Agreement contains customary representations, warranties and covenants.

13. UK taxation 13.1 General The following is a summary of certain United Kingdom tax considerations relating to the Private Placement Shares. Except to the extent expressly mentioned, this summary relates to certain aspects of the UK tax treatment of shareholders who are solely resident (and, in the case of individuals, domiciled) in the United Kingdom for UK tax purposes, and to whom “split year” treatment does not apply (except insofar as express reference is made to the treatment of non-United Kingdom residents) who hold the Private Placement Shares as investments (other than in an individual savings account or a self-invested personal pension) and who are the absolute beneficial owners of both the Private Placement Shares and any dividends paid on them. This summary does not apply to certain classes of shareholder who are subject to special rules, including those carrying on certain financial activities, those subject to specific tax regimes or benefitting from certain reliefs or exemptions, those connected with the Company or Group and those for whom the Private Placement Shares are employment related securities. This summary also does not apply to shareholders that own (or are deemed to own) 5% or more of the Ordinary Shares and/or voting power of the Company (either alone or together with connected persons (in light of the close company disclosure)). This summary is based on current United Kingdom tax law and HMRC published practice (which may not be binding on HMRC) as at the date of this Admission Document, which may change (potentially with retrospective effect).

159 Prospective subscribers for Private Placement Shares should seek appropriate advice on the tax consequences of the acquisition, ownership and disposition of the Private Placement Shares, including in relation to jurisdictions in which they are, or may be, resident for any tax purposes or otherwise subject to tax.

13.2 Dividends Dividends paid by the Company to shareholders will not be subject to any UK withholding tax. The expected tax treatment of dividends in the hands of shareholders is set out below:

(a) Dividends paid to UK-resident individual shareholders UK resident individuals who receive dividends from the Company will generally be taxed on the aggregate amount of the dividend received. The dividend income received by the shareholder will be regarded as the top slice of the individual’s income and so will be taxed at the highest marginal rate applicable to that individual. Under proposals contained in Finance Bill 2015-2016 to 2016-2017 which, once enacted, will have effect from 6 April 2016, the first £5,000 of dividend income received by a UK-resident individual in a tax year (the “Dividend Allowance”) will be taxed at a nil rate. To the extent that a UK resident individual’s dividend income for the tax year exceeds the Dividend Allowance and, when treated as the top slice of such individual shareholder’s income, falls above such individual shareholder’s personal allowance but below the basic rate limit, such an individual shareholder will be subject to tax on that dividend income at the dividend basic rate of 7.5%. To the extent that such dividend income falls above the basic rate limit but below the higher rate limit, such an individual shareholder will be subject to tax on that dividend income at the dividend upper rate of 32.5%. To the extent that such dividend income falls above the higher rate limit, such an individual shareholder will be subject to tax on that dividend income at the dividend additional rate of 38.1%.

(b) Dividends paid to UK-resident corporate shareholders Shareholders who are within the charge to UK corporation tax will be subject to corporation tax on dividends paid by the Company unless (subject to special rules for such shareholders that are small companies) the dividends fall within an exempt class and certain other conditions are met. Whether an exempt class applies and whether other conditions are met will depend upon the circumstances of the particular shareholder, although it is expected that the dividends paid by the Company would normally be exempt.

(c) Dividends paid to non-UK resident shareholders A non-UK resident shareholder may be subject to tax on dividend income under local law. Shareholders who are not solely resident in the United Kingdom for tax purposes should consult their own tax advisers in relation to their tax liabilities (in the United Kingdom and any other country) on dividends received from the Company.

13.3 Capital gains A subsequent disposal of Private Placement Shares may, depending on the shareholder’s circumstances and subject to any available exemptions and reliefs (such as the annual exempt amount for individuals and indexation allowance for corporate shareholders), give rise to a chargeable gain or allowable loss for the purpose of UK tax on capital gains. Individual shareholders who cease to be resident in the UK for tax purposes for a period of five years or less and who dispose of Private Placement Shares during that period may be liable to UK tax on any capital gain on their return to the UK (subject to any available exemption or relief). Under proposals contained in Finance Bill 2015-2016 to 2016-2017 which, once enacted, will have effect from 6 April 2016, individual shareholders who pay tax at the basic rate will be liable to pay UK capital gains tax on any chargeable gain at a rate of 10%. Higher and additional rate taxpayers will be liable to pay UK capital gains tax at a rate of 20%. However, the first £11,100 of gains received by an individual shareholder in a tax year will be exempt from UK capital gains tax. Corporate shareholders will typically have any chargeable gains added to their taxable profits and so such chargeable gains will be subject to UK corporation tax (currently at a rate of 20%). Special rules apply to certain shareholders in close companies. See paragraph 13.5 (Close companies) below for a discussion of the rules applying to these companies.

160 13.4 Inheritance tax The Private Placement Shares will be assets situated in the UK for the purposes of UK inheritance tax. A gift or settlement of such assets by, or the death of, an individual Shareholder, may therefore give rise to a liability to UK inheritance tax regardless of where the Shareholder is resident or domiciled, subject to any available exemption or relief. Generally, UK inheritance tax is not chargeable on gifts to individuals if the transfer is made more than seven complete years prior to the death of the donor. A transfer of Private Placement Shares at less than market value may be treated for inheritance tax purposes as a gift of Private Placement Shares, and particular rules apply to gifts where the donor reserves or retains some benefit. Special rules apply to close companies and to trustees of certain settlements who hold Private Placement Shares, which rules may bring them within the charge to inheritance tax. The inheritance tax rules are complex and Shareholders should consult a professional adviser in any case where those rules may be relevant, particularly in (but not limited to) cases where Shareholders intend to make a gift of Private Placement Shares, to transfer Private Placement Shares at less than market value or to hold Private Placement Shares through a company or trust arrangement. Shareholders should also seek professional advice in a situation where there is potential for a double charge to UK inheritance tax and an equivalent tax in another country or if they are in any doubt about their UK inheritance tax position.

13.5 Close companies The Company and each UK resident member of the Group is a “close company” within the meaning of Part 10 of the Corporation Tax Act 2010 as at the date of Admission and may continue to be so following the Private Placement. As a result, certain transactions entered into by the Company or other members of the Group may have tax implications for Shareholders. In particular, certain gifts, transfers of assets at less than market value or other transfers of value by the Company or other members of the Group may be apportioned to Shareholders for the purposes of United Kingdom inheritance tax, although the payment of a dividend to a Shareholder or the payment of dividends or transfers of assets between members of the Group will not normally attract such an apportionment. Any charge to United Kingdom inheritance tax arising from such a transaction will primarily be a liability of the relevant company, although in certain circumstances Shareholders to whom greater than 5% of the value transferred is apportioned may be liable for the tax if it is left unpaid by that company. In addition, certain transfers of assets at less than market value by the Company or certain members of the Group may result in a reduction of a Shareholder’s base cost in his Ordinary Shares for the purposes of United Kingdom taxation of capital gains, although transfers of assets between members of the Group will not normally attract such treatment. Shareholders should consult their own professional advisers on the potential impact of the close company rules.

13.6 Stamp duty (a) Issue of Private Placement Shares No UK stamp duty or stamp duty reserve tax (SDRT) will be payable on the issue of Private Placement Shares by the Company pursuant to this Private Placement.

(b) Transfers of Ordinary Shares outside of CREST and through CREST Since 28 April 2014, neither stamp duty nor SDRT applies to transfers of, or unconditional agreements to transfer, shares admitted to trading on a recognised growth market provided that the shares are not listed on that or any other market. AIM has been recognised by HMRC as a recognised growth market. Consequently, a transfer on sale of Ordinary Shares following their admission to trading on AIM will not be subject to stamp duty or SDRT for so long as the Ordinary Shares are not listed on the AIM or any other market.

14. U.S. federal income taxation 14.1 General This section describes the material U.S. federal income tax consequences to U.S. holders of acquiring, owning, and disposing of the Ordinary Shares. It applies only to U.S. holders who acquire their Ordinary Shares in this Private Placement and who hold such Ordinary Shares as capital assets for U.S. federal income tax purposes. This section does not apply to a Shareholder who is member of a special class of Shareholders subject to special rules, including: • a dealer in securities,

161 • a real estate investment trust or regulated investment company, • a trader in securities that elects to use a mark-to-market method of accounting for securities holdings, • a tax-exempt organization, • a tax-deferred account, including an “individual retirement account” or “Roth IRA,” • a bank or other financial institution, or a life insurance company, • a person that actually or constructively owns 10% or more of either the voting power or the value of the Ordinary Shares, • a person that holds Ordinary Shares as part of a straddle or a hedging, integrated or conversion transaction, • in certain cases, a former citizen or long-term resident of the United States, • a U.S. holder (as defined below) whose functional currency is not the U.S. dollar. This section is based on the U.S. Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed U.S. Treasury Regulations, published rulings and court decisions, as well as the Convention Between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains, all as of the date hereof and all subject to differing interpretations or change, possibly on a retroactive basis. A Shareholder is a “U.S. holder” if such Shareholder is a beneficial owner of Ordinary Shares and if such Shareholder is, for U.S. federal income tax purposes: • an individual who is a citizen or resident of the United States, • a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, • an estate whose income is subject to U.S. federal income tax regardless of its source, or • a trust, if (1) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (2) such trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) is a Shareholder, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A Shareholder that is a partnership, and partners in such partnership, should consult their own tax advisers regarding the tax consequences of acquiring, owning and disposing of the Ordinary Shares. Shareholders should consult their own tax advisors regarding the U.S. federal, state and local and other tax consequences of acquiring, owning and disposing of Ordinary Shares in their particular circumstances.

This discussion addresses only U.S. federal income taxation. Shareholders should consult their own tax advisors as to potential application of U.S. state and local tax laws, any other U.S. tax laws (such as the gift, alternative minimum, or estate tax) and other U.S. laws and foreign laws, including the laws of the United Kingdom.

14.2 Taxation of U.S. holders Passive Foreign Investment Company Considerations The Company believes that its Ordinary Shares are likely to be treated as stock of a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes for its current taxable year and for the foreseeable future, but this conclusion is a factual determination. In general, the Company will be a PFIC with respect to a U.S. holder if for any taxable year of the Company in which Ordinary Shares are held by such U.S. holder: • at least 75% of the Company’s gross income for the taxable year is “passive income”; or

162 • at least 50% of the value, determined on the basis of a quarterly average, of the Company’s gross assets is attributable to assets that produce or are held for the production of “passive income”. For purposes of the PFIC rules, “passive income” generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from the disposition of assets that produce passive income. Cash is generally treated as an asset that produces passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income. Moreover, Ordinary Shares will be treated as stock of a PFIC with respect to a U.S. holder if the Company is a PFIC at any time during the period in which such U.S. holder holds the Ordinary Shares, even if the Company ceases to be treated as a PFIC, unless certain special elections are made. If the Company is treated as a PFIC, and a U.S. holder does not make one of the elections described below, such U.S. holder will be subject to special tax rules with respect to: • any gain realized on the sale or other disposition of Ordinary Shares; and • any excess distribution that the Company makes to such U.S. holder (generally, any distributions during a single taxable year that are greater than 125% of the average annual distributions received by such U.S. holder in respect of its Ordinary Shares during the three preceding taxable years or, if shorter, such U.S. holder’s holding period for its Ordinary Shares). Under these rules: • the gain or excess distribution will be allocated ratably over the U.S. holder’s holding period for its Ordinary Shares; • the amount allocated to the taxable year in which the U.S. holder realized the gain or excess distribution will be taxed as ordinary income; • the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect applicable to ordinary income for the applicable class of taxpayers for that year; and • the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each prior year. If the Company is determined to be a PFIC, the general tax treatment for U.S. holders described above would apply to indirect distributions and gains deemed to be realized by U.S. holders in respect of any of the Company’s subsidiaries that are also PFICs.

QEF Election The special PFIC tax rules described above will not apply to a U.S. holder who elects to have the Company treated as a “qualified electing fund” with respect to such U.S. Holder (such election, a QEF election) and the Company provides certain required information to U.S. holders to give effect to such election. The Company intends to provide U.S. holders with such information as may be required to make a QEF election effective. A U.S. holder that makes a QEF election will be currently taxable on its pro rata share of the Company’s ordinary earnings and net capital gain, at ordinary income and capital gain rates, respectively, for each of the Company’s taxable years, regardless of whether or not such U.S. holder receives distributions. Such U.S. holder’s basis in its Ordinary Shares will be increased to reflect taxed but undistributed income. Distributions of income that have been taxed previously will result in a corresponding reduction of basis in the Ordinary Shares and will not be taxed again as a distribution to such U.S. holder. U.S. holders should consult their own tax advisors as to the availability and consequences of a QEF election.

Mark-to-Market Election If the Company is determined to be a PFIC and the Ordinary Shares are treated as marketable stock, a U.S. holder may make a mark-to-market election with respect to its Ordinary Shares requiring the U.S. holder to currently include any appreciation in its Ordinary Shares in its income as ordinary income on an annual basis to avoid gain and excess distributions being treated as earned ratably over the U.S. holder’s holding period (and therefore, also avoiding the application of the interest charge described above). However, a mark-to-market election will generally not be available unless the Ordinary Shares are regularly traded on a qualified exchange and, further, would not mitigate the adverse implications of PFIC status with respect to any subsidiaries of the Company. The Company does not expect that its Ordinary Shares will be listed or sufficiently traded on such an exchange, and thus, the Company does not expect its Ordinary Shares to be treated as marketable stock.

163 If the Company is treated as a PFIC for any taxable year with respect to a U.S. holder and a QEF election is not in effect, such U.S. holder may be able to make a deemed sale election if the Company ceases to be treated as a PFIC in subsequent taxable years. The effect of the deemed sale is generally to “purge” the Company’s stock of its characterization as stock of a PFIC, and thereafter, such Company stock generally would not be treated as stock of a PFIC with respect to such U.S. holder, provided that the Company does not become a PFIC again in a subsequent taxable year. Upon making a deemed sale election with respect to the Company’s stock, generally such electing U.S. holder would be treated as having sold all of such U.S. holder’s stock in the Company for its fair market value on the last day of the Company’s last taxable year during which the Company was treated as a PFIC, and such deemed sale generally would be treated as a taxable disposition that is subject to the PFIC tax rules described above. The U.S. holder’s holding period in the non-PFIC Ordinary Shares would be treated as beginning on the day following the deemed sale for purposes of the PFIC rules. U.S. holders should consult their own tax advisors as to the availability and consequences of a deemed sale election. A U.S. holder must generally file an IRS Form 8621 (“Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund”) with its U.S. federal income tax return for any taxable year in which the Company is a PFIC with respect to such U.S. holder. U.S. holders are urged to consult their own tax advisors concerning the filing of IRS Form 8621.

14.3 Taxation of dividends Notwithstanding any election a U.S. holder makes with regard to its Ordinary Shares (discussed above), dividends received from the Company will not constitute qualified dividend income taxable at long-term capital gains rates for a non-corporate U.S. holder if the Company is a PFIC either in the taxable year of the distribution or the preceding taxable year. Moreover, such U.S. holder’s Ordinary Shares will continue to be treated as stock in a PFIC if the Company was a PFIC at any time during such U.S. holder’s holding period in its Ordinary Shares, even if the Company is not currently a PFIC (unless a deemed sale election is made to purge characterization of a U.S. holder’s Ordinary Shares as stock of a PFIC, as discussed above). Dividends that a U.S. holder receives that do not constitute qualified dividend income are not eligible for taxation at the preferential rate of taxation under current law applicable to qualified dividend income. Instead, such U.S. holder will be subject to U.S. federal income tax at rates applicable to ordinary income on the gross amount of any such distribution treated as a dividend. Dividends are taxable to U.S. holders as ordinary income when such dividends are received, actually or constructively. Such dividends will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. The amount of a dividend distribution that U.S. holders must include in their income as a U.S. holder will be the U.S. dollar value of the pound sterling payments made, determined at the spot pound sterling/U.S. dollar rate on the date the dividend distribution is includible in such U.S. holder’s income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date a dividend payment is included in taxable income to the date the payment is converted into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The currency gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. If dividends received in pound sterling are converted into U.S. dollars on the day they are received, the U.S. holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income.

14.4 Taxation of capital gains If the PFIC rules discussed above were not to apply, when a U.S. holder sells or otherwise disposes of its Ordinary Shares, such U.S. holder generally will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount realized and such U.S. holder’s tax basis, determined in U.S. dollars, in its Ordinary Shares. Capital gain of a noncorporate U.S. holder is generally taxed at a preferential rate of taxation under current law where the shareholder has a holding period greater than one year. Such gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of capital losses is subject to certain limitations.

14.5 Net investment income tax Subject to certain limitations, an additional tax of 3.8% is imposed on the “net investment income” of certain U.S. holders who are citizens and resident aliens, and on the undistributed “net investment income” of certain estates and trusts. Among other items, “net investment income” generally would include

164 dividends paid on Ordinary Shares and certain net gain from the sale or other taxable disposition of Ordinary Shares, less certain deductions. U.S. holders should consult their own tax advisors concerning the effect, if any, of this net investment income tax on holding Ordinary Shares in their particular circumstances.

14.6 Backup withholding and information reporting For a noncorporate U.S. holder, information reporting requirements, on Internal Revenue Service Form 1099, generally will apply to: • dividend payments or other taxable distributions made to such U.S. holder within the United States or by a U.S. payor; and • the payment of proceeds to such U.S. holder from the sale of Ordinary Shares effected at a U.S. office of a broker. Additionally, backup withholding may apply to such payments to a noncorporate U.S. holder that fails to provide an accurate taxpayer identification number, is notified by the Internal Revenue Service that such noncorporate U.S. holder has failed to report all interest and dividends required to be shown on its U.S. federal income tax returns, or in certain circumstances, fails to comply with applicable certification requirements. Certain U.S. holders (including, among others, corporations) are not subject to backup withholding. Backup withholding is not an additional tax. A noncorporate holder generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed such shareholder’s U.S. federal income tax liability by timely filing a refund claim with the Internal Revenue Service.

14.7 Disclosure of information with respect to foreign financial assets Certain U.S. holders who hold any interest in “specified foreign financial assets,” including the Ordinary Shares, during such U.S. holders’ taxable year must attach to their U.S. federal income tax return for such year certain information with respect to each asset (IRS Form 8938 “Statement of Specified Foreign Financial Assets”) if the aggregate value of all of such assets exceeds $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year (or a higher dollar amount prescribed by the Internal Revenue Service). For this purpose, a “specified foreign financial asset” includes any depositary, custodial or other financial account maintained by a foreign financial institution, and certain assets that are not held in an account maintained by a financial institution, including any stock or security issued by a person other than a U.S. person. Penalties apply for failure to furnish the required information. U.S. holders should consult their own tax advisers concerning any obligation that they may have to furnish information to the Internal Revenue Service as a result of holding the Ordinary Shares. The above discussion is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of the Ordinary Shares.

15. Insurance The Group has insurance in place for properties and assets on terms which are considered by the Directors to be appropriate and having due regard to the availability of cover and cost. Following Admission, the Group will have in place directors’ and officers’ insurance policies offering cover in relation to errors and omissions in an amount considered by the Directors to be appropriate for similarly situated companies, in addition to public offering insurance.

16. Litigation and arbitration There are no governmental, legal or arbitration proceedings (including any such proceedings that are pending or threatened of which the Company is aware) during the period from the Company’s incorporation through the date of this document that may have, or have had, a significant effect on the Company’s or Group’s financial position or profitability.

17. Related-party transactions In July 2015, the Group entered into Purchase Agreements with Novartis, pursuant to which the Group acquired BCT-197, BGS-649 and BPS-804 and related intellectual property. In connection with this transaction, the Company also entered into the Product Exclusivity Agreement and made a payment of $1,500,000 to Novartis representing the Group’s contribution to a payment made by Novartis to a third party in satisfaction of all

165 monetary obligations of Novartis to that third party in respect of BCT-197. In addition, Mereo 3 and Novartis entered into a sublicence agreement dated as of 29 July 2015, pursuant to which Mereo 3 obtained an exclusive, worldwide sublicence under certain patent rights and know-how to develop, manufacture, and commercialise certain therapeutic antibody product candidates. Under this Agreement, Mereo 3 agreed to pay to Novartis milestone payments based on achievement by Mereo 3 of key development and regulatory milestones and low single digit royalty payments based on net sales of BPS-804 for a specified period following commercial launch. Subsequently, the Group and Novartis also entered into the Novartis Supply Services Agreements. See paragraph 12 (Material contracts).

On 3 June 2016 the Company issued 3,463,563 unsecured convertible loan notes to Novartis for proceeds of £3,463,563. The terms of the convertible loan notes are detailed in paragraph 12.5 of Part XV: “Additional Information”.

The Company reimbursed £453,837 to Phase4 Partners Limited for expenses Phase4 incurred on the Company’s behalf in connection with the Purchase Agreements, including office and travel costs of £105,257 and third-party consultants’ fees for diligence activities of £348,580. Denise Scots-Knight, Peter Bains, Kunal Kashyap, who are Directors of the Company, and Alastair MacKinnon, John Richard and Charles Sermon, who are members of Senior Management, are current directors of Phase4 Partners Limited.

The Company also made consultancy payments of £120,328 to Frank Armstrong, a Director of the Company, relating to assistance with diligence activities and contractual advice and reimbursement of travel costs prior to the completion of the Purchase Agreements.

There were no other related-party transactions entered into by the Company or any member of the Group during the period from the Company’s inception through 2 June 2016 (the latest practicable date prior to publication of this document).

18. Working capital The Directors are of the opinion, having made due and careful enquiry and taking into account the proceeds of the Private Placement, that the working capital available to the Company and the Group will be sufficient for their present requirements, that is for at least the next 12 months from the date of Admission.

19. No significant change There has been no significant change in the financial or trading position of the Group since 31 December 2015, the date to which the last audited consolidated financial information of the Group in Part X: “Financial Information” was prepared.

20. Mandatory bids and compulsory acquisition 20.1 The City Code applies to the Company. For a discussion of how the City Code will apply to the Company after Admission, see paragraph 4 (Takeover regulation) of Part VII: “Directors, Senior Management and Corporate Governance”. 20.2 Under sections 974 to 991 of the Companies Act, if an offeror acquires or contracts to acquire (pursuant to a takeover offer) not less than 90% of the shares in the Company (in value and by voting rights) to which such offer relates, it may then compulsorily acquire the outstanding shares not assented to the offer. The offeror would do so by sending a notice to outstanding holders of shares telling them that it will compulsorily acquire their shares and then, six weeks later, it would execute a transfer of the outstanding shares in its favour and pay the consideration to the Company, which would hold the consideration on trust for the outstanding holders of shares. The consideration offered to the holders whose shares are compulsorily acquired under the Companies Act must, in general, be the same as the consideration that was available under the takeover offer. In addition, pursuant to section 983 of the Companies Act, if an offeror acquires or agrees to acquire not less than 90% of the shares in the Company (in value and by voting rights) to which the offer relates, any holder of shares to which the offer relates who has not accepted the offer may require the offeror to acquire his/her shares on the same terms as the takeover offer. The offeror would be required to give any holder of shares notice of his/her right to be bought out within one month of that right arising. These sell-out rights cannot be exercised after the end of the period of three months from the last date on which the offer can be accepted or, if later, three months from the date on which the notice is served on the holder of shares notifying him/her of their sell-out rights. If a holder of shares exercises his/her rights, the offeror is bound to acquire those shares on the terms of the offer or on such other terms as may be agreed.

166 21. Auditor 21.1 Ernst & Young LLP (EY) whose registered address is 1 More London Place, London SE1 2AF, United Kingdom, has been the independent auditor of the Company since its incorporation in 2015. EY has no material interest in the Company. 21.2 EY is registered to perform audit work by the Institute of Chartered Accountants in England and Wales.

22. Reporting accountant and consent 22.1 EY has given and has not withdrawn its written consent to the inclusion in this document of its report in Part X: “Financial Information” of this document, and references thereto in the form and context in which they appear and has authorised the contents of those parts of this document which comprise its report for purposes of Schedule Two of the AIM Rules for Companies. As the Ordinary Shares have not been and will not be registered under the Securities Act, EY has not filed and will not be required to file a consent under Section 7 of the Securities Act.

23. Intellectual property expert and consent 23.1 Stratagem IPM Limited, whose address is Meridian Court, Comberton Road, Toft, Cambridge CB23 2RY, United Kingdom, has been appointed as an intellectual property expert to the Company. 23.2 Stratagem is a recognised expert in intellectual property. Stratagem has no material interest in the Company. 23.3 Stratagem has given and has not withdrawn its written consent to the inclusion in this document of its name, its intellectual property expert report in Part XVIII: “Intellectual Property Expert Report” of this document, and references thereto in the form and context in which they appear and has authorised the contents of those parts of this document which comprise its reports. As the Ordinary Shares have not been and will not be registered under the Securities Act, Stratagem has not filed and will not be required to file a consent under the Securities Act.

24. Market report provider and consent 24.1 ClearView has given and has not withdrawn its written consent to the inclusion of the information in this document which has been sourced to ClearView, in the form and context in which it appears. ClearView is responsible for the inclusion of the information in this document which has been sourced to ClearView and declares that ClearView has taken all reasonable care to ensure that such information is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. ClearView Healthcare Partners is a life science strategy consulting firm with strong pharmaceutical expertise including pricing and market access. ClearView’s headquarters are located at One Newton Place, 275 Washington Street, Suite 405, Newton, MA 02458 USA.

25. General 25.1 The total costs and expenses of, and incidental to, the issue of the Ordinary Shares, Admission and the Capital Raise (including AIM admission fees, professional fees and expenses (including VAT), taxes and the costs of printing and distribution of documents) are estimated to amount to £2.3 million and are payable by the Company. Included within the total is the private placement agency fees, in relation to the issue, Admission and the Private Placement of the new Ordinary Shares only, which is expected to be £0.2 million exclusive of value added tax payable to the Private Placement Agents. The net proceeds accruing to the Company from the Capital Raise after settling fees and expenses (including VAT) payable by the Company, amount to £12.6 million. 25.2 The financial information contained in this document which relates to the Company does not constitute full statutory accounts as referred to in section 434 of the Companies Act. 25.3 There are no arrangements in existence under which future dividends are to be waived or agreed to be waived. 25.4 The Company does not have any “key man” insurance policies on Directors or Senior Management of the Group. 25.5 The Company has taken out “directors’ and officers’ insurance” in respect of the Directors and Senior Management on the terms which the Directors consider to be appropriate in the context of the business of the Group. Each of the Directors will have the benefit of a qualifying third-party indemnity (the terms of which are in accordance with the Companies Act).

167 26. Documents available for inspection Copies of the following documents are available for inspection during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for a period of 12 months from the date of Admission at the offices of Proskauer Rose (UK) LLP, 110 Bishopsgate, London EC2N 4AY, United Kingdom: (a) the articles of association of the Company; (b) the consent letters referred to in paragraphs 22 (Reporting accountant and consent), 23 (Intellectual property expert and consent) and 24 (Market report provider and consent) of this Part XV; (c) the historical financial information relating to the Group as at and for the period from the Company’s inception through 31 December 2015 and the report thereon by EY set out in Part X: “Financial Information”; (d) the unaudited pro forma financial information set out in Part XI: “Unaudited Pro Forma Financial Information”; (e) the report from Stratagem set out in Part XVIII: “Intellectual Property Expert Report”; and (f) this document.

Dated 3 June 2016

168 PART XVI

DEFINITIONS

The following definitions apply throughout this document unless the context requires otherwise:

2010 PD Amending Directive Directive 2010/73/EU

Admission admission of the Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules for Companies

AIM the market of the London Stock Exchange known as AIM

AIM Rules the AIM Rules for Companies and AIM Rules for Nominated Advisers, as appropriate

Application Form the application form that accompanies the Admission Document for use in connection with the Private Placement

Audit and Risk Committee the audit and risk committee of the Company from time to time, comprising as at the date of this document, Paul Blackburn, Anders Ekblom and Kunal Kashyap

BLA Biologics Licence Application

Board the board of directors of the Company from time to time

Cantor Fitzgerald Europe Nominated Adviser and Private Placement Agent

Capital Raise the Private Placement and the issuance of the Notes

Chairman Peter Fellner

Chief Executive Officer Denise Scots-Knight

City Code the City Code on Takeovers and Mergers

Companies Act the Companies Act 2006 of England and Wales, as amended

Company Mereo BioPharma Group plc

CREST the electronic transfer and settlement system for the paperless settlement of trades in listed securities operated by EUROCLEAR

CRO contract research organisation

CREST Regulations the Uncertificated Securities Regulations 2001 (SI 2001/3755), as amended

Directors the Executive and Non-Executive Directors of the Company

Disclosure and Transparency Rules the disclosure rules and transparency rules made by the FCA under Part VI of FSMA

EMA European Medicine Agency

EPO European Patent Office

EU5 France, Germany, Italy, Spain and the United Kingdom

EUROCLEAR Euroclear UK and Ireland Limited, the operator (as defined in the CREST Regulations) of CREST

Exchange Act the U.S. Securities Exchange Act of 1934, as amended

169 Executive Directors the executive directors of the Company from time to time, comprising as at the date of Admission, Denise Scots-Knight and Richard Bungay FCA the UK Financial Conduct Authority FDA U.S. Food and Drug Administration Founders Denise Scots-Knight, Charles Sermon, Alastair MacKinnon, John Richard, Enrique Millan, Frank Armstrong, NxtScience AB, Kunal Kashyap, Peter Bains and Peter Harper FSMA the UK Financial Services and Markets Act 2000, as amended Group the Company and its subsidiaries and subsidiary undertakings, and, where the context requires it, its associated undertakings HMRC Her Majesty’s Revenue and Customs IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards, as adopted by the International Accounting Standards Board Institutional Shareholders Novartis, Invesco and Woodford IRS Internal Revenue Service Listing Rules Rules published by the Financial Conduct Authority establishing minimum requirements for the admission of securities to listing, the content, scrutiny and publication of listing particulars and the continuing obligations of issuers after admission Lock-up Agreement the lock-up agreement entered into between the Company, Novartis and the Private Placement Agents on 3 June 2016 and described in Part XV: “Additional Information” Mereo Mereo BioPharma Group plc Mereo 1 Mereo BioPharma 1 Limited Mereo 2 Mereo BioPharma 2 Limited Mereo 3 Mereo BioPharma 3 Limited Model Code the model code published in Annex 1 to LR9 of the Listing Rules Member State member state of the European Union Nominated Adviser Cantor Fitzgerald Europe, in its capacity as nominated adviser of the Company Nominated Adviser Agreement the nominated adviser agreement entered into between Cantor Fitzgerald Europe and the Company dated 3 June 2016, further details of which are set out in paragraph paragraph 12.3 (Nominated Adviser Agreement) of Part XV: “Additional Information” Nomination Committee the nomination committee of the Company from time to time, comprising as at the date of this document, Frank Armstrong, Peter Bains, Anders Ekblom, Peter Fellner and Paul Blackburn (all of whom are independent non-executive directors) and Kunal Kashyap Non-Executive Directors the non-executive directors of the Company from time to time, comprising as at the date of this document, Peter Fellner, Frank Armstrong, Peter Bains, Paul Blackburn, Anders Ekblom and Kunal Kashyap Notes the unsecured convertible loan notes issued pursuant to a convertible loan note instrument, further details of which are set out in paragraph 12.5 (Convertible Loan Note Instrument) of Part XV: “Additional Information”

170 Official List the Official List maintained by the FCA

Ordinary Shares prior to the Share Consolidation, ordinary shares of £0.001 each in the Company and following the Share Consolidation, ordinary shares of £0.003 each in the Company

Payment Date 11:00 a.m. (London Time) on 8 June May 2016 or such later date as the Board and the Private Placement Agents may in their absolute discretion determine

PDMR person discharging managerial responsibilities within the meaning of section 96B(1) of the FSMA

Private Placement Agency Agreement the private placement agency agreement entered into between the Company, the Directors, the Founders that are party thereto (Charles Sermon, Alastair MacKinnon and John Richard) and the Private Placement Agents on 3 June 2016 and described in Part XV: “Additional Information”

Private Placement Agents RBC Europe Limited and Cantor Fitzgerald Europe

Private Placement the offer of the Private Placement Shares to certain institutional and other prospective investors at the Private Placement Price, as described in Part XII: “Details of the Private Placement”

Private Placement Price the price per share of £2.21 for which the Private Placement Shares are subscribed

Private Placement Shares as defined in Part XII: “Details of the Private Placement”

Prospectus Directive or PD Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State

Prospectus Rules the prospectus rules made by the FCA under Part VI of the FSMA relating to offers of transferable securities to the public and admission of transferable securities to trading on a regulated market

QIB “qualified institutional buyer” as defined under Rule 144A

RBC Europe Limited Global Co-ordinator and Private Placement Agent

Regulation S Regulation S under the Securities Act

Relevant Member State each Member State of the European Economic Area that has implemented the Prospectus Directive

Remuneration Committee the remuneration committee of the Company from time to time, comprising as at the date of this document, Frank Armstrong, Peter Bains and Anders Ekblom

Research and Development Committee the research and development committee of the Company from time to time, comprising as at the date of this document, Frank Armstrong, Peter Bains and Anders Ekblom

171 Rule 144A Rule 144A under the Securities Act

SDRT stamp duty reserve tax

SEC the U.S. Securities and Exchange Commission

Securities Act the U.S. Securities Act of 1933

Senior Management the senior management of the Company from time to time, comprising as at the date of this document, Alastair MacKinnon, John Richard and Charles Sermon

Share Consolidation the Company’s issuance of 39,480,592 bonus ordinary shares of £0.001 in nominal value pro rata to all shareholders and subsequent consolidation of the 59,220,888 outstanding ordinary shares of £0.001 in nominal value into 19,740,296 ordinary shares of £0.003 in nominal value, that occurred on 27 November 2015

Shareholders the shareholders of Ordinary Shares from time to time

Subscription Agreement the subscription agreement dated 28 July 2015, as amended by an agreement dated 1 June 2016, further details of which are set out in paragraph 12.4 (Subscription Agreement) of Part XV: “Additional information”

Subscription Account the bank account with the following details: Bank: Royal Bank of Scotland Sort Code: 15-10-00 Account No: 32510151 Account Name: Capita Registrars Ltd re: Mereo BioPharma CHAPS A/C Swift Code: RBOSGB2L IBAN: GB34RBOS15100032510151

Subscription Amount the aggregate price in respect of the Private Placement Shares subscribed for by an investor pursuant to the Private Placement, payable into the Subscription Account by the Payment Date

Takeover Panel the Panel on Takeovers and Mergers

UK Corporate Governance Code the UK Corporate Governance Code dated September 2014 issued by the Financial Reporting Council

U.S. Holder as defined in paragraph 14.1 (U.S. federal income taxation)of Part XV: “Additional Information”

USPTO U.S. Patent and Trademark Office

VAT valued added tax

WHO World Health Organization

172 PART XVII

GLOSSARY

The following technical terms (or variations thereof) are used in this document:

AECOPD acute exacerbation of COPD BMI body mass index BSAP bone-specific alkaline phosphatase COMP the Committee of Orphan Medicinal Products COPD chronic obstructive pulmonary disease CTX-1 C-telopeptides of type I collagen cross-links EXACT-PRO an acronym to represent Exacerbations of Chronic Pulmonary Disease Tool – Patient-Reported Outcome; an instrument to standardize the symptomatic assessment of exacerbations of COPD for evaluating frequency, severity, and durations of exacerbations in clinical trials of COPD Forced Expiratory Volume a measurement of the amount of air that can be forcibly exhaled with one breath. (FEV) May be measured at 1 second (FEV1), 2 seconds (FEV2), or 3 seconds (FEV3) Forced Vital Capacity the amount of air that can be forcibly exhaled from the lungs after taking the deepest breath possible FSH follicle stimulating hormone GOLD Global Initiative for Chronic Obstructive Lung Disease GnRH gonadotropin-releasing hormone HPT hypothalamic-pituitary-testicular IL-6 interleukin-6 IL-8 interleukin-8 LH luteinising hormone OC osteocalcin p38 MAP kinase p38 mitogen-activated protein kinase PDE3/4 dual phosphodiesterase 3/4 inhibitors PDE4 phosphodiesterase 4 inhibitor PICP procollagen I C terminal propeptide PINP procollagen I N-terminal propeptide PRO patient reported outcome SERM selective oestrogen receptor modulator Tmax the time at which peak plasma concentration of a drug is reached TNFα tumour necrosis factor alpha

173 PART XVIII IINTELLECTUAL PROPERTY EXPERT REPORT

The Directors Mereo BioPharma Group plc Fourth Floor One Cavendish Place London W1G 0QF The Directors RBC Europe Limited Riverbank House 2 Swan Lane London EC4R 3BF

Cantor Fitzgerald Europe One Churchill Place Canary Wharf London E14 5RB

3 June 2016 Dear Sirs Re: PATENT REPORT We have prepared this report for the directors of Mereo BioPharma Group plc (the “Company”) RBC Europe Limited and Cantor Fitzgerald Europe for inclusion in the admission document issued by the Company in connection with the admission of the Company’s entire issued and to be issued ordinary share capital to trading on AIM, the London Stock Exchange’s market for smaller growing companies (the “Admission Document”). This report is addressed to you solely for your benefit in connection with the admission of the Company’s entire issued and to be issued ordinary share capital to trading on AIM. It is not to be transmitted to anyone else (other than your affiliates and professional advisers or as required by applicable law, regulation, court order, the rules of a recognised stock exchange or for the purposes of contesting or seeking to establish a defence in any legal or regulatory proceedings or investigations in any jurisdiction, actual or threatened) nor is it to be relied upon by anyone else (other than your affiliates and professional advisers) or for any other purpose, quoted or referred to in any public document or filed with anyone without our express consent. We declare that we are responsible for this report, which forms part of the Admission Document, and that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge and belief, in accordance with the facts and contains no omission likely to affect its interpretation.

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174 EXECUTIVE SUMMARY The Company is an independent biopharmaceutical company based in the United Kingdom with a focus on the acquisition and development of innovative medicines that aim to address unmet medical needs in rare and specialty disease areas and improve patient quality of life. The Company is the holding company of three distinct wholly owned subsidiary companies: Mereo BioPharma 1 Limited, Mereo BioPharma 2 Limited and Mereo BioPharma 3 Limited.

BCT-197 Mereo BioPharma 1 Limited, acquired full rights and title to patents relating to BCT-197 from Novartis Pharma AG in July 2015. The BCT-197 portfolio includes key composition per se patents to acumapimod (P001) which are due to expire in June 2024, although extension of protection for up to 5 years may be possible in certain jurisdictions once marketing authorisation is obtained. The BCT-197 portfolio also includes a patent family for the use of acumapimod in treating AECOPD (P002), which it is anticipated will be granted in all countries where the application is currently pending (and has already been granted in South Africa and the US), and will, once granted, have an expiry date of March 2033.

The territories covered by the BCT-197 portfolio are extensive. Patents in the P001 family have been granted in a large number of countries, including many countries in Europe and the United States, Canada and Japan. The P002 family includes pending, allowed and granted cases and covers a large number of countries. The P002 family is of particular commercial relevance, since it protects the use of acumapimod in treating AECOPD, and could provide protection in territories which do not have protection for the compound per se (P001).

In Europe, 8 years of data exclusivity will be available once the product is authorised, with an additional 2 years of market exclusivity. As the product is not yet authorised, data and marketing exclusivity will extend beyond the term of the P001 patents. Assuming that marketing authorisation is obtained by the end of 2020, then data and marketing exclusivity will prevent generic competition from entering the European market until 2030 and P002, if granted, can be used to prevent competitors from using acumapimod in treating AECOPD in all territories where granted and enforced until 2033. A supplementary protection certificate (SPC) may be applied for in the European Union based on the later-expiring P002 use patent (if granted) rather than the P001 compound patent (but an SPC cannot be granted on the basis of both). Assuming that marketing authorisation is obtained in 2020, an SPC based on the P002 patent would give potential protection from competitors if enforced in the European Union until 2035. If marketing authorisation is obtained in March 2023 or later, an SPC based on the P002 patent would give potential protection if enforced until 2038.

Two PCT applications which relate to dosage regimens of BCT197 have recently been filed and are currently unpublished. P005 (PCT/GB16/05036) and P006 (PCT/GB16/050635) were filed on 8th March 2016 and national applications stemming from these PCTs will, if granted, provide protection for the dosage regimens until 2036.

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175 The following table summarises the patent term of the patent families for BCT-197 and data and marketing exclusivity in Europe:

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2038

(2)(3) P001 (compound per se ) granted SPC /Term Extension(1)

EU Data & Marketing Exclusivity until 2030 depending on MA date(1)

(2)(3) (1) P002 (medical use) pending SPC /Term Extension until 2038 depending on MA date

(1) Subject to grant of marketing authorisation (2) Supplementary Protection Certificate (3) A Supplementary Protection Certificate cannot be granted on the basis of both P001 and P002 – the SPC extensions shown are mutually exclusive. The BCT-197 portfolio is detailed further in Appendix A.

BGS-649 Mereo BioPharma 2 Limited, acquired full rights and title to patents relating to BGS-649 from Novartis Pharma AG in July 2015. The BGS-649 portfolio includes pending and allowed applications to BGS-649 formulations and pending, allowed and granted cases for the use of BGS-649 in treating hypogonadism according to a specific dosing regimen (both in P003). The US dosing regimen patent has been granted as US Patent No. 9,295,668. The US formulation application has been allowed. Both European applications have received formal allowance and will proceed to grant following payment by the Company of the requisite fee.

When granted, patent protection for the BGS-649 formulation and the use of BGS-649 will expire in August/ September 2032, although protection could be extended in certain countries until 2037 if marketing authorisation is obtained. If marketing authorisation for the product is obtained before 2022, then the patent term (and the term of any SPC) will extend beyond the data and marketing exclusivity period in Europe.

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176 The territories covered by the BGS-649 portfolio are extensive. The following table summarises the patent term of the patent families for BGS-649 and data and marketing exclusivity in Europe:

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037

SPC(2)/Term Extension(1) until P003 (formulations and medical use) pending 2037 depending on MA date

EU Data & Marketing Exclusivity until 2031/2032 depending on MA date(1)

(1) Subject to grant of marketing authorisation (2) Supplementary Protection Certificate The BGS-649 portfolio is detailed further in Appendix B.

BPS-804 Mereo BioPharma 3 Limited, acquired full rights and title to patents relating to BPS-804 from Novartis Pharma AG in July 2015 (P004). Patents in the P004 family have been granted in a large number of countries and provide protection for the BPS-804 antibody as well as nucleic acids encoding the antibody and the antibody’s use as a medicament. These patents are due to expire in 2028, although protection may be extended for up to 5 years in certain countries once marketing authorisation is obtained. Data and marketing exclusivity may extend protection in Europe, depending on when marketing authorisation is granted. Two US provisional applications, relating to a specific dosage regimen of BPS804 have been filed and are currently unpublished (P007). These may serve as priority applications for further filings (currently anticipated to be filed in July 2016) which could, if granted, provide protection for the dosage regimen beyond 2028. Osteogenesis imperfecta is an orphan disease and Mereo 3 received orphan designation for BPS-804 in the United States in March 2016 and received a positive opinion of the COMP with respect to orphan drug designation for the product in the European Union in May 2016, ratification of which is expected to be a formality. The grant of orphan drug designation in the European Union means that 10 years of marketing exclusivity will be available from the date of marketing authorisation in the European Union. The usual “8+2” (8 years of data exclusivity + 2 years of market exclusivity) afforded to authorised medicinal products only protects against another company’s reliance on the marketing authorisation holder’s data. It does not prevent another company from independently developing and selling a competing product and is therefore only valuable in so far as it would be onerous for another company to carry out the same tests etc. as the marketing authorisation holder. The 10 year marketing exclusivity enjoyed by a product with orphan designation prevents authorities from approving a “similar medicinal product” for the same therapeutic indication and therefore gives broader protection than the usual data and market exclusivity. Where an application for a marketing authorisation for an orphan product includes the results of studies conducted in accordance with an agreed paediatric investigation plan (PIP) then a further two years of exclusivity is available.

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177 The following table summarises the patent term of the patent families for BPS-804 (Company’s patents) and data and marketing exclusivity in Europe:

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033

(2) (1) P004 (antibody and use) mix of pending and granted SPC /Term Extension until 2033 depending on MA date

EU Data & Marketing Exclusivity until 2032 depending on MA date(1)

EU Marketing Exclusivity until 2032 depending on MA grant & orphan designation(1) (3)

(1) Subject to grant of marketing authorisation (2) Supplementary Protection Certificate (3) PIP extension

The BPS-804 portfolio is detailed further in Appendix C.

SCOPE OF REPORT This patent report relates to the patents and patent applications of the Company and its subsidiaries. Stratagem IPM Ltd has been commissioned to review the registered patent rights owned by and licensed to the Company and its subsidiaries and to provide this report.

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178 The contact details for Stratagem are as follows: Stratagem IPM Ltd Meridian Court Comberton Road Toft Cambridge CB23 2RY UK Tel: +44 (0) 1223 550740 Fax: +44 (0) 1223 550748

The relevant attorney details are as follows: Nicola Baker-Munton CPA, EPA Catherine Lovell CPA, EPA Laura Fletcher CPA, EPA

At Stratagem IPM Limited (“Stratagem”), we act as intellectual property advisors and patent and trade mark attorneys. The professional staff at Stratagem are European Patent Attorneys and/or UK Chartered Patent Attorneys, who have the necessary technical specialism and are legally qualified to act for technology clients before the UK Intellectual Property Office (UKIPO) and the European Patent Office (EPO). We also have expertise in areas of intellectual property such as designs, copyright and trade secrets.

Nicola Baker-Munton is the founder and Chief Executive Officer of Stratagem. She is a UK Chartered Patent Attorney and European Patent Attorney with a joint honours degree in biology and biochemistry. Nicola spent nine years as an industrial practitioner at the Wellcome Foundation Limited, and has been advising companies in the private sector for twenty years. Nicola founded Stratagem in 1999.

Catherine Lovell is a UK Chartered Patent Attorney and European Patent Attorney and has an honours degree in Biology. Before training as a patent attorney, Catherine gained valuable commercial experience in the field of intellectual property licensing and technology transfer. Before joining Stratagem, Catherine spent 5 years working as a Biotech Patent Attorney at AstraZeneca where she gained extensive experience of intellectual property due diligence and antibody patenting.

Laura Fletcher joined Stratagem in 2014 and is a UK Chartered Patent Attorney and European Patent Attorney with an honours degree in Chemistry. Since working for Stratagem, Laura has managed portfolios and provided strategic advice in the fields of novel chemistry, formulations, polymers and drug conjugates, working with start- ups and SMEs.

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179 For each patent family, a paragraph has been written which summarises the invention and its commercial context. In addition to the summary table we have also summarised the overall status of each patent family. Opinions expressed in this summary are based on the relevant facts and information known to us, and represent our honest belief.

For all families, the ownership has been checked at the USPTO and EPO, although original documents, such as contracts of employment of inventors, have not generally been sought. The correctness of the inventorship has also not been checked. The status of the cases is based on information supplied by the Company, and public registers for US and European applications.

Yours faithfully

Nicola Baker-Munton CPA, EPA Laura Fletcher CPA, EPA Catherine Lovell CPA, EPA

On behalf of Stratagem IPM Limited

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180 APPENDIX A—BCT-197

Patent Family P001—5-Membered heterocycle-based P38 kinase inhibitors. Based on an international application with the publication number WO2005/009973. The compound acumapimod is specifically named, on its own, in claim 103 of the European case and in claim 7 of the main US case. The claim set also includes claims for treatment of p38 kinase-mediated diseases or disorders, as well as process claims. The current claim scope is well supported by the examples and the comparative data on the public recorded supports inventive step. This patent provides broad coverage for and around acumapimod.

Patent Family P001 summary table

Country Application/Grant no. Status Country Application/Grant no. Status Algeria 4384 Granted Japan 4838121 Granted Australia 2004259662 Granted Malaysia PI20042496 Allowed Brazil PI0411825.1 Pending Mexico 290092 Granted Canada New 2526455 Granted Zealand 544230 Granted China 200480018056.4 Granted Norway 334947 Granted Colombia 2432 Granted Russia 2381219 Granted Egypt 858/2005 Pending Singapore 122993 Granted Europe 1641764 Granted South Africa 2005/09018 Granted Europe (Div) 2298743 Granted South Korea 1120857 Granted Hong Kong 1088895 Granted UAE P697/05 Pending Hong Kong (Div) 1149764 Granted USA 7863314 Granted India 234101 Granted USA (Div) 8242117 Granted Indonesia IDP0031204 Granted USA (Cont.) 8410160 Granted Israel 172182 Granted USA (Cont.) 8580838 Granted Iceland 2916 Granted Iceland (Div) 9037 Pending

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181 EP1641764 and EP2298743 are both granted and are both in force in the following European territories:

Austria Hungary Belgium Ireland Bulgaria Italy Switzerland Lithuania Cyprus Luxembourg Czech Republic Latvia Germany Monaco Denmark Netherlands Estonia Poland Spain Portugal Finland Romania France Sweden United Kingdom Slovenia Greece Slovakia Croatia Turkey

Patent Family P002—Use of pyrazole derivative in the treatment of acute exacerbations of chronic obstructive pulmonary tissue. Based on an international application with the publication number WO2013/139809. This family provides robust protection for the use of acumapimod in treating AECOPD and should grant in all territories.

Patent Family P002 summary table

Country Application no. Status Country Application no. Status Algeria 140590 Pending New Zealand 628392 Pending Australia 2013237503 Allowed Philippines 1-2014-502107 Pending Brazil 112014023107-9 Pending Russia 2014141893 Pending Canada 2866108 Pending Singapore 11201404941W Pending China 201380015703.5 Pending South Africa 2014/05871 Granted Egypt PCT/1325/2014 Pending South Korea 2014-7025904 Pending Europe 13710851.0 Allowed Taiwan 102109739 Pending Hong Kong 15101000.9 Pending Thailand 1401005467 Pending Indonesia P00201405202 Pending UAE P977/14 Pending Israel 234537 Pending United States 9,339,491 Granted Japan 2015-500892 Pending United States 15/143,356 Pending Mexico MX/A/2014/011291 Pending Patent Family P005 – Dosage regimen of BCT197. International application No. PCT/GB16/05036 – not yet published.

Patent Family P006 – Dosage regimen of BCT197. International application No. PCT/GB16/050635 – not yet published.

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182 APPENDIX B—BGS-649

Patent Family P003—Use of an aromatase inhibitor for the treatment of hypogonadism and related diseases. Based on international applications with the publication numbers WO2013/036563 and WO2013/036562 and a shared priority. A patent has been granted in the US as US 9,295,668. The European applications have received formal allowance.

If the remaining patents ultimately grant which they are expected to do, and are maintained for their full life, each member of patent family P003 will expire between August and September 2032 (except the US which could be later if the patent term is adjusted by the USPTO, although 9,295,668 has no patent term adjustment).

Patent Family P003 summary table

Country Application/Grant no. Status Country Application/Grant no. Status Algeria 140200 Granted Indonesia P00201401193 Pending Argentina P120103283 Pending Israel 231234 Pending Australia 2012304693 Allowed Japan 2014-529832 Pending Australia 2012304694 Pending Japan 2014-529833 Pending Brazil 112014004879.7 Pending Mexico MX/a/14/002773 Pending Brazil 112014005434.7 Pending Mexico MX/a/14/002780 Pending Canada 2845929 Pending New Zealand 621476 Pending Canada 2846884 Pending Russia 2014113334 Pending China 201280043378.9 Pending Russia 2014113575 Pending China 201280043614.7 Pending Singapore 2014012132 Pending Egypt 188/2014 Pending South Africa 2014/01040 Pending Europe 12758965.3 Allowed South Korea 2014-7006170 Pending Europe 12758966.1 Allowed South Korea 2014-7006171 Pending GCC P/2012/22126 Pending United States 9,295,668 Granted Hong Kong 14109586.5 Pending United States 14/342813 Allowed India 1619/DELNP/2014 Pending United States 15/050,394 Pending India 2103/DELNP/2014 Pending

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183 APPENDIX C—BPS-804

Patent Family P004—Composition and methods for use of antibodies against sclerostin. Based on an international application with the publication number WO2009/047356.

Patent Family P004 summary table

Country Application/Grant no. Status Country Application/Grant no. Status Algeria 7654 Granted Indonesia ID0036682 Granted Argentina AR068767 Granted Israel 204510 Granted Australia 2008309514 Granted Japan (Div) 5913181 Granted Brazil PI0817879.8 Pending Japan (Div) 2016-014340 Pending Canada 2702005 Allowed Macau J/1084 Granted China 200880111133.9 Granted Mexico 305531 Granted Colombia 4223 Granted New Zealand 584158 Granted Egypt PCT/573/2010 Pending Russia 018756 Granted Europe 2203478 Granted Singapore 159880 Granted Europe (Div) 13151551.2 Allowed South Africa 2010/01789 Granted GCC GC0003999 Granted South Korea 1268675 Granted Hong Kong 1143173 Granted United States 7879322 Granted Hong Kong 13109055.8 Pending United States (Cont) 8246953 Granted India 2067/DELNP/10 Pending United States (Cont) 8486661 Granted

EP2203478 is granted and is in force in the following European territories: Austria Ireland Belgium Iceland Bulgaria Italy Switzerland Lithuania Cyprus Luxembourg Czech Republic Latvia Germany Malta Denmark Netherlands Estonia Norway Spain Poland Finland Portugal France Romania United Kingdom Sweden Greece Slovenia Croatia Slovakia Hungary Turkey

Patent Family P007 – Dosage regimen. Two US Provisional Applications – not yet published.

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