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.

IF YOU ARE NOT THE INTENDED RECIPIENT OF THIS ELECTRONIC TRANSMISSION, PLEASE DO NOT DISTRIBUTE OR COPY THE INFORMATION CONTAINED IN THIS ELECTRONIC TRANSMISSION, BUT INSTEAD DELETE AND DESTROY ALL COPIES OF THIS ELECTRONIC TRANSMISSION.

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 Companyor Mereo) prepared in accordance with the AIM Rules for Companies. This document contains no offer to thepublic 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 notcomprise a prospectus within the meaning of section 85 of FSMA and has not been drawn up in accordance withthe Prospectus Rules of the Financial Conduct Authority (the FCA) or approved by or filed with the FCA or anyother competent authority for the purposes of the Prospectus Directive. This document has been prepared inconnection with the offer of Ordinary Shares to certain institutional and other prospective investors described inPart XII: “Details of the Private Placement” of this document (the Private Placement) and Admission (asdefined below).

Applications will be made to the London Stock Exchange plc (the London Stock Exchange) for all of theOrdinary 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 theOrdinary Shares will commence at 8am on 9 June 2016. No application has been, or is currently intended tobe, 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 theinformation contained in this document and compliance with the AIM Rules for Companies. To the best of theknowledge 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 toaffect its import.

Prospective investors are advised to examine all the risks that might be relevant in connection with aninvestment in the Ordinary Shares. Prospective investors should read this entire document, and inparticular, Part II: “Risk Factors” for a discussion of certain risks and other factors that should beconsidered 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 andadmission 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 (theSecurities Act) and, subject to certain exceptions, may not be offered or sold within the United States. TheOrdinary Shares are being offered and sold outside the United States in reliance on Regulation S and within theUnited States only to “qualified institutional buyers”. See paragraphs 10 (Selling restrictions) and 11.3 (Transferrestrictions) of Part XII: “Details of the Private Placement”.

AIM is a market designed primarily for emerging or smaller companies to which a higher investment risktends to be attached than to larger or more established companies. AIM securities are not admitted to theOfficial List of the UK Listing Authority. A prospective investor should be aware of the risks of investingin such companies and should make the decision to invest only after careful consideration and, ifappropriate, consultation with an independent financial adviser. Each AIM company is required pursuantto the AIM Rules for Companies to have a nominated adviser. The nominated adviser is required to makea declaration to the London Stock Exchange on Admission in the form set out in Schedule Two to the AIMRules for Nominated Advisers. The London Stock Exchange has not itself examined or approved thecontents 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 authorisedand regulated by the FCA in the United Kingdom, are acting exclusively for the Company and no one else inconnection with the Private Placement and Admission, will not regard any other person (whether or not arecipient of this document) as their respective client in relation to the Private Placement and Admission, and willnot be responsible to anyone other than the Company for providing the protections afforded to their respectiveclients, nor for providing advice in relation to the Private Placement, Admission or any other matter referred to inthis document.

Apart from the responsibilities and liabilities, if any, which may be imposed on RBC Europe Limited, CantorFitzgerald Europe and Evercore Partners International LLP or any of them by FSMA or the regulatory regimeestablished thereunder, or under the regulatory regime of any jurisdiction where exclusion of liability under therelevant regulatory regime would be illegal, void or unenforceable, none of RBC Europe Limited, CantorFitzgerald Europe, Evercore Partners International LLP nor any of their respective affiliates accepts anyresponsibility whatsoever for, or makes any representation or warranty, express or implied, as to the contents ofthis document, including its accuracy or completeness or for any other statement made or purported to be madeby it, or on its behalf, in connection with the Company, the Ordinary Shares or the Private Placement, andnothing in this document will be relied upon as a promise or representation in this respect, whether or not to thepast or future. Each of RBC Europe Limited, Cantor Fitzgerald Europe, Evercore Partners International LLP andtheir respective affiliates accordingly disclaims all and any responsibility or liability whatsoever, whether arisingin tort, contract or otherwise (save as referred to above), which it might otherwise have in respect of thisdocument 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 owedsolely to the London Stock Exchange and are not owed to the Company or to any Director or to any other personin 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 thePrivate Placement Shares and may not reproduce or distribute this document, in whole or in part, and may notdisclose any of the contents of this document or use any information herein for any purpose other thanconsidering an investment in the Private Placement Shares. Such recipients of this document agree to theforegoing 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 anyoffer to purchase or subscribe for, any securities other than the securities to which it relates or any offer orinvitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, such securities by anyperson 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, analysisand 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 inthis document and, if given or made, such information or representations must not be relied on as having been soauthorised. Neither the delivery of this document nor any subscription or sale made under it shall, under anycircumstances, create any implication that there has been no change in the affairs of the Company since the dateof 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 norany of their respective representatives, is making any representation to any prospective investor of the OrdinaryShares regarding the legality of an investment in the Ordinary Shares by such prospective investor under the lawsapplicable to such prospective investor. The contents of this document should not be construed as legal, financialor 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, andany of their respective affiliates, acting as investors for their own accounts, may subscribe for Private PlacementShares and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for their own accounts inthe Private Placement Shares, any other securities of the Company or other related investments in connectionwith the Private Placement or otherwise. Accordingly, references in this document to the Private PlacementShares being issued, offered, subscribed, sold, purchased or otherwise dealt with should be read as

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including any issue, offer or sale to, or subscription, purchase or dealing by Cantor Fitzgerald Europe, RBCEurope Limited, or any of them and any of their respective affiliates acting as an investor for its or their ownaccount(s). RBC Europe Limited and Cantor Fitzgerald Europe do not intend to disclose the extent of any suchinvestment 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 securitiesregulatory authority or under the applicable securities laws or regulations of any state or other jurisdiction of theUnited States, and may not be offered or sold except pursuant to an exemption from, or in a transaction notsubject to, the registration requirements of the Securities Act and in compliance with any applicable statesecurities 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 forthe offer and sale of Ordinary Shares in the United States only to “qualified institutional buyers” (QIBs) asdefined in Rule 144A of the Securities Act, and outside the United States in offshore transactions within themeaning of, and in reliance on, Regulation S under the Securities Act (Regulation S). For a description of theseand certain further restrictions on offers, sales and transfers of the Ordinary Shares and the distribution of thisdocument, see Part XII: “Details of the Private Placement”.

This document is being furnished by the Company in connection with an offering exempt from the registrationrequirements of the Securities Act, solely for the purpose of enabling a prospective investor to consider thesubscription for or purchase of Ordinary Shares described herein. The information contained in this documenthas been provided by the Company and other sources identified herein or therein. This document is beingfurnished on a confidential basis only to persons either outside the Unites States or in the United States who areQIBs. Any reproduction or distribution of this document, in whole or in part, in the United States and anydisclosure of its contents or use of any information herein in the United States for any purpose, other than inconsidering an investment by the recipient in the Ordinary Shares offered hereby or thereby is prohibited. Eachprospective 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 suchauthorities passed upon or endorsed the merits of the offering of the Ordinary Shares or the accuracy or adequacyof 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 berestricted by law. Other than in the United Kingdom, no action has been taken or will be taken to permit thepossession 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 isrestricted by law. Accordingly, neither this document, nor any advertisement, nor any other offering materialmay be distributed or published in any jurisdiction except under circumstances that will result in compliance withany applicable laws and regulations. Persons into whose possession this document comes should informthemselves about and observe any such restrictions.

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

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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 PLACEMENTSTATISTICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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

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PART I

SUMMARY INFORMATION

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

1. History and development of the Group

Mereo is a UK-based specialty biopharmaceutical company focused on the development of innovative medicinesthat 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, MereoBioPharma 1 Limited (Mereo 1), which is responsible for future development of BCT-197, Mereo BioPharma 2Limited (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 acquireclinical-stage product candidates with demonstrated clinically meaningful data from large pharmaceuticalcompanies and to further develop these product candidates to subsequent key value inflection points or tocommercialisation. The Group is an early adopter of a novel business model that aligns its interests with those oflarge 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 futuresale, licensing or commercialisation of the product candidate. Since its inception in March 2015, the Group hasacquired three product candidates from Novartis, which comprise its initial portfolio. In the near term, the Groupaims to develop this existing portfolio, while in the medium to long-term the Group intends to build a broaderpipeline of product candidates which fulfil Mereo’s selection criteria. Ultimately, Mereo’s goal is to leverage itsinnovative business model and resources to develop additional product candidates that address a broad range ofrare and specialty diseases with significant unmet clinical needs and to become an innovative leader in thespecialty biopharmaceutical sector.

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

The Company is backed by leading institutional shareholders Invesco Perpetual High Income Fund and InvescoPerpetual UK Strategic Income Fund (together, Invesco) and CF Woodford Equity Income Fund and WoodfordPatient Capital Trust (together, Woodford), each of which has significant pharmaceutical and biotechnologyindustry knowledge and relationships and a history of long-term supportive investments. Both participated in anequity financing round in July 2015, committing £76.5 million, with £20 million funded upon closing of thefinancing round. In addition, Novartis holds a stake in the Company of 19.5% immediately prior to Admissionand is expected to hold a stake in the Company of 19.5% following Admission, thus ensuring alignment ofinterests.

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 intendsto leverage its global network of experts with expertise across multiple clinical disciplines to optimise thedevelopment 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 willenhance the Group’s process for identifying and acquiring additional product candidates. The Group’s alignmentof interests with product candidate providers can be enhanced by its flexibility to use alternative transactionstructures, including those in which the Group does not make an upfront cash payment for product candidateacquisitions and a pharmaceutical company retains economic interest in a product candidate, including throughpotential equity participation.

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Mereo has a highly disciplined approach in acquiring selective product candidates for further development. Theproduct candidates will typically originate from large pharmaceutical companies in rare and specialty indicationswith unmet medical need and compelling market potential. Additionally, the product candidates need to have astrong scientific rationale, demonstrated clinically meaningful data, a clear and manageable clinical andregulatory 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 inJuly 2015: BCT-197 for acute exacerbations of chronic obstructive pulmonary disease (AECOPD), BGS-649 forhypogonadal hypogonadism in obese men and BPS-804 for osteogenesis imperfecta. Each product candidate hasa 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 foreach 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 obstructivepulmonary disease. Chronic obstructive pulmonary disease (COPD) is a non fully reversible, progressive lungdisease that was the third largest cause of death in the world in 2010 according to the Global Burden of DiseaseStudy, resulting in annual direct and indirect costs of approximately $50 billion in the United States, and theWHO forecasts that it will remain the third largest cause of death in the world in 2030. On average, COPDpatients suffer one to three AECOPDs per year. Current treatments for AECOPD are supportive therapies that donot treat the underlying disease and corticosteroids have been the long-standing mainstay of treatment forAECOPD. Inflammation is a key feature of AECOPDs, and the Group’s product candidate BCT-197 aims todeliver tangible benefits for patients and payers by improving symptoms and potentially resulting in shorterhospital stays with fewer readmissions. Other p38 MAP kinase inhibitors under development for COPD includeGlaxoSmithKline’s losmapimod and AstraZeneca’s AZD7624.

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

BPS-804 is being developed for osteogenesis imperfecta, a chronic genetic disorder that results in bones that canbreak easily. Osteogenesis imperfecta is a rare condition that affects a minimum of approximately 20,000 andpossibly as many as 50,000 patients in the United States. In Europe, approximately 7.5 out of 100,000 peoplehave the condition. Current treatment largely relies on the acute management of fractures as they occur and theuse of bisphosphonate drugs, although the Directors believe there is no clear data demonstrating thatbisphosphonate drugs reduce fractures. BPS-804 aims to demonstrate a benefit compared to placebo in terms offractures in osteogenesis imperfecta patients. BPS-804 works by inhibiting sclerostin, which inhibits the activityof bone-forming cells, known as osteoblasts. The Directors believe that by blocking sclerostin, BPS-804 willinduce or increase osteoblast function and maturation of these cells, increasing bone formation and reducing boneresorption, thereby reducing fractures in osteogenesis imperfecta patients. Currently, Amgen and UCB areconducting Phase 3 programmes for an anti-sclerostin antibody, romosozumab, for post-menopausalosteoporosis, Amgen is conducting an exploratory open-label trial for denosumab, Prolia, for paediatricosteogenesis imperfecta, and Eli Lilly has blosozumab, an anti-sclerostin antibody in Phase 1 development forosteoporosis, 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 phaseof large pharmaceutical companies has resulted in an increasing number of research and development product

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candidates available for further development. However, the Directors believe pressure to meet profitabilitytargets is constraining large pharmaceutical companies’ ability to fund their entire pipeline of research anddevelopment product candidates, requiring them to focus their resources on a sub-set of product candidates. Byidentifying and selectively acquiring product candidates from large pharmaceutical companies and funding theirfurther development, Mereo aims to advance promising product candidates to key value inflection points or tocommercialisation.

5. Selected historical key financial informationPeriod ended31 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 theparent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,188,961)

The historical information presented is in respect of the period from the incorporation of the Company on10 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 FormaFinancial Information” illustrates the effect of the receipt of the net proceeds of £12.6 million raised in theCapital Raise (as defined below) including £3.5 million received upon issuance of the convertible loan note toNovartis as detailed in paragraph 12.5 of Part XV “Additional Information”, and the Company’s exercise in fullof its option under the Subscription Agreement to require Invesco and Woodford to subscribe for OrdinaryShares 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 wouldhave 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 assetsof £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 foran 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 immediatelyfollowing Admission.

The Private Placement is made by way of an offer (i) to certain institutional and professional investors in theUnited Kingdom and elsewhere outside the United States in reliance on Regulation S and (ii) in the United Statesonly to QIBs.

No expenses will be charged to the subscribers for Ordinary Shares in connection with the Admission or thePrivate 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 theSubscription 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;

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• 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 resultingfrom the exercise of the option under the Subscription Agreement of £54.9 million and its cash balances as of 31December 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 theCompany’s option under the Subscription Agreement to require Invesco and Woodford to subscribe for OrdinaryShares 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 into64,340,798 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 futureearnings, if any, to finance the operation of the Group’s business and does not anticipate paying any cashdividends in the foreseeable future. Any future determination related to the Company’s dividend policy will bemade at the discretion of the Directors of the Company after considering the Group’s financial condition, resultsof operations, capital requirements, business prospects and other factors the Directors of the Company deemrelevant, and subject to the restrictions contained in any future financing instruments.

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PART IIRISK 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 theOrdinary Shares, the Group’s business and the industry in which it operates, together with all other informationcontained in this document, including, in particular, the risk factors described below. Prospective investorsshould 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 aprospective investor of whether to consider an investment in the Ordinary Shares. However, as the risks whichthe 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: “SummaryInformation” 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 inrelation 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 resourcesconsisting of cash, cash equivalents and investments in marketable securities of £12.2 million. Research anddevelopment expenses, administrative expenses and payables are expected to increase significantly from the firstquarter of 2016 as the Group progresses its three product candidates through clinical studies that havecommenced or are expected to commence in 2016. The Group raised £20 million from a group of investors in anequity financing round that closed on 29 July 2015, with an additional £56.5 million committed. The Group doesnot expect to generate any revenues from licensing prior to the achievement of key clinical data with each of itsproduct candidates in development. The Group does not expect to earn revenues from product sales unless anduntil its product candidates become commercially available. Because the outcome of any clinical trial is highlyuncertain, the Group cannot reasonably estimate the actual costs involved in completing the development of anyof its product candidates, including any future trials. Except in the case of any new product acquisitions, theGroup 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 andfunds 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 stageof development and BPS-804 to interim data from the initial part of the potential registration study in the firstquarter 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 productcandidates;

• 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 conductingpre-clinical and clinical trials;

• the cost of selling, commercialising or otherwise realising value on any product candidates approvedfor 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 arrangementsand 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 relativeefficacy 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;

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• the costs associated with obtaining and maintaining licences;

• the costs associated with obtaining, protecting and enforcing intellectual property, such as costsinvolved 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. Ifthe 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 distributionarrangements or other collaborations, strategic alliances or licensing arrangements with third parties, may forcethe Group to relinquish certain valuable rights to its product candidates or future revenue streams or grantlicences on terms that may not be favourable; any of which could restrict the Group’s ability to realise value on aproduct 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 economicconditions, particularly in the United States and Europe. Many of the Group’s potential customers areinternational pharmaceutical and biotechnology companies based in the United States or in Europe. Deteriorationin the global economic environment, particularly in those regions, may negatively impact the Company’s abilityto access additional funding, or the Company’s ability to commercialise or otherwise realise value from itsproduct candidates due to downward pressures on the potential prices for product candidates, longer sales cyclesand slower adoption of new technologies. A weakening of macroeconomic conditions may also adversely affectthe Group’s third-party suppliers based in the United States or Europe, which could result in interruptions insupply in the future. There can be no assurance that a deterioration of economic conditions in internationalmarkets will not adversely affect the Company’s future results. Moreover, changes in foreign currency exchangerates 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 continueto incur losses for the foreseeable future. The Group has no sales, which, together with its limited operatinghistory, 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 hascommenced clinical trials with two of its product candidates. Further, the Group has obtained limitedregulatory 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 incursignificant development and other expenses related to its planned clinical trials and operations. The Group’sability to achieve revenues and profitability is dependent on its ability to develop its product candidates to keyvalue inflection points or to commercialisation and obtain necessary regulatory approvals. Even if the Groupachieves 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 itsOrdinary 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 whichto evaluate the Group. To date, its activities have been primarily limited to staffing, business planning, raisingcapital, identifying potential product candidates, acquiring its initial product candidates and planning thedevelopment programmes for its initial product candidates, and therefore it has a limited operating history andinvestors may find it difficult to evaluate the Group’s performance and prospects. The Group’s productcandidates are in clinical development. The Group has not yet demonstrated its ability to manufacture or conductsales and marketing activities necessary to commercialise successfully a product candidate. In addition, given itslimited operating history, the Group may encounter unforeseen expenses, difficulties, complications or delays. Ifthe Group completes successfully clinical studies and receives marketing approval from the FDA and the EMAfor any product candidate, the Group anticipates transitioning from a group with only a development focus to agroup also capable of supporting commercial activities. The Group may not be successful in such a transition ormay incur greater costs than expected during such transition that adversely affect its financial results andprospects.

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

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

While the Group is actively developing a deal pipeline with large pharmaceutical companies, there is noguarantee that any or all of the product candidates that the Group may review will be acquired by the Group. Aninability to identify or successfully acquire suitable product candidates in line with the Group’s acquisitioncriteria, or obstacles within the purchasing process, could adversely impact the Group’s ability to furtherdiversify its portfolio and its future performance.

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

The Group’s ability to integrate and manage acquired product candidates or businesses effectively will dependupon a number of factors including the complexity of any product candidate or the size of the acquired businessand the resulting difficulty of integrating the acquired business’s operations, if any. The Group’s relationshipwith current employees or employees of any acquired business may become impaired. The Group may also besubject to unexpected claims and liabilities arising from acquisitions of product candidates or businesses. Theseclaims and liabilities could be costly to defend, could be material to the Group’s financial position and mightexceed either the limitations of any applicable indemnification provisions or the financial resources of theindemnifying parties. There can also be no assurance that the Group will be able to assess ongoing profitabilityand 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 theEuropean Union could have an impact on the Company’s business, financial condition and results ofoperations.

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

The Directors believe that the Ordinary Shares are likely to be treated as stock of a passive foreign investmentcompany, or PFIC, for U.S. federal income tax purposes. If the Company is a PFIC for any taxable year, thiscould 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 PFICfor 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 thetaxable 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 theproduction of “passive income”.

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

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If the Company is treated as a PFIC and you are a U.S. holder as defined in paragraph 14.1 (U.S. federal incometaxation) of Part XV: “Additional Information” that does not make a QEF or other election (which may or maynot be available to you based on circumstances not entirely within the Company’s control), you will be subject topotentially adverse U.S. federal income tax consequences in the taxable year in which your Ordinary Shares aresold or upon receipt of an “excess distribution” with respect to such Ordinary Shares. In general, you wouldreceive an “excess distribution” if the amount of any distribution for U.S. federal income tax purposes in respectof the Ordinary Shares is more than 125% of the average distributions made with respect to the Ordinary Shareswithin 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 deemeddue during the period that you owned your Ordinary Shares computed by assuming that the gain (in the case of asale) or the “excess distribution” in respect of your Ordinary Shares was realized ratably over the period duringwhich you owned your Ordinary Shares and was subject to tax at the highest applicable tax rate in effect for eachtaxable year during such period. In addition, as a PFIC, dividends paid by the Company on the Ordinary Shareswould 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 Companyprovides certain required information to U.S. holders. The Company intends to provide U.S. holders with suchinformation as may be required to make a QEF election. If you make a QEF election with respect to yourOrdinary Shares, you will be currently taxable on your pro rata share of the Company’s ordinary earnings and netcapital 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 beincreased to reflect taxed but undistributed income, and distributions of income that have been taxed previouslywill result in a corresponding reduction of basis in your Ordinary Shares and will not be taxed again as adistribution to you. The Company does not expect that a U.S. holder will be able to make a mark-to-marketelection treatment with respect to the Ordinary Shares to mitigate the adverse effects of the PFIC rules becausethe Company does not expect that the Ordinary Shares will be regularly traded on a qualified exchange (asdetermined for purposes of the PFIC rules). Prospective U.S. holders of Ordinary Shares should consult their ownU.S. tax advisers regarding the potential application of the PFIC rules. For further discussion of the U.S. federalincome tax consequences of the Company’s classification as a PFIC, see paragraph 14 (U.S. federal incometaxation) 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 evenprevent it from obtaining regulatory approval or commercialising its product candidates.

Clinical studies are typically expensive, complex and time-consuming, and have uncertain outcomes. Conditionsin which clinical studies are conducted differ and results achieved in one set of conditions could be different fromthe results achieved in different conditions or with different subject populations. The Group, the FDA, the EMAand other applicable regulatory authorities or institutional review boards (IRBs) may suspend or terminateclinical studies of product candidates at any time if the subjects participating in such clinical studies are beingexposed 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 aresult of, the clinical study process. Several factors could result in the failure or delay in completion of a clinicalstudy, 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 clinicalstudy;

• inability to monitor subjects adequately during or after treatment or problems with investigator orsubject compliance with the study protocols;

• inability to replicate or confirm in larger studies (such as Phase 3 studies) the safety and efficacy dataobtained 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 incuradditional costs and would also delay receipt of any product revenues. Any failure to complete successfully aclinical study could result in the Group not receiving any product revenues with respect to the relevant productcandidate at all.

The Group relies on third parties to enrol qualified subjects and conduct, supervise and monitor its clinicalstudies. Its reliance on these third parties for clinical development activities reduces its control over theseactivities. 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 orclinical studies may not be performed or completed in accordance with relevant regulatory requirements or itsstudy design.

Even if Phase 2 and Phase 3 clinical trials are completed in accordance with relevant regulatory requirements, theGroup would not be permitted to market any product candidate in the United States until it received approval of anew drug application (NDA) or Biologics License Application (BLA) from the FDA, or in any other countriesuntil the Group receives the requisite approval from the respective regulatory agencies in such countries, and theGroup may never obtain regulatory approval for its product candidates in any jurisdiction. To gain approval of anNDA or other equivalent regulatory approval, the Group must provide the FDA or other relevant regulatoryauthority with clinical data that demonstrates, among other things, the safety, efficacy, purity and potency of theproduct for the intended indication. The Group also may be required to perform additional or unanticipatedclinical trials to obtain approval or be subject to additional post-marketing testing requirements to maintainregulatory approval. In addition, regulatory authorities may withdraw their approval of the product or imposerestrictions 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 forthe timing of completing clinical studies.

If the Group or one of its third-party suppliers fails to comply with good manufacturing practice regulations, itcould 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 manufacturedin 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 tocomply with cGMP regulations issued by Competent Authorities the Group may be required to identify analternate supplier for its products or components. The Group’s product candidates are complex and difficult tomanufacture. Finding alternate facilities would be costly and time-consuming and would negatively impact theGroup’s ability to conduct clinical trials with its product candidates.

Competent Authorities audit compliance with cGMP requirements through periodic announced and unannouncedinspections of manufacturing and other facilities and may conduct inspections or audits at any time. If the Groupor one of its suppliers fails to adhere to cGMP requirements, has significant non-compliance issues or fails totimely and adequately respond to any adverse inspectional observations or product safety issues, or if anycorrective action plan that the Group or one of its suppliers proposes in response to observed deficiencies is notsufficient, Competent Authorities could take enforcement action against the Group or its suppliers, which coulddelay 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 tobe in compliance with all applicable regulatory requirements, which could result in the failure to produce itsproduct candidates on a timely basis and in the required quantities, if at all. In addition, before any additionalproduct candidates would be considered for marketing approval, the Group’s suppliers will have to pass an auditby 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 supplierswould affect the Group’s ability to obtain licensure.

The Group acquires product candidates from third parties, and the Group is reliant on the accuracy andreliability of the data packages that are purchased.

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

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If the Group experiences delays or difficulties in the enrolment of subjects in clinical studies, its clinicalstudies 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 tolocate and enrol a sufficient number of eligible subjects to participate in these studies as required by the FDA, theEMA and other applicable regulatory authorities. In particular, it may be difficult for the Group to locate andenrol a sufficient number of eligible subjects who meet the studies’ inclusion and exclusion criteria for thepurpose of progressing the clinical development of BPS-804, because it is a rare disease. In addition, some of theGroup’s competitors may have ongoing or may begin clinical studies for product candidates that treat the samepatient populations as the Group’s product candidates, and subjects who would otherwise be eligible for itsclinical 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 insignificant 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 tomaintain participation of these subjects throughout the course of the clinical trial as required by the clinical trialprotocol, in which event the Group may be unable to use the research results from those subjects. Enrolmentdelays in the Group’s clinical studies may result in increased development costs for its product candidates and indelays to commercially launching its product candidates, if approved.

If the Group experiences delays or difficulties in clinical studies, its receipt of necessary regulatory approvalscould be delayed or prevented.

The Group may encounter delays if a clinical trial is suspended or terminated by it, by the IRB of the institutionsin which such trials are being conducted, by the trial’s data safety monitoring board, or by the FDA, the EMA orother applicable regulatory authorities. Such authorities may suspend or terminate one or more of the Group’sclinical trials due to a number of factors, including the Group’s failure to conduct the clinical trial in accordancewith relevant regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial siteby the FDA, the EMA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseensafety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmentalregulations 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, thecommercial prospects of its product candidates may be harmed, and its ability to generate product revenues fromany of these product candidates will be delayed. In addition, any delays in completing clinical trials will increasethe Group’s costs, slow down product candidate development and approval process and jeopardise the Group’sability to commence product sales and generate revenues. Any of these occurrences may significantly harm theGroup’s business and financial condition, and there can be no assurance that any such development problems canbe solved. In addition, many of the factors that cause, or lead to, a delay in the completion of clinical trials mayalso 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 theresults of later clinical studies. If the Company cannot replicate the positive results from earlier clinicalstudies in its later-stage clinical studies, it may be unable to successfully develop, obtain regulatory approvalfor and commercialise its products.

Positive results from early stage clinical studies performed by Novartis for the Company’s products may notnecessarily be predictive of the results from its later-stage clinical studies. Many companies in thepharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials afterachieving 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 whileclinical trials were underway or safety or efficacy observations made in clinical trials, including previouslyunreported adverse events. Moreover, pre-clinical and clinical data are often susceptible to varyinginterpretations and analyses, and many companies that believed their product candidates performed satisfactorilyin pre-clinical studies and clinical trials nonetheless failed to obtain regulatory approval. If the Company fails toproduce positive results in future clinical trials, the development timeline and regulatory approval andcommercialisation prospects for its product candidates, and, correspondingly, its business and financialprospects, would be materially adversely affected.

Adverse events in clinical trials of the Group’s product candidates could result in the delay or suspension ofthe trials, which may delay or prevent marketing approval, or, if approval is received for the productcandidate, require it to be taken off the market, require it to include safety warnings or otherwise limit itssales.

Not all adverse effects of drugs can be predicted or anticipated. Serious unforeseen side effects from any of theGroup’s product candidates could arise either during clinical development or, if approved by regulatoryauthorities, after the approved product has been marketed. All of the Group’s product candidates are indevelopment, 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 theplacebo group;

• for BGS-649, headache, nasal congestion, somnolence, and spontaneous penile erection, which weredistributed 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 mayshow 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, theEMA and other regulatory authorities, or result in marketing approval from the FDA, the EMA and otherregulatory authorities with restrictive label warnings or potential product liability claims. Moreover, as largernumbers of subjects are enrolled in advanced clinical studies for the Group’s product candidates or if the Group’sproduct candidates receive marketing approval, the risk that uncommon or low frequency but significant sideeffects are identified may increase as the clinical exposure of the Group’s product candidates is expanded to awider and more diverse group of patients. Routine review and analysis of post-marketing safety surveillance andclinical trials will provide additional information, for example, potential evidence of rare, population-specific orlong-term adverse reactions, and may adversely affect the commercialisation of a product candidate. If any of theGroup’s product candidates receive marketing approval and the Group or others later identify undesirable orunacceptable 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, acontraindication or field alerts to physicians and pharmacies;

• the Group may be required to change the way the product is administered, conduct additional clinicalstudies 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 maintainingmarket 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 theGroup from generating significant revenues from its products.

The FDA, the EMA and other regulatory agency regulations require that the Group report certain informationabout 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 theadverse event as well as the nature of the event. The Group may fail to appreciate that it has become aware of areportable adverse event, especially if it is not reported as an adverse event or if it is an adverse event that isunexpected or removed in time from the use of its product candidates, and fail to report such adverse event

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within the prescribed timeframe. If the Group fails to comply with its reporting obligations, the FDA, the EMAor other regulatory agencies could take action including criminal prosecution, the imposition of civil monetarypenalties 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 thesatisfaction 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 candidatein a jurisdiction until the appropriate regulatory authorities have reviewed and approved it. Even if the productcandidates demonstrate safety and efficacy in clinical studies, such regulatory agencies may not complete theirreview processes in a timely manner, or the Group may only be able to obtain regulatory approval subject toconditions that are more stringent than the Group expects.

Approval procedures vary among countries and can involve additional product testing and additionaladministrative review periods. The time required to obtain approval in various countries might differ. Forexample, regulatory authorities in certain jurisdictions, such as the United States and Europe, have differingendpoints for completion of their reviews. Additional delays may result if an FDA or an EMA advisorycommittee or other regulatory authority recommends non-approval or restrictions on approval. Certain countriesrequire that a product receive pricing and reimbursement approval before the product can be licensed, sold orcommercialised, which can result in substantial delays. In other countries, product approval may depend onshowing superiority to an approved alternative therapy, which can result in significant expense for conductingcomplex clinical trials.

In addition, the Group may experience delays or rejections based upon additional government regulation fromfuture legislation or administrative action, or changes in regulatory agency policy during the period of productdevelopment, clinical studies and the review process. Regulatory agencies also may approve a treatmentcandidate for fewer or more limited indications than requested or may grant approval subject to the performanceof post-marketing studies. In addition, regulatory agencies might not approve the labelling claims that arenecessary 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 authoritieseven if the Directors believe those clinical trials to be successful. The FDA, the EMA or other regulatoryauthorities 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 orreconsiders any NDA or similar regulatory application the Group may submit. Depending on the extent of theseadditional studies, approval of any applications that the Group submits may be significantly delayed, or mayrequire the Group to expend more resources than it has available. It is also possible that additional studies theGroup may conduct may not be considered sufficient by the FDA or applicable foreign regulatory agencies toprovide regulatory approval.

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

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

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

If the Group fails to comply with applicable regulatory requirements following approval of any productcandidate, 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 theGroup from participation in government reimbursement programmes, such as Medicare, Medicaid andother U.S. healthcare programmes.

Any government investigation of alleged violations of law could require the Group to expend significant timeand resources in response and could generate negative publicity. Costs arising out of any regulatorydevelopments 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 treatmentof diseases for which it is approved. If the Group wants to expand the indications for which it may market aproduct candidate (including for new or additional uses or protocols), or the territories in which it may market aproduct 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 improperlypromoted off-label uses, or if physicians misuse its products or use its products off-label, the Group may suffersevere repercussions. The FDA, the EMA and other regulatory agencies strictly regulate the marketing andpromotional claims that are made about drug products, which may not be promoted for uses or indications thatare not approved by the FDA, the EMA or such other regulatory agencies as reflected in the product’s approvedlabelling. The Group cannot prevent physicians from using a product on their patients in a manner that isinconsistent with the approved label, potentially including for the treatment of therapeutic or aesthetic indicationsother than the approved indication. If the Group is found to have promoted such off-label uses, it may receivewarning letters and could be subject to prohibitions on the sale or marketing of its products or significant finesand penalties. Physicians may also misuse the Group’s products, potentially leading to adverse results, sideeffects or injury, which may lead to product liability claims. If the Group’s products are misused, it may becomesubject 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 forsales, marketing and distribution capabilities, the Group may be unable to realise value on its productcandidates.

Given the Group’s stage of product development, it does not have any internal sales, marketing or distributioninfrastructure or capabilities. For the Group to realise value on a product candidate, it must develop or acquire asales and marketing organisation, outsource these functions to third parties or out-license to a partner with salesand marketing capabilities.

The Group may establish its own sales and marketing capabilities to promote a product candidate in the UnitedStates, the European Union and other markets if and when such product is approved. Even if the Groupestablishes sales and marketing capabilities, it may fail to launch a product effectively or to market a producteffectively 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 theevent that any such launch is delayed or does not occur for any reason, the Group may have prematurely orunnecessarily incurred these commercialisation expenses, and the Group’s investment in such product may belost if it cannot retain or reposition its sales and marketing personnel until they are needed.

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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 marketingpersonnel;

• the lack of complementary products to be offered by sales personnel, which may put the Group at acompetitive disadvantage relative to companies with more extensive product lines;

• unforeseen costs and expenses associated with creating an independent sales and marketingorganisation; 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’sproduct revenues or the profitability of these product revenues to the Group could be lower than if the Groupwere to market and sell or commercialise any products that it develops itself. In addition, the Group may not besuccessful in entering into arrangements with third parties to sell, commercialise or market its products or may beunable to do so on favourable terms. Acceptable third parties may fail to devote the necessary resources andattention 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 thirdparties, 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 degreeof 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 commercialsuccess of such products will depend significantly on their broad adoption and use by physicians and othermedical professionals for approved indications.

The degree and rate of physician and patient adoption of a product candidate, if approved, will depend on anumber 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 newlydeveloped 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 overalltreatment 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 reimbursedby 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 physicianadoption and market acceptance necessary for commercial success, the Group’s operating results and financialcondition will be adversely affected.

Insurance coverage and reimbursement may be limited, unavailable or may be reduced over time in certainmarket segments for the Group’s products, which could make it difficult for the Group to sell its productsprofitably.

Market acceptance and sales of any approved products will depend significantly on the availability of adequatecoverage and reimbursement from third-party payers and may be affected by existing and future healthcarereform measures. Government authorities and third-party payers, such as private health insurers, decide whichpharmaceutical products they will cover and the amount of reimbursement. Reimbursement by a third-partypayer may depend upon a number of factors, including the third-party payer’s determination that use of a productis:

• a covered benefit under its health plan;

• safe, effective and medically necessary;

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• 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, obtainingcoverage and adequate reimbursement is a time-consuming and costly process. The Group may be required toprovide scientific and clinical support for the use of any product to each third-party payer separately with noassurance that approval would be obtained, and it may need to conduct expensive pharmacoeconomic studies inorder to demonstrate the cost-effectiveness of its products. The Group cannot be certain that its productcandidates will be considered cost-effective. This process could delay the market acceptance of any productcandidates for which it may receive approval.

In some countries, particularly in Europe, the pricing of prescription pharmaceuticals is subject to governmentalcontrol. In these countries, pricing negotiations with governmental authorities can take considerable time afterthe 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 productsto other available therapies.

The Group may not be able to conduct the studies necessary or provide data sufficient to gain acceptance withrespect to government or third-party coverage and reimbursement. If reimbursement of the Group’s futureproducts is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, the Group maybe unable to achieve or sustain profitability. Also, the Group cannot be sure that reimbursement amounts will notreduce 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 prescriptionpharmaceuticals is subject to governmental control and pricing negotiations with governmental authorities, whichcan, in some circumstances, take several years after obtaining marketing approval for a product. Recently, manyEuropean countries have come under significant political pressure to reduce their overall spending (includingspending on healthcare), which in turn is generating pressure on pharmaceutical companies to reduce the pricesthey charge national healthcare systems. In addition, market acceptance and sales of the Group’s products willdepend significantly on the availability of adequate coverage and reimbursement from third-party payers andmay 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 theavailability of healthcare and containing or lowering the cost of healthcare. For example, in 2010 in the UnitedStates, the Patient Protection and Affordable Care Act, as amended by the Health Care and EducationAffordability Reconciliation Act (collectively, the Healthcare Reform Act), was enacted. The HealthcareReform Act, among other things, increases the minimum Medicaid rebates owed by manufacturers under theMedicaid Drug Rebate Program and extends the rebate programme to individuals enrolled in Medicaid managedcare organisations, establishes annual fees that manufacturers of certain branded prescription drugs can chargeand requires manufacturers to participate in a discount programme for certain outpatient drugs under MedicarePart D. An expansion in the U.S. government’s role in the U.S. healthcare industry may further lower rates ofreimbursement for pharmaceutical products in the United States.

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

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

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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 2and/or Mereo 3 may not, or may not in the future, be eligible for research and development tax relief in theUnited 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 alower effective corporation tax rate on relevant income from assets inside the patent box. Entry into the patentbox regime is subject to detailed rules, including ensuring that each entity is actively involved in the plans anddecisions relating to the exploitation or development of the patent and/or performs a significant amount ofactivity for the purposes of developing the patent. Mereo 1, Mereo 2 and Mereo 3 may, where available, make anelection to participate in such regime, but this will require further analysis as to eligibility as the businessdevelops. However, the patent box regime has been subject to intense scrutiny both by the European Commissionand the OECD. As a result, the original patent box regime will be closed to new entrants from June 2016 and willbe replaced by a revised regime with tighter eligibility requirements. Further changes may also be made to theregime as a result of the OECD’s Base Erosion and Profit Shifting project and HMRC and HM Treasury havelaunched a consultation on changes to the patent box regime to ensure that it is consistent with the OECD’sproposals on this area. All of these changes could potentially result in the entities failing to be eligible for theregime 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 itsoperating results will suffer if it fails to compete effectively.

The biotechnology and pharmaceutical industries are intensely competitive. The Group has competitors in theUnited Kingdom, the United States and internationally, including major multinational pharmaceutical companies,biotechnology companies, universities and other research institutions. These competitors are engaged indeveloping products for similar disease areas, including the following:

• each of Verona, GlaxoSmithKline and AstraZeneca are conducting Phase 2 trials on drugs for thetreatment of COPD, which may compete with BCT-197;

• the Directors believe BGS-649 will compete with currently marketed testosterone therapies. TheDirectors believe the primary competitors of BGS-649 for the treatment of hypogonadal hypogonadismin development include, Repros’ selective oestrogen receptor modulator (SERM) and Takeda’skisspeptin agonist analog, which is in early Phase 2a trials. Repros has submitted an NDA for itsSERM but subsequently received a Complete Response Letter and has initiated the Formal ApprovalProcess 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 forpaediatric osteogenesis imperfecta, and Eli Lilly has blosozumab, an anti-sclerostin antibody in Phase 1development 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 aslarger 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 drugproduct candidates that are more effective or less costly than any product candidate that the Group is currentlydeveloping or which it may develop.

Established biopharmaceutical companies may invest heavily to accelerate the discovery and development ofproduct candidates that could make the Group’s product candidates less competitive. In addition, any newproduct 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 ordiscovering, developing and commercialising pharmaceutical products before the Group does, which would havea 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 Groupis able to charge, for any of its product candidates, if approved. The Group will not achieve its objectives ifacceptance is inhibited by price competition or the reluctance of physicians to switch from existing drug productsto the Group’s products or if physicians switch to other new drug products or choose to reserve its products foruse in limited circumstances. Competition from lower-cost generic or biosimilar pharmaceuticals, especiallywhen the Group’s intellectual property protection expires, may also result in significant reductions in salesvolumes or sales prices for the Group’s products.

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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 ofconveying medical information about products to the medical community. The FDA, the EMA and otherregulatory approval processes exempt generics from costly and time-consuming clinical trials to demonstratetheir safety and efficacy, allowing generic manufacturers to rely on the safety and efficacy data of the innovatorproduct, which means that generic competitors can market a competing version of an innovator product after theexpiration or loss of the Group’s patent and often charge much less. If the Group’s small molecule productsachieve market approvals, it is likely that generic competition will pose a substantial competitive challenge uponthe 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 genericcompetition to pharmaceutical products, abbreviated regulatory approval pathways have been developed for largemolecule biological products that are found to be biosimilar to or interchange with a biological “referenceproduct” that has previously been licensed, for example under a BLA. This abbreviated approval pathway isintended to permit a biosimilar to come to market more quickly and less expensively by relying to some extenton the data generated by the reference product’s sponsor and the applicable regulator’s previous review andapproval of the reference product. For example, in the United States, a biosimilar sponsor’s ability to seek orobtain approval through the abbreviated pathway is limited by periods of exclusivity granted by the FDA to theholder of the reference product’s BLA, and no biosimilar application may be accepted by the FDA for reviewuntil 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 underapplicable laws to be “interchangeable with,” the previously approved reference product. To date, relatively fewbiosimilars have been licensed, and the extent to which a biosimilar, once approved, will be substituted for anyone of the Group’s product candidates, if approved, in a way that is similar to traditional generic substitution fornon-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors thatare still developing. Although there is uncertainty regarding the impact of this new programme, it seems likelythat 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 adverseimpact 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 forrelatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate aproduct candidate as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generallydefined as a patient population of fewer than 200,000 individuals annually in the United States or that affectsmore than 200,000 individuals in the United States and for which there is no reasonable expectation that the costof developing and making available in the United States a drug for such a disease or condition will be recoveredfrom sales in the United States for that drug. In the European Union, the European Commission may designate aproduct candidate as an orphan medicinal product if it is a medicine for the diagnosis, prevention or treatment oflife-threatening or very serious conditions that affect not more than five in 10,000 persons in the EuropeanUnion, or it is unlikely that marketing of the medicine would generate sufficient returns to justify the investmentneeded for its development. Mereo 3 has obtained orphan designation for BPS-804 in the United States and theCommittee of Orphan Medicinal Products (COMP) has issued a positive opinion with respect to orphan drugdesignation for the product in the European Union, however there is no assurance that the Group will be able toreceive orphan drug designation for any additional product candidates. Further, the granting of a request fororphan drug designation does not alter the standard regulatory requirements and process for obtaining marketingapproval.

With respect to the United States, generally, if a product candidate with an orphan drug designation receives thefirst marketing approval for the indication for which it has such designation, the product is entitled to a period ofmarketing exclusivity, which, subject to certain exceptions, precludes the FDA from approving any otherapplication to market the same product for the same indication for a period of seven years. Competitors mayreceive 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 firstmarketing approval for the indication for which it has such designation, this generally precludes the EMA, andother national drug regulators in the European Union, from accepting the marketing application for any othermedicinal product for the same indication for a period of 10 years, and so during this period of market

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exclusivity a similar product for the same indication will not be authorised. With respect to the biosimilarpathway, under the Biologics Price Competition and Innovation Act of 2009, if a reference biological product isgranted orphan designation, a biosimilar may not be approved by the FDA for the protected orphan indicationuntil after the expiration of the seven-year orphan drug exclusivity period or the 12-year reference productexclusivity period, whichever is later. The applicable period is 10 years in the European Union, but this periodcan be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the productis sufficiently profitable so that market exclusivity is no longer justified. In the European Union, orphanexclusivity may also be extended for an additional two years (i.e., a maximum of 12 years’ orphan exclusivity) ifthe product is approved on the basis of a dossier that includes pediatric clinical trial data generated in accordancewith an approved paediatric investigation plan. Orphan drug exclusivity may be lost in the United States if theFDA determines that the request for designation was materially defective or if the manufacturer is unable toassure 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 ofthe 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 thesame indication if the new product is safer, more effective or otherwise clinically superior to the first product orif 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 theselaws 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 byboth the federal government and the states in which the Group conducts its business, as well as in otherjurisdictions outside of the United States, such as the United Kingdom, where it conducts clinical trials. Forexample, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the HealthInformation Technology Clinical Health Act (HITECH), and its implementing regulations, imposes specifiedrequirements 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, businessassociates and possibly other persons, and gave state attorneys general new authority to file civil actions fordamages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costsassociated with pursuing federal civil actions. In addition, state laws govern the privacy and security of healthinformation in certain circumstances, many of which differ from each other in significant ways and may not havethe same requirements, thus complicating compliance efforts.

In the United Kingdom, the collection and use of “personal data” is primarily governed by the Data ProtectionAct 1998 (the DPA), which implemented EU Directive (95/46/EEC) on data protection. Breach of UK dataprotection laws can result in criminal as well as civil liability. The DPA applies to the “processing” of personaldata: 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 anypersonal data is, or is to be, processed. A person may be a data controller even if the information is held by athird party. If the Group is the data controller for any personal data (for example, for clinical trials carried out inthe UK), the Group will need to comply with the DPA, including ensuring compliance by any third party thatholds 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 morecomplex and extensive if the Group succeeds in commercialising products. The Group has enactedanticorruption, privacy, healthcare and corporate compliance policies and procedures that govern its businesspractices and those of its distributors and suppliers. These policies and procedures are implemented througheducation, training and monitoring of the Group’s employees, distributors and suppliers. In addition, to enhancecompliance 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 healthcarecompliance programme. The Group expects to adopt U.S. healthcare compliance and ethics programmes thatincorporate relevant recommendations as necessary, and may be subject to additional regulations. The Group’sadoption and enforcement of these various policies and procedures may be costly and time consuming and doesnot ensure that it will avoid investigation or the imposition of penalties by applicable government agencies orreputational damage.

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Certain business practices associated with the Group’s business are subject to scrutiny by regulatoryauthorities, as well as to lawsuits brought by private citizens under federal and state laws. Failure to complywith 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 thecommercialisation of the Group’s product candidates, and failure to comply with these requirements may resultin significant adverse consequences to the Group’s business. For example, violations of laws such as the FederalFood, Drug and Cosmetic Act (the FDCA), the Federal False Claims Act, the Public Health Service Act (thePHS Act), or provisions of the U.S. Social Security Act known as the “Anti-Kickback Law” and the “CivilMonetary Penalties Law,” or any regulations promulgated under their authority, may result in jail sentences, finesor exclusion from federal and state programmes, as may be determined by Medicare, Medicaid and otherregulatory authorities and the courts. There can be no assurance that the Group’s activities will not come underthe scrutiny of regulators and other government authorities or that the Group’s practices will not be found toviolate applicable laws, rules and regulations or prompt lawsuits by private citizen “relators” under federal orstate false claims laws.

For example, under the Anti-Kickback Law, and similar state laws and regulations, even common businessarrangements, such as discounted terms and volume incentives for customers in a position to recommend orchoose 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 referralsources 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 theFDA and financial support for continuing medical education programs, must be conducted within narrowlyprescribed and controlled limits to avoid the possibility of wrongfully influencing healthcare providers toprescribe or purchase particular products or as a reward for past prescribing. A provision of the Health CareReform Law, generally referred to as the Physician Payment Sunshine Act or Open Payments Program, imposednew reporting and disclosure requirements for pharmaceutical and medical device manufacturers with certainFDA-approved products, such as approved drug products, with regard to payments or other transfers of valuemade to certain U.S. healthcare practitioners, such as physicians and academic medical centres, and with regardto certain ownership interests held by physicians in reporting entities. Under the Physician Payment SunshineAct, 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 liabilitywith respect to these arrangements.

Significant enforcement activity has been the result of actions brought by regulators, who file complaints in thename 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 applicablegovernmental reimbursement programs, such as Medicaid or Medicare, but also from non-compliance with otherlaws, such as the Anti-Kickback Law, FDA laws on off-label promotion, or laws that require quality care inservice delivery. The qui tam and whistleblower provisions of the Federal False Claims Act allow privateindividuals to bring actions on behalf of the government alleging that the government was defrauded, withtremendous potential financial gain (up to 30% of the government’s recovery plus legal fees) to private citizenswho prevail. When a private party brings a whistleblower action under the Federal False Claims Act, thedefendant is not made aware of the lawsuit until the government starts its own investigation or makes a decisionon whether it will intervene. Many states have enacted similar laws that also apply to claims submitted tocommercial insurance companies. The bringing of any action under the Federal False Claims Act could requirethe Group to devote resources to investigate and defend the action. Violations of the Federal False Claims Actcan result in treble damages, and each false claim submitted can be subject to a penalty of up to $11,000 perclaim.

The FDA and comparable regulatory authorities elsewhere, in addition to prohibiting the promotion of the safetyor effectiveness of product candidates not yet approved for commercialisation (known as “pre-approvalpromotion”), also generally restrict companies from promoting approved products for indications other thanthose indications for which a product is approved (known as “off-label use”). This means, for example, that theGroup may not make claims about the use of the Group’s products, should they be approved for sale, outside oftheir approved indications, and the Group may not proactively discuss or provide information regarding any oftheir off-label uses subject to very specific and limited exceptions. In the United States, pharmaceuticalcompanies have, to a limited extent, been recognised by the FDA, and by the courts, as permitted to disseminateto physicians certain truthful and accurate information regarding unapproved uses of approved products, orresults of studies involving investigational products, but the particular acceptable content of those statements isnot always clear, thus involving risk.

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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 orjudicially 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 theFederal False Claims Act have recently been brought against companies for allegedly promoting off-label uses ofdrugs, because such promotion induces the use and subsequent claims for reimbursement under Medicare andother federal programs. Similar actions for off-label promotion have been initiated by several states for Medicaidfraud. 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 thepossibility of greatly increased qui tam suits by regulators for perceived violations. Violations or allegations ofviolations 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 detailedand complex pricing information, net of included discounts, rebates and other concessions, to the Centers forMedicare & Medicaid Services (CMS) for the purpose of calculating national reimbursement levels, certainfederal 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 complianceprogramme to assure that the information collected is complete in all respects. Companies that fail to accuratelyreport 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 codesof practice may involve substantial costs. The Group has adopted, and will continue to adopt, policies andpractices that are designed to help ensure that the Group, the Group’s employees, officers, agents, intermediariesand other third parties comply with applicable laws, but it is not always possible to assure compliance withapplicable requirements, and the precautions the Group takes to achieve compliance may not be effective incontrolling unknown or unmanaged risks or losses or in protecting the Group from governmental investigationsor other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. It ispossible that governmental and enforcement authorities will conclude that the Group’s business practices maynot comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse orother healthcare laws and regulations. If the Group’s operations are found to be in violation of any of the lawsdescribed above or any other governmental regulations that apply to the Group, the Group may be subject topenalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary fines,disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcareprograms, contractual damages, reputational harm, diminished profits and future earnings, and curtailment orrestructuring 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 itsdevelopment programmes. Failure of these third parties to provide services of a suitable quality and withinacceptable 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 inconnection 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 ofdetection, assessment, monitoring and prevention of the adverse effects or any other drug-related problem) andregulatory expertise. If the Group’s relationship with ICON were terminated, the Group would be required toenter into new arrangements with alternative third parties, which could be difficult or costly, and the Group’sclinical trials may be extended, delayed or terminated or may need to be repeated, which would increase theGroup’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 onits behalf. The Group’s reliance on these third parties for research and development activities will reduce theGroup’s control over these activities but will not relieve it of its responsibilities. Although the Group will rely onthese third parties to conduct certain aspects of any other studies and clinical trials, the Group will remainresponsible for ensuring that each of its clinical trials and pre-clinical studies is conducted in accordance with itsinvestigational plan and protocol. Moreover, the FDA, the EMA and foreign regulatory authorities will requirethe Group to comply with regulations and standards, commonly referred to as current good clinical practices, for

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

In addition, the execution of clinical trials and pre-clinical studies, and the subsequent compilation and analysisof the data produced, will require co-ordination among these various third parties. In order for these functions tobe carried out effectively and efficiently, it will be imperative that these parties communicate and coordinate withone another, which may prove difficult to achieve. Moreover, these third parties may also have relationships withother 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 theircontractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate theiragreements with the Group or need to be replaced, or if the quality or accuracy of the clinical data they obtain iscompromised 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 arrangementswith alternative third parties, which could be difficult, costly or impossible, and the Group’s clinical trials may beextended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, the Groupmay not be able to obtain, or may be delayed in obtaining, regulatory approval for the product candidates beingtested in such trials, and will not be able to, or may be delayed in its efforts to, successfully commercialise theseproduct candidates.

These third parties will not be the Group’s employees, and except for contractual duties and obligations, theGroup 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 clinicaltrial 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 Groupmay be delayed or prevented in obtaining regulatory approval for manufacturing and commercialisation of itsproduct candidates.

The Group relies on third parties to supply and manufacture its product candidates, and it expects to rely onthird parties to manufacture its products, if approved. If the Group is unable to have its product candidatesmanufactured in sufficient quantities, or at sufficient yields, or is unable to obtain regulatory approvals for amanufacturing facility for its product candidates, it may experience delays in product development, clinicaltrials, regulatory approval and commercial distribution.

The Group does not currently have nor does it plan to acquire the infrastructure or capability to manufacture itsproduct 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 notcontrol the manufacturing processes of the third parties it contracts with but retains responsibility for productquality and regulatory compliance, and the Group is dependent on those third parties for the production of itsproduct 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 maynot 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 withNovartis for BCT-197, BGS-649 and BPS-804, respectively (the Supply Services Agreements). Pursuant to theSupply Services Agreements, Novartis will supply drug substance, drug product and placebo for the Group’smanufacture 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 qualityagreement attached to the applicable Supply Services Agreement. Indemnities under these Supply ServicesAgreements expire 18 months after the date the applicable assets were purchased.

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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 productsfor access to these facilities and may be subject to delays in manufacture if third parties give other productsgreater priority. If the Group were to experience an unexpected loss of supply of or if any supplier were unable tomeet its demand for any of its product candidates, the Group could experience delays in its developmentprogrammes, planned clinical studies or value realisation. The Group could be unable to find alternative suppliersof acceptable quality, in the appropriate volumes and at an acceptable cost, and the long transition periodnecessary to implement an alternative supplier arrangement would significantly delay the Group’s clinical studiesand the value realisation of any approved product candidate. In addition, the Group may have to enter intotechnical 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 continueto 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 requirementsand rigorous testing requirements, which could limit or delay production. Product manufacturers and theirfacilities must receive FDA, EMA or other applicable governmental authority approval before they can produceclinical material or commercial products, and they are subject to payment of user fees and continual review andperiodic inspections by the FDA, the EMA and other regulatory authorities for compliance with current goodlaboratory practice and current good manufacturing practices. If the Group or a regulatory agency were todiscover previously unknown problems with a product, such as adverse events of unanticipated severity orfrequency, or problems with the facility where the product is manufactured, a regulatory agency may imposerestrictions relative to that product or the manufacturing facility, including suspension of manufacturing orrequiring 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 orat all may negatively affect its development and value realisation plans.

For some product candidates, the Group may seek to collaborate with pharmaceutical and biotechnologycompanies for the development and commercialisation of those product candidates. The Group may facesignificant 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 proposedcollaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include thedesign or results of studies, the likelihood of approval by regulatory authorities, the potential market for theproduct candidate, the costs and complexities of manufacturing and delivering such product candidate topatients, the potential of competing product candidates, the existence of uncertainty with respect to theGroup’s ownership of technology, which can exist if there is a challenge to such ownership without regard tothe merits of the challenge, and industry and market conditions generally. The collaborator may alsoconsider alternative product candidates or technologies for similar indications that may be available tocollaborate on and whether such collaboration could be more attractive than the one with the Group for itsproduct candidate.

Any collaboration agreement into which the Group may enter may call for licensing or cross-licensing ofpotentially 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 ordistribute 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 licenceagreements 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 suchagreements on a timely basis, on acceptable terms, or at all, it may have to curtail the development of a productcandidate 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 ormarketing 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 theGroup’s business.

The Group’s information technology systems include third parties, such as CROs and others that managesensitive data, such as personal medical information regarding patients involved in the Group’s clinical studies,

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and the Group’s business may be adversely affected if these third parties are subject to data security breaches. Inaddition, procedures and safeguards must continually evolve to meet new data security challenges, and enhancingprotections, and conducting investigations and remediation, may impose additional costs on the Group. If theGroup were to suffer a breakdown in the Group’s systems, storage, distribution or tracing, the Group couldexperience significant disruptions affecting the Group’s business, reputational harm or claims against the Groupby 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, therebyimpairing 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 isheavily dependent on intellectual property, particularly patents. The strength of patents in the pharmaceuticalfield involves complex legal, factual and scientific questions. In the United States and many other jurisdictionspatent policy also continues to evolve and the issuance, scope, validity, enforceability and commercial value ofthe Group’s patent rights are highly uncertain. This uncertainty includes changes to the patent laws through eitherlegislative action to change statutory patent law or court action that may reinterpret existing law in waysaffecting the scope or validity of issued patents, or both. Particularly in recent years in the United States, therehave been several major legislative developments and court decisions that have affected patent laws in significantways and there may be more developments in the future that may weaken or undermine the Group’s ability toobtain 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 itsproduct 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 itspatents, trademarks and other intellectual property rights covering its product candidates, and to operate withouthaving third parties circumvent such rights which it owns, has licensed or has been licensed. For example, if theGroup is unable to obtain, maintain, defend or enforce its intellectual property rights covering its productcandidates, third parties may be able to make, dispose (or offer to dispose) of, use, import, commercialise or keepproducts that would otherwise infringe the Group’s patents, which would materially adversely affect its ability tocompete in the market. The Group currently owns and licenses certain patents and patent applications injurisdictions 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 competingtechnologies, including whether third parties will find ways to invalidate or otherwise circumvent thepatents 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’sproduct 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’spatent and patents applications;

• whether the Group will need to initiate litigation or administrative proceedings, or whether suchlitigation or proceedings will be initiated by third parties against the Group, which may be costly andtime 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 productcandidates and technology. Patent protection is deemed by the Group to be of importance to its competitiveposition in its planned product candidates. Any loss of, or failure to obtain, patent protection could have amaterial adverse impact on the Group’s business.

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Patent terms may be inadequate to protect the Group’s competitive position on its product candidates for anadequate amount of time.

Patents have a limited lifespan. In the United States and Europe, the natural expiration of a patent is generally20 years after it is filed. Various extensions may be available; however, the life of a patent and the protection itaffords is limited. Depending upon the timing, duration and conditions of FDA marketing approval of theGroup’s product candidates, one or more of the Group’s U.S. patents may be eligible for limited patent termextension 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 permita patent term extension of up to five years for a patent covering an approved product as compensation foreffective patent term lost during product development and the FDA regulatory review process. However, theGroup may not receive an extension if it fails to apply within applicable deadlines, fails to apply prior toexpiration of relevant patents or otherwise fails to satisfy applicable requirements. Moreover, the length of theextension could be less than the Group requests. If the Group is unable to obtain patent term extension or theterm of any such extension is less than it requests, the period during which the Group can enforce its patent rightsfor 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 patentscovering the Group’s product candidates are obtained, once the patent life has expired for a product, the Groupmay 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 beavailable for the product candidates acquired to date. In addition, the Group may decide to abandon national andregional patent applications before grant. Finally, the grant proceeding of each national/regional patent is anindependent proceeding that may lead to situations in which applications might be refused in some jurisdictionsby 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 notprotect intellectual property rights to the same extent as the laws in Europe or the United States, and manybusinesses 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 effectivelyprotecting, the intellectual property rights important for the Group’s business in such jurisdictions, the value ofthese 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 licencesto third parties. In addition, many countries limit the enforceability of patents against government agencies orgovernment contractors. In these countries, the patent owner may have limited remedies, which could materiallydiminish the value of such patent. If the Group or any of its licensors is forced to grant a licence to third partieswith respect to any patents relevant to the Group’s business, the Group’s competitive position may be impairedand 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 itstechnology 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 aredifficult to obtain or enforce. The Group may not be able to protect such information adequately. The Group hasa policy of requiring its consultants, contract personnel, advisers and third-party partners to enter intoconfidentiality agreements and its employees to enter into invention, non-disclosure and non-competeagreements. However, no assurance can be given that the Group has entered into appropriate agreements with allparties that have had access to its know-how or other proprietary information (Confidential Information). Thereis also no assurance that such agreements will provide for a meaningful protection of Confidential Information inthe event of any unauthorised use or disclosure of information. Furthermore, the Group cannot provide assurancethat any of its employees, consultants, contract personnel or third-party partners, either accidentally or throughwilful 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 beobtained by third parties as a result of breaches of its physical or electronic security systems, including as a resultof cybercrimes. Any disclosure of confidential data into the public domain or to third parties could allow theGroup’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’srights against any misappropriation or unauthorised use and/or disclosure of Confidential Information is likely tobe time-consuming and expensive, and may ultimately be unsuccessful, or may result in a remedy that is notcommercially valuable.

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The Group’s product candidates could infringe or be alleged to infringe patents and other intellectual propertyrights 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 productcandidates.

The Group’s commercial success depends upon its ability, and the ability of any third party with which it maypartner, to develop, manufacture, market and sell its product candidates and use its technologies withoutinfringing the patents of third parties. There is considerable patent litigation in the biotechnology andpharmaceutical industries. As the biotechnology and pharmaceutical industry expands and more patents areissued, the Group faces greater risk that there may be patents issued to third parties that relate to its productcandidates and technology of which the Group is not aware or that it must challenge to continue its operations ascurrently contemplated.

The pharmaceutical and biotechnology industries have produced a significant number of patents, and it maynot always be clear to industry participants, including the Group, which patents cover various types ofproducts or methods of use. The coverage of patents is subject to interpretation by the courts, and theinterpretation is not always uniform or predictable. If the Group is sued for patent infringement, it would needto demonstrate that its products or methods either do not infringe the patent claims of the relevant patent orthat the patent claims are invalid or unenforceable, and the Group may not be able to do this. Provinginvalidity is difficult. For example, in the United States, proving invalidity requires a showing by clear andconvincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if the Group issuccessful in these proceedings, it may incur substantial costs and divert management’s time and attention inpursuing these proceedings, which could have a material adverse effect on it. If the Group is unable to avoidinfringing the patent rights of others, it may be required to seek a licence (if one is even available), defend aninfringement action or challenge the validity or enforceability of the patents in court or before anadministrative agency. The Group may not have sufficient resources to bring these actions to a successfulconclusion, and there is no assurance that the court or administrative tribunal would find in its favour. Inaddition, if the Group does not obtain a licence, develop a non-infringing technology, fail to defend aninfringement action successfully or have infringing patents declared invalid or unenforceable, it may incursubstantial monetary damages, encounter significant delays in bringing its products to market and beprecluded 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 moreeffectively than the Group because of their substantially greater resources. Uncertainties resulting from theinitiation and, continuation of patent litigation or other proceedings could have a material adverse effect on theGroup’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 maybe granted in the future. Because some patent applications in Europe and the United States and other jurisdictionsmay be maintained in secrecy until the patents are issued, patent applications in Europe, the United States andmany other jurisdictions are typically not published until 18 months after filing, and publications in the scientificliterature often lag behind actual discoveries, the Group cannot be certain that others have not filed patents thatmay cover its technologies, its product candidates or the use of its product candidates. Additionally, pendingpatent applications which have been published can, subject to certain limitations, be later amended in a mannerthat 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 patentswith 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 ormethods either do not infringe the patent claims of the relevant third-party patent or that such patent claims areinvalid, and the Group may not be able to do this. If the Group is found to infringe a third-party patent, the Groupcould be required to obtain a licence from such third party to continue developing and marketing its productcandidates and technology or the Group may elect to enter into such a licence in order to settle litigation or inorder to resolve disputes prior to litigation. However, the Group may not be able to obtain any required licenceon 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 requirethe Group to make substantial royalty and other payments. The Group could also be forced, including by courtorder, to pay substantial damages, costs and other financial remedies and to cease selling or commercialising theinfringing technology or product candidate. A finding of infringement could prevent the Group from realising

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

If the Group fails to comply with its obligations under the agreements pursuant to which it licensesintellectual property rights from third parties, or otherwise experiences disruptions to its businessrelationships with its licensors, the Group could lose the rights to third-party intellectual property rights thatare important to its business.

The Group is a party to agreements under which it is granted rights to third-party intellectual property rights thatare important to the Group’s business and the Group expects that it may need to enter into additional licenceagreements 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 onachieving certain milestones. If the Group fails to comply with its obligations under existing and futureagreements of this nature, the licensor may have the right to terminate the licence. In addition, if the licensor failsto maintain and defend its intellectual property, the licensed rights may not remain in force which may allowthird parties to make, dispose (or offer to dispose) of, use, import, commercialise or keep products that wouldotherwise infringe the licensor’s patents. Even if the Group has been granted an exclusive licence, if the licensorfails to enforce its intellectual property or the Group is unable to enforce the licensed intellectual property, thirdparties may again be able to make, dispose (or offer to dispose) of, use, import, commercialise or keep productsthat would otherwise infringe the licensor’s patents, which would materially adversely affect the Group’s abilityto compete in the market. The termination of any licence agreements, including as a result of the actions of theGroup, the failure of the Group to adequately maintain such licence agreements or the failure of the Group or itslicensors to protect the licensed intellectual property could prevent the Group from realising value on productcandidates covered by the licensed intellectual property.

The Group may be subject to claims that its employees, consultants or independent contractors havewrongfully used or disclosed confidential information of third parties.

The Group employs individuals who were previously employed at other biotechnology or pharmaceuticalcompanies. The Group may be subject to claims that it or its employees, consultants or independent contractorshave inadvertently or otherwise used or disclosed confidential information of its employees’ former employers orother third parties. Litigation may be necessary to defend against these claims. There is no guarantee of successin defending these claims, and if the Group does not prevail, the Group could be required to pay substantialdamages and could lose rights to important intellectual property. Even if the Group is successful, litigation couldresult 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 otherintellectual property.

The Group may also be subject to claims that former employees, collaborators or other third parties have anownership interest in the Group’s patents or other intellectual property. The Group may be subject to ownershipdisputes in the future arising from, for example, conflicting obligations of consultants or others who are involvedin developing the Group’s product candidates. Litigation may be necessary to defend against these and otherclaims challenging inventorship or ownership. If the Group fails in defending any such claims, in addition topaying 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 indefending against such claims, litigation could result in substantial costs and divert the time and attention of itsmanagement 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 inconnection with the continued development and commercialisation of its product candidates. In particular, the

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Group may establish its own sales and marketing capabilities and promote its product candidates in the UnitedStates 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, andthe 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 teamare critical to the successful implementation of its product development and regulatory strategies. Members ofthe Group’s management team may terminate their employment with the Group at any time, and the Group maybe unable to find suitable replacements.

The Group is subject to competition for its skilled personnel and challenges in identifying and retaining keypersonnel 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 dependsupon its ability to attract and retain highly qualified management, scientific and medical personnel. Many of theother biotechnology and pharmaceutical companies and academic institutions that it competes against forqualified personnel have greater financial and other resources, different risk profiles and a longer history in theindustry than the Group does. In order to induce valuable employees to continue their employment with theGroup, it has provided share options that vest over time. The value to employees of share options that vest overtime is significantly affected by movements in its share price that are beyond the Group’s control, and may at anytime 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 itsbusiness as and when the Group expands into fields that will require additional skills, such as marketing andcommercialising the product candidates. The Group competes with other companies, research entities andacademic institutions to recruit and retain highly qualified scientific, technical and management personnel. If thiscompetition is very intense, the Group might not be able to attract or retain these key persons on conditions thatare economically acceptable. The inability of the Group to attract and retain these key persons could prevent itfrom 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 clinicaltesting of its product candidates and will face an even greater risk if it or any future partners sell orcommercialise any product candidates. Criminal or civil proceedings might be filed against the Group by studysubjects, patients, the regulatory authorities, pharmaceutical companies and any other third party using ormarketing its product candidates. These actions could include claims resulting from acts by its partners, licenseesand subcontractors, over which the Group has little or no control. Any such product liability claims may includeallegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the productcandidate, negligence, strict liability and a breach of warranties.

If the Group cannot successfully defend itself against product liability claims, it may incur substantial liabilitiesor be required to limit selling or commercialisation of its product candidates, if approved. Even successfuldefence could require significant financial and management resources. Regardless of the merits or eventualoutcome, 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;

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• loss of revenues from product sales; or

• the inability to out-license, sell, commercialise or otherwise realise value on any of its productcandidates, if approved.

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

The Group’s employees, principal investigators, consultants and commercial partners may engage inmisconduct 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, independentcontractors, principal investigators, consultants, commercial partners and vendors could include intentionalfailures to comply with FDA or EMA regulations, to provide accurate information to the FDA or EMA or tocomply with manufacturing standards the Group has established. In particular, sales, marketing and businessarrangements 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 orprohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentiveprogrammes and other business arrangements. Employee misconduct could also involve the improper use ofinformation obtained in the course of clinical studies, which could result in regulatory sanctions and serious harmto the Group’s reputation. It is not always possible to identify and deter employee misconduct, and theprecautions the Group takes to detect and prevent this activity may not be effective in controlling unknown orunmanaged risks or losses or in protecting the Group from governmental investigations or other actions orlawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions areinstituted against the Group, and the Group is not successful in defending itself or asserting its rights, thoseactions could have a significant impact on its business, including the imposition of significant fines or othersanctions, 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, thefunctional currency is pounds sterling. As the Group’s business grows, it expects that a significant part of itsrevenues and expenses will be denominated in U.S. dollars and euros. In an attempt to reduce the impact ofcurrency fluctuations and the volatility of returns that may result from the Group’s currency exposure, the Groupmay seek to hedge its short-term and medium-term currency risks with a combination of short-term currencypurchased options, interest-bearing deposits in the currency in which expenses are expected to be incurred andforeign exchange currency forward contracts. There can be no assurance that such hedging will be fully effectiveor 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 legislationcould 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 areputation 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 andcollaborators 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 administeredby the Officer of Foreign Assets Control and the U.S. Department of Commerce. Any such violation could resultin 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 theGroup’s reputation and its ability to do business.

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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 Pricemay not be indicative of the market price for the Ordinary Shares following Admission. Although the Companyhas applied to the London Stock Exchange for admission of the Ordinary Shares to trading on AIM, an activetrading market for the Ordinary Shares might not develop or, if developed, may not be sustained followingAdmission. The significant shareholding by Novartis, Woodford, Invesco and the Founders reduces theCompany’s available public float and may further impact the development of an active trading market. If anactive trading market is not developed or maintained, the liquidity and trading price of the Ordinary Shares couldbe 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 demandingthan those of the Official List, and an investment in shares quoted on AIM may carry a higher risk than aninvestment in shares quoted on the Official List.

The value of the Ordinary Shares may fluctuate significantly and investors could lose all or part of theirinvestment.

The share price of companies traded on AIM can be highly volatile, which may prevent Shareholders from beingable to sell their Ordinary Shares at or above the price they paid for them. The Private Placement Price may notbe indicative of prices that will prevail in the trading market and investors may not be able to resell the OrdinaryShares at or above the price they paid for them. The market price for the Ordinary Shares could fluctuatesignificantly for various reasons, many of which are outside the Company’s control. These factors could includeperformance of the Group, large purchases or sales of the Ordinary Shares, legislative changes and generaleconomic, political or regulatory conditions.

Other than in connection with the Private Placement or pursuant to employee share plans or other similarincentive arrangements, the Company has no current plans for an offering of Ordinary Shares. It is possible thatthe Company may decide to offer additional Ordinary Shares or convertible equity securities in the future to raisefinancing and for other purposes, such as in connection with share incentive and share option plans. Future salesor the availability for sale of substantial amounts of the Ordinary Shares in the public market could dilute theholdings of Shareholders, adversely affect the prevailing market price of the Ordinary Shares and impair theCompany’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 ofOrdinary Shares following the expiry of the lock-up period.

Pursuant to the Private Placement Agency Agreement and the Lock-up Agreement, the Company, the Foundersthat are party thereto, each of the Directors and Novartis has agreed that, subject to certain exceptions, during theperiod of 180 days (in the case of the Company) and 365 days (in the case of the Founders that are party to thePrivate 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 thecase of the Company) and the Private Placement Agents (in the case of the Founders that are party thereto, eachof the Directors and Novartis), offer, sell or contract to sell, or otherwise dispose of any Ordinary Shares (or anyinterest therein in respect thereof) or enter into any transaction with the same economic effect as any of theforegoing. Sales of a substantial number of Ordinary Shares by shareholders in the Company (includingNovartis), the Company, the Founders that are party to the Placement Agency Agreement or the Directors afterthese restrictions expire, or the knowledge that they will, or the perception that these sales may occur, coulddepress the market price of the Ordinary Shares and could impair the Company’s ability to raise capital throughthe sale of additional equity securities.

The Company may invest the net proceeds from the Private Placement in a manner that does not produceincome or loses value.

From Admission to such time as the net proceeds from the Private Placement are applied to their intendedpurposes, the Company may invest the net proceeds from the Private Placement in a manner that does notproduce income or loses value. The Company has a policy of placing funds with financial institutions that meetminimum credit rating criteria as well as across a portfolio of institutions in order to diversify its investmentswhere this is consistent with achieving competitive rates of return. Pursuant to such policy, the Company mayinvest funds in deposits, certificates of deposit and treasury bills. Nonetheless, there can be no assurance thatfunds placed with these institutions will maintain value over time and the Company could lose a significant

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

The Company does not currently anticipate paying dividends and, accordingly, Shareholders must rely oncapital appreciation for any return on investment.

The Company has never declared or paid dividends on its shares. The Company currently intends to retain all ofits 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 paydividends, the amount of such dividends. Any return to Shareholders will therefore be limited to appreciation oftheir 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 suchrights are disapplied by a special resolution. However, securities laws of certain jurisdictions may restrict theCompany’s ability to allow the participation of Shareholders in future offerings. In particular, Shareholders in theUnited States may not be entitled to exercise these rights unless either the rights and Ordinary Shares areregistered 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 isunable to participate in future equity offerings may suffer dilution.

Raising additional capital may cause additional dilution of the percentage ownership of the Company’sshareholders or restrict the Group’s operations.

The Group expects that significant additional capital may be needed in the future to continue its plannedoperations, 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 inone or more transactions at prices and in a manner as it determines from time to time. If the Company issues newordinary shares, convertible securities or other equity securities, investors may be materially diluted by suchissuances. 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 increasedfixed payment obligations and could involve certain restrictive covenants, such as limitations on the Group’sability to incur additional debt and other operating restrictions that could adversely impact the Group’s ability toconduct its business. Except in the case of any new product acquisitions, the Group does not anticipate requiringadditional funding prior to achievement of key clinical data points with BCT-197 and BGS-649, expected by theend of 2017. The Directors believe the proceeds from the Capital Raise and funds to be received pursuant to theexercise of the Company’s option under the Subscription Agreement, together with the Group’s existing cashresources, are sufficient to fund BCT-197 and BGS-649 to the next stage of development and BPS-804 to interimdata from the initial part of the potential registration study in the first quarter of 2018.

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PART III

DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS

Directors Peter Fellner, age 72 (Independent Non-ExecutiveChairman)Denise Scots-Knight, age 57(Chief Executive Officer and Co-Founder)Richard Bungay, age 46 (Chief Financial Officer andChief 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 FloorOne Cavendish PlaceLondon W1G 0QFUnited Kingdom

Global Co-ordinator, Private Placement Agent andBroker RBC Europe Limited

Riverbank House2 Swan LaneLondon EC4R 3BFUnited Kingdom

Nominated Adviser, Private Placement Agent andBroker

Cantor Fitzgerald EuropeOne Churchill PlaceCanary WharfLondon E14 5RBUnited Kingdom

Financial Adviser to the Company Evercore Partners International LLP15 Stanhope GateLondon W1K 1LNUnited Kingdom

Legal advisers to the Company Proskauer Rose (UK) LLP110 BishopsgateLondon EC2N 4AYUnited Kingdom

English and U.S. legal advisers to the GlobalCo-ordinator, Nominated Adviser, Private PlacementAgents and Brokers

Linklaters LLP1 Silk StreetLondon EC2Y 8HQUnited Kingdom

Auditor and Reporting Accountant Ernst & Young LLP1 More London PlaceLondon SE1 2AFUnited Kingdom

Registrar Capita Asset ServicesThe Registry34 Beckenham RoadKentBR3 4TU

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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 Londontime 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 Admissionbeing 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 Pricefollowing Admission £142.2 million

ISIN GB00BZ4G2K23

SEDOL BZ4G2K2

TIDM MPH

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PART V

PRESENTATION OF INFORMATION

General

Prospective investors should rely only on the information in this document. No person has been authorisedto give any information or to make any representations in connection with the Private Placement otherthan those contained in this document and, if given or made, such information or representations must notbe relied upon as having been authorised by or on behalf of the Company, the Directors or the PrivatePlacement Agents. No representation or warranty, express or implied, is made by any of the PrivatePlacement Agents or any of their respective agents or affiliates as to the accuracy or completeness of suchinformation, and nothing contained in this document is, or shall be relied upon as, a promise orrepresentation by any of the Private Placement Agents or any of their respective agents or affiliates or anyselling agent as to the past, present or future. Neither the delivery of this document nor any subscriptionor sale made under this document shall, under any circumstances, create any implication that there hasbeen no change in the business affairs of the Company or of the Group since the date of this document, orthat 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 asignificant new factor that may affect the evaluation by prospective investors of the Private Placement occursprior 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 investorshould consult his or her own lawyer, financial adviser or tax adviser for legal, financial or tax advice in relationto any purchase or proposed purchase of Ordinary Shares. Each prospective investor should consult with suchadvisers as needed to make its investment decision and to determine whether it is legally permitted to hold sharesunder applicable legal investment or similar laws or regulations. Investors should be aware that they may berequired 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 consideredas a recommendation by any of the Company, the Directors, any of the Private Placement Agents or any of theirrepresentatives that any recipient of this document should purchase the Ordinary Shares. Prior to making anydecision as to whether to purchase the Ordinary Shares, prospective investors should read this document in itsentirety and, in particular, Part II: “Risk Factors”. In making an investment decision, prospective investors mustrely 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 haveacknowledged that: (i) they have not relied on any representations, warranties or statements made by any of theCompany, the Directors, the Private Placement Agents or any of their agents or any person affiliated with any ofthem in connection with the Private Placement other than information contained in this document; and (ii) noperson has been authorised to give any information or to make any representation, warranty or statement and, ifgiven or made, any such other information, representation, warranty or statement should not be relied upon ashaving 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 ismaking any representation to any offeree or subscriber of Private Placement Shares regarding the legality of aninvestment by such offeree or subscriber.

In connection with the Private Placement, the Private Placement Agents or any of them and any of theirrespective 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 PrivatePlacement Shares, any other securities of the Company or other related investments in connection with thePrivate Placement or otherwise. Accordingly, references in this document to the Private Placement Shares beingissued, offered, subscribed for, sold, purchased or otherwise dealt with should be read as including any issueoffer or sale to, or subscription for, purchase or dealing by the Private Placement Agents or any of them and anyof their respective affiliates acting as an investor for its or their own account(s). The Private Placement Agents donot intend to disclose the extent of any such investment or transactions otherwise than in accordance with anylegal or regulatory obligations to do so.

The Private Placement Agents and any of their respective affiliates may have engaged in transactions with, andprovided various investment banking, financial advisory and other services to, the Company, for which theywould have received customary fees. The Private Placement Agents and any of their respective affiliates mayprovide such services to the Company and any of its affiliates in the future.

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Presentation of financial information

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

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

The Company’s financial year runs from 1 January to 31 December. The financial information included in thisdocument is not intended to comply with the applicable accounting requirements of the Securities Act and therelated 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 includedin 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. GenerallyAccepted Accounting Principles (U.S. GAAP) or audited in accordance with U.S. Generally Accepted AuditingStandards (U.S. GAAS) or the standards of the Public Company Accounting Oversight Board (PCAOBStandards). No opinion or any other assurance with regard to any financial information was expressed underU.S. GAAP, U.S. GAAS or PCAOB Standards and the financial information is not intended to comply with SECreporting requirements. Compliance with such requirements would require the modification, reformulation orexclusion of certain financial measures. In addition, changes would be required in the presentation of certainother 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 precedethem.

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 poundssterling. For all members of the Group in the United Kingdom, the functional currency is pounds sterling and theGroup presents its financial information in pounds sterling.

The basis of translation of foreign currency transactions and amounts in the financial information set out in PartIX: “Operating and Financial Review” is described in that Part. Information derived from this financialinformation 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”. Theseforward-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 historicalfact included in this document are forward-looking statements. They appear in a number of places throughoutthis document and include statements regarding the Directors’ or the Group’s intentions, beliefs or currentexpectations 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.

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Forward-looking statements include, but are not limited to, statements about:

• the Group’s estimates regarding expenses, future revenue, and future capital requirements, includingfunding 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 productcandidates;

• 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 governmentalregulations; and

• the continued involvement of key members of management.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events anddepend on circumstances that may or may not occur in the future and therefore are based on current beliefs andexpectations about future events. Forward-looking statements are not guarantees of future performance and theGroup’s actual operating results and financial condition, and the development of the industry in which it operatesmay differ materially from those made in or suggested by the forward-looking statements contained in thisdocument. In addition, even if the Group’s operating results, financial condition and liquidity, and thedevelopment of the industry in which the Group operates are consistent with the forward-looking statementscontained in this document, those results or developments may not be indicative of results or developments insubsequent 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 thisdocument, and none of the Company, the Directors or the Private Placement Agents undertakes any obligation toupdate such statements unless required to do so by applicable law, the AIM Rules or any appropriate regulatoryauthority. Comparisons of results for current and any prior periods are not intended to express any future trendsor 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 obtainedfrom industry publications, surveys and internal company sources. As noted in this document, the Company hascommissioned market and industry data relating to the Group’s business from providers of market data, includingClearView Healthcare Partners (ClearView).

Third-party reports

The Company has commissioned Stratagem IPM Limited to produce a report, a copy of which can be found inPart XVIII: “Intellectual Property Expert Report”.

The Company has not independently verified any of the data from third-party sources nor has it ascertained theunderlying 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 currentlyavailable to the Company. The Company confirms that information sourced from third parties has beenaccurately reproduced and, as far as the Company is aware and is able to ascertain from information publishedfrom third parties, no facts have been omitted which would render the reproduced information inaccurate ormisleading. Estimates extrapolated from this data involve risks and uncertainties and are subject to change basedon 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.

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Information not contained in this document

No person has been authorised to give any information or make any representation other than those contained inthis document and, if given or made, such information or representation must not be relied upon as having beenso authorised. Neither the delivery of this document nor any subscription or sale made hereunder shall, under anycircumstances, create any implication that there has been no change in the affairs of the Company since the dateof 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 thisdocument are explained, in Part XVI: “Definitions” and Part XVII: “Glossary”.

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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 medicinesthat 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 clinicallymeaningful data from large pharmaceutical companies and to further develop these product candidates tosubsequent key value inflection points or to commercialisation. The Group is an early adopter of a novel businessmodel that aligns its interests with those of large pharmaceutical companies. By selectively acquiring and furtherdeveloping promising product candidates, the Group and its product candidate provider can jointly participate inthe value realisation through any future sale, licensing or commercialisation of the product candidate. Since itsinception in March 2015, the Group has acquired three product candidates from Novartis, which comprise itsinitial 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 productcandidates that address a broad range of rare and specialty diseases with significant unmet clinical needs and tobecome an innovative leader in the specialty biopharmaceutical sector.

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

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 globalCRO, to assist with the clinical development of its initial portfolio. The Group intends to leverage its globalnetwork of experts with expertise across multiple clinical disciplines to optimise the development strategies forthe selected product candidates. Mereo’s Directors and senior management have long-standing relationships withsenior executives of large pharmaceutical companies, which the Directors believe will enhance the Group’sprocess for identifying and acquiring additional product candidates. The Group’s alignment of interests withproduct candidate providers can be enhanced by its flexibility to use alternative transaction structures, includingthose in which the Group does not make an upfront cash payment for product candidate acquisitions and apharmaceutical company retains economic interest in a product candidate, including through potential equityparticipation.

Mereo has a highly disciplined approach in acquiring selective product candidates for further development. Theproduct candidates will typically originate from large pharmaceutical companies in rare and specialty indicationswith unmet medical need and compelling market potential. Additionally, the product candidates need to have astrong scientific rationale, demonstrated clinically meaningful data, a clear and manageable clinical andregulatory 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 inJuly 2015: BCT-197 for AECOPD, BGS-649 for hypogonadal hypogonadism in obese men and BPS-804 forosteogenesis imperfecta. Each product candidate has a strong pre-clinical and clinical dataset, including clinicallymeaningful data for the relevant indication. Further, because BCT-197, BGS-649 and BPS-804 are in differentdrug classes and are for different indications, the risk profile of the portfolio is well diversified enabling theGroup 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 thethird largest cause of death in the world in 2010 according to the Global Burden of Disease Study, resulting inannual direct and indirect costs of approximately $50 billion in the United States. BCT-197 aims to treatinflammation and improve patient symptoms and potentially result in shorter hospital stays with fewerreadmissions, thereby providing tangible benefits for both patients and payers. BGS-649 is being developed forhypogonadal hypogonadism in obese men. BGS-649 aims to restore normal levels of testosterone withoutcausing excessively high testosterone levels and is being developed as a once-weekly pill, conferring potentialsafety and convenience benefits as compared to current testosterone treatments. BPS-804 is being developed for

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osteogenesis imperfecta, a rare, usually inherited condition that results in bones that can break easily. BPS-804aims 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 ininvestment in and development, manufacturing and commercialisation of product candidates in multipletherapeutic areas. The Company also benefits from a strong board of directors that is comprised primarily ofcurrent and former senior leaders in the pharmaceutical and biotechnology industry.

The Company is backed by leading institutional shareholders Invesco and Woodford, each of which hassignificant pharmaceutical and biotechnology industry knowledge and relationships and a history of long-termsupportive 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 Companyof 19.5% immediately prior to Admission, and is expected to hold a stake of 12.5% following Admission thusensuring 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 generatinginflection points through further development

The Group has sourced its initial product candidates from Novartis, a global pharmaceutical company with ahistory 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 Phase2 study, a clinically meaningful increase in the amount of air forcibly exhaled by an AECOPD patient in onesecond (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 hypogonadalhypogonadism, because it showed that BGS-649, delivered as a pill, restored testosterone levels to a normalrange without causing excessively high levels, boosted luteinising hormone (LH) and follicle stimulatinghormone (FSH) and was well tolerated. For BPS-804, Novartis’ Phase 2 data in osteogenesis imperfecta patientsdemonstrated proof of concept data showing a statistically significant improvement in bone biomarkers and bonemineral density.

The Group has a diversified investment risk because each of BCT-197, BGS-649 and BPS-804 has differentmechanisms of action, regulatory frameworks and pricing and reimbursement considerations, and each producthas a potential value-generating next step in development. The diversified portfolio of product candidates withclinically meaningful data maximises the Group’s potential to achieve multiple product milestones and buildsignificant 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 largepharmaceutical companies. These companies’ profit and loss pressures make it very difficult for them to fundtheir entire portfolio of research and development assets, leading them to focus on a sub-set of productcandidates. The Group’s focus is on selectively acquiring clinical stage products in rare and specialty diseaseareas and funding their development. The Group’s focus on rare and specialty diseases is exemplified by theinitial product candidates: BCT-197, for the treatment of AECOPD; BGS-649, for the treatment of hypogonadalhypogonadism 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 thattarget other medical needs in rare and specialty indications. The Group plans to utilise its management expertiseand 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’savailable strategies to maximise value for each of the product candidates. The Group’s preferred strategy is toacquire product candidates through this type of flexible deal structure, although it may selectively choose fixedupside deals in the future if the opportunity is compelling. The Directors believe the long-standing relationshipsof the Group’s Directors and senior management with large pharmaceutical companies, including Novartis, willfacilitate the sourcing and acquisition of additional product candidates and portfolios by the Group.

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Developing pipeline product candidates with novel mechanisms of action that target rare and specialty diseaseswith 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 aresupportive therapies that do not treat the underlying disease and corticosteroids have been the long-standingmainstay of treatment for AECOPD. The Directors believe no therapies treating the underlying condition ofAECOPD have been introduced. BGS-649, a pill, is designed to be more convenient than the intramuscularinjections, gels and patches currently used to treat hypogonadal hypogonadism. The Directors believe BGS-649is 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 inhypogonadal hypogonadism patients. BPS-804 aims to demonstrate a benefit compared to placebo in terms offractures in osteogenesis imperfecta patients. Recurrent fractures are the key clinical issues faced by thesepatients.

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 widerange of product candidates across multiple therapeutic areas and extensive experience with CROs. TheCompany benefits from a strong board of directors that is comprised primarily of current and former seniorleaders in the pharmaceutical and biotechnology industry, including individuals with healthcare capital marketsexpertise. In addition, the Directors and senior management have long-standing relationships with senior officersof global pharmaceutical companies, which the Directors believe will facilitate the sourcing and acquisition offuture product candidates.

Backed by leading institutional shareholders

The Company is backed by leading institutional shareholders Invesco and Woodford, each of which hassignificant pharmaceutical and biotechnology industry knowledge, relationships and a history of long-termsupportive 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 Companyof 19.5% immediately prior to Admission and is expected to hold a stake in the Company of 19.5% followingAdmission, 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 tobe reported in the second half of 2017;

• has commenced a Phase 2b dose confirmation trial of BGS-649, with results expected to be reported inthe second half of 2017; and

• intends to commence a potential registration study for BPS-804 in the second half of 2016. Mereo 3received orphan designation for BPS-804 in the United States in March 2016 and received a positiveopinion of the COMP with respect to orphan drug designation for the product in the European Union inMay 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 todetermine 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 itacquired from Novartis. Further, because BCT-197, BGS-649 and BPS-804 are in different drug classes and fordifferent indications, their diversification enables the Group to optimise the commercial strategy for each productcandidate based on clinical trial results. The Group will evaluate risk, cost and market opportunity throughouteach product candidate’s development to create a value maximising strategy and may select one or more of itsproduct candidates for direct commercialisation, which would require a targeted salesforce and operationalinfrastructure. 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.

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Leverage existing business model for future scaling up of product portfolio

The Group plans to selectively acquire additional novel product candidates with demonstrated clinicallymeaningful data from large pharmaceutical companies. Using a disciplined approach, the Group will focus onbuilding 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 reasonableresources 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:

BCT-197Acute

Exacerbations inCOPD

p38MAPK

4,135,000 * Phase 2 trialcommenced

in 2016

Phase 2b trialcommenced

in 2016

Phase 3 potentialregistration trial

expected to start inH2 2016

BGS-649 EndocrineHypogonadal

Hypogonadism inObese Men

Aromatase 10,474,000

BPS-804

Respiratory

OrphanDisease

OsteogenesisImperfecta

Sclerostin 40,000 **, ‡

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

Status/NextDevelopment Stage

Estimated AffectedPopulation(US+EU5)

ProductCandidate

Indication Target

Discovery Preclinical Phase IIIPhase IIPhase I

Clinical DevelopmentTherapeuticArea

Preclinical Development

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 theGlobal Burden of Disease Study, and the WHO forecasts that it will remain the third largest cause of deathin 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 EuropeanUnion 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 anincreased risk of death. Currently available treatments only manage AECOPD and comprise supportivetherapies (primarily oxygen therapy, corticosteroids and bronchodilators), which do not treat the underlyingdisease. BCT-197 is being developed to treat inflammation that is a key feature of AECOPDs and aims todeliver tangible benefits for patients and payers by improving symptoms and potentially resulting in shorterhospital stays with fewer readmissions. In clinical studies performed by Novartis, BCT-197 demonstrated astatistically significant reduction of the inflammatory marker TNFα and a clinically meaningful increase inForced Expiratory Volume in One Second. In total, 260 subjects, 116 patients and 144 volunteers, receivedBCT-197 in the clinical studies undertaken by Novartis. Mereo has initiated a Phase 2 dose ranging trial in255 patients with data expected in the second half of 2017.

BGS-649 is being developed for hypogonadal hypogonadism in obese men. Hypogonadal hypogonadism isa clinical syndrome that results from inadequate levels of testosterone. Symptoms commonly associatedwith testosterone deficiency include reduced or loss of libido, absent morning erections and erectiledysfunction as well as tiredness, fatigue, impaired physical endurance, loss of vitality, lack of motivationand mood disturbance. There are approximately six million cases of hypogonadism in obese men in theUnited States and approximately four million cases of hypogonadism in obese men in Europe. Currenttreatment 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 genericavailability; Androgel’s sales accounted for $694 million in 2015 and Eli Lilly’s Axiron had worldwidesales of approximately $155 million in 2015. Testosterone replacement is associated with significant sideeffects including excessively high levels of testosterone (known as “T overshoot”), which the FDA andhealth professionals associate with a possible higher risk of stroke and heart attack. BGS-649 is beingdeveloped 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 existingtreatments. Novartis conducted a two-part Phase 2 proof of concept trial for hypogonadal hypogonadism inobese men, in which testosterone levels normalised and LH and FSH levels increased, implyingmaintenance 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 byNovartis. Mereo has initiated a Phase 2b dose confirmation trial in approximately 260 patients in the firsthalf 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 geneticallyinherited and results in bones that can break easily. Osteogenesis imperfecta is a rare condition that theOsteogenesis Imperfecta Foundation estimates affects a minimum of approximately 20,000 and possibly asmany as 50,000 patients in the United States. In Europe, approximately 7.5 out of 100,000 people have thecondition, according to Orphanet. Current treatment largely relies on the acute management of fractures asthey occur and the use of bisphosphonate drugs, although the Directors believe there is no clear datademonstrating that bisphosphonate drugs reduce fractures. Treatment is directed toward preventing orcontrolling the symptoms, maximising independent mobility, and improving bone mass and musclestrength. BPS-804 aims to demonstrate a benefit compared to placebo in terms of fractures in osteogenesisimperfecta patients. BPS-804 works by inhibiting sclerostin, which inhibits the activity of bone-formingcells, known as osteoblasts. The Directors believe that by blocking sclerostin, BPS-804 will induce orincrease osteoblast function and maturation of these cells, increasing bone formation and reducing boneresorption, thereby reducing fractures in osteogenesis imperfecta patients. Novartis’ Phase 2 data inosteogenesis imperfecta patients has demonstrated statistically significant proof of concept data in bonebiomarkers and bone mineral density. In total, 83 patients and volunteers received BPS-804 in the clinicalstudies undertaken by Novartis: nine patients had moderate osteogenesis imperfecta, eight patients hadhypophosphatasia (a rare heritable metabolic disorder characterised by the abnormal development of bonesand/or teeth), 36 patients were post-menopausal women with low mineral density and 30 patients werehealthy post-menopausal volunteers. In studies to date, BPS-804 has been shown to be safe and welltolerated. Mereo intends to initiate a potential registration trial of BPS-804 in approximately 250osteogenesis imperfecta patients in the second half of 2016. Mereo 3 received orphan designation forBPS-804 in the United States in March 2016 and received a positive opinion of the COMP with respect toorphan drug designation for the product in the European Union in May 2016, ratification of which isexpected to be a formality.

4.2 BCT-197

Overview

Chronic obstructive pulmonary disease is a non fully reversible, progressive lung disease that was the thirdlargest cause of death in the world in 2010 according to the Global Burden of Disease Study, and the WHOforecasts that it will remain the third largest cause of death in the world in 2030. The National Heart LungBlood 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 withCOPD. 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 ofdirect costs of hospitalisation and treatment and $20.4 billion of indirect costs (morbidity and mortalitycaused 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 chronicinflammatory 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 withCOPD experiences a sustained increase in cough, sputum production or dyspnea (shortness of breath), andmay require hospitalisation. Increased inflammation is a core feature of an AECOPD. This is demonstratedby 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 threeAECOPDs per year.

There are significant risks associated with AECOPD with approximately 8% of patients admitted to hospitalfor COPD dying while in hospital. Long-term consequences include reduction in lung function and qualityof life and a reduced lifespan. The five-year survival rate for patients suffering three AECOPDs a year is30%, significantly worse than the survival rate for many common cancer types.

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Current pharmacologic treatments for AECOPD include bronchodilators, corticosteroids, and in the case ofAECOPD triggered by bacterial infection, broad spectrum antibiotics. The bronchodilators reduce thepatients’ breathlessness by opening up the airways, and corticosteroids reduce the inflammation. TheDirectors believe these therapies have been used for decades and there have been no new treatments thathave 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, whichinhibits p38 mitogen-activated protein kinase (p38 MAP kinase). P38 MAP kinase activity is inverselycorrelated 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-inflammatoryeffects has the potential to significantly improve the quality of life of AECOPD patients through improvedlung function, shorter hospital stays and possibly reduced likelihood of rehospitalisation. Given that the fiveyear mortality rate of those suffering three exacerbations a year or more is significantly higher than thosewho have few exacerbations, the Directors believe it might also be demonstrated that a drug reducing theAECOPDs would reduce mortality from COPD.

Studies undertaken by Novartis have shown that BCT-197 treatment results in a statistically significantreduction of the inflammatory marker TNFα and a clinically meaningful increase in Forced ExpiratoryVolume in One Second, a clinically relevant endpoint in the treatment of COPD. The Group hascommenced a Phase 2 trial in AECOPD patients, with results expected to be reported in the second half of2017. 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 chronicbronchitis, emphysema, refractory (non-reversible) asthma, and some forms of bronchiectasis. In chronicbronchitis, the lining of the airways is constantly irritated and inflamed. This causes the epithelium tothicken, resulting in an increased formation of thick mucus in the airways or epithelium, thus blocking theairways. In emphysema, the walls between many of the small air sacs in the lungs are damaged, leading toinstability and finally a destruction of the walls of the air sacs, and fewer and larger air sacs. As a result, thetransfer 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 slowprogression and predisposing factors, it is frequently diagnosed in people aged 40 or older. The prevalenceof COPD increases with age, with a five-fold increased risk in those aged over 65 compared to those under40 years old.

The disease is characterised by increasing breathlessness, often accompanied by coughing that produceslarge amounts of mucus and chest pain. In COPD patients, less air flows in and out of the airways due to oneor more of the following reasons:

• the airways are narrowed, the air sacs lose their elastic quality and the transfer of gas from thelungs 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 productionand a history of tobacco smoking or chronic exposure to inhaled pollutants. Spirometry, a set of testsmeasuring how much air a person can inhale and exhale, and how fast air can move into and out of thelungs, is performed to confirm the diagnosis and determine disease severity. Spirometry measures ForcedExpiratory Volume in One Second and Forced Vital Capacity. These measure the volume of air that thepatient can blow out in one second after full inspiration and the maximum amount of air that can be blownout after maximal inspiration, respectively. A ratio of Forced Expiratory Volume in One Second to ForcedVital Capacity of less than 0.7 after a bronchodilator is given confirms the diagnosis. Forced ExpiratoryVolume in One Second and Forced Vital Capacity decline gradually as COPD progresses and during anAECOPD.

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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 lessthan 0.7 are classified based on the percentage of their Forced Expiratory Volume in One Second ascompared to the Forced Expiratory Volume in One Second that would be predicted for a person with normallung function (of a comparable height and age) as follows:

Classification

% patients ForcedExpiratory Volume

in One Second /predicted Forced

Expiratory Volumein One Second

Three-yearmortality rate

GOLD 1: mild >80% N/AGOLD 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 beyondnormal day-to-day variations and that requires a change in medication. Typical symptoms would include anincrease in breathlessness and / or increase in sputum production, which would lead to an increase in thefrequency or dose of bronchodilators or an increase in corticosteroid use, or the need to seek further medicalattention either from the patient’s general practitioner or hospital. The risk of AECOPD increases withdisease progression and increases following exacerbations. The most common trigger of an AECOPD isviral upper respiratory tract infection.

In its milder forms, an AECOPD can be controlled with inhaled steroids and bronchodilators. In moresevere cases, AECOPD requires hospitalisations, where patients are typically treated with oral orintravenous steroids and antibiotics. On average, patients suffer one to three exacerbations per year with anaverage hospital stay of three to 10 days. Moderate to severe cases of AECOPD can result in greatlydiminished quality of life, disability, and serious co-morbidities, including heart disease, and death. After anAECOPD many patients do not return to their pre-AECOPD baseline respiratory function. The five-yearsurvival rate for those suffering three or more AECOPDs per year is 30% but those who do not sufferAECOPDs have an 80% survival rate. The Directors believe there is a significant unmet medical need forimproved treatment of AECOPD.

Current standard of care

The management of AECOPD is directed at relieving symptoms and restoring functional capacity of theairways. The recommended management for AECOPD in general includes ß2 agonists, the addition ofanticholinergics (or an increase in their dosage), the systemic administration of corticosteroids and theintravenous administration of methylxanthines, such as aminophylline. Additionally, supporting oxygentherapy is used in order to provide the patient with sufficient blood oxygen levels. Given an AECOPD isoften triggered by bacterial or viral pathogens and also pollutants, antibiotics are often used to treat the acuteexacerbations. Antibiotic therapy is directed at the most common pathogens, including Streptococcuspneumoniae, Haemophilus influenzae and Moraxella catarrhalis. Furthermore, a patient who has severalAECOPDs a year is exposed to large quantities of systemic corticosteroids, which can lead to osteoporosisand diabetes.

Mechanism of action

BCT-197 is an orally administered small molecule that inhibits p38 MAP kinase. P38 MAP kinase is anenzyme that plays a key role in the cellular response to external stress signals. Inhibition of p38 MAP kinasehas been shown to have anti-inflammatory effects, primarily through the inhibition of the expression ofinflammatory mediators or molecules called cytokines. The inflammatory cytokines are key to initiating andescalating the inflammatory response by attracting inflammatory cells (macrophages and neutrophils) andinducing further release of the cytokines by these cells. Key cytokines released in the inflammatory responseare 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 lungfunction, in particular, Forced Expiratory Volume in One Second and Forced Vital Capacity. The higher thep38 MAP kinase activation, the lower lung function is expected to be.

COPD patients are treated with corticosteroids, to control the inflammation. Despite this treatment, theDirectors 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 totreat an AECOPD, the Directors believe this indicates that an alternative treatment through a differentmechanism is needed.

Market opportunity

By 2030, COPD is predicted to be the third leading cause of death globally, representing 8.6% of globaldeaths at that time. The National Heart Lung Blood Institute estimates that 12 million people in the UnitedStates have been diagnosed with COPD and the same amount is likely to suffer from the disease withoutbeing 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 directcosts of hospitalisation and treatment and $20.4 billion of indirect costs (morbidity and mortality caused bythe 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 onthe healthcare system, accounting for approximately 45% to 50% of the total direct cost generated by COPDpatients. AECOPD patients account for 62.5% of all hospital admissions related to COPD. The frequencyand severity of exacerbations increase with age, disease severity and history of prior AECOPD. The meanlength of hospital stay varies but is typically about 4.7 days. In the United States, the average cost ofadmission is $7,500.

As no therapies treating the underlying AECOPD itself have been approved for use in the United States orEU, the Directors believe that novel therapeutics to treat and reduce exacerbations have the potential toimprove 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 canprevent AECOPDs instead of treating the symptoms. In addition, the Directors believe that a drug that canprevent or reduce AECOPDs and also has anti-inflammatory effects would significantly improve the qualityof life of AECOPD patients due to improved lung function, fewer infections, shorter hospital stays andpossibly 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-197in 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 theinflammatory marker TNFα and a clinically meaningful increase in Forced Expiratory Volume in OneSecond, a clinically relevant endpoint in the treatment of COPD. In studies to date, BCT-197 has beenshown to be safe and well tolerated in the target patient population. The Group has commenced a Phase 2dose ranging trial in AECOPD patients to establish the optimal dose, with results expected to be reported inthe 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 of2015 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 theanti-inflammatory properties of BCT-197 by using a lipopolysaccharide challenge. Lipopolysaccharide is aconstituent of the outer cell membrane of Gram-negative bacteria and is a highly potent pro-inflammatorysubstance. 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 adrug. The lipopolysaccharide challenge was performed ex vivo in Parts 1 and 2, and in vivo in Part 3a of thestudy. 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 lipopolysaccharideapproximately 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 ascendingdose of BCT-197. Novartis also conducted an ex vivo lipopolysaccharide challenge, which measured thesuppression of TNFα. The Part 1 study recruited 63 healthy volunteers and evaluated eight different dosesof 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 byone half) was estimated to be 30 to 34 hours. The lipopolysaccharide study showed that TNFα levels (ascompared 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 alsousing an ex vivo lipopolysaccharide study. The Part 2 study recruited 48 healthy volunteers and evaluateddoses 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 milligramdoses showed a statistically significant reduction in TNFα levels as compared to placebo (except on day 15for the seven milligram group, which did not maintain significance). The reduction was proportional todose, with 10 milligrams achieving a 70% reduction in TNFα levels. The reduction in the three milligramgroup 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 vivolipopolysaccharide study and a food effect study. The Part 3 study recruited 30 healthy volunteers andevaluated 20 milligram and 75 milligram doses of BCT-197 as compared to a placebo. The BCT-197 20milligram 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 theabsorption 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 aplacebo 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 ForcedExpiratory Volume in One Second relative to placebo. Secondary endpoints were the assessment of safetyand tolerability, measurement of the time to recovery using the EXACT-PRO scores, assessment of (i) thetime to the next exacerbation, (ii) the number of responders at day 30, (iii) dyspnea as measured by the BorgCR10 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 oneof the study. The ratio of patients receiving BCT-197 to patients receiving placebo was five toone.

• Part 3: 32 patients were randomised to receive 20 milligrams of BCT-197 or placebo on days oneand six of the study. The ratio of patients receiving BCT-197 to patients receiving placebo wasfive to one.

• Part 4: 30 patients were randomised to receive 75 milligrams of BCT-197 or placebo on days oneand six of the study. The ratio of patients receiving BCT-197 to patients receiving placebo wasfive to one.

The data on Forced Expiratory Volume in One Second were recorded on days three, five, eight, 10, 14 and30 and showed a clinically meaningful increase in Forced Expiratory Volume in One Second (of greaterthan 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 frombaseline in Forced Expiratory Volume in One Second values for each dose arm. On analysis of the areaunder the curve to Day 14 the 75mg x 2 dose revealed a statistically significant improvement versus placeboand prednisolone (p=0.0198 and 0.0102 respectively).

Source: Company

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

Day Group Change from BaselineLS mean (95% Cl) Mean 95% Cl Comparison with

placebo P value

Day 3

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

Day 5

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

Day 8

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

Day 10

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

Day 14

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

Day 30

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

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

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The following graph demonstrates the rapid improvement from baseline in EXACT-PRO in particular inpatients 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 to75 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 cardiopulmonary bypass machine in cardiac surgery procedures. The study was performed to ascertain whetherBCT-197 could reduce the severity of acute kidney injury. The initial part of the study involved eightpatients. An additional 66 patients were assessed at a planned interim analysis during the second part of thestudy but because the interim analysis did not show efficacy, it was not expanded to completion, whichwould have enrolled a total of 132 patients.

Additionally, a radiolabelled pharmacology study was performed in four healthy volunteers. The Directorsbelieve 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. Inthe Phase 2a studies, 54% of patients (out of 183) experienced one or more adverse events. There were sixdeaths: one caused by COPD, one caused by myocardial infarction and two caused by cardiac death/cardiacfailure, one caused by cardiopulmonary failure and one caused by decompensated chronic respiratoryfailure. According to the investigator at the relevant trial site, none of the deaths were deemed to be causedby 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 andone bladder cancer. Six of the COPD adverse events were in the placebo and prednisolone arms, two in the20mg repeat dose and two in the 75mg repeat dose; none of which were considered, by the investigators, tobe 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 asadverse events, one in the 20-milligram dose group and the other in the 75-milligram repeat dose group.Other events were mild to moderate.

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In Phase 1 studies, the main adverse event observed was a mild acne-like rash (other adverse eventsobserved were dizziness and headache), which occurred in Part 2 and Part 3 of the study. In Part 2a, wherevolunteers were dosed daily for 14 days, 27 reported the rash, five in the placebo group, one in the threemilligram group and seven in each of the five milligram, seven milligram and 10 milligram groups. Twopatients in the Part 3 group also experienced the rash. In the Phase 1 studies, the time to onset of a rashvaried from protocol day eight to day 21 (seven days after completing dosing). The rashes in participantsreceiving 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 hasbeen observed with other p38 MAP kinase inhibitors. Other p38 MAP kinase inhibitors have beenassociated with transaminase rises, but in this study only two cases of mild (less than two times the upperlimit 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 dosingregimen 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 aprimary end point of Forced Expiratory Volume in One Second. Following the Phase 2 trial, the Groupintends to progress to a Phase 2b/3 study.

The Directors believe pharmacokinetic data indicates that a three dose regimen over five days will beoptimal for an AECOPD of a ten- to 14-day duration. The dose ranging study will assess two dosingregimens 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 ofhospitalisations. The primary endpoint of the study will be the change in Forced Expiratory Volume in OneSecond, to define the most biologically active dose of BCT-197. The study is designed to detect a clinicallysignificant difference in Forced Expiratory Volume in One Second. The secondary endpoints will measureForced Expiratory Volume in One Second and relative risk over time, reduction in length of hospital stay, aswell 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 isdefined 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 anew antibiotic;

• worsening of respiratory symptoms requiring an increase in dose of oral corticosteroids orinitiation of new corticosteroids;

• worsening of respiratory symptoms requiring an additional treatment regimen of systemiccorticosteroids 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 theindex AECOPD.

Novartis discussed the use of this endpoint with the relevant health authorities. However, the Groupmay decide that the endpoint is inappropriate for future studies, based on further data from the Phase 2study 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 theirrespective defined washout periods;

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(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 oftestosterone. Low testosterone or male hypogonadism is classified in two different types: primary testicularfailure and secondary hypogonadism (or hypogonadal hypogonadism). Primary hypogonadism generallyresults 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 thehypothalamic-pituitary-testicular (the HPT) axis, an endocrine pathway, and is typically associated withobesity, aging, stress or as a side effect of medications. The symptoms of testosterone deficiency arenon-specific, which can make the diagnosis difficult. Symptoms that are most commonly associated withtestosterone 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 ofmotivation and mood disturbance.

There are approximately six million cases of hypogonadal hypogonadism in obese men in the United Statesand approximately four million cases of hypogonadism in obese men in Europe. Of men with clinicaltestosterone deficiency, over 85% are untreated despite access to care. The mainstay of current therapy forhypogonadal hypogonadism is direct replacement of testosterone administered by daily gel formulationsapplied to the skin, which risk transference to anyone in close contact, including partners and children, andintramuscular 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, whichare 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 testicularatrophy (shrinkage) and reduced sperm production. Furthermore, testosterone use has been recognised bythe 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 hypogonadalhypogonadism that can be administered in a convenient manner and that restores normal levels oftestosterone without causing excessively high testosterone levels.

BGS-649 inhibits aromatase, an enzyme that converts testosterone to oestradiol, therefore resulting inincreased testosterone levels. BGS-649 has been shown in clinical studies to normalise testosterone andincrease LH and FSH, implying maintenance of the normal negative feedback loop, which controlstestosterone 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 allpatients. The Group has commenced a Phase 2b trial of BGS-649 and expects results in the second half of2017. The primary objective of the Phase 2b trial will be to demonstrate the normalisation of testosterone ina significantly greater percentage of patients receiving BGS-649 (compared to those receiving placebo) andthe lowest effective dose of BGS-649. There will be an interim analysis that aims to identify any dose thathas not normalised testosterone and this dosing arm will then be stopped. This analysis is expected to reportin the second half of 2016.

Indication background

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

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

SYMPTOMS SIGNS

Erectile dysfunction Absence / regression of secondarysexual 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 ablood test. In assessing the symptoms of hypogonadal hypogonadism, patients rate decreased energy levelsand impaired sexual function as having the greatest negative impact on quality of life, and physiciansconsider 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 ofobesity, cardiovascular disease, hypertension, insulin resistance, type 2 diabetes, depression, andosteoporosis. In one study, hypogonadal patients had higher co-morbidity rates (likelihood of concomitantor secondary disease), significantly higher prescription drug use, higher rates of disability and medicallyrelated absenteeism and higher mean number of work-loss days.

Current treatment

The primary treatment for hypogonadal hypogonadism is testosterone replacement therapy, in whichtestosterone is administered aiming to normalise testosterone levels. FDA guidance suggests a normal rangeof 300 to 1,000 nanograms per decilitre.

There are several available routes of administration for testosterone, and the following preparations oftestosterone have been approved by the FDA for clinical use:

• intramuscular preparations, which are injected every two to 10 weeks, depending on thepreparation;

• scrotal patches, which are applied daily to the scrotal skin after preparation of the scrotum withdry 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 millionworldwide in 2015. Both products are administered transdermally by applying a gel formulation. Allergan’sAndroderm is the leading patch on the market. The most frequently prescribed injections are Bayer’sNebido and Endo’s Aveed. The leading implant on the market is Endo’s Testopel. As these drugs areapproved 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 pituitarygland and testes, known as the HPT axis. The initial stimulus for hormone formation begins in thehypothalamus with the formation of gonadotropin-releasing hormone (GnRH), which stimulates thepituitary to release LH and FSH. The LH, in turn, stimulates the testicular production of testosterone, whileFSH stimulates sperm production (spermatogenesis). As the testosterone levels rise, they feedback to thehypothalamus and anterior pituitary glands, reducing the stimulation to produce more hormones (negativefeedback loop), thereby maintaining normal testosterone levels.

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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 entireHPT 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 therelease of LH and FSH by the increased oestradiol levels. Administering exogenous testosterone on top ofthis already abnormal system rapidly leads to further down regulation of LH and FSH secretion andinhibition of testicular function as measured by levels of spermatogenesis and testosterone.

BGS-649 is an orally administered drug that inhibits the enzyme aromatase. Aromatase convertstestosterone to oestradiol, hence inhibiting aromatase leads to an increase in testosterone levels. Aromataseis expressed at high levels in fat tissue therefore obese men are potentially more prone to hypogonadalhypogonadism due to degradation of endogenous testosterone and more suitable candidates for BGS-649therapy than non-obese men.

In clinical studies, BGS-649 has been shown to result in a restoration of testosterone to normal levels andincrease 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 countriesaround the world. In 2014, the WHO estimated that more than 1.9 billion (38%) of adults worldwide wereoverweight and over 600 million (11%) of these were obese. In 2014, of males in the United States and theEuropean Union, 72.1% and 62.6%, respectively, are overweight and 32.6% and 21.5%, respectively, areobese. There are approximately six million cases of hypogonadal hypogonadism in obese men in the UnitedStates 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 largestgroup affected by hypogonadal hypogonadism is comprised of men over the age of 40 who suffer fromchronic diseases, such as obesity or type 2 diabetes. A recent study showed that hypogonadal hypogonadismwas present in 36% of male patients referred for medical or surgical treatment of obesity, and the prevalenceof hypogonadal hypogonadism increased linearly from 7.4% in those with a body mass index (BMI) of 30to 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, withtreatment rates below 13% in the United States.

This study demonstrated a negative economic and quality-of-life impact on males with hypogonadalhypogonadism, 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 healthcarecosts and the indirect (disability leave or medical absence) costs between privately insured U.S. men with

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hypogonadal hypogonadism and study participants without hypogonadal hypogonadism. The costs incurredby patients with hypogonadal hypogonadism were substantial compared to the costs incurred by patients inthe control group without hypogonadal hypogonadism. Patients with hypogonadal hypogonadism had moreinpatient hospitalisations, emergency department visits and prescription drug use, and significantly higherrates of disability, medically related absenteeism and number of work-loss days compared to males in thecontrol group without hypogonadal hypogonadism. The study demonstrated that men affected by the diseasehad 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, whichexposes 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 exogenoustestosterone to oestradiol;

• infertility due to suppression of gonadotropins (sex hormones) and spermatogenesis (chemicalcastration);

• 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 prostateenlargement, 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 convenientthan commonly used treatments. Due to its mechanism of action, BGS-649 is expected to be safer and bettertolerated as it normalises testosterone, without inhibiting the LH and FSH, or pushing the levels oftestosterone to supraphysiological levels that have been associated with current therapies. Furthermore, asan 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 anachievable 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 hypogonadalhypogonadism because it showed that BGS-649 normalised testosterone levels, increased LH and FSH, andwas well tolerated. Overall, BGS-649 has been well tolerated with no BGS-649 related serious adverseevents. The Group has commenced a Phase 2b trial of BGS-649 and expects results in the second half of2017. The Directors believe that two studies will be needed after the Phase 2b trial in order to obtainapproval for BGS-649 in the indication, one study demonstrating normalisation of testosterone and a secondstudy demonstrating improvement in patient reported symptoms. An IND for BGS-649 was previouslyapproved 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. Patientsreceived a first dose of BGS-649, and testosterone was measured on days five through seven to allow thephysicians to choose subsequent doses with the aim of achieving and maintaining normal testosteronelevels. Following the first dose, a range of doses were administered. The average BMI of participants was34 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 normalrange in all patients exposed in Part 1.

Both FSH and LH levels also increased in the BGS-649 group.

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Part 2 was a two-arm, randomised, placebo-controlled, double-blind 12 week study, with a three monthfollow up phase. The primary objectives were to demonstrate the ability of BGS-649 to normalisetestosterone and examine if normalised testosterone benefits insulin sensitivity. The Directors believe thatNovartis intended to investigate whether BGS-649 could increase patient insulin sensitivity as a potentialtreatment for type 2 diabetes.

The secondary endpoints were safety, tolerability, pharmacodynamic effects on glucose, insulin and lipidmetabolism.

The treated patients received a loading dose of BGS-649 on day one, followed by a lower weekly dose ofBGS-649. The testosterone levels of all patients treated with BGS-649 normalised after one dose andremained 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 perdecilitre on day 27. Testosterone levels in the placebo patients occasionally reached the normal range, butthis effect was not consistent or sustained. This is demonstrated in the following graph, where thepercentage of patients in the normal testosterone range is plotted against time:

Graph of percentage patients in the normal testosterone range versus time

Source: Company

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

Graph of the percentage change in testosterone from baseline versus time

Source: Company

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The following graph illustrates the percentage change in LH levels in patients receiving a weekly dose ofBGS-649 or placebo, showing a trend towards an increase in LH levels in the treated group with a return tobaseline by end of study. These results, combined with the observed upregulated FSH levels in the treatedgroup (described below), indicate that the negative feedback loop controlling the gonadotropin levels in theHPT 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 thestudy period.

The following graph illustrates the percentage change in FSH levels in patients receiving a weekly dose ofBGS-649 or placebo. The trend towards an increase in FSH as compared to placebo indicates that theproduction of FSH increased in the treatment group and that production was sustained during the studyperiod, in contrast to placebo.

Graph of the percentage change in FSH from baseline versus time

Source: Company

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Fifteen participants were enrolled in Part 2 of the study, eight in the placebo group and seven in thetreatment arm. Originally, 30 patients were to be enrolled. Enrolment was terminated early due to a dosingerror at a study site, which resulted in three placebo patients receiving an active dose of BGS-649. The errorwas identified after testosterone levels in these three patients normalised, and was confirmed by thepresence of BGS-649 in these patients’ plasma. The patients who were inadvertently given an initial dose ofBGS-649 continued to the end of the trial on placebo; their results were included in the safety database, butwere not included in the efficacy analysis. Therefore, there were five placebo patients. Due to the earlytermination, one completed per protocol, two completed week 10, one completed week seven and onecompleted week six.

Of the seven patients treated with BGS-649, five completed all 11 doses, one completed week eight and onecompleted week six prior to termination of the study. Their subsequent testosterone levels were recordedand included in efficacy analyses, though one patient missed the end of study blood test as he withdrewconsent. Despite the early termination, BGS-649 demonstrated efficacy on its ability to normalisetestosterone levels in all patients treated.

Testosterone normalisation was accompanied by a reduction in oestradiol levels and a trend towards anincrease 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 thedevelopment programme was for the indication of refractory endometriosis. In this study, 52 women wereexposed to BGS-649 at a range of doses from 0.01 to 20 mg. The study demonstrated that BGS-649 wasrapidly 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, twostudies to determine if BGS-649 altered the activity of the oral contraceptive pill and two studies inendometriosis 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 2study there were 41 adverse events, 16 in the BGS-649 group and 25 in the placebo group. One patient inthe placebo group experienced two significant adverse events, a malignant neoplasm of the tongue duringthe 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 theBGS-649 group, six of the adverse events were moderate and 10 were mild. Other than asthenia, the mostcommon adverse events in Part 2 were headache, nasal congestion, somnolence, and spontaneous penileerection, which were distributed broadly across the BGS-649 and placebo groups. None of these adverseevents 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 effectof 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 reportedspontaneous penile erection, three patients reported an episode of a headache and two patients reportedabnormal hair growth, which were suspected of being related to BGS-649. Other common adverse eventswere oropharyngeal pain, nasal congestion, diarrhoea, arthralgia, cough, dizziness and frequent bowelmovements. 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 ofBGS-649 in the semen, and no reproductive toxicology risk was identified. Exposure levels to BGS-649were one, 10 and 100 times greater than the BGS-649 levels to which a human female would be exposednormally. Taking into account body surface area, the dosage of 100 times greater in rats would equate to amaximum 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.

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The Phase 2b study is a multi-centre, randomised double-blind, dose ranging, placebo-controlled study ofBGS-649 in obese males with hypogonadal hypogonadism. The Group is enrolling approximately 260participants in the Phase 2b study.

The primary endpoint measures the percentage of patients whose testosterone levels normalise (as comparedto placebo). The study is designed to detect when at least 75% of patients have normalised testosteronelevels.

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 ErectileFunction and the Brief Fatigue Inventory, which examine the most common complaints thepatients 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 ofpatients; and

• to confirm safety and tolerability which will include analysis of lipid profiles, haematocrit boneturnover 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 andthree BGS-649 arms. The study will involve a four-week screening phase, a 24-week treatment phase and aneight-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 toevaluate 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 obtainapproval for BGS-649 in the indication, one study demonstrating normalisation of testosterone and a secondstudy 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 mayexperience hundreds of fractures in a lifetime. In addition to an increased risk of fractures, people withosteogenesis imperfecta often suffer from muscle weakness, early hearing loss, fatigue, loose joints, curvedbones, scoliosis (curved spine), brittle teeth, respiratory problems and short stature. The disease can beextremely debilitating and even fatal in newborn infants with a severe form of the disease. Osteogenesisimperfecta is a rare condition that affects a minimum of approximately 20,000 and possibly as many as50,000 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 theUnited States in March 2016 and received a positive opinion of the COMP with respect to orphan drugdesignation for the product in the European Union in May 2016, ratification of which is expected to be aformality.

For approximately 85% of patients, osteogenesis imperfecta is caused by a genetic defect which results inreduced or poor quality collagen type 1. Collagen is the body’s major protein in connective tissue, includingbone. Reduction in the amount or quality of collagen results in bone fragility, which is characteristic ofosteogenesis imperfecta.

Current treatment of osteogenesis imperfecta focuses on reducing the number of fractures, maintainingmobility and managing pain. There are no currently available treatments that address the underlying boneweakness. Bisphosphonate drugs are licensed for use in osteoporosis and are used off-label in some patients.

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They work by reducing the rate of bone resorption, but the Directors believe there are no studies whichshow a clear reduction in fractures and that there is therefore a need for a treatment which strengthensbones, 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 increaseosteoblast 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 osteogenesisimperfecta, which demonstrated a statistically significant increase on all anabolic bone biomarkers fortreated patients and a statistically significant increase in lumbar spine bone mineral density. Biomarkers aremeasured to indicate the turnover of bone. They measure the by-products of the chemical reactions thatoccur during bone turnover. Therefore, the impact of a drug on bone can be demonstrated with bonebiomarkers, however further endpoints, such as bone mineral density or fractures, are needed to confirmbenefit to the patient. The Directors believe that a study will be needed after the Phase 2 study, which willmeasure 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 asmany as 50,000 patients in the United States. The condition is a genetic disorder that is chronic and affectsconnective 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 canbe distinguished by their signs and symptoms, although some characteristic features do overlap. Type I isthe 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 ofosteogenesis 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 atrisk 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 frequentbone fractures starting even before birth, respiratory problems, short stature, and a disorder of toothdevelopment 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 shortlyafter birth.

The mode of inheritance can also be different in the types of osteogenesis imperfecta. An estimated 85% to90% have a dominant pattern of inheritance, whereby one copy of the altered gene in each cell is sufficientto cause the condition. Many people with type I or type IV inherit a mutation from a parent suffering fromosteogenesis imperfecta. Most infants with more severe forms (such as type II and type III) have no historyof the condition in their family. In these infants, the condition is caused by new (sporadic) mutations in theCOL1A1 and COL1A2 genes responsible for protein production.

Less commonly, osteogenesis imperfecta has an autosomal recessive pattern of inheritance: two copies ofthe 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 autosomalrecessive. These cases usually result from mutations in genes other than COL1A1 and COL1A2. Whenosteogenesis imperfecta is caused by mutations in the CRTAP or P3H1 gene (genes responsible forprocessing collagen into its mature form), the condition also has an autosomal recessive pattern ofinheritance.

Current treatment

The only treatments available to osteogenesis imperfecta patients are the acute management of fractures asthey occur and bisphosphonate drugs.

Treatment is directed towards management of fractures with casting or surgical fixation. Following either ofthese, physical therapy will often be required. Preventative surgeries, such as intramedullary nailing (inbone) fixation are also undertaken. Supportive care for the disease involves surgery to correct deformities

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“rodding”, bracing to support weak limbs and decrease pain, physical therapy, both muscle strengtheningand aerobic conditioning to improve bone mass and strength. Mobility aids such as wheelchairs are used inmore severe patients.

Many patients are treated with drugs indicated for osteoporosis. Bisphosphonate drugs slow down the rate atwhich 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 osteogenesisimperfecta. The Directors believe that there have been no long-term clinical studies demonstrating animprovement 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 ofbone building osteoblasts and bone reducing cells. Sclerostin inhibits the activity of bone-forming cells. TheDirectors believe that by blocking sclerostin, BPS-804 will induce or increase osteoblast activity andmaturation of these cells, increasing bone formation and reducing bone resorption, thereby reducingfractures in osteogenesis imperfecta patients.

Market opportunity

Osteogenesis imperfecta is an orphan disease, which is usually genetically inherited and in some cases isdue 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 andpossibly as many as 50,000 cases of osteogenesis imperfecta in the United States. In Europe, approximately7.5 out of 100,000 people have the condition. Osteogenesis imperfecta type I is the least severe and mostcommon form of the disorder, which occurs in approximately 50%–60% of the total osteogenesis imperfectapopulation. It is expected that a high proportion of these patients will seek treatment, depending on the typeand severity of their disease.

There is a significant unmet need for drugs to treat osteogenesis imperfecta, as there is no pharmacologicalagent specifically approved for the reduction in fractures for children or adults with osteogenesis imperfectaand no treatment or cure is available. Currently available therapies, which are largely surgical, reduce painor address the complications associated with this disorder. Bisphosphonate drugs originally designed forosteoporosis are used off-label for the treatment of osteogenesis imperfecta; however, the Directors believethat the data available for the use of these agents in osteogenesis imperfecta patients is inconsistent, as itprimarily 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 representsa significant market opportunity. The Directors believe that by blocking sclerostin, BPS-804 will strengthenbone by building bone and reducing the resorption of bone, thereby reducing fractures—in their view, this isa 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 theUnited States and the EU5, respectively.

Clinical development of BPS-804

Novartis’ Phase 2 data in osteogenesis imperfecta patients established proof of concept by demonstrating astatistically significant data in bone formation biomarkers and lumbar spine bone mineral density. In studiesto date, BPS-804 has been shown to have the potential to be safe and well tolerated. The Group intends tocommence a potential registration trial of BPS-804 in the second half of 2016. An IND for BPS-804 waspreviously 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 inadults with osteogenesis imperfecta with an untreated reference group. The objective was (i) to evaluate

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safety and tolerability of BPS-804, (ii) to determine the pharmacodynamic effect of BPS-804 whenadministered as multiple dose escalating intravenous infusions on serum bone formation markers, includingprocollagen 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-rayabsorptiometry (by DEXA scan).

The study included 14 patients, nine of which were treated and five of which were observed as a referencegroup in parallel during the study, to provide comparative data. The reference patients did not receive drugor placebo. The patients were treated with three doses of BPS-804 every two weeks, over four weekstherefore received BPS-804 a total of three times and were followed up for a total of 21 weeks following thelast 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 withBPS-804 was a statistically significant improvement in all bone biomarkers, as shown in the table andgraphs below:

Day 43 of study BPS-804 Reference

Bone biomarkerNumber of

patients

Geometricmean tobaseline P value

Number ofpatients

Geometricmean tobaseline P value

Ratio ofgeo means

90% CI

PINP 9 1.84 <0.001* 5 1.06 0.651 1.75PICP 9 1.53 0.003* 5 1.05 0.6 1.45BSAP 9 1.59 <0.001* 5 0.87 0.582 1.83OC 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 boneformation, showing a statistically significant upregulation in the activity of procollagen I N-terminalpropeptide, procollagen I C terminal propeptide and bone-specific alkaline phosphatase and increasedosteocalcin levels at day 43 after administration of BPS-804, while the corresponding biomarkers remainedunchanged or declined moderately in the reference group. These results also demonstrate a reduction in theC-telopeptides of type I collagen cross-links biomarker of bone resorption. The Directors believe theseresults demonstrate the potency of BPS-804’s ability to stimulate formation and reduce bone resorption afterthree doses of BPS-804.

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

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

Source: Company

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

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

Source: Company

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

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

Source: Company

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

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

Source: Company

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The following graph illustrates the change from baseline in the geometric mean of C-telopeptides of type Icollagen 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 intreated patients of 4%, as shown in the table below:

Day 141 of study BPS-804 Reference

ParameterNumber of

patients

Ratiogeometricmean tobaseline P value

Numberof

patients

Ratio ofgeometricmean tobaseline 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 inpatients treated with BPS-804 confirms the bone anabolic effects of BPS-804 in adult patients withmoderate osteogenesis imperfecta.

Additional clinical studies

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

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Three ascending dose studies were performed in eight adult patients with hypophosphatasia. Three differentBPS-804 doses were administered and were demonstrated to have a positive effect on biomarkers. Therewas one patient who suffered an adverse effect, which was a case of angina pectoris that was not considereddrug related. There were no deaths in the study.

Additionally, a study was performed in 44 postmenopausal women with osteoporosis. The study had fourarms, with patients dosed weekly, monthly and quarterly, and a placebo group. This study demonstrated thatthe maximum BPS-804 increased bone mineral density by was 7.8, 7.3 and 4.3% in the weekly, monthlyand quarterly groups, respectively. There were no deaths or significant adverse events, and no subjectsdeveloped 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 2study, there were no deaths, and there was one significant adverse event in the placebo group (i.e., in apatient 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 wasno 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 IVosteogenesis imperfecta during the second half of 2016. The Group is in discussions with regulators, withthe data from the Phase 2 trials described above to discuss the final design of this study. The Group expectsthe study to be in two parts. The initial part will deliver interim data following 12 months treatment and willbe used to confirm the dose for the second part of the study (each of the four arms will have up to 30patients). The second part of the study will be event driven, with time to first fracture as the primary endpoint 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 thefirst part).

Patients will be treated with BPS-804 or placebo for the greater of one year or time to first fracture (bothvertebral and non vertebral). Patients would then be converted to active treatment and followed for a total ofthree years (including the initial phase before conversion to active treatment). Dosing will be monthly forthe first year and quarterly thereafter (quarterly for the patients who participated in the first part). TheDirectors believe this design has the benefits of being a scientifically robust placebo controlled study that isattractive to patients as they are likely to receive therapy, and has the potential for early data at an interimanalysis and when enough events have occurred.

The Group also intends to discuss with regulators further approaches to accelerate the path to approvalbased on biomarker data (High Resolution Peripheral CT and DEXA BMD), but with the commitment tocontinue 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 bediscussed with the relevant regulators during 2016.

5. Future product candidates

The Group will continue to review opportunities to expand its initial portfolio by acquiring additionalproduct candidates. The Group is actively developing a deal pipeline with large pharmaceutical companieswith a history of robust product development and a reputation for product data quality. The Group may alsoacquire product candidates from large biotechnology companies in certain circumstances using its criteriafor product candidate acquisitions.

The Group’s focus on acquiring additional product candidates will continue to be based on selection criteriathat include the following:

• demonstrated clinically meaningful data;

• a strong scientific rationale;

• an indication with high unmet medical need and compelling market potential;

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• 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 differenttherapeutic areas, enabling further diversification of the Group’s product portfolio and successfully creatingsustainable value through intelligent growth, with a preference for rare and specialty diseases with highunmet medical need that may be developed through to product approval.

The Group has also established a light, flexible infrastructure which in combination with its strategicagreements with CROs and CMOs means that only modest increases in the Group’s internal resources arerequired if additional product candidates are acquired.

6. Development

The Group currently outsources certain functions, tests and services in connection with the development ofits product candidates and selected ICON to perform these development services.

ICON is a global CRO with strong industry experience in providing drug development solutions andservices to the pharmaceutical and biotechnology industries. The Company entered into a master servicesagreement with ICON (the Master Services Agreement) that creates the flexibility to add additionalproduct 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 initialproduct candidates BCT-197, BGS-649 and BPS-804, and the ICON team has been involved with studydesign and project planning for the Group’s product candidates. ICON will contract with the Group for itsproduct candidate services through separate statements of work specifying the services to be provided aswell as key performance indicators or targets.

Under the Master Services Agreement, the Group and ICON have established a number of committees atboth the operational and strategic level. The operational committees will meet on a monthly basis to dealwith routine project management issues, and the joint operations and executive oversight committees willmeet bi-monthly and quarterly, respectively. These committees are already working with the Directors andMereo’s senior management.

7. Commercialisation and marketing

Given the Group’s stage of product development, it does not have any internal sales, marketing ordistribution infrastructure or capabilities. The Company intends to further develop its portfolio of productcandidates to their next value inflection point and has the flexibility to out-license, sell, commercialise orcombine various strategies to realise maximum value for its shareholders. If the Group sells or out-licenses aproduct candidate, then the product would be marketed by the sales and marketing operations of the licenseeor 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 retainingcommercial rights for a selected product candidate and marketing it through an internal sales and marketingoperation or a contract sales force. Factors the Group may consider in deciding to retain and commercialisea product candidate itself could include:

• lower expected development costs to approval due to smaller registration trials for a particularindication;

• lower regulatory risk through a combination of an indication with lower regulatory hurdles such assome 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, includingpartnering 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 July2015, Mereo 1, Mereo 2 and Mereo 3, each separate wholly owned subsidiaries of the Company, enteredinto the purchase agreements (collectively, the Purchase Agreements) to acquire Novartis’ rights toBCT-197, BGS-649 and BPS-804 (collectively, the Compounds) and certain related assets (together, thePurchased Assets). The acquisitions of the Purchased Assets closed on 29 July 2015.

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Under the respective Purchase Agreements, each of Mereo 1, Mereo 2 and Mereo 3 agreed to make futurepayments to Novartis comprising amounts equal to ascending specified percentages of tiered annualworldwide net sales (beginning at high single digits and reaching into double digits at higher sales) by suchsubsidiary of products that include the Compounds. The levels of ascending percentages of tiered annualworldwide net sales are the same for each of Mereo 1, Mereo 2 and Mereo 3 under the respective PurchaseAgreements.

Each of Mereo 1, Mereo 2 and Mereo 3 further agreed that in the event it transfers, licenses, assigns orleases all or substantially all of its assets, including a Compound and related assets, it will pay Novartis apercentage of the proceeds of such transaction. The Company will retain the majority of the proceeds fromsuch a transaction. Such percentage is the same for each of Mereo 1, Mereo 2 and Mereo 3 under therespective 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 sameacross all three products.

8. Manufacturing

The Group does not own or operate manufacturing facilities for the production of its product candidates, nordoes it have plans to develop its own manufacturing operations in the foreseeable future. The Groupoutsources certain aspects of manufacturing of its required raw materials, active ingredients and finishedproducts for clinical trials pursuant to the Supply Services Agreements until 29 January 2017, and itcontinues to enter into additional manufacturing agreements as necessary. The Group intends to outsourceproduct formulation studies related to clinical trials pursuant to development agreements. The Groupexpects that drug product pre-validation and validation batches will be manufactured to satisfy regulatoryrequirements where the Group progresses products to late stage trials.

The Group does not have any current contractual relationships for the manufacture of commercial suppliesof BCT-197, BGS-649 or BPS-804 if any such product candidate is approved. Prior to or during Phase 3trials for a product candidate, the Group intends to enter into agreements with third-party contractmanufacturers for the commercial production of such product candidate.

Development and production of commercial quantities of any product candidates that the Groupcommercialises will need to be manufactured in facilities, and by processes, that comply with therequirements of the FDA, the EMA and the regulatory agencies of other jurisdictions in which the Group isseeking approval. The Group expects to employ internal resources to manage its manufacturing contractorsand ensure they are compliant with current good laboratory practice and current good manufacturingpractices.

9. Competition

The development and commercialisation of new drug products is highly competitive. While the Directorsbelieve that the Group’s technology and processes, product candidates, know-how, expertise and scientificresources provide it with competitive advantages, it faces potential competition from many sources,including major pharmaceutical and biotechnology companies, academic institutions and public and privateresearch organisations. Any product candidates that the Group successfully develops and commercialiseswill 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 timingand 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 indeveloping competing products before the Group does, obtaining regulatory approval for products orgaining 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 abronchodilator for COPD and asthma patients. RPL554 is in Phase 2a trials in COPDand AECOPD patients. Verona states that the mechanisms of action are bronchodilator and

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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 2bdevelopment 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 2trial for chronic COPD with a primary endpoint of time to first moderate to severe COPDexacerbation.

9.2 Hypogonadal Hypogonadism

The Directors believe BGS-649 will compete with currently marketed testosterone therapies. The Directorsbelieve BGS-649 has a superior profile to testosterone therapies, because BGS-649 aims to restore normallevels of testosterone without causing excessively high testosterone levels while increasing LH and FSHlevels and is being developed as a once-weekly pill. Oral testosterone therapies have been developed, butnone have been approved in the United States. Merck’s Andriol is approved in Europe, but like othertestosterone therapies, the Directors believe it may cause “T overshoot” and result in the reduction of keysex 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 arethe following:

• Antares QST, which is a subcutaneous injectable testosterone replacement therapy in Phase 3development. The Directors believe QST will remain undifferentiated from current testosteronereplacement therapies, except that it is a subcutaneous injection, which is preferable to anintramuscular injection;

• Clarus Pharmaceuticals oral testosterone, Rextoro. In September 2014, following a review of thePhase 3 data, the FDA advisory committee concluded that the overall risk and benefit of Rextorodid not support approval, Clarus Pharmaceuticals initiated a new open label phase 3 study in theU.S. in patients with hypogonadism in March 2016;

• Lipocine’s oral testosterone. The NDA submission for this drug was made to the FDA in August2015, and accepted in October 2015. 6.6% of patients treated with this drug reached testosteronelevels over 1,800 nanograms per decilitre, as compared to the upper limit of normal in the trial of1,140 nanograms per decilitre.

• MonoSol MSRX-110, which is a testosterone replacement therapy delivered by a thin film appliedto the inside of the mouth. It entered clinical trials in a 36-patient Phase 1 / Phase 2 study inAugust 2014 in Canada. The Directors are not aware of any further public announcements aboutthe development of MSRX-110;

• Repros’ SERM, Androxal, on which it has obtained data through four Phase 3 studies withoutpatient reported outcomes as an endpoint, of which the largest was only 181 patients. A new drugapplication package was filed, with a goal date under the Prescription Drug User Fee Act of theend of November 2015; however, the FDA advisory committee review was cancelled on29 October 2015. On 1 December 2015, Repros announced that it had received a completeresponse letter from the FDA stating that the NDA for Androxal cannot be approved in the presentform and recommending that Repros conduct one or more additional Phase 3 studies to supportapproval in the target population. Subsequently, Repros has recently begun enrolling men withacquired hypogonadism for a new phase 2 study seeking to compare changes in body compositionand metabolic parameters with diet and exercise in conjunction with Androxal treatment. Inaddition, Repros initiated the approval process for obtaining market authorisation forenclomiphene 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-448stimulates GnRH release in the brain and therefore may increase FSH and LH. It is given eitheronce or twice a week by injection. The Directors are not aware of any further publicannouncements 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 forpaediatric osteogenesis imperfecta and currently recruiting patients under the age of 17, with data

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expected in 2020. Prolia is an anti-resorptive agent that is not bone building; therefore, theDirectors believe BPS-804 will be a more effective treatment for osteogenesis imperfecta; becauseBPS-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 UCBare conducting two Phase 3 studies on approximately 11,000 osteoporosis patients. The first studyresults were reported in February 2016 with romosozumab meeting all primary endpoints of thestudy. Results from the second study are awaited. No ongoing studies in osteogenesis imperfectahave 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 forformulation 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 itsproduct candidates, technology and know-how, to operate without infringing the proprietary rights of othersand to prevent others from infringing its proprietary rights. The Group acquired its initial patent portfolio byassignment and in-licensing from Novartis and the Group’s proprietary position may depend on additionalin-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 jurisdictionsrelated to its proprietary technology, inventions and improvements that are important to the development ofits business, where patent protection is available. The Group also relies on know-how, continuingtechnology innovation and in-licensing opportunities to develop and maintain its proprietary position. Seealso Part XVIII: “Intellectual Property Expert Report”.

In July 2015, the Group entered into the BCT-197 Purchase Agreement, the BGS-649 Purchase Agreementand the BPS-804 Purchase Agreement (each as defined in section 10.1, and collectively, the PurchaseAgreements) with Novartis, pursuant to which the Group acquired BCT-197, BGS-649 and BPS-804 andrelated intellectual property. In connection with this transaction, the Company and Novartis entered a sideletter (the Product Exclusivity Agreement) dated as of 29 July 2015, pursuant to which until 29 July 2016the Group may not directly or indirectly, acquire or in-license and conduct drug development activities withrespect to any product (each, an Additional Product) other than the Compounds and any other Novartisproducts, unless (i) Novartis has given its prior written consent thereto, or (ii) the Group has raised fundsthat are reasonably sufficient to fund the drug development activities the Group has committed to conductwith respect to such Additional Product.

The Group has proceeded to file applications (which are presently unpublished) relating to specific dosageregimens 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 andNovartis, as amended on 12 April 2016 (the BCT-197 Purchase Agreement), Mereo 1 acquired byassignment from Novartis a portfolio of patents and patent applications that protect BCT-197, includingcomposition of matter claims in EP 1,641,764 and US Patent No. 7,863,314, and methods of treatment ofp38 kinase mediated diseases and disorders, including COPD, in EP 2,298,743 and US Patent No. 8,242,117and 8,410,160. Counterparts to these patents are issued and/or pending in several jurisdictions includingJapan and China. EP Patents 1,641,764 and 2,298,743 are expected to confer protection until June 2024 andUS Patent No. 7,863,314 is expected to confer protection until April 8, 2025, in each case, without takinginto consideration any patent term extensions which may be available. The portfolio also included aEuropean national phase patent application, EP Application No. 13,710,851.0 (which has been allowed andwill shortly proceed to grant following payment of a fee by the Company) and a US application, which hasnow 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 andIsrael. 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 partiesfurther agreed that certain patent applications jointly filed by Mereo 1 and Novartis subsequent to 28 July2015 shall be governed by the terms and conditions of the BCT-197 Purchase Agreement.

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BGS-649

Pursuant to the BGS-649 Asset Purchase Agreement dated as of 28 July 2015 by and between Mereo 2 andNovartis (the BGS-649 Purchase Agreement), Mereo 2 acquired by assignment from Novartis a portfolioof pending patent applications that relate to BGS-649, its product candidate for hypogonadal hypogonadismin obese men. The BGS-649 patent portfolio includes granted patents and allowed and pending applicationsrelating to formulations and use of BGS-649. The portfolio includes European national phase patentapplications, EP Application No. 12,758,966.1 and EP Application No. 12,758,965.3 (which have beenallowed and will shortly proceed to grant following payment of a fee by the Company), and US ApplicationNo. 14/342813 (which has been allowed and will shortly proceed to grant following payment of a fee by theCompany) and US Patent No. 9,295,668 which was issued in March 2016). Counterparts to theseapplications are pending or allowed in several jurisdictions, including Japan, China and Israel. Claimsissuing 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 andNovartis (the BPS-804 Purchase Agreement), Mereo 3 acquired by assignment from Novartis a portfolioof patents and patent applications that protect BPS-804, including composition of matter claims in EP2,203,478 and US Patent Nos. 7,879,322, 8,246,953 and 8,486,661. These patents are due to expire inOctober 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 obtainedan irrevocable, transferable and worldwide licence of any intellectual property rights controlled by Novartisthat would be commercially reasonable to use in connection with the development, manufacture, andcommercialisation 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 asMereo 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 asMereo 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 towhich Mereo 3 obtained an exclusive, worldwide sublicence under certain patent rights and know-how todevelop, manufacture, and commercialise certain therapeutic antibody product candidates. Under thisAgreement, Mereo 3 agreed to pay to Novartis milestone payments based on achievement by Mereo 3 ofkey developments and regulatory milestones and low single digit royalty payments based on net sales ofBPS-804 for a specified period following commercial launch.

The purchase of assets and licences granted pursuant to the Purchase Agreements and the ProductExclusivity Agreement are further described in paragraphs 12.6 (BCT-197, BGS-649 and BPS-804 AssetPurchase Agreements) and 13.6 (Novartis Product Exclusivity Agreement) of Part XV: “AdditionalInformation” below.

10.3 Trademarks

The Group has a registered trademark for “Mereo” in the United Kingdom. An international trademarkapplication 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 eightyears of data exclusivity and 10 years of market exclusivity, each from the date of grant of the marketingauthorisation. 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 indicationfor the relevant medicinal product. The data and market exclusivity provisions in Europe are an automaticright. The data exclusivity period runs concurrently with any remaining patent term for the medicinal

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product, meaning that data exclusivity may provide additional protection to the innovator when theremaining patent length is shorter than the data exclusivity period at the time of approval or to the extentthat the patent term is circumvented by a generic prior to its expiry. The Directors believe that all threeproduct candidates, BCT-197, BGS-649 and BPS-804 will, if approved, be entitled to data exclusivity inEurope.

The data exclusivity provisions in the United States (Regulatory Data Protection) are similar, typicallyallowing 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 chemicalentities, product candidates BCT-197 and BGS-649 would be entitled to this exclusivity in the UnitedStates.

One of the Group’s product candidates, BPS-804 is classified as a “biologic”. Under the United StatesPatient Protection and Affordable Care Act, a biosimilar sponsor’s ability to seek or obtain approval throughthe abbreviated pathway is limited by periods of exclusivity granted by the FDA to the holder of thereference product’s BLA. No biosimilar application may be accepted by the FDA for review until four yearsafter the date the reference product was first licensed by the FDA, and no biosimilar application, onceaccepted, may receive final approval until 12 years after the reference product was first licensed by theFDA. This exclusivity extends from the date of product approval, and this protection period runsconcurrently with any remaining patent term protection for the biologic meaning that data exclusivity mayprovide additional protection to the innovator when the remaining patent length is shorter than the dataexclusivity period at the time of approval or to the extent that the patent term is circumvented by abiosimilar prior to its expiry. While the Group would expect to be granted a 12-year period of exclusivityfor this product candidate, if approved, this period of reference product market exclusivity applies only tothe biosimilar pathway and will not, for example, provide protection against any biological product for asimilar indication that achieves FDA approval under a traditional BLA based on the sponsor’s own researchdata. There is also a risk that the 12-year period of biological reference product exclusivity could beshortened due to congressional action, or that the FDA will not consider the Group’s product candidates, ifthey are approved, to be reference products for competing products, potentially creating the opportunity forcompetition sooner than anticipated.

10.5 Proprietary technology and processes

The Group seeks to protect its proprietary technology and processes, in part, by confidentiality agreementswith 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 theGroup intends to distribute its licensed products extensively regulate, among other things, the research,development, clinical testing, manufacture, approval, distribution, marketing and monitoring and reportingof pharmaceutical products. Obtaining regulatory approvals and ensuring subsequent compliance withapplicable laws and regulations can be a lengthy process involving substantial financial and managerialresources. Regulatory requirements vary from jurisdiction to jurisdiction, and the timing and success ofefforts to obtain regulatory approvals can be highly uncertain. Development of a successful productcandidate, from identification, through pre-clinical testing and clinical studies, to registration, typicallytakes more than 10 years.

11.2 Pre-clinical testing

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

11.3 Clinical studies

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

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EMA or other regulatory authority an application for an investigational new drug (IND) or similarapplication, which must become effective before human clinical trials may begin and which must includeapproval by an independent research board at each clinical site before the trials may be initiated. The studiesthen involve the performance of adequate and well controlled human clinical trials, according to theapplicable FDA, EMA or other regulations commonly referred to as good clinical practices, and anyadditional requirements for the protection of human research subjects and their health information, toestablish 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 clinicaltrial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitorsubject safety, including stopping rules that assure a clinical trial will be stopped if certain adverse eventsshould occur. Each protocol and any amendments to the protocol must be submitted to the FDA, the EMAor other applicable regulatory authority as part of the IND or similar application. Clinical trials must beconducted and monitored in accordance with applicable regulations comprising good clinical practicerequirements, including the requirement that all research subjects provide informed consent. Further, eachclinical trial must be reviewed and approved by an independent research board at or servicing eachinstitution at which the clinical trial will be conducted. An independent research board is charged withprotecting the welfare and rights of trial participants and considers such items as whether the risks toindividuals participating in the clinical studies are minimised and are reasonable in relation to anticipatedbenefits. The independent research board also approves the form and content of the informed consent thatmust be signed by each clinical trial subject or his or her legal representative and must monitor the clinicaltrial 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 1studies are typically closely monitored and are designed to determine the metabolism and pharmacologicactions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gainearly evidence on effectiveness. During Phase 1 studies, sufficient information about the drug’spharmacokinetics 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 ofsubjects who have the relevant condition. These studies are undertaken to identify possible adverse effectsand safety risks, and to explore the preliminary or potential efficacy of the product candidate, as well asdosage tolerance and the optimal effective dose. Phase 2 studies are sometimes further divided into twophases: Phase 2a trials are designed to assess dosage (how much product candidate subjects should begiven); and Phase 2b trials are specifically designed to study efficacy (how well the product candidate worksat a prescribed dose). Often Phase 2 trials are designed as randomised clinical studies, where some subjectsreceive the product candidate and others receive a placebo/standard of care treatment. Randomised Phase 2trials 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 beeffective and has an acceptable safety profile, Phase 3 trials are undertaken. These studies are intended toprovide an adequate basis for establishing the benefit/risk ratio for a subsequent application for marketingapproval. Therefore, a sufficiently high number of subjects must be enrolled and exposed to the productcandidate 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 activetreatment depending on the medical condition and the product candidate under investigation. As a result oftheir 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 afterinitial marketing approval. These clinical studies are used to gain additional experience from the treatmentof 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 ofall clinical activities, clinical data and clinical trial investigators. For example, annual progress reportsdetailing the results of the clinical studies must be submitted to regulatory authorities, and written safetyreports must also be promptly submitted to regulatory authorities and the investigators, for example, forserious and unexpected adverse events, any findings from other studies, tests in laboratory animals or invitro testing and other sources that suggest a significant risk for human subjects, or any clinically importantincrease in the rate of a serious suspected adverse reaction over that listed in the protocol or investigatorbrochure. Phase 1, Phase 2 and Phase 3 clinical studies may not be completed successfully within anyspecified period, if at all. The FDA, the EMA or other regulatory authorities, or the sponsor, may suspend a

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clinical trial at any time on various grounds, including a finding that the research subjects or patients arebeing exposed to an unacceptable health risk. Similarly, an independent research board can suspend orterminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordancewith the independent research board’s requirements or if the biological product has been associated withunexpected 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 procedureor national authorisation procedures. To be permitted to market a new pharmaceutical active ingredient inmore than one country in the European Union, application can be made for a Community marketingauthorisation 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 ismandatory for biotechnology-derived products (including monoclonal antibodies) and for a new activesubstance for treating auto-immune diseases and other immune dysfunctions. This procedure is optional forproducts 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 wouldbe in the interests of European Union public health. Inspections may be requested in connection with anapplication 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 clinicalstudies, together with other detailed information, are submitted to the EMA. Following this application, asingle scientific evaluation is carried out through the EMA’s Committee for Medicinal Products for HumanUse. If the committee concludes that the quality, safety and efficacy of the medicinal product aresufficiently proven, it adopts a positive opinion. This is sent to the European Commission, which grants asingle 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 withpost-marketing regulatory requirements can result in the suspension of a regulatory approval, as well as incivil and criminal sanctions.

National authorisation procedures

Each European Union member state has its own procedures for the authorisation, within its own territory, ofmedicines that fall outside the scope of the Community authorisation procedure. There are two possibleroutes available to companies for the authorisation of such medicines in several countries simultaneously.

• Decentralised procedure: Using the decentralised procedure, companies may apply forsimultaneous authorisation in more than one European Union country of medicines that have notyet been authorised in any European Union country and that do not fall within the mandatoryscope of the centralised procedure.

• Mutual-recognition procedure: In the mutual-recognition procedure, a medicine is first authorisedin one European Union member state, in accordance with the national procedures of thatcountry. Following such authorisation, further marketing authorisations can be sought from otherEuropean Union member states in a procedure whereby the countries concerned agree to recognisethe 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 forOrphan 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 lifethreatening or chronically debilitating condition affecting no more than five in 10,000 persons inthe European Union at the time of submission of the designation application or (ii) the medicinal

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product is intended for the diagnosis, prevention or treatment of a life threatening, seriouslydebilitating or serious and chronic condition, and without incentives it is unlikely that therevenues 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 concernedis authorised or (ii) if such method exists, the medicinal product will be of significant benefit tothose affected by the condition.

Companies with an orphan designation for a medicinal product shall be eligible for incentives such as thefollowing:

• protocol assistance (scientific advice for orphan medicines during the product developmentphase);

• direct access to centralised marketing authorisation;

• ten-year market exclusivity during which a similar product for the same indication will not beauthorised;

• 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 assistanceand 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 authorisationinspections 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 firstyear after granting a marketing authorisation.

To qualify for assistance, companies must be established in the European Economic Area, employ fewerthan 250 employees and have an annual revenues of not more than 50 million euros or an annual balancesheet 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 authorisationfor the second indication.

In addition, a pediatric investigation plan will need to be submitted to the EMA in order to enable Phase 3work 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 PublicHealth Safety Act. Following pre-clinical tests and before starting human clinical studies, a company mustsubmit 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 theform 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 aBLA, in light of the importance of the complex manufacturing involved, before approving a BLA, the FDAwill also inspect the facility or facilities where the product candidate is to be manufactured to assure that thefacilities, methods and controls are adequate to preserve the biological product’s identity, strength, qualityand purity and, if applicable, the FDA’s current good tissue practices for the use of human cells, tissues andcellular and tissue-based products.

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Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that theNDA or BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained fromclinical trials are not always conclusive and the FDA may interpret data differently than the sponsorinterprets the same data. The agency may decide not to approve the NDA or BLA in its present form, notingdeficiencies, 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 besignificantly 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 certaincontraindications, warnings or precautions be included in the product labelling. The FDA may imposerestrictions and conditions on product distribution, prescribing, or dispensing in the form of a riskmanagement plan, or otherwise limit the scope of any approval. In addition, the FDA may require postmarketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess aproduct’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approvedproducts that have been commercialised.

After regulatory approval of a product is obtained, holders of an approved NDA or BLA are required tokeep extensive records, to report certain adverse reactions and production problems to the FDA, provideupdated safety and efficacy information and comply with requirements concerning advertising andpromotional labelling for their products. Also, quality control and manufacturing procedures must continueto conform to current good manufacturing practice regulations and practices, as well as the manufacturingconditions of approval set forth in a BLA. The FDA periodically inspects manufacturing facilities to assesscompliance with current good manufacturing practice, which imposes certain procedural, substantive andrecordkeeping requirements. Accordingly, manufacturers must continue to expend time, money and effort inthe area of production and quality control to maintain compliance with current good manufacturing practiceand 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 andprevent recurrence of any deficiencies, and could result in fines or penalties by regulatory authorities. Inaddition, discovery of problems with a product or the failure to comply with applicable requirements mayresult in restrictions on a product, manufacturer or holder of an approved NDA or BLA, including voluntaryor 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 ofproduction or criminal penalties, any of which could delay or prohibit further marketing. Newly discoveredor developed safety or efficacy data may require changes to a product’s approved labelling, including theaddition 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 thataffects fewer than 200,000 individuals in the United States, or that affects more than 200,000 individuals inthe United States and for which there is no reasonable expectation that the cost of developing and makingavailable in the United States a drug for such a disease or condition will be recovered from sales in theUnited States for that drug. Orphan drug, or orphan product designation must be requested before submittingan application for marketing approval. Mereo 3 received orphan designation for BPS-804 in the UnitedStates in March 2016. Orphan product designation does not convey any advantage in, or shorten theduration of, the regulatory review and approval process. Orphan product designation can provideopportunities for grant funding towards clinical trial costs, tax advantages and FDA user fee exemptions. Inaddition, if a product that has an orphan product designation subsequently receives the first FDA approvalfor 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 sameindication for a period of seven years, except in limited circumstances, such as a showing of clinicalsuperiority 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 orphanproduct 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 asMedicare and Medicaid, are subject to regulation by CMS, which is part of the U.S. Department of Healthand Human Services, and enforcement by the U.S. Department of Health and Human Services Office ofInspector General (HHS OIG), and in the event the Group’s product candidates are approved, regulation by

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CMS and enforcement by HHS OIG would be relevant to the Group. The provisions of the U.S. SocialSecurity Act known as the “Anti-Kickback Law” prohibits providers and others from directly or indirectlysoliciting, receiving, offering or paying any remuneration with the intent of generating referrals or orders forservices or items covered by a government healthcare programme. Many states have similar laws. Courtshave interpreted this law very broadly, including by holding that a violation has occurred if even onepurpose of the remuneration is to generate referrals, even if there are other lawful purposes. There arestatutory 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 theconduct illegal under the Anti-Kickback Law. In sum, even legitimate business arrangements between thecompanies and referral sources could lead to scrutiny by government enforcement agencies and requireextensive company resources to respond to government investigations. Violations of the Anti-Kickback Lawmay be punished by civil and criminal penalties or exclusion from participation in federal healthcareprograms, including Medicare and Medicaid. The Healthcare Reform Act strengthened provisions of theAnti-Kickback Law.

The Federal False Claims Act is violated by any entity that “presents or causes to be presented” knowinglyfalse claims for payment to the federal government. In addition, the Healthcare Reform Act amended theFederal False Claims Act to create a cause of action against any person who knowingly makes a falsestatement material to an obligation to pay money to the government or knowingly conceals or improperlydecreases an obligation to pay or transmit money or property to the government. For the purposes of theserecent 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, afterapplicable reconciliation, is not entitled ….”

The Federal False Claims Act is commonly used to sue those who submit allegedly false Medicare orMedicaid claims, as well as those who induce or assist others to submit a false claim. “False claims” canresult not only from non-compliance with the express requirements of applicable governmentalreimbursement 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 thatrequire quality care in service delivery. The qui tam and whistleblower provisions of the Federal FalseClaims Act allow private individuals to bring actions on behalf of the government alleging that thegovernment was defrauded, with tremendous potential financial gain to private citizens who prevail. When aprivate party brings a whistleblower action under the Federal False Claims Act, the defendant is not madeaware of the lawsuit until the government starts its own investigation or makes a decision on whether it willintervene. Many states have enacted similar laws that also apply to claims submitted to commercialinsurance companies. The bringing of any FCA action could require the Group to devote resources toinvestigate 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 newreporting and disclosure requirements for pharmaceutical and medical device manufacturers that have atleast one product that is reimbursed by Medicare, Medicaid or the Children’s Health Insurance Programwith regard to payments or other transfers of value made to certain U.S. healthcare practitioners, such asphysicians and academic medical centres, and with regard to certain ownership interests held by physiciansin reporting entities. Data collection activities under the Physician Payment Sunshine Act began on1 August, 2013, and as required under the Physician Payment Sunshine Act, CMS published informationfrom these reports on a publicly available website, including amounts transferred and the physician andteaching hospital identities, on 30 September, 2014. Beginning in 2014 and each year thereafter, datacollection for each calendar year must be submitted by 30 June of the subsequent year and will be publishedannually. It is difficult to predict how the new requirements, which also pre-empt similar state law reportingrequirements, 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 thestudies that must be undertaken and the data that must be presented in order to receive approval. Suchrequirements could delay access to these markets, above and beyond the delays in gaining access to marketsin the United States and in the European Union.

Regulatory procedures in all jurisdictions are changed from time to time, and such changes can delay orprevent regulatory approval of product candidates under development.

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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 31/12/1943Denise Scots-Knight Chief Executive Officer and Co-Founder 02/05/1959Richard Bungay Chief Financial Officer and Chief Operating Officer 07/08/1969Frank Armstrong Non-Executive Director 14/01/1957Peter Bains Non-Executive Director 26/07/1957Anders Ekblom Non-Executive Director 26/09/1954Kunal Kashyap Non-Executive Director 15/03/1965Paul Blackburn Non-Executive Director 03/10/1954

The business address of each director is: Fourth Floor, One Cavendish Place, London W1G 0QF, UnitedKingdom.

Dr Peter Fellner (Independent Non-Executive Chairman). Dr Fellner is the Chairman of Mereo. Dr Fellneralso serves as chairman of the biotech and medical technology companies Ablynx NV, Vernalis plc andConsort Medical plc. He was also chairman of Optos until its recent acquisition by Nikon Corporation. Inaddition, he is a member of the Novo A/S Advisory Group. He has previously served on the boards of awide range of life science companies, including as vice chairman of Astex Pharmaceuticals Inc. until its saleto Otsuka in 2013, director of the global biopharmaceutical company UCB SA from 2005 to 2014 andchairman of Acambis plc from 2006 until its acquisition by Sanofi in 2008. He was chairman of CelltechGroup plc until its acquisition by UCB in 2004, having been chief executive officer from 1990. Beforejoining 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 ExecutiveOfficer, a board member and co-founder of Mereo. Prior to Mereo, she led Phase4 Partners’ managementbuyout from Nomura in 2010, becoming Phase4 Partners’ managing partner. Prior to becoming a venturecapitalist, she was in research and development management at Amersham and Fisons and a seniorexecutive at Scientific Generics. At Nomura, she became managing director after leading the life scienceinvestment team. Prior to Nomura, she was an investment manager at Rothschild Asset Management. She ischairman of Nabriva Therapeutics AG and a board member of OncoMed Pharmaceuticals, Inc., and AlbireoLimited. She has served on many European and U.S. private and public company boards, including IdenixPharmaceuticals, 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 CaliforniaBerkeley.

Richard Bungay (Chief Financial Officer and Chief Operating Officer). Mr Bungay is Chief FinancialOfficer, Chief Operating Officer and a board member (with effect from Admission) of Mereo, withresponsibility 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, mostlyrecently as chief financial officer of Glide Technologies. Mr Bungay’s prior experience includes chieffinancial officer of Verona Pharma, chief executive officer of Chroma Therapeutics, director of corporatecommunications at Celltech and finance director of the Respiratory and Inflammation therapy area atAstraZeneca. He qualified as a chartered accountant with Deloitte and has a BSc in Chemistry fromNottingham University. Mr Bungay is a non-executive director of Glide Technologies. Mr Bungay will beappointed as an Executive Director of the Company upon Admission.

Dr Frank Armstrong (Independent Non-Executive Director). Dr Armstrong has served as chief executiveofficer to a number of healthcare and biopharmaceutical companies, including CuraGen and FulcrumPharma. He held senior management positions, including executive vice president of product developmentat Bayer AG, senior vice president of medical research at Zeneca Pharmaceuticals (now AstraZeneca), andsenior vice president at Merck Serono. Dr Armstrong holds a MBChB from the University of Edinburgh andbecame a member of the Royal College of Physicians in 1984. He was elected Fellow of the Royal Collegeof 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 inthe pharmaceutical industry encompassing strategic and operational leadership expertise across global

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geographies, functions and business segments. He is currently representative executive officer and chiefoperating officer of Sosei Group Corporation, a Tokyo listed biotech company. It is expected that Mr Bainswill become representative executive officer, president and chief executive officer upon approval by Sosei’sboard of directors in June 2016 following the group’s annual general meeting. Previously, he was chiefexecutive officer of Syngene International, where he continues to be a non-executive director. He alsocurrently serves as non-executive director for Phase4 Partners. He is also chairman of Fermenta Biotech, asubsidiary 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/Zoologyfrom Sheffield University.

Paul Blackburn (Independent Non-Executive Director). Mr Blackburn has over 38 years of experience inthe field of finance. He has previously held the positions of Senior Vice President Strategic Finance Projectsand Financial Controller at GSK gaining extensive emerging markets, corporate finance and changeexperience. He also recently served on the GSK Audit and Risk Committee. He is currently a board memberof Syngene International and also a member of Syngene’s Audit and Risk Committee and StakeholderRelationships Committee. He holds a BSc in Management Sciences from Warwick University and also aprofessional accounting qualification from the Chartered Institute of Management Accountants.

Dr Anders Ekblom (Independent Non-Executive Director). Dr Ekblom has extensive experience as anexecutive 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 currentlychairman of the Board at Karolinska University Hospital and a non-executive board member of severalbiotech 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 medicinesdevelopment, global head clinical development, global therapy area head, global head science & technologyintegration 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 chairmanand managing director of Allegro Capital Advisors, a leading Indian investment bank. Mr Kashyap has adeep understanding of the life sciences industry, built over two decades of advising companies in theindustry on fund raising, initial public offerings, mergers and acquisitions, and intellectual propertylicensing. He is an independent director of GlaxoSmithKline Consumer Healthcare Ltd and a director ofPhase4 Partners. He was also founder and executive director of Celstream Technologies, a software productengineering organisation. From 1994 to 2000, he was a global partner at Arthur Andersen responsible forbuilding 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 withresponsibility for day-to-day management of the Group’s business are:

Name Position Date of Birth

Alastair MacKinnon Chief Medical Officer and Co-Founder 10/11/1970John Richard Head of Corporate Development and Co-Founder 20/10/1957Charles Sermon General Counsel, Secretary and Co-Founder 03/05/1969

Dr Alastair MacKinnon (Chief Medical Officer and Co-Founder). Dr MacKinnon is Chief Medical Officerand a co-founder of Mereo. Prior to Mereo, he worked for Phase4 Partners, a global life science venturecapital firm, having originally joined Nomura in 2005. Before Nomura, he was a practising physician in theUnited Kingdom for 10 years. Dr MacKinnon received a BSc and MBBS from King’s College London, is aMember of the Royal College of Surgeons of Edinburgh and has a Diploma in Corporate Finance from theLondon 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 CorporateDevelopment and a co-founder of Mereo. Prior to Mereo, he worked with the co-founders at Nomura andthen 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 memberof Aviragen, Phase4 Partners, QUE Oncology and Catalyst Biosciences. He is a corporate developmentadviser to Albireo. Previously, he was executive vice president of business development at SEQUUS, wherehe was responsible for negotiating SEQUUS’ acquisition by ALZA. Mr Richard also headed businessdevelopment for VIVUS and Genome Therapeutics, where he established numerous alliances. He was alsochief executive officer and co-founder of Impath (subsequently acquired by Genzyme). Mr Richard holds anMBA from Harvard Business School and a BS from Stanford University.

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Charles Sermon (General Counsel, Secretary and Co-Founder). Mr Sermon is General Counsel, Secretaryand a co-founder of Mereo. He has over 20 years’ experience in corporate law. Prior to Mereo, he workedfor Phase4 Partners. He was also involved in Phase4 Partners’ management buy out and the sale ofNomura’s life science portfolio in 2010. He joined Nomura as an associate director in 1998 and worked forNomura’s life science investment team. Before joining Nomura, Mr Sermon was a corporate lawyer withFreshfields. Mr Sermon has an LLB (Honours) from Hull University and is a member of the Mayor ofLondon Enterprise Panel’s Digital, Science and Technology Working Group. He is a board member ofPhase4 Partners.

1.3 Employees

The Company relies on a team of experienced professionals in all areas required to meet its strategicobjectives, including development, medical and regulatory, manufacturing, business development, productdevelopment, infrastructure, intellectual property and finance.

As of 31 December 2015 and 31 March 2016, the Company had a total of 14 and 15 employees, respectivelyon a full-time equivalent basis.

2. Corporate governance

The UK Corporate Governance Code, dated September 2014 and published by the Financial ReportingCouncil (the UK Corporate Governance Code), provides that the board of directors of a company with apremium listing should include a balance of executive and non-executive directors (and in particularindependent 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 shoulddetermine whether a director is independent in character and judgement and whether there are anyrelationships 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 Directorssupport high standards of corporate governance. Notwithstanding the foregoing, the Directors believe thatthe Company will benefit from having the current Directors on the Board to take advantage of theirexpertise and knowledge of the Company and the industry. For this reason, the Company does not intend toalter its board composition for the purpose of complying with UK Corporate Governance Code followingAdmission.

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 UKCorporate Governance Code, the board of directors of the Company should determine whether a director isindependent in character and judgement and whether there are relationships or circumstances which arelikely to affect, or could appear to affect, the director’s judgement and should state its reasons if itdetermines that a director is independent notwithstanding the existence of relationships or circumstanceswhich may appear relevant to its determination. The Board has determined that it regards Dr Armstrong, MrBains, Mr Blackburn, Dr Ekblom and Dr Fellner as independent non-executive directors, within themeaning of “independent” as defined in the UK Corporate Governance Code.

The UK Corporate Governance Code recommends that the board should appoint one of its independentnon-executive directors to be the senior independent director (the SID). The SID should be available toshareholders if they have concerns that the normal channels of Chairman, Chief Executive Officer or otherexecutive directors have failed to resolve or for which such channel of communication is inappropriate. TheCompany’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 Auditand 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 beindependent non-executive directors. The Board has also established a Research and DevelopmentCommittee.

3.1 Audit and Risk Committee

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

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compliance with the UK Corporate Governance Code in relation to its Audit and Risk Committee. TheAudit and Risk Committee is chaired by Mr Blackburn. The Audit and Risk Committee will normally meetat least three times a year at the appropriate times in the reporting and audit cycle. The committee hasresponsibility for, amongst other things, the monitoring of the financial integrity of the financial statementsof the Group, the involvement of the Group’s auditor in that process, reviewing the effectiveness of theGroup’s internal control systems and risk management systems and overseeing the process for managingrisks across the Group, including reviewing the Group’s corporate risk profile. It focuses in particular oncompliance with legal requirements, accounting standards and the rules of the FCA and ensuring that aneffective system of internal financial control is maintained. The ultimate responsibility for reviewing andapproving 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 thefrequency of meetings, as mentioned above, together with requirements of any quorum for and the rightto 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 andreporting responsibilities. The terms of reference also set out the authority of the committee to carry out itsduties.

3.2 Remuneration Committee

In accordance with the requirements of the UK Corporate Governance Code, the Remuneration Committeeis made up of three members who are all independent non-executive directors. The RemunerationCommittee will initially comprise Dr Armstrong, Mr Bains and Dr Ekblom, all of whom are independentnon-executive directors. The Remuneration Committee is chaired by Dr Ekblom. The RemunerationCommittee, which meets at least two times a year, has responsibility for the determination of specificremuneration packages for each of the Executive Directors and any applicable senior executives of theGroup, including pension rights and any compensation payments and recommending and monitoring thelevel and structure of remuneration for senior management, and the implementation of share option, or otherperformance related, schemes.

The terms of reference of the Remuneration Committee cover such issues as membership and frequency ofmeetings, as mentioned above, together with the requirements for quorum for and the right to attendmeetings. The duties of the Remuneration Committee covered in the terms of reference relate to thefollowing: determining and monitoring policy on and setting level of remuneration, contracts ofemployment, early termination, performance-related pay, pension arrangements, reporting and disclosure,share schemes and remuneration consultants. The terms of reference also set out the reportingresponsibilities 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 inrespect of appointments to the Board. It is also responsible for keeping the structure, size and compositionof the Board under regular review, and for making recommendations to the Board with regard to anychanges necessary. The Nomination Committee also considers succession planning, taking into account theskills 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 ismade up of three members, the majority of whom are independent non-executive directors. The NominationCommittee will initially comprise Dr Armstrong, Mr Bains, Dr Ekblom, Dr Fellner and Mr Blackburn (all ofwhom are independent non-executive directors) and Mr Kashyap. The Nomination Committee is chaired byDr Fellner. The Nomination Committee meets at least twice a year at appropriate times in the reportingcycle.

3.4 Research and Development Committee

The Research and Development Committee is responsible for providing oversight of the research anddevelopment activities of the Group, including overseeing relationships with key research and developmentsuppliers, and strategic development plans for products in the Group’s portfolio and the acquisition of newproducts. The Committee is also tasked with keeping informed of strategic issues and commercial changesaffecting the Group’s research and development activities, and providing guidance and makingrecommendations to the Board in respect of such activities.

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The Research and Development Committee will initially be comprised of Dr Armstrong, Mr Bains and DrEkblom. The Research and Development Committee will be chaired by Dr Armstrong. The Research andDevelopment 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 andadministered by the Panel on Takeovers and Mergers (the Takeover Panel), when (i) a person acquires aninterest 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 lessthan 30% of the voting rights of a company, but does not hold shares carrying more than 50% of the votingrights 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 inwhich 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 inconcert 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 ofthe City Code if the Company has obtained the approval of over 50% of its independent shareholders inadvance of such increase. The Company is subject to the City Code and therefore its shareholders areentitled to the protections afforded by the City Code.

The shareholders in a private company, who, following the re-registration of that company as a publiccompany in connection with an initial public offering or otherwise, become shareholders in a company towhich 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 (thePresumed Concert Party Group) would be presumed to be acting in concert with each other (and any ofthem) for the purposes of the City Code. However, notwithstanding the Category 9 Presumption, eachmember of the Presumed Concert Party Group has confirmed to the Company that they are not acting inconcert with any other Shareholder and that there is no agreement or understanding (whether formal orinformal) in place between any of them and between any of them and any other person on or followingAdmission to co-operate to obtain or consolidate control (as defined in the City Code) of the Company or tofrustrate the successful outcome of an offer for the Company following Admission. Further, the TakeoverPanel has agreed based on information provided by the Company to the Takeover Panel that therelationships between Invesco, Woodford, Novartis and the Founders are such that none of them shall berequired to make a mandatory offer to the other holders of Ordinary Shares under Rule 9 of the City Code asa result of the Private Placement.

A fund manager will be presumed to be acting in concert with any investment company, unit trust or otherperson whose investments such fund manager manages on a discretionary basis, in respect of the relevantinvestment 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 andWoodford Patient Capital Trust plc should each be presumed to be acting in concert with WoodfordInvestment Management LLP. Immediately prior to the Private Placement, CF Woodford Equity IncomeFund and Woodford Patient Capital Trust plc are expected to hold in aggregate approximately 46.99% of theOrdinary Shares. Each of CF Woodford Equity Income Fund and Woodford Patient Capital Trust plc willalso subscribe for Private Placement Shares in the Private Placement. The Takeover Panel has agreed basedon information provided by the Company that an increase in the aggregate shareholding of CF WoodfordEquity Income Fund and Woodford Patient Capital Trust plc as a result of the subscription for PrivatePlacement Shares in the Private Placement will not trigger an obligation to make a mandatory offer to theother holders of Ordinary Shares because the aggregate percentage shareholding of CF Woodford EquityIncome Fund and Woodford Patient Capital Trust plc (and any persons acting in concert with them) will bediluted following Admission as a result of the issue of the Private Placement Shares in the PrivatePlacement (albeit the aggregate shareholding following Admission is expected to remain above 30%).

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The Company also accepts that, under the Category 4 Presumption, Invesco Perpetual High Income Fundand Invesco Perpetual UK Strategic Income Fund should be presumed to be acting in concert with eachother and each of them should also be presumed to be acting in concert with Invesco Asset ManagementLimited. Each of Invesco Perpetual High Income Fund and Invesco Perpetual UK Strategic Income Fundmay subscribe for Private Placement Shares in the Private Placement. However, the increase in theaggregate shareholding of Invesco Perpetual High Income Fund and Invesco Perpetual UK Strategic IncomeFund as a result of any subscription for the Private Placement Shares in the Private Placement will nottrigger an obligation to make a mandatory offer to the other holders of Ordinary Shares because, followingAdmission, 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%, bothprior to and following Admission. There is no event either prior to or following Admission which couldtrigger 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 WoodfordPatient Capital Trust plc as outlined above, none of the Company’s Shareholders will (i) be interested inshares carrying 30% or more of the Company’s voting rights, or (ii) together with persons acting in concertwith 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 withhim) who acquires interests in shares carrying 30% or more of the voting rights attached to the issued sharecapital of the Company; or (ii) any person (together with any persons acting in concert with him) who has aninterest in shares carrying not less than 30% of the Company’s voting rights but does not hold sharescarrying more than 50% of the voting rights attached to the issued share capital of the Company and whoacquires an interest in any other shares which increases the percentage of the shares in which the person hasan 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 aresummarised at section 4.3(a) of Part XV: “Additional information” of this document, and which operate soas to reallocate voting rights to other Shareholders (or prospective investors who become shareholders) towhom the Voting Rights Restrictions do not apply. The reallocation of voting rights as a result of VotingRights 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 aMandatory Offer as set out above. In such circumstances, the Panel must be consulted as soon as possible inadvance.

5. Model Code

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

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PART VIII

CAPITALISATION AND INDEBTEDNESS

As at 31 December2015

Capitalisation and indebtedness(1) £

Total current debtGuaranteed —Secured —Unguaranteed/unsecured —

Total current debt —

Total non-current debtGuaranteed —Secured —Unguaranteed/unsecured —

Total non-current debt —Total indebtedness —

Shareholders’ equity (excluding accumulated losses)

Ordinary shares 59,221Share premium 26,212,880Other 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 areduction of its share premium account from £26,212,880 to £19,212,880 by means of the solvencystatement procedure under the Companies Act. Save for the above, there has been no other material changeto 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 hasbeen extracted without material adjustment from the unaudited management accounts:

As at 29 February2016

(unaudited)£

Net indebtednessCash at bank and in hand 10,043,082

Total liquidity 10,043,082

Current financial debtCurrent financial debt —

Net current liquidity 10,043,082

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PART IX

OPERATING AND FINANCIAL REVIEW

The section that follows should be read in conjunction with Part VI: “Information on the Company and theGroup”. Prospective investors should read the entire document and not just rely on the information set outbelow. The financial information considered in this Part IX is extracted without material adjustment from theGroup’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 whichcomprises the Company and its subsidiaries. As described in note 1 (Summary of significant accountingpolicies—Basis of Preparation) in Part X: “Financial Information”, the financial information has been preparedin 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 periodsreflected herein are not necessarily indicative of results that may be expected for future periods, and the Group’sactual results may differ materially from those discussed in the forward-looking statements as a result of variousfactors, including those set forth under Part II: “Risk Factors”.

Overview

Mereo is a UK-based specialty biopharmaceutical company focused on the development of innovative medicinesthat 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 clinicallymeaningful data from large pharmaceutical companies and to further develop these product candidates tosubsequent key value inflection points or to commercialisation. The Group is an early adopter of a novel businessmodel that aligns its interests with those of large pharmaceutical companies. By selectively acquiring and furtherdeveloping promising product candidates, the Group and its product candidate provider can jointly participate inthe value realisation through any future sale, licensing or commercialisation of the product candidate. Since itsinception in March 2015, the Group has acquired three product candidates from Novartis, which comprise itsinitial 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 productcandidates that address a broad range of rare and specialty diseases with significant unmet clinical needs and tobecome an innovative leader in the specialty biopharmaceutical sector.

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

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 globalCRO, to assist with the clinical development of its initial portfolio. The Group intends to leverage its globalnetwork of experts with expertise across multiple clinical disciplines to optimise the development strategies forthe selected product candidates. Mereo’s Directors and senior management have long-standing relationships withsenior executives of large pharmaceutical companies, which the Directors believe will enhance the Group’sprocess for identifying and acquiring additional product candidates. The Group’s alignment of interests withproduct candidate providers can be enhanced by its flexibility to use alternative transaction structures, includingthose in which the Group does not make an upfront cash payment for product candidate acquisitions and apharmaceutical company retains economic interest in a product candidate, including through potential equityparticipation.

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 specialtyindications with unmet medical need and compelling market potential. Additionally, the product candidates

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need to have a strong scientific rationale, demonstrated clinically meaningful data, a clear and manageableclinical and regulatory strategy and a favourable competitive landscape. This is exemplified by Mereo’s initialpipeline, which comprises three well characterised, novel clinical Phase 2 product candidates acquired fromNovartis in July 2015: BCT-197 for AECOPD, BGS-649 for hypogonadal hypogonadism in obese men andBPS-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 andBPS-804 are in different drug classes and are for different indications, the risk profile of the portfolio is welldiversified enabling the Group to optimise the commercial strategy for each product candidate based onclinical trial results.

BCT-197 is being developed for AECOPD. COPD is a non fully reversible, progressive lung disease that was thethird largest cause of death in the world in 2010 according to the Global Burden of Disease Study, resulting inannual direct and indirect costs totalling approximately $50 billion in the United States. BCT-197 aims to treatinflammation and improve patient symptoms and potentially result in shorter hospital stays with fewerreadmissions, thereby providing tangible benefits for both patients and payers. BGS-649 is being developed forhypogonadal hypogonadism in obese men. Hypogonadal hypogonadism, a clinical syndrome that results frominadequate levels of testosterone, is currently treated by testosterone replacement therapies. Testosteronereplacement is associated with significant side effects, including excessively high levels of testosterone, whichhas been associated with higher risk of stroke and heart attack. BGS-649 aims to restore normal levels oftestosterone 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 isbeing developed for osteogenesis imperfecta, a rare, usually inherited condition that results in bones that canbreak easily. BPS-804 aims to demonstrate a benefit compared to placebo in terms of fractures in osteogenesisimperfecta patients.

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

The Company is backed by leading institutional shareholders Invesco and Woodford, each of which hassignificant pharmaceutical and biotechnology industry knowledge and relationships and a history of long-termsupportive 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 commencedclinical trials for only one of its product candidates. The Group has not generated any revenues, and it has onlyobtained limited regulatory approvals.

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

The Group does not expect to generate any revenues from licensing prior to the achievement of key clinical datawith each of its product candidates in development. The Group does not expect to earn revenues from productsales 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 obtainregulatory approval for them, its ability to generate future revenues, and its financial results and position, wouldbe materially adversely affected.

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Operating expenses

Development and other expenses

The Group continues to incur significant development and other expenses related to its ongoing clinical trials andoperations. The Group’s expenses consist primarily of:

• the costs of manufacturing and developing the Group’s product candidates, and conducting pre-clinicaland 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 approvedfor 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 costsinvolved 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 inrelation 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 theGroup’s costs. Because the outcome of any clinical trial is highly uncertain, the Group cannot reasonablyestimate the actual costs involved in completing the development of any of its product candidates, including anyfuture trials.

The Group may select one or more of its product candidates for direct commercialisation, which would require atargeted salesforce and operational infrastructure that would increase the Group’s expenses. The Group mayacquire and develop additional product candidates, which would further increase the Group’s expenses. Inaddition, 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 andbusiness development functions. The Group expects to incur additional costs associated with operating as apublic company. The Group expects that these costs will include legal, accounting, investor relations and otherexpenses 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 2and/or Mereo 3 may be eligible for tax relief for qualifying research and development expenditure in the UnitedKingdom. It is anticipated that each entity will, where available, claim such relief, but this will depend on taxplanning 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 effectivecorporation tax rate on relevant income from assets inside the patent box. Entry into the patent box regime issubject to detailed rules, including ensuring that each entity is actively involved in the plans and decisionsrelating to the exploitation or development of the patent and/or performs a significant amount of activity for thepurposes of developing the patent. Mereo 1, Mereo 2 and Mereo 3 may, where available, make an election toparticipate 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 FormaFinancial Information” illustrates the receipt of the net proceeds of £12.6 million raised in the Capital Raiseincluding £3.5 million received upon issuance of the convertible loan notes to Novartis as detailed in paragraph12.5 of Part XV “Additional Information”, and the Company’s exercise in full of its option under theSubscription Agreement to require Invesco and Woodford to subscribe for Ordinary Shares in the amount of£56.5 million (£54.9 million after fees).

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After giving effect to the pro forma adjustments described above, at 31 December 2015, the Company wouldhave 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 assetsof £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 financinground 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 inceptionthrough 31 December 2015, the Group has received net cash proceeds of £19.1 million from the sale of ordinaryshares. Net cash used in operations in the period from inception to 31 December 2015 was due primarily toexpenditure 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 initiationactivities for clinical studies with BCT-197, BGS-649 and BPS-804 (including manufacturing of clinical trialmaterials) securing and fitting out the Company’s premises, the Group’s share of a payment due from Novartis toa third party in relation to BCT-197 upon acquisition of the programme from Novartis and ongoing operatingcosts, 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 placementagency fees, taxes and other offering related fees and expenses (including any VAT) payable by the Group. TheGroup is party to a cash management agreement pursuant to which a third party manages the Group’s liquidassets.

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 incash and short-term deposits was primarily a result of administrative expenses and research and developmentexpenses.

Funding requirements

The Directors believe, based on the Group’s current objectives, that the Group’s existing cash, cash equivalentsand marketable securities, together with the funds to be received pursuant to the Company’s option under thesubscription agreement to require Invesco and Woodford to subscribe for ordinary shares in the amount of £56.5million (£54.9 million after fees) and the expected net proceeds from the Capital Raise, will enable the Group tofund its operating expenses and capital expenditure requirements throughout the Phase 2 study for BCT-197, thePhase 2b study for BGS-649 and the interim data from the initial part of the potential registration study forBPS-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 capitalresources 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 orany future product candidates;

• the time and costs involved in obtaining regulatory approval for BCT-197, BGS-649, BPS-804 orfuture product candidates and any delays the Group may encounter as a result of evolving regulatoryrequirements or adverse results with respect to any of these product candidates;

• selling, marketing and patent-related activities undertaken in connection with the commercialisation ofBCT-197, BGS-649, BPS-804 or any other product candidates and costs involved in the developmentof 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 andenforcing patents or defending against claims or infringements raised by third parties, and licenceroyalties or other amounts the Group may be required to pay to obtain rights to third-party intellectualproperty rights; and

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• the amount of revenues, if any, the Group may derive either directly or in the form of royalty paymentsfrom 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 theGroup’s Business and Financial Position—The Group will require additional financing in the long-term and maybe unable to raise sufficient capital, which could lead it to delay, reduce or abandon development programmes ofsome of its product candidates”.

Contractual obligations

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

Withinone year 1-5 years

After 5years Total

Operating Lease Obligation(1) 293,328 1,063,708 0 1,357,036Total 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 OneCavendish 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 futureearnings, if any, to finance the operation of its business and does not anticipate paying any cash dividends in theforeseeable future. Any future determination related to the Group’s dividend policy will be made at the discretionof 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 anyfuture 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 Groupcurrently outsources certain functions, tests and services to ICON, a leading global CRO in connection with thedevelopment of its product candidates, and incurs expenses based on contractual obligations denominated inU.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 connectionwith associated payment of expenses in connection with these arrangements. As a result, the Group’s business isaffected 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 currencypurchased options or interest-bearing deposits of US dollars and to hedge its medium-term currency risks withrespect 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 believethat in the short to medium term, the proceeds of the Private Placement along with the equity financing that willbe 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 toplace cash on deposit for periods that optimise the amount of interest earned while maintaining access tosufficient funds to meet day-to-day cash requirements.

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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 exposureto 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 withS&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 ofoperations 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 thedetermination of certain estimates used in the preparation of the Group’s results of operations. Future events andtheir effects cannot be determined with certainty. These estimates will be based on the Directors’ previousexperience, contractual terms, information provided by customers, current and future expected economicconditions, 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 tounderstanding 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 andcreditors arising directly from operations. Cash and cash equivalents comprise cash in hand and short-termdeposits which have an original maturity of one month or less and are readily convertible into known amounts ofcash. Such assets are classified as current, where management intend to dispose of the asset within 12 months ofthe end of the reporting period.

Where derivatives exist in the financial year, they are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently re-measured at their fair value at each reporting date, with anyresulting gain or loss recognised through profit or loss. The Group does not have any committed borrowingfacilities, 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 policyto minimise the risk of loss. The main risks associated with the Group’s financial instruments relate to interestrate risk and foreign currency risk.

Intangible assets

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

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

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

Results of Operations

The following table sets forth the Group’s results of operations for the period from the Company’s inception to31 December 2015.

Period ended31 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 primarilycomprised payroll-related expenses for research and development staff of £0.7 million (including a non-cashcharge for share-based payments of £0.3 million), a payment to Novartis of £1.0 million representing the Group’sshare 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 of2016 as the Group progresses its three product candidates through clinical studies that have commenced or areexpected to commence during 2016.

Administrative expenses

Administrative expenses were £7.7 million for the period ended 31 December 2015 and were primarilycomprised of payroll-related expenses for administrative staff of £4.2 million (including a non-cash charge forshare-based payments of £2.7 million and recruitment fees of £0.3 million), pre-formation diligence and travelexpenses of £0.6 million, accrued expenses related to preparation for a potential capital raising of £1.9 millionand 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 privatefinancing or the potential capital raising) are expected to increase through 2016, reflecting scaling up of theGroup’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 onR&D activities, and includes an option to surrender a portion of tax losses arising from qualifying activities inreturn for a tax credit from HM Revenue & Customs. The amount included in the financial information for theperiod ended 31 December 2015 represents the credit receivable by the Group for the period. The 2015 amountshave not yet been agreed with the relevant tax authorities.

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PART X

FINANCIAL INFORMATION

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

The Directors 3 June 2016Mereo BioPharma Group plcFourth FloorOne Cavendish PlaceLondon W1G 0QFUnited 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 December2015 (the Financial Information). The Financial Information has been prepared for inclusion in the AIMadmission document dated 3 June 2016 of the Company (the Admission Document) on the basis of theaccounting policies set out in Note 2. This report is required by Schedule Two of the AIM Rules for Companiesof the London Stock Exchange (the AIM Rules for Companies) and is given for the purpose of complying withthat 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 tothe extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will notaccept any liability to any other person for any loss suffered by any such other person as a result of, arising outof, or in connection with this report or our statement, required by and given solely for the purposes of complyingwith 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 withInternational 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 PracticesBoard in the United Kingdom. Our work included an assessment of evidence relevant to the amounts anddisclosures in the Financial Information. It also included an assessment of significant estimates and judgementsmade by those responsible for the preparation of the Financial Information and whether the accounting policiesare 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 considerednecessary in order to provide us with sufficient evidence to give reasonable assurance that the FinancialInformation 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 generallyaccepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out inaccordance 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 andchanges in equity for the period then ended in accordance with International Financial Reporting Standards asadopted by the European Union.

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Declaration

For the purposes of Paragraph (a) of Schedule Two of the AIM Rules for Companies we are responsible for thisreport as part of the Admission Document and declare that we have taken all reasonable care to ensure that theinformation contained in this report is, to the best of our knowledge, in accordance with the facts and contains noomission likely to affect its import. This declaration is included in the Admission Document in compliance withSchedule Two of the AIM Rules for Companies.

Yours faithfully

Ernst & Young LLP

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SECTION B: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR THE PERIODENDED 31 DECEMBER 2015

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

Period ended31 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 holdersof the parent (12,188,961)

Basic and diluted loss per share for the period 10 (£1.01)

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CONSOLIDATED BALANCE SHEETas at 31 December 2015

As at31 December

2015

Notes £

AssetsNon-current assetsProperty, plant and equipment 11 204,517Intangible assets 12 25,812,941

26,017,458Current assetsPrepayments 253,926R&D tax credits 9 946,681Other receivables 13 396,022Cash and short-term deposits 16 12,247,986

13,844,615

Total assets 39,862,073

Equity and liabilitiesEquityIssued capital 17 59,221Share premium 17 26,212,880Other capital reserves 17 21,660,105Accumulated losses (12,188,961)

Total equity 35,743,245

Non-current liabilitiesProvisions 18 141,311

Current liabilitiesTrade and other payables 20 3,977,517

Total liabilities 4,118,828

Total equity and liabilities 39,862,073

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CONSOLIDATED STATEMENT OF CASH FLOWSfor the period ended 31 December 2015

Period ended31 December

2015

Notes £

Operating activitiesLoss before tax (13,135,642)Adjustments to reconcile loss before tax to net cash flows:

Depreciation and impairment of property, plant and equipment 11 11,361Share-based payment expense 19 2,982,265Provision for social security contributions on employee share options 18 141,311Finance 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 activitiesPurchase 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 activitiesProceeds from issue of ordinary shares 20,005,000Transaction costs on issue of shares 17 (868,000)

Net cash flows from financing activities 19,137,000

Net increase in cash and cash equivalents 12,247,986Cash 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’sdevelopment 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. Thepost-bonus share capital was consolidated such that each ordinary shareholder received one share for every threeheld. The total number of ordinary shares remained at 19,740,296 but the nominal value is now £0.003 (see Note17).

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the period ended 31 December 2015

Issuedcapital

(Note 18)

Sharepremium(Note 18)

Othercapital

reserves(Note 18)

Accumulatedlosses

Totalequity

£ £ £ £ £

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 — — 27,087,160Issue of bonus share capital (Note 18) 39,481 (39,481) — — —Share-based payments (Note 20) — — 2,982,265 — 2,982,265Shares to be issued — — 18,677,840 — 18,677,840Profit on transfer of loan notes for equity — 52,941 — — 52,941Transaction 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

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NOTES TO THE FINANCIAL INFORMATION

1. Corporate information

Mereo BioPharma Group plc (the “Company” or the “parent”) is a public limited company incorporated anddomiciled 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 theGroup 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 ofthe Alternative Investment Market (“AIM”) Rules for Companies for the purposes of the AIM admissiondocument and in accordance with this basis of preparation. The consolidated financial information has beenprepared in accordance with International Financial Reporting Standards as adopted by the European Union. Theaccounting policies which follow set out those policies which apply in preparing the financial information for theperiod 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 financialinformation on the going concern basis. This is because the Group’s research into new products continues toprogress according to plan and the funding secured in July 2015 will allow it to meet its liabilities as they fall duefor the foreseeable future.

2.3. Basis of consolidation

The consolidated financial information comprise the financial results of Mereo BioPharma Group plc and itssubsidiaries for the period ended 31 December 2015. Subsidiaries are fully consolidated from the date on whichthe 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 usingconsistent 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 assetis 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 least12 months after the reporting period

All other assets are classified as non-current.

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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 thereporting 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 thetaxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted orsubstantively enacted, at the reporting date in the countries where the Group operates and generates taxableincome.

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

Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets andliabilities 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 taxcredits and unused tax losses, to the extent that it is probable that taxable profit will be available against whichthe deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can beutilised. The carrying amount of deferred income tax assets is reviewed at each end of reporting period andreduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed ateach end of reporting period and are recognised to the extent that it has become probable that future taxableprofit 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 toapply to the year when the asset is realised, based on tax rates (and tax laws) enacted or substantively enacted atthe 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 areinitially recorded by the Group’s entities at the rate ruling on the date the transaction first qualifies forrecognition.

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 impairmentlosses, if any. Such cost includes the cost of replacing part of the plant and equipment if the recognition criteriaare met. All other repair and maintenance costs are recognised in profit or loss as incurred.

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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 upondisposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising onderecognition of the asset (calculated as the difference between the net disposal proceeds and the carryingamount 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 ateach 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 areclassified as operating leases. Payments made under operating leases (net of any incentives received from thelessor) 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-linebasis over the entire period of the lease, assuming that any break clauses available to the Company are notexercised. By not exercising any break clauses, the Company receives a 50% rent discount from the landlord fora 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 arrangementat the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on theuse of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right isnot explicitly specified in an arrangement.

f) Intangible assets

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

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

Expenditure on research and development activities that do not meet the above criteria, including ongoing costsassociated with acquired intellectual property rights and intellectual property rights generated internally by theGroup, is charged to the statement of comprehensive loss as incurred. Intellectual property and in-processresearch 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 receivablesand payables arising directly from operations. Cash and cash equivalents comprise cash in hand and short term

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

The Group does not have any committed borrowing facilities, as its cash, cash equivalents and short-termdeposits are sufficient to finance its current operations. Cash balances are held on short term deposits with qualityfinancial institutions, in line with the Group’s policy to minimise the risk of loss. The main risks associated withthe 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 fairvalues 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 anyindication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’srecoverable 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 individualasset, unless the asset does not generate cash inflows that are largely independent of those from other assets orgroups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset isconsidered 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-taxdiscount rate that reflects current market assessments of the time value of money and the risks specific to theasset. In determining fair value less costs of disposal, recent market transactions are taken into account. If nosuch transactions can be identified, an appropriate valuation model is used. These calculations are corroboratedby 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 expensecategories 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 anindication that previously recognised impairment losses no longer exist or have decreased. If such indicationexists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss isreversed only if there has been a change in the assumptions used to determine the asset’s recoverable amountsince the last impairment loss was recognised. The reversal is limited so that the carrying amount of the assetdoes not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised inthe statement of comprehensive loss unless the asset is carried at a revalued amount, in which case, the reversal istreated 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 testwas 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 depositswith a maturity of one month or less, which are subject to an insignificant risk of changes in value.

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k) Provisions

General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a pastevent, it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some orall of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised asa separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision ispresented 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 thatreflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in theprovision 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 2Share-based Payments, charges for these incentives are expensed through the consolidated statement ofcomprehensive loss on a straight line basis over their vesting period, based on the Group’s estimate of shares thatwill eventually vest. The total amount to be expensed is determined by reference to the fair value of the optionsor 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 thereported amounts of assets, liabilities, revenues and expenses, The Group bases its estimates and judgements onhistorical experience and on various other assumptions that it considers to be reasonable. Actual results maydiffer 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 theemployee services received in exchange for the grant of the options is recognised as an expense. The expense isbased upon a number of assumptions disclosed in Note 19: Share-based payments. The selection of differentassumptions 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 intangibleassets (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 successfulproduct approval, the costs of reaching approval and the subsequent commercial profitability of the product, onceapproved.

4. Segment information

For management purposes, the Group is organised into business units based on its products and has threereportable 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

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

Period ended 31 December 2015Respiratory

Unit

EndocrinologyDisorders

Unit

OrphanDiseases

UnitTotal

Segments Unallocated Consolidated

£ £ £ £ £ £

ExpensesResearch & 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)

AssetsTax Credit 300,024 290,965 355,692 946,681 — 946,681Intangible 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:

Name Principal activitiesCountry of

incorporation% equity interest31 December 2015

Equity andreserves as at

31 December 2015

Lossfor the period to

31 December 2015

£ £Mereo

BioPharma 1Limited

Pharmaceutical researchand development

UnitedKingdom 100% 3,600,772 (3,741,223)

MereoBioPharma 2Limited

Pharmaceutical researchand development

UnitedKingdom 100% 2,660,856 (2,798,886)

MereoBioPharma 3Limited

Pharmaceutical researchand development

UnitedKingdom 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 ended31 December

2015

£

Audit of group accounts 24,000Audit of subsidiary accounts 12,000Corporate finance transaction services 430,000Taxation advisory services 22,925

Total 488,925

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7. Employees and Directors

The average monthly number of persons (including Executive Directors) employed by the Group during theperiod was:

Period ended31 December

2015

Number

By ActivityOffice and management 12Research 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 inthe table below:

Period ended 31 December 2015Salaries& fees

Benefitsin kind

Pensioncontributions Bonus

Share basedpayment/expense Total

£ £ £ £ £ £

Non-Executive DirectorsDr Frank Armstrong 14,987 — — — 82,282 97,269Peter Bains 14,987 — — — 270,357 285,344Paul Blackburn 8,391 — — — — 8,391Dr Anders Ekblom 14,987 — — — 82,282 97,269Dr Peter Fellner 32,115 — — — 587,732 619,847Kunal Kashyap 14,987 — — — 82,282 97,269Executive DirectorsDr 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:

Date ofAppointment

Optionsover

ordinaryshare

capital

Interest inordinary

share capital

Non-Executive DirectorsDr Frank Armstrong 29 July 2015 236,974 337,000Peter Bains 29 July 2015 778,630 125,000Paul Blackburn 6 October 2015 — —Dr Anders Ekblom 29 July 2015 236,974 95,000Dr Peter Fellner 29 July 2015 1,692,673 —Kunal Kashyap 29 July 2015 236,974 1,735,000Executive DirectorsDr 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 / ChiefOperating Officer (start date 1 July 2015), the General Counsel (start date 1 July 2015) and the Chief MedicalOfficer (start date 1 July 2015). The compensation paid or payable to key management is set out below.

Period ended31 December

2015

£

Short term benefits 759,170Post-employment benefits 47,000Share-based payments 2,521,499

Total compensation paid to key management personnel 3,327,669

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8. Other income/expense and adjustments

8.1. Finance income

Period ended31 December

2015

£

Bank interest 25,717

Total finance income 25,717

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

Period ended31 December

2015

£

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

8.3. Employee benefits expense

Period ended31 December

2015

£

Included in Research & Development expenses:Salaries 317,862Social security costs 50,107Pension contributions 16,120Share-based payment expense 327,559

Included in Administrative expenses:Salaries 779,540Social security costs 188,684Pension contributions 44,163Share-based payment expense 2,654,706

Total employee benefits expense 4,378,741

8.4. Operating loss

Period ended31 December

2015

£

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

Total operating loss 13,161,359

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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 qualifyingexpenditure on R&D activities, and includes an option to surrender a portion of tax losses arising from qualifyingactivities in return for a cash payment from HM Revenue & Customs (HMRC). The amount included in thefinancial information for the period ended 31 December 2015 represents the credit receivable by the Group forthe 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 ended31 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%. Thedifferences 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% 2,627,129Expenses not deductible for tax purposes (permanent differences) (438,195)Temporary timing differences (599,975)Research development relief uplift 378,956Tax 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 beensubstantively 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 919,110Other 3,170

Net deferred tax asset 922,280

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

10. Loss per share

Basic loss per share is calculated by dividing the loss attributable for the period to ordinary equity holders of theparent 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 ended31 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 pershare in future. In addition there exist within equity 10,151,000 shares to be issued which also have the potentialto dilute basic earnings per share in future (see Note 17). There have been no other transactions involvingordinary shares or potential ordinary shares between the reporting date and the date of authorisation of other thanas disclosed in Note 24 (Events after the reporting period).

11. Property, plant and equipment

LeaseholdImprovements

OfficeEquipment

ITEquipment Total

£ £ £ £

Cost or valuationAt 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 impairmentAt 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 valueAt 10 March 2015 — — — —

At 31 December 2015 149,869 18,689 35,959 204,517

12. Intangible assets

Acquireddevelopmentprogrammes

£

At 10 March 2015 —Acquisition of new programmes 25,812,941

At 31 December 2015 25,812,941

Amortisation and impairmentAt 10 March 2015 —Amortisation —Impairment (Note 15) —

At 31 December 2015 —

Net book valueAt 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 rarediseases from large pharmaceutical companies.

Acquisition during the period

On 28 July 2015 the Group acquired three development programmes from Novartis Pharma AG (Novartis). Inconsideration of the products rights acquired ordinary shares were issued to Novartis contemporaneously with aprivate financing round involving the issue of ordinary shares to institutional investors (see Note 17). Theseassets have been tested for impairment at the balance sheet date (see Note 14).

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13. Other receivables

31 December2015

£Rent deposit 293,328Accrued income 4,010VAT 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 andare assessed annually for impairment.

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

Respiratoryunit

Endocrinologydisorders unit

Orphandiseases unit Total

31 December2015

31 December2015

31 December2015

31 December2015

£ £ £ £

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 programmeto product approval, and likely commercial returns after product approval, among other factors, when reviewingfor 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 notyet begun to be amortised but have been tested for impairment by assessing their value-in-use. Value-in-usecalculations for each programme are utilised to calculate the recoverable amount. The calculations use pre-taxcash flow projections covering the period through product development to commercial sales up to the later ofloss of patent protection or market exclusivity, which extend beyond 5 years from the balance sheet date; no cashflows are included after this date. Approved products are assumed to be out-licensed such that the Group receivessignature fees, milestone receipts and royalties on sales; therefore the Company does not incur any costs ofcommercialisation 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 contributionsexpected from collaborative arrangements with future partners. The directors have developed costestimates based on their previous experience and in conjunction with the expertise of their clinicaldevelopment partner, ICON;

• Launch dates of products—these reflect management’s expected date of launching products based onthe timeline of development programs required to obtain regulatory approval. The assumptions arebased on the directors’ and ICON’s prior experience;

• Probability of successful development—management estimates probabilities of success for each phaseof development based on industry averages and knowledge of specific programmes;

• Outlicensing signature fees, milestones and royalty rates on sales—management estimates theseamounts based on prior experience and access to values from similar transactions in the industry, whichare collated and accessible from specialist third party sources;

• Sales projections—these are based on management’s internal projections using external market dataand market research commissioned by the Company;

• Profit margins and other operational expenses—these are based on Company’s internal projections ofcurrent product manufacturing costings, with input from manufacturing partners where applicable, andestimates 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 capitalof the Group and is applied consistently across each of the operating segments. The cost of capital wascalculated at 11.2%.

At this stage of product development, the key sensitivity for all three development programs is the probability ofsuccessful completion of clinical trials in order to obtain regulatory approval for sale. Therefore, full impairmentof 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 otherequity 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 andensure that sufficient capital is in place to fund the Group’s research and development activities. The Group’sprincipal method of adjusting the capital available is through issuing new shares. The Group’s share capital andshare premium are disclosed in Note 17. The Group monitors the availability of capital with regard to its forecastfuture expenditure on an ongoing basis. The Group has extinguished its liability instruments (loan notes) throughthe 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 externaldebt financing reduces the range of financial risks to which it is exposed. Monitoring of financial risk is part ofthe Board’s ongoing risk management, the effectiveness of which is reviewed annually. The Group’s agreedpolicies 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 directlyfrom its operations and are not designed as a means of raising finance for the Group’s operations. The Group hasvarious financial assets such as receivables and cash and short-term deposits, which arise directly from itsoperations. The Group does not consider that its financial instruments gave rise to any material financial risksduring 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 placecash on deposit for periods that optimise the amount of interest earned while maintaining access to sufficientfunds 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 exposureto 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 andUnited States dollars. Foreign exchange risk arises from future commercial transactions and recognised assetsand liabilities. In relation to foreign currency risk, the Group’s policy is to hold the majority of its funds inSterling, and to use short—medium term currency purchase options (including foreign currency deposits, spotpurchases 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 ratingwith S&P of A. The Group does not allocate a quota to individual institutions but seeks to diversify itsinvestments, where this is consistent with achieving competitive rates of return. It is the Group’s policy to placenot 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 inaccordance with the Group’s policy. Investments of surplus funds are made only with approved counterpartiesand within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’sBoard of Directors on an annual basis, and may be updated throughout the year subject to approval of theGroup’s Audit and Risk Committee. The limits are set to minimise the concentration of risks and thereforemitigate 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 isthe carrying amounts as illustrated in Note 16.

The Group monitors its funding requirements through preparation of short-term, mid-term and long-termforecasts. All short-term deposits are immediately convertible to liquid funds without penalty and are recorded inthe 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 December2015

£

Cash at banks and on hand 647,007Short-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 availableimmediately and earn interest at the respective short-term deposit rates.

17. Issued capital and reserves

Ordinary share capital£

Incorporation capital at 10 March 2015 1Issuances in the period 59,220

Nominal share capital as at 31 December 2015 59,221

£

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

At 31 December 2015 19,740,296

Nominal value at 31 December 2015 0.003Issued 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 £1.00which was issued to the initial subscriber to the Company’s articles of association. Since incorporation, thefollowing 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 Companyon 21 April 2015;

114

• subdivision of 5,000 ordinary shares of £1.00 in nominal value in the capital of the Company to5,000,000 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 sharesof £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, aspayment for financial advisory services;

• issue two bonus ordinary shares of £0.001 in nominal value for each ordinary held on the 27 November2015; and

• consolidation of the post-bonus share capital on 27 November 2015 such that each ordinaryshareholder received one share for every three held. The total number of ordinary shares remains at19,740,296 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 furtherordinary 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 theprice of £1.84 per Ordinary Share, up to an amount equal to such Investor’s remaining commitment under theSubscription 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 to31 December 2015.

£

Share premiumAt 10 March 2015 —Issuance of share capital for private financing round on 29 July 2015 27,067,420Transaction costs for issued share capital (868,000)Profit on transfer of loan notes for equity 52,941Consolidation 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 grantedto certain Executives, Non-Executive Directors and employees. (See Note 20 for further details).

Other capital reserves

Share-basedpayments

£

At 10 March 2015 —Share-based payments expense during the period 2,982,265Shares 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 providedto employees, including key management personnel, as part of their remuneration. Refer to Note 19 for furtherdetails 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 asand when the Company issues further ordinary shares.

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18. Provisions

Socialsecurity

contributionson shareoptions

£

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 optionsoutstanding at the reporting date that are expected to be exercised. The provision is based on the estimated gainarising 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) theliability 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. Shareoptions vest over four years for executive management and employees and over three years for non-executivedirectors. There are no performance conditions attached to options issued under the Option Plan. The fair valueof share options granted is estimated at the date of grant using a Black-Scholes pricing model, taking intoaccount the terms and conditions upon which the share options were granted. The fair value calculation does notinclude 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 isten 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:

2015Number

2015WAEP

£

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 was9.6 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 optionsgranted during the period ended 31 December 2015:

Period ended31 December

2015

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

Since there is no historical data in relation to the expected life of the share options the contractual life of theoptions 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 aretrospective period equal to the expected life of the share options.

20. Trade and other payables

31 December2015

£

Trade payables 1,263,747Social security and other taxes 107,661Other payables 17,612Accruals 2,588,497Intercompany 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 perannum through 16 December 2016 and £325,920 per annum thereafter, subject to increase on 17 August 2020based on the open market value of the Premises (the Principal Rent). In addition to the Principal Rent, theCompany is responsible for value added tax on the Principal Rent and certain insurance costs and service chargesincurred by the Landlord.

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

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

31 December2015

£

Within one year 293,328After one year but not more than five years 1,063,708More 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 holdingcompany. The following shows the transactions that have been entered into with related parties for the relevantfinancial period.

Dr Frank Armstrong is a director of Dr Frank Armstrong Consulting Ltd, and a director of the Company. Duringthe period the Company made purchases, in the ordinary course of business, at a cost of £120,412 from Dr FrankArmstrong Consulting Ltd. These purchases were for assistance with diligence activities, contributed advice andreimbursement 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 thecompany. During the period the Group made purchases, in the ordinary course of business, at a cost of £458,359from Phase4 Partners Ltd. These purchases were for reimbursement of pre-establishment third party consultancyservices 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 1Ltd, Mereo BioPharma 2 Ltd and Mereo BioPharma 3 Ltd each acquired certain assets from Novartis PharmaAG, each company issuing a loan note to Novartis as consideration. The total amount was £25,812,941. The loannotes 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 investorfunding. A range of investors subscribed for ordinary shares in the Company for cash consideration at £1.84 pershare. The Subscription Agreement also committed each institutional investor to further share purchases at £1.84per share (each up to a stated commitment level), at the Company’s discretion. On 27 May 2016, the Companycalled 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 toMereo BioPharma Group Ltd and extinguished the loan notes in return for the receipt of 3,849,000 ordinaryshares in the Company. The number of shares issued to Novartis Pharma AG at that date provided NovartisPharma AG a 19.5% equity share in the Company. Further, as part of the agreement, should further shareissuances occur, Novartis Pharma AG will be issued with fully paid up bonus shares (for nil consideration), thenumber of which will be calculated to maintain its shareholding at 19.5%. The maximum number of shares whichNovartis Pharma AG could obtain would be 14,000,000. If the contractual further commitment by institutionalinvestors is called upon, 7,453,000 bonus shares would need to be issued to Novartis Pharma AG. The fair valueof these would be £1.84 per share. Novartis Pharma AG’s remaining ‘uncalled’ bonus shares at that point wouldbe 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 settlementof future milestone and royalty payments due on BCT-197. The Group reimbursed Novartis a portion of thispayment, amounting to $1,500,000.

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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 lengthtransactions. 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 toamounts owed by related parties. This assessment is undertaken each financial year through examining thefinancial 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 Groupfinancial information are disclosed below. The Group intends to adopt these standards, if applicable, when theybecome 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 fromcontracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration towhich an entity expects to be entitled in exchange for transferring goods or services to a customer. The principlesin 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 recognitionrequirements under IFRS. Either a full or modified retrospective application is required for annual periodsbeginning on or after 1 January 2018 with early adoption permitted. The Group is currently assessing the impactof 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 standardprovides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unlessthe lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases asoperating 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 January2019.

The Group is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the requiredeffective 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 assetsbetween an investor and its associate or joint venture and Amendments regarding the application of theconsolidation exception

• IFRS 11 Joint Arrangements—Amendments regarding the accounting for acquisitions of an interest ina joint operation

• IFRS 12 Disclosure of Interests in Other Entities—Amendments regarding the application of theconsolidation 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

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• IAS 16 Property, Plant and Equipment—Amendments regarding the clarification of acceptablemethods of depreciation and amortisation and Amendments bringing bearer plants into the scope ofIAS 16

• IAS 27 Separate Financial Statements (as amended in 2011)—Amendments reinstating the equitymethod as an accounting option for investments in subsidiaries, joint ventures and associates in anentity’s separate financial statements

• IAS 28 Investments in Associates and Joint Ventures—Amendments regarding the application of theconsolidation exception

• IAS 38 Intangible Assets—Amendments regarding the clarification of acceptable methods ofdepreciation 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 aconsultant and director of the Group.

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

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

On 1 June 2016, the Subscription Agreement was amended so as to: (i) constitute the drawdown notice requiringInvesco and Woodford to subscribe for ordinary shares equal to their remaining commitment; (ii) allow InvescoPerpetual UK Strategic Income Fund to subscribe for ordinary shares representing a certain proportion of InvescoPerpetual High Income Fund’s remaining commitment; and (iii) agree the amount of shares to be transferredfrom 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 PrivatePlacement 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 forproceeds of £3,463,563. The Notes attract interest of 4% per annum, payable annually. Novartis is entitled toconvert the Notes at any time when it holds less than 19.5% of the aggregate voting rights in the Company within36 months of the date of the Notes (Maturity Date). To the extent not converted at the Maturity Date, theoutstanding principal amount of the Notes, together with any accrued interest, is redeemable. Upon conversion ofany Note, Novartis is entitled to receive an additional 0.93 shares per conversion share issued, up to a maximumof 1,453,520 shares.

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

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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 thebalance 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 theGroup of (i) receipt by the Company of the net proceeds raised in the Capital Raise and (ii) the Company’sexercise in full of its option under the Subscription Agreement to require Invesco and Woodford to subscribe forOrdinary Shares in the amount of £56.5 million (£54.9 million after fees), as if these events had taken place on31 December 2015.

This unaudited pro forma statement of net assets has been prepared for illustrative purposes only and, because ofits nature, the pro forma statement of net assets addresses a hypothetical situation and does not represent theactual financial position or results of the Group. The unaudited pro forma statement of net assets has beenprepared on the basis set out in the notes below, consistent with the accounting policies of the Group set out inNote 2 to the historical financial information and in accordance with Annex II of the Prospectus Rules.

Adjustments

As at31 December

2015(1)

Netproceedsfrom the

exercise ofthe

Company’soption

under theSubscriptionAgreement(2)

Net proceedsfrom theCapitalRaise(3)

Unauditedpro forma

total(4)

£

AssetsNon-current assetsProperty, plant and equipment 204,517 — — 204,517Intangible assets 25,812,941 — — 25,812,941

26,017,458 — — 26,017,458

Current AssetsPrepayments 253,926 — — 253,926Other receivables 1,342,703 — — 1,342,703Cash 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 liabilitiesProvisions 141,311 — — 141,311Borrowings — — 2,798,052 2,798,052Current liabilitiesTrade 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 theconsolidated 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”, immediatelyprior to Admission, the Company will exercise its option under the Subscription Agreement requiringInvesco 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 £11.4million and £3.5 million received upon issuance of a convertible loan note to Novartis, as detailed inparagraph 12.5 of Part XV: “Additional Information”. The fair value of the liability components of theconvertible 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 willreceive net proceeds of £12.6 million.

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The Capital Raise proceeds of £14.8 million are based on 5,135,962 Ordinary Shares being issued by theCompany 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 Raiserelating 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 after31 December 2015.

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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 beissued by the Company for an amount of £11.4 million, representing 8.0% of the issued share capital of theCompany immediately following Admission.

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

2. The Private Placement

Under the Private Placement, Ordinary Shares are being offered (i) to certain institutional and professionalinvestors in the United Kingdom and elsewhere outside the United States in reliance on Regulation S under theSecurities 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 onor 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 setout in paragraph 10 (Selling restrictions) below.

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

Immediately following Admission, it is expected that 12.4% of the Company’s issued ordinary share capital willbe 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 tobring 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 theprivate 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 resultingfrom the exercise of the option under the Subscription Agreement of £54.9 million, and its cash balances as of 31December 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 thePrivate Placement Agency Agreement pursuant to which, on the terms and subject to certain conditions containedin the Private Placement Agency Agreement which are customary in agreements of this nature, the PrivatePlacement Agents have severally agreed to act as private placement agents to the Company in relation to theplacement 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 arrangementsin the Private Placement Agency Agreement.

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

Each of the Directors and the Founders that are party to the Private Placement Agency Agreement has agreedthat, 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 otherwisedispose of any Ordinary Shares (or any interest therein in respect thereof) or enter into any transaction with thesame economic effect as any of the foregoing.

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

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

7. Dealing arrangements

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

Subscription Amounts will be required to be paid in Pounds Sterling in cleared funds into the SubscriptionAccount on or before 11:00 a.m. (London time) on 8 June 2016 (or such later date as the Board may in itsabsolute discretion determine (the Payment Date)). The Subscription Account will be held by the Registrar. TheCompany reserves the right to withdraw the availability of the Private Placement at any time in its solediscretion. Further information about the application process and the Subscription Terms and Conditions are setout 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 accountto another’s without the need to use share certificates or written instruments of transfer. The Company hasapplied for the Ordinary Shares to be admitted to CREST with effect from Admission and, also with effect fromAdmission, 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 theCREST system if any shareholder so wishes. CREST is a voluntary system and holders of Ordinary Shares whowish 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 thistype contained in the Private Placement Agency Agreement, including Admission becoming effective by no laterthan 8am on 9 June 2016 (or such later date and time as the Company may agree with the Private PlacementAgents) and the Private Placement Agency Agreement not having been terminated prior to Admission. Seeparagraph 12.1 (Private Placement Agency Agreement) of Part XV: “Additional Information” for further detailsabout the placing arrangements.

10. Selling restrictions

The distribution of this document and the offering and sale of Private Placement Shares in certain jurisdictionsmay be restricted by law and therefore persons into whose possession this document comes should inform

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themselves about and observe any such restrictions, including those in the paragraphs that follow. Any failure tocomply 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 besubscribed, sold or purchased or delivered, and this document and any other offering material in relation to thePrivate Placement Shares may not be circulated, in any jurisdiction where to do so would breach any securitieslaws or regulations of any such jurisdiction or give rise to an obligation to obtain any consent, approval orpermission, 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 madein that Relevant Member State, except that an offer to the public in that Relevant Member State of anyOrdinary 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 the2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as definedin 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 nosuch offer of Ordinary Shares shall result in a requirement for the Company or any PrivatePlacement Agent to publish a prospectus pursuant to Article 3 of the Prospectus Directive orsupplement a prospectus pursuant to Article 16 of the Prospectus Directive and each person whoinitially acquires any Ordinary Shares or to whom any offer is made will be deemed to haverepresented, warranted and agreed to and with the Private Placement Agents and the Company that itis a qualified investor within the meaning of the law in that Relevant Member State implementingArticle 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 Sharesin any Relevant Member State means the communication in any form and by any means of sufficientinformation on the terms of the Private Placement and any Ordinary Shares to be offered so as to enable aprospective investor to decide to purchase any Ordinary Shares, as the same may be varied for thatRelevant Member State by any measure implementing the Prospectus Directive in that Relevant MemberState.

In the case of any Ordinary Shares being offered to a financial intermediary as that term is used inArticle 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to haverepresented, warranted and agreed that (i) the Ordinary Shares acquired by it have not been acquired on anon-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 theprior 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 Stateother than qualified investors, the offer of those Ordinary Shares to it is not treated under the ProspectusDirective as having been made to such persons. The Company and the Private Placement Agents and eachof their respective affiliates and others will rely upon the truth and accuracy of the foregoingrepresentation, warranty and agreement. Notwithstanding the above, a person who is not a qualifiedinvestor and who has notified the Private Placement Agents of such fact in writing may, with the consentof 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 notbeen, and will not be, registered under the Securities Act or with any securities regulatory authority of orunder the applicable securities laws or regulations of any state or other jurisdiction of the United States andmay not be offered or sold in the United States except in transactions exempt from, or not subject to, theregistration requirements of the Securities Act. Accordingly, in the United States, only QIBs may subscribeto Private Placement Shares in the Private Placement. Outside the United States Private Placement Sharesare being offered in offshore transactions within the meaning of and in reliance on Regulation S under theSecurities Act.

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In addition, until 40 days after Admission, any offer or sale of Ordinary Shares within the United States byany dealer (whether or not participating in the Private Placement) may violate the registration requirementsof the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A or anotheravailable 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” asdefined in Rule 144(a)(3) under the Securities Act, the Company will, during any period in which it isneither 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 anyprospective purchaser of such restricted securities designated by such holder or beneficial owner, upon therequest of such holder, beneficial owner or prospective purchaser, the information required to be deliveredpursuant 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 andSenior Management of the Company, most of whom reside outside the United States, may be difficult toobtain within the United States. Furthermore, since most directly owned assets of the Company are outsidethe United States, any judgment obtained in the United States against it may not be collectible within theUnited States. There is doubt as to the enforceability of certain civil liabilities under U.S. federal securitieslaws in original actions in English courts, and, subject to certain exceptions and time limitations, Englishcourts will treat a final and conclusive judgment of a U.S. court for a liquidated amount as a debtenforceable 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 theaccount of a QIB, and (c) is aware that the securities are restricted within the meaning of theSecurities Act and may not be deposited into any unrestricted depositary facility, unless at the timeof 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 theSecurities Act and are being offered in the United States only to QIBs in a transaction not involvingany 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 orotherwise transferred, except (a) to a person that the seller and any person acting on its behalfreasonably 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) pursuantto an exemption from registration under the Securities Act or (d) pursuant to an effective registrationstatement under the Securities Act.

(iv) The purchaser acknowledges that it has not purchased the Private Placement Shares as a result of anygeneral solicitation or general advertising (as such terms are defined in Regulation D under theSecurities Act).

11.4 Exchange rates

The following tables show, for the periods indicated, the exchange rate between the U.S. dollar and poundsterling.

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

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

YearPeriod

EndAverageRate(1) High Low

2010 1.5612 1.5452 1.6362 1.43342011 1.5543 1.6039 1.6707 1.53432012 1.6255 1.5851 1.6279 1.53182013 1.6557 1.5649 1.6557 1.48672014 1.5577 1.6476 1.7166 1.55172015 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 therelevant period.

MonthPeriod

EndAverage

Rate High Low

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

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PART XIII

APPLICATION INSTRUCTIONS AND PROCEDURES

The procedures contained in this Part XIII (Application Instructions and Procedures) apply to all investors in thisPrivate Placement, unless the Company and the Private Placement Agents otherwise agree. The Company and thePrivate Placement Agents shall be entitled to vary the terms in this Part XIII (Application Instructions andProcedures) 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 moreApplication Forms may have their Application Forms rejected.

Qualifying Shareholders wishing to apply to subscribe for Private Placement Shares must complete the followingsteps 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 andsend back the Application Form confirming your commitment to subscribe for the indicated number of PrivatePlacement Shares in the Private Placement. By doing so, you will give a commitment to the Company tosubscribe for the relevant number of Private Placement Shares at the Private Placement Price and to pay to theCompany 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, fora period of time to be notified to you, to cancel or amend your application for Private Placement Shares. In suchevent, the date of Admission may change.

The Application Form should be returned by email to Charles Sermon, the Company Secretary, atcs@mereobiopharma.com, so as to arrive no later than 11:00 a.m. (London time) on 2 June 2016 (or such laterdate 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. Ifyou have any questions about how to complete, execute and submit the Application Form, please contactthe 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 orbefore 11:00 a.m. (London time) on the Payment Date (or such later time and date as the Board may in itsabsolute 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 thePayment Date directly into the bank account detailed below. The payment instruction must also include a uniquereference comprising your name and a contact telephone number, which should be entered in the reference fieldon the payment instruction (for example, MJ SMITH 01234 567 8910).

Bank: Royal Bank of ScotlandSort Code: 15-10-00Account No: 32510151Account Name: Capita Registrars Ltd re: Mereo BioPharma CHAPS A/CSwift Code: RBOSGB2LIBAN: GB34RBOS15100032510151

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(b) CREST Settlement

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

Trade Date: 2 June 2016Settlement Date: 9 June 2016Company: Mereo BioPharma Group plcSecurity Description: Ordinary Shares of £0.003 eachSEDOL: BZ4G2K2ISIN: GB00BZ4G2K23

Should you wish to settle DVP, you will need to input your instructions to Capita Asset Services’ Participantaccount RA06 by no later than 11.00 a.m. on 8 June 2016. Capita will not take any action until a valid DELmessage 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 tofacilitate 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 ofCREST in certificated form provided that payment has been made in terms satisfactory to the Company and allother 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 orin part.

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

In the event that an application is rejected in whole or in part, any Subscription Amount paid or the balance thereofwill be returned to the investor in Pounds Sterling to the account details already supplied by the investor to theCompany, 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 byreturning the funds to the bank account (details of which have been supplied by the investor to the Company inthe Application Form).

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PART XIV

SUBSCRIPTION TERMS AND CONDITIONS

References to the Company’s “advisers” in these Subscription Terms and Conditions shall, where the contextpermits, 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 andreserves 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 PrivatePlacement Shares, you, amongst other terms and conditions that may be set out in the Application Form, confirmthat 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 AdmissionDocument and any supplement thereto; and (ii) acknowledged that your investment decision is basedsolely 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 theCompany. Accordingly, you understand and acknowledge that none of the Company’s agents or advisersaccept responsibility for or make any representation or give any warranty, express or implied, with respectto: (i) the accuracy, reliability or completeness of; (ii) the suitability for your purposes of; or (iii) thereasonableness of the grounds on which any assumptions are contained in, any information (including theAdmission Document and any supplement thereto), whether written or oral, provided to you by theCompany, the Directors or any of the Company’s agents or advisers in connection with your investment inthe Private Placement Shares, and you will not hold the Company’s agents or advisers responsible or liablefor 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 theCompany, the Directors or any of the Company’s agents or advisers in connection with your investment inthe Private Placement Shares may contain certain projections, forecasts or forward-looking statements withrespect to the business, strategy or plans of the Company, and expectations as to the future financialcondition 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 tofuture events and circumstances and (ii) neither the Company nor any of its agents or advisers makes anyrepresentation 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 virtueof your subscription being accepted, or owe you any duties or responsibilities concerning the price of thePrivate Placement Shares or the suitability for you of the Private Placement Shares, or be responsible toyou for providing the protections afforded to their customers. In particular, each of the Private PlacementAgents is acting as private placement agent in relation to the placement of Private Placement Shares to newinvestors and providing other assistance to the Company in respect of the Private Placement, but is actingsolely for the Company and no one else in relation to the Private Placement and in doing so, is not actingas 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 inrelation to, any statement, representation or undertaking of the Company, the Directors or any of theCompany’s agents or advisers, other than those statements made by the Company as set out in theApplication Form, the articles of association of the Company and the Admission Document and anysupplement thereto;

Capacity and compliance with laws

(f) acknowledge and agree to the selling restrictions and transfer restrictions as set out in paragraph 10 and11.3, 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 applicablelaw to acquire and hold the Private Placement Shares and to execute, deliver and comply with the terms of

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the Application Form, and that such execution, delivery and compliance does not conflict with, orconstitute a default under or violation of, any instrument governing you or any agreement to which you area party or by which you or your assets may be bound, and if you sign the Application Form on behalf ofsomebody else or on behalf of a corporation, trust or other corporate entity, you have due authority to do soon behalf of that other person or entity, and such person or entity will also be bound accordingly and willbe deemed also to have given the confirmations, warranties, undertakings and authorities contained hereinand 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 thatyou are capable of evaluating the merits and risks of acquiring Private Placement Shares, including the riskof 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 makingyou a “controller” (whether on the basis of acting in concert, deemed holdings or voting power orotherwise) 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 suchlesser number for which your application is accepted by the Company) at the Private Placement Priceunder 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 forany loss associated therewith;

(m) understand that the Company reserves the right to reject in whole or part, or to scale down or limit, anyapplication for Private Placement Shares. If any application is not accepted in full, the whole or relevantpart of any Subscription Amount paid, will be returned to the account, details of which have been providedby 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, theCompany and/or one of its agents or advisers may require further identification of the subscriber(s) andsource of funds before applications for Private Placement Shares can be processed and accepted or beforeSubscription Amounts can be returned to any account specified in the Application Form, and you hold theCompany and its respective agents and advisers harmless and indemnified against any loss arising from thefailure to process your application for Private Placement Shares, if such information as has been requiredfrom you has not been provided within the allotted time to the satisfaction of the party requesting suchinformation;

(o) consent to the passing on of any information about you to any relevant regulatory authorities by theCompany or their delegates to the extent required;

(p) represent that the Private Placement Shares are to be purchased with funds that are from legitimate sourcesin connection with your regular business activities and which do not constitute the proceeds of criminalconduct within the meaning given in the Proceeds of Crime Act 2002 in the UK or in any other applicableanti-money laundering legislation and you agree to provide such further information and documentation asmay 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 blockedpersons; (ii) not otherwise the target of economic sanctions administered by OFAC and (iii) not acting onbehalf of any party that is on the OFAC list of specifically designated nationals and blocked persons orotherwise 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, representationsand warranties are no longer accurate and complete in all respects, at any time up to completion of thePrivate Placement;

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Indemnity

(s) if you are acting as nominee, agent or trustee for a beneficial owner, you also agree to indemnify theCompany, 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 andall loss (including loss of profits, loss of reputation and consequential loss), liability, claim, damage andexpense 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 orthreatened or any claim whatsoever) in connection with any damages resulting from the beneficial owner’sassertion of lack of proper authorisation for you to enter into the Application Form or perform anyobligations pursuant thereto and agree that this indemnity shall apply whether or not the Company, theDirectors, each of the Company’s agents and advisers or any of their respective advisers, their affiliatesand 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 theApplication 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 theacceptance (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 anyregulator or other competent governmental or other authority or where otherwise required by law. Youconfirm that you understand that any such sharing or disclosure of information regarding you and/or yourinvestment in the Private Placement Shares shall not constitute a breach of any duty or obligation ofconfidentiality owed to you by the Company or by any of its agents or advisers and you consent to suchsharing 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 andadvisers and their respective advisers and their respective successors, permitted assigns, executors,administrators and heirs, provided that, except as specifically contemplated herein, neither the ApplicationForm nor any of the rights, interests or obligations arising pursuant hereto shall be assigned or delegated byyou without the prior written consent of the Company. The provisions of this Admission Document anyother supplement thereto and the Application Form set forth the entire agreement and understandingbetween the parties as to the subject matter hereof and supersede all prior and contemporaneousdiscussions, 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 allmatters arising out of this Admission Document and any other supplement thereto, or your subscription forthe Shares, to the jurisdiction of the courts of England and Wales and your agreement that nothing shalllimit the right of the Company or any of its agents or advisers to bring any suit, action or proceedingarising out of or in connection with this Admission Document and any other supplement thereto, or yoursubscription 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 inaccordance with the laws of England and Wales.

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PART XV

ADDITIONAL INFORMATION

1. Persons responsible

1.1 The Directors, whose names appear in Part III: “Directors, Secretary, Registered Office and Advisers” ofthis document, and the Company accept responsibility for the information contained in this document. Tothe best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensurethat such is the case), the information contained in this document is in accordance with the facts and doesnot 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 MereoBioPharma Group Limited with registered number 09481161 on 10 March 2015. Since the date of itsincorporation, the Company has operated in conformity with its articles of association. On 3 June 2016, theCompany re-registered as a public company and changed its name to Mereo BioPharma Group plc. At thetime of Admission, the Shares will conform with the laws of England and Wales and the issuance of theShares will have been duly authorised according to the requirements of the Company’s articles ofassociation. 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, UnitedKingdom (telephone number +44 (0)33 3023 7300).

2.3 The principal legislation under which the Company operates and under which the Ordinary Shares werecreated, 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 beas 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 Invescoand Woodford to subscribe for Ordinary Shares and the issue of bonus shares to Novartis Pharma AGimmediately 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. Sinceincorporation, 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 theCompany on 21 April 2015;

• subdivision of 5,000 ordinary shares of £1.00 in nominal value in the capital of the Company to5,000,000 ordinary shares of £0.001 in nominal value in the capital of the Company on 29 July2015;

• issue and allotment of 14,740,296 ordinary shares of £0.001 in nominal value in the capital of theCompany on 29 July 2015;

• issue and allotment of 39,480,592 ordinary shares of £0.001 in nominal value in the capital of theCompany on 27 November 2015; and

• consolidation of 59,220,888 ordinary shares of £0.001 in nominal value in the capital of theCompany to 19,740,296 ordinary shares of £0.003 in nominal value in the capital of the Companyon 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, beauthorised (generally and unconditionally) to allot up to a maximum nominal amount of £350,000 ofordinary shares of £0.003 each in the capital of the Company;

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(b) that the directors of the Company, be authorised (generally and unconditionally) to allot suchordinary 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 fifthanniversary of the date of the Resolution, save that the Company may, before such expiry, make an offer oragreement which would or might require shares to be allotted and the directors may allot shares inpursuance of such offer or agreement notwithstanding that the authority conferred by the Resolution hasexpired.

(c) that, subject to the passing of Resolutions (a) and (b) the directors of the Company be empoweredpursuant 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 theCompanies 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 insubstitution 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 theallotment of equity securities which are, or are to be, paid up in cash other than by way of allotment toemployees under an employee’s share scheme as defined in section 1166 of the Companies Act. FollowingAdmission, the Company will be subject to the continuing obligations of the Listing Rules with regard tothe 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 ofthe disapplication referred to in paragraph 3.3(c) above or reserved for issue in connection with shareoptions and schemes (and other arrangements) referred to in paragraph 8 (Share incentive plans) in thisPart 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 anominal 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 bythe historical financial information set out in this document (other than intra-group issues by whollyowned subsidiaries or pursuant to the Private Placement) been issued or been agreed to be issuedfully or partly paid, either for cash or for a consideration other than cash and no such issue is nowproposed;

(b) no commissions, discounts, brokerages or other special terms have been granted by the Company orany of its subsidiaries within the period covered by the historical financial information set out in thisdocument 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, theDirectors may permit the holding of shares in any class of shares in uncertificated form and title to suchshares 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.

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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 theCompany, provided that:

(i) if CF Woodford Equity Income Fund’s Shares exceed 19.5% of the total voting share capitalof the Company, CF Woodford Equity Income Fund’s Shares shall be limited in aggregate to19.5% of the total number of votes, such votes to be split equally on a fractional basis amongstCF Woodford Equity Income Fund’s Shares;

(ii) if Invesco Perpetual High Income Fund’s Shares exceed 19.5% of the total voting share capitalof the Company, Invesco Perpetual High Income Fund’s Shares shall be limited in aggregateto 19.5% of the total number of votes, such votes to be split equally on a fractional basisamongst Invesco Perpetual High Income Fund’s Shares; and

(iii) if Invesco Perpetual UK Strategic Income Fund’s Shares constitute more than 19.5% of thetotal voting share capital of the Company, Invesco Perpetual UK Strategic Income Fund’sShares shall be limited in aggregate to 19.5% of the total number of votes, such votes to besplit equally on a fractional basis amongst Invesco Perpetual UK Strategic Income Fund’sShares

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, orInvesco Perpetual UK Strategic Income Fund shall be deemed to be held and exercisable by theholders of Shares, other than CF Woodford Equity Income Fund, Woodford Patient Capital Trustplc, Invesco Perpetual High Income Fund, Invesco Perpetual UK Strategic Income Fund andNovartis, 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 isduly 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 dividendsmust be apportioned and paid proportionately to the amounts paid up in respect of which thedividend 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 aspecial resolution of the shareholders of the Company and any other authority required by anyapplicable statutory provision (A) divide among the members the whole or any part of the assets ofthe Company; or (B) vest the whole or any part of the assets in trustees upon such trusts for thebenefit of members as the liquidator determines, but no member shall be compelled to accept anyassets upon which there is any liability.

(d) Capitalisation of reserves—the Board may, with the authority of an ordinary resolution of theCompany (A) decide to capitalise any profits of the Company (whether or not they are available fordistribution) which are not required for paying a preferential dividend, or any sum standing to thecredit of the Company’s share premium account or capital redemption reserve; and (B) appropriatethat sum to the persons who would have been entitled to it if it were distributed by way of dividendand in the same proportions. A capitalised sum may be applied in or towards paying up any amountsunpaid on existing shares held by the persons entitled or in paying up new debentures of theCompany 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 thecapitalised sum which are then allotted credited as fully paid to the persons entitled or as they maydirect.

4.4 Authority to allot shares and grant rights

The Company may from time to time pass an ordinary resolution authorising, in accordance with section551 of the Companies Act, the Board to exercise all the powers of the Company to allot shares or to grantrights to subscribe for, or to convert any security into, any shares.

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4.5 Variation of rights

Subject to the articles of association, but without prejudice to the rights attached to any existing share, theCompany may issue shares with the rights and restrictions set out in the articles of association and anyother shares with such rights or restrictions as may be determined by ordinary resolution. The Companymay issue shares which are to be redeemed, or are liable to be redeemed at the option of the Company orthe holder, and the directors may determine the terms, conditions and manner of redemption of any suchshares.

The articles do not include provisions for the variations of rights of holders of shares; the variation of therights of holders of shares is therefore governed by the Companies Act which provides that if at any timethe share capital is divided into different classes of shares, the rights attached to any class or any of suchrights may be varied with the consent in writing of the holders of 75 per cent. in nominal value of theissued shares of that class (excluding treasury shares) or with the sanction of a special resolution passed ata separate general meeting of the holders of the shares of that class. Any meeting of the holders of anyclass of shares shall be governed by the provisions relating to the meetings of shareholders set out underparagraph 4.7 (General Meetings) below.

4.6 Directors

(a) The directors shall not, unless otherwise determined by an ordinary resolution of the Company, beless than two nor more than nine in number.

(b) The directors are entitled to such remuneration as the directors determine for their services to theCompany as directors and for any other service which they undertake for the Company. A director’sremuneration may take any form and include any arrangements in connection with the payment of apension, allowance or gratuity, or any death, sickness or disability benefits, to or in respect of thatdirector.

(c) The Company may pay any reasonable expenses which the directors properly incur in connectionwith their attendance at meetings of directors or committees of directors, general meetings, separatemeetings of the holders of any class of shares or of debentures of the Company or otherwise inconnection with the exercise of their powers and the discharge of their responsibilities in relation tothe Company.

(d) The directors are responsible for the management of the Company’s business, for which purposethey may exercise all the powers of the Company other than those required by law or the articles ofassociation 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 Directorsmay resolve to the other directors the nature and extent of any interest of his, a directornotwithstanding 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 concerninghis appointment to an office or employment with the Company or any undertaking or proposalin which the Director (or a person connected with the Director) is interested. Where proposalsare under consideration concerning the appointment of two or more directors to any suchoffices or employments the proposals may be divided and considered in relation to eachdirector separately and (provided he is not for another reason precluded from voting) each ofthe directors concerned will be entitled to participate in the decision-making process and countin the quorum and vote in respect of each decision except that concerning his ownappointment.

(iii) Subject to the immediately preceding paragraph (ii) and provided that he has declared to theother directors the nature and extent of any interest of his and provided that a majority of theother directors consent, a director may participate in the decision-making process and count inthe quorum and vote if a proposed decision of the directors is concerned with an actual orproposed 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 acompany in the Group and any undertaking in which a company in the Group is otherwiseinterested (each, an Associated Undertaking), or be a party to, or otherwise interested in, any

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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 assoon as practicable after such interest arises.

(ii) A director may make full disclosure of any information relating to the Company to anothercompany 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 orindirect 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 ofinterest or a conflict of interest arising in relation to a transaction or arrangement with theCompany), the directors may authorise in accordance with the Companies Act a RelevantSituation in respect of any director and the continuing performance by the relevant director ofhis duties as a director of the Company on such terms as they may determine. Such terms maypermit the interested director to continue to participate in the decision making process andvote and count in the quorum at a meeting of the directors or of a committee of the directors inrespect of resolutions relating to the subject matter of the Relevant Situation. Authorisation ofa Relevant Situation may be withdrawn, and the terms of authorisation may be varied orsubsequently imposed, at any time. Any resolution of the directors for the purposes ofproviding, 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 ismet without counting the interested director or any other interested director (and forthese purposes any other provisions of the articles of association that would require theinterested Director or any other interested director to be present during such part of themeeting for the quorum requirement to be met will not apply); and

(B) the resolution is passed without the interested director or any other interested directorvoting 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 previouslybeen duly authorised, a director may elect to deal with the Relevant Situation in the followingmanner:

(A) he will declare to the other directors the nature and extent of his interest in the RelevantSituation (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 orof a committee of the directors) in respect of a resolution of the directors relating to thesubject matter of the Relevant Situation; and

(C) he may elect to be excluded from all information and discussion by the Companyrelating to the subject matter of the Relevant Situation; and

(D) if he obtains (other than through his position as a director of the Company) informationthat is confidential to a third party, or in respect of which he owes a duty ofconfidentiality to a third party, or the disclosure of which would amount to a breach ofapplicable law or regulation, he may elect not to disclose it to the Company or to use itin relation to the Company’s affairs in circumstances where to do so would amount to abreach 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 thequorum 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 isotherwise permitted or dealt with in accordance with the articles of association, as describedabove) and its nature and extent has been disclosed to the other directors, a director mayparticipate in the decision making process and count in the quorum and vote if a proposeddecision of the directors is concerned with such situation (subject to any restrictions imposedunder 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 therequisition of shareholders in accordance with the Companies Act. An annual general meeting shall becalled 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 determinedin accordance with the Companies Act.

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4.8 Dividends

(a) Declaration of dividends—the Company may, by ordinary resolution, declare a dividend and may fixthe time for payment of such dividend, but no dividend shall exceed the amount recommended bythe Board.

(b) Fixed and interim dividends—the Board may pay such interim dividends as appear to the Board tobe justified by the financial position of the Company and may also pay at intervals any dividendpayable at a fixed rate if it appears to them that the profits available for distribution justify thepayment. If the Board acts in good faith, none of the directors shall incur any liability to the holdersof shares conferring preferred rights for any loss such holders may suffer in consequence of thelawful 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 ordinaryresolution, 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 theshares in respect of which the dividend is paid, and (B) all dividends shall be apportioned and paidproportionately to the amounts paid up on the shares in respect of which the dividend is paid duringany 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 inrespect of any share shall bear interest as against the Company unless otherwise provided by therights attached to the share or the provisions of another agreement between the holder of that shareand the Company.

(e) Deductions from dividends—if a share is subject to the Company’s lien and the directors are entitledto issue a lien enforcement notice in respect of it, they may, instead of issuing a lien enforcementnotice, deduct from any dividend or other moneys payable in respect of a share any sum of moneywhich is payable to the Company in respect of that share to the extent that they are entitled to requirepayment under a lien enforcement notice.

(f) Non-cash dividends—subject to the terms of any share, with the authority of an ordinary resolutionof the Company and on the recommendation of the Board, payment of any dividend may be satisfiedwholly or in part by the distribution of non-cash assets of equivalent value (including, withoutlimitation, shares or other securities in any company).

(g) Unclaimed dividends—any dividend unclaimed for a period of 12 years after having become due forpayment 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 noticeof intended forfeiture to that person and until the call is paid that person must pay the Company interest onthe call from the call payment date at the relevant rate. Joint holders of a share are jointly and severallyliable to pay all calls in respect of that share. Liability to pay a call is not extinguished or transferred bytransferring 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 isrequired in the notice of intended forfeiture, the directors may decide that any share in respect of which itwas given is forfeited and the forfeiture shall include all dividends declared and other moneys payable inrespect 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 theapplicable statutory provisions) may be sold, re-allotted or otherwise disposed of, upon such terms and insuch manner as the Board shall decide either to the person who was before the forfeiture the holder of theshare or to any other person and whether with or without all or any part of the amount previously paid up onthe 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 assetsindemnify 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 orbreach 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 anassociated company in its capacity as a trustee of an occupational pension scheme;

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(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 anyRelevant Director in respect of any Relevant Loss. A “Relevant Director” means any Director or formerDirector of the Company or an associated Company. A “Relevant Loss” means any loss or liability whichhas been or may be incurred by a Relevant Director in connection with that Director’s duties or powers inrelation to the Company, any associated company or any pension fund or employees’ Share scheme of theCompany or associated company; and companies are associated if one is a subsidiary of the other or bothare 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, Novartismay appoint one observer of the Board, who may attend but not participate or vote in any meeting of theDirectors.

5. Directors and Senior Management

5.1 The biographies of the Directors and Senior Management are set out in Part VII: “Directors, SeniorManagement 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 andmembers of Senior Management hold, or have held, the following directorships and are or were membersof the following partnerships, within the past five years:

Name Position Company/Partnership

Positionstill held

(Y/N)

Peter Fellner Director Ablynx NV YDirector Bell St. Management Co. YDirector Consort Medical plc YDirector Vernalis plc YDirector Astex Therapeutics Ltd. NDirector Astex Pharmaceuticals Inc. NDirector Biotie Therapies Corp. NDirector Evotec AG NDirector Optos plc NDirector Qinetiq Group plc NDirector UCB SA N

Denise Scots-Knight Director Albireo AB NDirector Albireo Limited YDirector Nabriva Therapeutics AG YDirector OncoMed Pharmaceuticals Inc. YDirector Phase4 Partners Limited YDirector Phase4 Ventures III FP General Partner Limited YDirector Phase4 Ventures III General Partner Limited YDirector Phase4 Ventures GP Limited YPartner Phase4 Ventures III GPLP YPartner Phase4 Ventures III FPLP YDirector Idenix Pharmaceuticals Inc. N

Richard Bungay Director Chroma Therapeutics Ltd YDirector Glide Pharmaceutical Technologies Ltd YDirector Macrotarg Ltd YDirector The Forest School Academy Trust Y

Frank Armstrong Director Actinopharma Ltd YDirector Caldan Therapeutics YDirector AMS Sciences Limited YDirector Dr Frank M Armstrong Consulting Limited YDirector Love Africa Charitable Trust Y

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Name Position Company/Partnership

Positionstill held

(Y/N)

Director Juniper Pharmaceuticals Inc YDirector REDx Pharma PLC YDirector Summit Therapeutics PLC YDirector Faron Pharmaceuticals YDirector Asceneuron SA NDirector Entelos Inc NDirector Cardiorentis AG NDirector Fulcrum Pharma Developments International Limited NDirector Fulcrum Pharma Limited N

Peter Bains Director Fermenta Biotech Limited YDirector Heptares Therapeutics Limited YDirector Kromek Group PLC NDirector Mina Alpha Limited YDirector Mina Beta Limited YDirector Mina (Holdings) Limited YDirector Mina Therapeutics Limited YDirector Peter Bains Consulting Limited YDirector Phase4 Partners Limited YDirector Sosei Group Corporation YDirector Syngene International Limited Y

Paul Blackburn Director Action Potential Venture Capital Limited NDirector Adechsa GmbH NDirector Affymax N.V. NDirector Beecham Group P L C NDirector Dealcyber Limited NDirector Glaxo Group Limited NDirector Glaxo Investments (UK) Limited NDirector Glaxochem Pte Ltd NDirector GlaxoSmithKline (Netherlands) B.V. NDirector GlaxoSmithKline Caribbean Limited NDirector GlaxoSmithKline Consumer Healthcare (Overseas) Limited NDirector GlaxoSmithKline Consumer Healthcare (UK) IP Limited NDirector GlaxoSmithKline Consumer Healthcare (UK) Trading

Limited NDirector GlaxoSmithKline Consumer Healthcare Finance Limited NDirector GlaxoSmithKline Consumer Healthcare Holdings Limited NDirector GlaxoSmithKline Consumer Healthcare Investments

(Ireland) (No 3) Limited NDirector GlaxoSmithKline Consumer Healthcare Investments

(Ireland) Limited NDirector GlaxoSmithKline Consumer Healthcare Investments

(Ireland)(No 2) NDirector GlaxoSmithKline Consumer Healthcare Ireland IP Limited NDirector GlaxoSmithKline Consumer Healthcare Sri Lanka Holdings

Limited NDirector GlaxoSmithKline Export Limited NDirector GlaxoSmithKline Holdings (Ireland) Limited NDirector GlaxoSmithKline Holdings (One) Limited NDirector GlaxoSmithKline IHC Limited NDirector GlaxoSmithKline Investment Services Limited NDirector GlaxoSmithKline Intellectual Property (No.2) Limited NDirector GlaxoSmithKline Intellectual Property Development Limited NDirector GlaxoSmithKline Intellectual Property Management Limited NDirector GlaxoSmithKline Intellectual Property Limited NDirector GlaxoSmithKline International (Luxembourg) S.A.R.L NDirector GlaxoSmithKline Investment Holdings Limited NDirector GlaxoSmithKline Investments (Ireland) Limited NDirector GlaxoSmithKline Intellectual Property Holdings Limited NDirector GlaxoSmithKline Trading Services Limited NDirector GlaxoSmithKline Verwaltungs GmbH N

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Name Position Company/Partnership

Positionstill held

(Y/N)

Director Horlicks Limited NDirector Leo Osprey Limited NDirector Novartis Consumer Health UK Limited NDirector Saxet (U.K.) Limited NDirector SmithKline Beecham (Export) Limited NDirector SmithKline Beecham (H) Limited NDirector SmithKline Beecham (Investments) Limited NDirector SmithKline Beecham Marketing and Technical Services

Limited NDirector SmithKline Beecham Nominees Limited NDirector SmithKline Beecham Port Louis Limited NDirector SmithKline Beecham Research Limited NDirector SmtihKline Beecham (SWG) Limited NDirector Stafford-Miller Limited NDirector Stiefel Consumer Healthcare (UK) Limited NDirector Saxet (UK) Limited NDirector Syngene International Limited Y

Anders Ekblom Director AnaMar AB YDirector Infant Bacterial Therapy AB YDirector Karolinska University Hospital YDirector Medivir AB YDirector RSPR Pharma AB YDirector Research! Sweden YDirector SwedenBio YDirector Viscogel AB YDirector TFS International AB YDirector Swedish Research Council YDirector Albireo AB NDirector AstraZeneca AB N

Kunal Kashyap Director Allegro Capital Advisors Pvt Ltd YDirector Allegro Capital Pvt Ltd YDirector Allegro Corporate Finance Advisors Ptv Ltd YDirector Allegro Insurance Brokers Pvt Ltd YDirector GlaxoSmithkline Beecham Consumer Healthcare Limited YDirector IATRICa Inc YDirector Mazumdar Shaw Medical Foundation Pvt Ltd YDirector Phase4 Partners Limited YDirector Zela Wellness Pvt Ltd YDirector Aummchi Advisors Private limited YDirector First American Securities Private Limited NDirector GIBA Holdings Private Limited NDirector Cmgrp (India) Private Limited NDirector Xchanging Solutions Limited N

Alastair MacKinnon Director Phase4 Partners Limited YPartner Phase4 Ventures III GPLP YPartner Phase4 Ventures III FPLP Y

John Richard Director Aviragen Therapeutics, Inc. YDirector Catalyst Biosciences, Inc. YDirector Phase4 Partners Limited YDirector QUE Oncology, Inc. YPartner Phase4 Ventures III GPLP YPartner Phase4 Ventures III FPLP YPartner GVP Management Partners, LLC YPartner GVP Management Services, LLC YDirector John Richard & Associates, LLC YDirector Abeome Corporation NDirector AerovectRx Corporation NDirector Altiris Therapeutics, Inc. NDirector AxoTect Inc. NDirector InsectiGen Inc NDirector Targacept, Inc. NDirector Zirus, Inc. NDirector Zosano Pharma Corporation N

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Name Position Company/Partnership

Positionstill held

(Y/N)

Partner Georgia Venture Partners N

Charles Sermon Director Phase4 Partners Limited YDirector Phase4 Ventures GP Limited YDirector Phase4 Ventures III General Partner Limited YPartner Phase4 Ventures III GPLP YPartner 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 SeniorManagement 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 voluntaryarrangement or any composition or arrangement with that company’s creditors generally or with anyclass of its creditors; or

(e) been a partner in a partnership at the time of, or within 12 months preceding, any compulsoryliquidation, 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 timeof, 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 regulatoryauthority (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 themanagement 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 asdisclosed in paragraph 6.2 below, neither the Directors nor the Senior Management, and none of theirrespective 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 TransparencyRules;

(b) are interests of a connected person (within the meaning of Schedule 11B of FSMA) which would berequired to be disclosed under paragraph (a) above and the existence of which is known to or couldwith reasonable diligence be ascertained by that Director or member of Senior Management, as at2 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 ofSenior Management had been a PDMR of the Company.

6.2 The following table sets out the expected interests of the Directors and Senior Management immediatelyprior to Admission and immediately following Admission:

Name

Number of OrdinaryShares held

immediately prior toAdmission(1)

Proportion ofvoting capitalimmediately

prior toAdmission(2)(3)

Number ofOrdinary

Shares heldimmediately

followingAdmission(2)(3)(4)

Proportion ofvoting capitalimmediately

followingAdmission(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.

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(2) Reflects the Company’s exercise in full of its option under the Subscription Agreement to requireInvesco and Woodford to subscribe for Ordinary Shares.

(3) Includes the issuance of fully paid up bonus shares to Novartis Pharma AG immediately prior toAdmission in accordance with the terms of the Subscription Agreement in relation to the Company’sexercise 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 theSubscription 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 SeniorManagement 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).

Name

Immediatelyprior to

Admission

Peter Fellner 1,692,673Denise Scots-Knight 1,692,673Richard Bungay 846,336Alastair MacKinnon 846,336John Richard 896,336Charles Sermon 846,336Peter Bains 778,630Frank Armstrong 236,974Kunal Kashyap 236,974NxtScience AB (on behalf of Anders Ekblom) 236,974Paul Blackburn 236,974

(1) 50,000 Ordinary Shares subject to the options held by Mr Richard have been granted such that theywill 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 andWoodford, the Company has agreed that 500,000 of the share options will be cancelled within 30 daysfollowing Admission.

Except as disclosed in this paragraph 6.3, there are no share options expected to be held by the Directorsand 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 theissued share capital of the Company immediately prior to Admission and are expected to represent 6.3% ofthe 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 orloan capital of the Company on Admission and there is no person to whom any capital of any member ofthe 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 itis known to the Company, the name of each person, other than a Director or member of SeniorManagement, who is expected to hold voting rights (within the meaning of Chapter 5 of the Disclosure andTransparency Rules) representing 3% or more of the total voting rights in respect of the Company’s issuedshare capital, and the amount of such person’s holding, immediately prior to Admission and immediatelyfollowing Admission is expected to be as follows:

Name

Number ofOrdinary Shares

immediatelyprior to

Admission(1)(2)(3)

Proportion ofvoting capitalimmediately

prior toAdmission(2)(3)

Number ofOrdinary

Shares heldimmediately

followingAdmission(2)(3)(4)

Proportion ofvoting capitalimmediately

followingAdmission(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 ofits 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.

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(2) Reflects the Company’s exercise in full of its option under the Subscription Agreement to requireInvesco and Woodford to subscribe for Ordinary Shares.

(3) Includes the issuance of fully paid up bonus shares to Novartis Pharma AG immediately prior toAdmission in accordance with the terms of the Subscription Agreement in relation to the Company’sexercise 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 theSubscription 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 themeaning of Chapter 5 of the Disclosure and Transparency Rules) which will represent 3% or more of thetotal 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, couldexercise or does exercise control over the Company.

6.8 There are no differences between the voting rights enjoyed by the shareholders described in paragraph 6.6above 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 theirprivate 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 asubsequent 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 fromAdmission as follows:

Name PositionDate of service

agreement

Denise Scots-Knight Chief Executive Officer and Co-Founder 29/07/2015Richard 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 basesalary of £230,000, each which is to be reviewed, but not necessarily increased, annually. Each of DrScots-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 theCompanies Act).

The benefit package of each of Dr Scots-Knight and Mr Bungay includes participation in theCompany’s medical insurance plan for Dr Scots-Knight and Mr Bungay and their respectiveimmediate families. The Company also maintains for Dr Scots-Knight and Mr Bungay life assuranceof 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 basesalary to the Company’s pension plan. Mr Bungay will receive a salary supplement of up to 10% ofbase salary by way of pension allowance, provided that he contributed 4% or more of his base salaryto the Company’s pension plan.

In addition to normal public holidays, each of Dr Scots-Knight and Mr Bungay is entitled to 25working 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 theservice agreement of Mr Bungay can be terminated by six months’ written notice. At the Company’ssole discretion it may make a payment in lieu of notice equivalent to the basic salary which theindividual 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 orshe: (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 hisor her obligations under his or her service agreement; (iii) commits (by commission or omission) anyact 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 writtenwarning from the Company relating to the same; (v) is guilty of any dishonesty, gross misconduct or

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wilful neglect of duty; (vi) damages Company property maliciously; (vii) falsifies attendance orsickness 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 orany company in the Group; (x) is, in the reasonable opinion of the Board, negligent and incompetentin the performance of his or her duties; (xi) has a bankruptcy order made against him or her or entersinto a voluntary arrangement within the meaning of section 253 Insolvency Act 1986; (xii) consumesor distributes narcotics on Company premises; (xiii) is convicted of any criminal offence (other thanan offence under any road traffic legislation in the United Kingdom or elsewhere for which a fine ornon-custodial penalty is imposed) whether or not in the course of his or her employment; (xiv) is, inthe opinion of a medical practitioner who is treating him or her, physically or mentally incapable ofperforming his or her duties and may remain so for more than three months, and the medicalpractitioner has given a medical opinion to the Board to that effect; (xv) ceases to be eligible to workin the United Kingdom; (xvi) knowingly commits any deliberate act which amounts todiscrimination, victimisation or harassment on any unlawful ground; (xvii) is in breach of theCompany’s anti-corruption and bribery policy and related procedures; (xviii) is guilty of a seriousbreach of any rules issued by the Company from time to time regarding its electroniccommunications systems; (xix) is unable by reason of incapacity to perform his or her duties underhis 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 strategicobjectives;

• 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 willbe a combination of base salary, benefits, an annual bonus and awards under the Mereo Long-TermIncentive Plan (the LTIP) as described in paragraph 8.3 below. A broadly similar pay structure as appliesto the Executive Directors will also apply to other senior management.

Annual bonuses for Executive Directors for the financial year ending 31 December 2016 will bedetermined by performance against goals relating to achievement of key clinical, regulatory andmanufacturing milestones in respect of the Group’s development portfolio, in addition to goals relating tobusiness development, financing and intellectual property.

The maximum annual bonus opportunity for the financial year ending 31 December 2016 will be 100% ofsalary for each of Dr Scots-Knight and Mr Bungay. Annual bonus awards for the financial year ending31 December 2016 will be paid 70% in cash and 30% will be deferred into awards over Ordinary Sharesunder the Mereo Deferred Bonus Share Plan (the DBSP) which is summarised in paragraph 8.3 below withsuch 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 asfollows:

Name PositionDate of commencement of

service as a Director

Peter Fellner Independent Non-ExecutiveChairman 29/07/2015

Frank Armstrong Non-Executive Director 29/07/2015Peter Bains Non-Executive Director 29/07/2015Paul Blackburn Non-Executive Director 06/10/2015Anders Ekblom Non-Executive Director 29/07/2015Kunal Kashyap Non-Executive Director 29/07/2015

Each of the Non-Executive Directors will serve for an initial term of three years.

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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, RemunerationCommittee or Research and Development Committee are entitled to receive an additional annual feeof £8,000. Non-Executive Directors who are a member of more than one subcommittee but not achairperson are entitled to receive an additional annual fee of £4,000. Dr Armstrong, as SeniorIndependent 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 forreasonable and properly documented expenses arising from the performance of their duties as adirector of the Company.

(b) Termination provisions

The appointment of each of the Non-Executive Directors is terminable by either the Non-ExecutiveDirector or the Company on three months’ written notice. The appointment of the Chairman or anyNon-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 anyserious or repeated breach or non-observance of his obligations to the Company (which include anobligation not to breach his statutory, fiduciary or common-law duties); (iii) has been guilty of anyfraud or dishonesty or acted in any manner which, in the Company’s opinion, brings or is likely tobring him or the Company into disrepute or is materially adverse to the Company’s interests; (iv) hasbeen convicted of an arrestable criminal offence other than a road traffic offence for which a fine ornon-custodial penalty is imposed; (v) has been declared bankrupt or has made an arrangement withor for the benefit of his creditors, or if he has a county court administration order made against himunder the County Court Act 1984; (vi) has been disqualified from acting as a director; or (vii) did notcomply 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, theremuneration and benefits to the directors of the Company who served during 2015, in respect of theperiod from the Company’s inception through 31 December 2015, were as follows:

Name PositionBasic salary

and feesBenefits in

kindPension

contribution Bonus

Sharebased

payments Total

(£) (£) (£) (£) (£) (£)

Peter Fellner Independent Non-Executive Chairman

32,115 — — — 587,732 619,847

Denise Scots-Knight Chief ExecutiveOfficer and Co-Founder

137,500 2,205 13,750 64,553 566,625 784,633

Richard Bungay(1) Chief FinancialOfficer and ChiefOperating Officer

105,000 2,066 10,500 36,972 283,313 437,851

Frank Armstrong Non-ExecutiveDirector

14,987 — — — 82,282 97,269

Peter Bains Non-ExecutiveDirector

14,987 — — — 270,357 285,344

Paul Blackburn Non-ExecutiveDirector

8,391 — — — — 8,391

Anders Ekblom Non-ExecutiveDirector

14,987 — — — 82,282 97,269

Kunal Kashyap Non-ExecutiveDirector

14,987 — — — 82,282 97,269

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(1) Richard Bungay will be a director with effect from Admission. The remuneration disclosed relates tohis 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 theDirectors by the Group was £2,427,873. For the period from the Company’s inception through 31 March2016, under arrangements in force at the date of this document, the remuneration of the Directors was £4.0million.

7.5 Senior Management’s remuneration

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

Basic salary and fees Benefits in kind Pension contribution BonusShare based

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 agreedto waive future emoluments nor have there been any such waivers during the financial year immediatelypreceding the date of this document.

There are no outstanding loans or guarantees granted or provided by any member of the Group to, or forthe 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-ExecutiveDirectors’ terms of appointment) and 7.4 (Directors’ remuneration) in this Part XV, no benefit, paymentor compensation of any kind is payable to any Director or member of the Senior Management of theCompany 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 OptionPlan), which was adopted by the Board on 8 July 2015. The Company has granted options to acquireOrdinary Shares to Executive Directors, Non-Executive Directors, employees and consultants under theOption Plan. Under normal circumstances, options vest between the first and fourth anniversary (betweenthe first and third anniversary for Non-Executive Directors) of the vesting start date (typically the date ofcommencement of employment). Options may be exercised until the day immediately preceding the tenthanniversary of the date of grant, subject to the Company either being admitted to trading on a recognisedinvestment exchange or upon a sale of the Company. The options may be subject to performanceconditions as set forth in the relevant option agreement. Save for the option granted to John Richard on14 April 2016 and the options granted to Paul Blackburn and certain employees on 11 May 2016 whichwere 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 wastherefore granted the option subject to Admission, with an exercise price per Ordinary Share equal to thePrivate 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.

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(b) Performance conditions

The right to exercise an option (an Option) under the Option Plan may be subject to the satisfaction of aperformance condition. Details of any performance conditions attached to subsisting Options are set out ineach 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 toconsider that it has become unreasonable, unfair or impractical. Such amended or relaxed performancecondition may not be more difficult to satisfy.

The Board may also waive any performance condition on the occurrence of the optionholder’s death, oncessation 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 theBoard 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 vestin 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 Optionsmay 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 Takeoverand 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 vestedas a result of the Takeover or Trade Sale will then be exercisable for a period of 40 days thereafter, afterwhich 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 employmentwith the Company and thereafter) his Options will remain exercisable for one year from the date of hisdeath, at which point they will lapse.

If an optionholder ceases to hold employment with a group company other than for one of the reasons setout 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 thesecircumstances.

(i) Overall limits

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

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Adjustments

In the event of any capitalisation, rights issue, consolidation, subdivision, reduction or any other variationof the Company’s share capital, the number of Ordinary Shares subject to an Option and the exercise priceapplying 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 orpast date by a resolution of the Board.

No amendment may be made which would abrogate or adversely affect the subsisting rights ofoptionholders unless consent is sought from the affected optionholders and given by a majority of them (byreference to Ordinary Shares under Option).

However, any amendment to benefit the administration of the Option Plan, to take account of legislativechanges, take account of Admission, a Takeover or a Trade Sale, or to obtain or maintain favourable taxtreatment 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 MereoBioPharma Group plc Share Option Scheme (SOS) are set out below. Certain provisions which apply tothe Executive Plans and all three arrangements (the Plans) are summarised at the end of the individualsummaries below.

8.3.1 The Long Term Incentive Plan

Performance conditions

Unless the Remuneration Committee determines otherwise, the vesting of awards will be subject tothe satisfaction of a performance condition and the period over which any performance conditionwill be assessed will not be less than three years. Any award granted to an Executive Director will besubject to the satisfaction of a performance condition.

Any performance condition may be amended or substituted if one or more events occur which causethe Remuneration Committee to consider that an amended or substituted performance conditionwould 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 themarket value (as determined by the Board) of all Ordinary Shares subject to awards granted to sucheligible 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 willnormally vest in line with the following schedule, subject to the cessation of employment andcorporate events provisions:

25% of the total award will be subject to strategic targets, of which each target will have a timeperiod of up to five years within which it must be achieved. This portion of the award will vest onthe fifth anniversary of grant, conditional on the extent to which the performance targets areachieved.

75% of the total award will be based on share price targets which will be measured over a threemonth 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 portionof the award which has already vested); and

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• in full on the fifth anniversary of grant (reduced to take into account the portion of the awardwhich has already vested).

Nil-cost options will be exercisable from the point of vesting for up to 12 months after the award hasvested, or such shorter period as the Remuneration Committee may determine prior to granting suchnil-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 theparticipant’s employer is no longer a member of the Group or for any other reason that theRemuneration Committee determines, except where a participant is summarily dismissed (GoodLeavers).

Unvested awards held by Good Leavers will usually continue until the normal vesting date, unlessthe Remuneration Committee determines that the award will vest as soon as reasonably practicablefollowing the date of cessation. The Remuneration Committee will take into account the satisfactionof any performance condition and, unless it determines otherwise, the proportion of the period oftime 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, partof any bonus payable to the Company’s management may be deferred into an award over OrdinaryShares.

Individual limit

Awards will not be granted under the DBSP which would, at the time they are granted, cause themarket value (as determined by the Board) of all Ordinary Shares subject to awards granted to sucheligible 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 thirdanniversary of grant (or such other date as the Remuneration Committee determines at the grantdate), 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 12months 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 theRemuneration Committee decides that the award will vest as soon as reasonably practicablefollowing the date of cessation. Nil-cost options are usually exercisable for 12 months from the pointat 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 thetime of grant. Options held by UK taxpayers may qualify for beneficial tax treatment, subject to theconditions of the applicable UK legislation.

Performance conditions

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

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Individual limit

Options will not be granted under the SOS which would, at the time they are granted, cause themarket value (as determined by the Board) of all Ordinary Shares subject to options granted to sucheligible 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 exercisablebetween the third and tenth anniversaries of the grant date, subject to the cessation of employmentand corporate events provisions.

Participants may pay the exercise price in full, or make arrangements to have the exercise pricededucted from the proceeds of sale of a number of shares (a cashless exercise). Alternativelyparticipants may receive such number of Ordinary Shares as are equal to the growth in value (netsettlement).

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 theRemuneration Committee determines that the option will vest as soon as reasonably practicablefollowing the date of cessation. Unless it determines otherwise, the Remuneration Committee willtake into account the extent to which any performance condition has been satisfied at the normalvesting date, if relevant, and unless it determines otherwise, the Remuneration Committee will takeinto account the proportion of the period of time that has elapsed between the grant date and the dateof cessation of office or employment.

Vested options will then be exercisable for a period of six months, or, in the case of a participant’sdeath, 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 relevantpersonal representative.

8.3.4 Common terms

Administration

The Plans will be administered by the Board or by any duly authorised committee thereof. Decisionsin relation to participation in the Plans by the Company’s Executive Directors will always be takenby the Company’s Remuneration Committee.

Eligibility

Any employee of the Company or any of its subsidiaries will be eligible to participate in the Plans atthe 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 notionalOrdinary Shares.

Dividend equivalents

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

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The Remuneration Committee will retain the discretion to determine the method used to calculatethe amount of dividend equivalents to be made, which may exclude or include special dividends andmay 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 whichan award has vested, or a nil-cost option has been exercised, but the underlying Ordinary Shareshave yet to be issued or transferred to the participant, the Remuneration Committee may decide topay a participant a cash amount equal to the value of some or all of the Ordinary Shares he wouldotherwise have received.

Dilution limit

In any 10 year period, the number of Ordinary Shares which may be issued under the Plans andunder any other employee share plan adopted by the Company may not exceed 10 per cent. of theissued 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 untilsuch time as guidelines published by institutional investor representative bodies determineotherwise. Ordinary Shares issued or committed to be issued to satisfy any awards granted prior toAdmission 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 toawards made under the Executive Plans. The provisions will continue to be applicable after thetermination of a participant’s office or employment with a member of the Group for any reasonwhether or not the termination is lawful.

The circumstances in which the Remuneration Committee may consider operating these provisionsare:

• 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 wasgranted; 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 endof the performance periods in respect of LTIP awards.

The malus provision may be implemented by reducing the number of Ordinary Shares under anaward or imposing further conditions on it prior to the earlier of the delivery of the cash or OrdinaryShares 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 OrdinaryShares in satisfaction of the award and before the end of the applicable period described above, by areduction in (i) the vesting of any subsisting share awards under the Executive Plans and/or (ii) thenumber of Ordinary Shares under any vested but unexercised nil-cost option granted under theExecutive Plans and/or (iii) the participant being required to return the cash or Ordinary Sharesdelivered under the award to the Company or to make a cash payment in respect of that cash or thoseOrdinary 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 contributionsapplicable to the award.

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Corporate events

Where there is a change of control of the Company, unvested awards will vest immediatelythereafter. Except in respect of the DBSP, awards will vest to the extent determined by theRemuneration Committee, subject to the performance conditions being satisfied and, unless theRemuneration Committee determines otherwise, the proportion of the period of time between grantand the normal vesting date that has elapsed at the date of the relevant event. Alternatively, theawards may be exchanged for awards in a different company (either the acquiring company orotherwise).

If other corporate events occur such as a winding-up of the Company, demerger, delisting, specialdividend or other event which, in the opinion of the Remuneration Committee, may affect the currentor future value of Ordinary Shares, the Remuneration Committee may determine that awards willvest at that time. Where awards vest in these circumstances, except in respect of the DBSP, theRemuneration Committee will determine the extent to which they will vest, taking into account thesatisfaction of any performance condition and, unless the Remuneration Committee determinesotherwise, the proportion of the period of time between grant and the normal vesting date that haselapsed 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 orother event, which may, in the Remuneration Committee’s opinion, affect the current or future valueof Ordinary Shares, the Remuneration Committee may make such adjustments as they considerappropriate to the number of Ordinary Shares subject to an award, any exercise price applicable to anoption 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 consentis sought from the affected participants and given by a majority of them. This does not apply to anyamendments 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 ofexisting 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 employmentand 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 personalrepresentatives in the event of death.

Satisfying awards

Awards may be satisfied using newly issued Ordinary Shares, Ordinary Shares held in treasury orOrdinary Shares purchased in the market.

Any Ordinary Shares or cash that are to be issued, transferred or paid (as appropriate) to a participantin 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 £47,000to defined contribution money purchase pension schemes for the Directors and senior management. For theperiod from the Company’s inception through 31 March 2016, under arrangements in force at the date ofthis document, the pension contribution by the Company for the Directors and Senior Management was£73,625.

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10. Subsidiary undertakings

The Company is the principal operating and holding company of the Group.

The subsidiary undertakings of the Company are as follows:

NameCountry of

incorporation

Class of sharecapital (issuedand fully paid

Proportion ofcapital

held

Proportion ofvoting power

held Principal activity

Mereo BioPharma 1 Limited England and Wales Ordinary 100% 100% Futuredevelopment ofBCT-197

Mereo BioPharma 2 Limited England and Wales Ordinary 100% 100% Futuredevelopment ofBGS-649

Mereo BioPharma 3 Limited England and Wales Ordinary 100% 100% Futuredevelopment ofBPS-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 UnderleaseOne Cavendish PlaceLondon W1G 0QFUnited Kingdom

The Company leases this office for use as its registered office and principal place of business. TheCompany 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 ordinarycourse of business) to which the Company or any member of the Group is or has been a party within thetwo years immediately preceding the date of this document; and (ii) any other contract (other than acontract entered into in the ordinary course of business) that has been entered into by the Company or anymember of the Group which contains any provision under which any member of the Group has anyobligation 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), theDirectors and the Private Placement Agents entered into the Private Placement Agency Agreement on3 June 2016, pursuant to which:

(a) the Company has appointed Cantor Fitzgerald Europe to act as Nominated Adviser for the purposesof 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 thisnature (the last condition being Admission) contained in the Private Placement Agency Agreementand described below:

(i) the Company has agreed to allot and issue, at the Private Placement Price, the new OrdinaryShares to be issued in connection with the Private Placement; and

(ii) the Private Placement Agents have severally agreed to use reasonable endeavours to procuresubscribers for the new Ordinary Shares to be issued pursuant to the Private Placement;

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(c) in consideration for their services and subject to Admission occurring the Company has agreed topay to the Private Placement Agents a commission of four per cent. and an additional discretionarycommission of up to one per cent., exclusive of any applicable VAT, of the amount equal to theproduct of the Private Placement Price and the aggregate number of new Ordinary Shares issued bythe Company pursuant to the Private Placement exclusive of any new Ordinary Shares issued to theInstitutional Shareholders or their affiliates and a commission of one per cent., exclusive of anyapplicable VAT, of the amount equal to the product of the Private Placement Price and the aggregatenumber of new Ordinary Shares issued to the Institutional Shareholders or their affiliates. At itsdiscretion, 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 corporatefinance fee;

(d) the Company’s obligation to issue new Ordinary Shares under the Private Placement AgencyAgreement is, and the several obligations of the Private Placement Agents to procure subscribers andpurchasers for the Ordinary Shares are, subject to certain conditions that are customary for anagreement of this nature. These conditions include, amongst others, the absence of any breach ofwarranty under the Private Placement Agency Agreement and Admission becoming effective by nolater than 8am on 9 June 2016. In addition, the Private Placement Agents have the right to terminatethe Placement Agency Agreement prior to Admission in certain specified circumstances that arecustomary in an agreement of this nature;

(e) the Company has agreed to pay the costs, charges, fees and expenses of the Private PlacementAgents (together with any related VAT);

(f) the Company and the Directors have each given customary representations, warranties andundertakings to the Private Placement Agents, and the Company has given customary indemnities tothe Private Placement Agents. The liability of the Company under the Private Placement AgencyAgreement is not limited as to time or amount. The liability of the Founders that are party to thePrivate Placement Agency Agreement and the Directors under the Private Placement AgencyAgreement 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 orotherwise dispose of, directly or indirectly, any Ordinary Shares or any securities of the Companythat are substantially similar to the Ordinary Shares including, but not limited to, any securities thatare convertible into or exchangeable for, Ordinary Shares or enter into any transaction with the sameeconomic effect as any of the foregoing (other than pursuant to the Private Placement or OrdinaryShares issued pursuant to employee stock option plans existing on the date of this document) duringthe 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 PlacementAgents; and

(h) the Founders that are party to the Private Placement Agency Agreement and the Directors haveagreed 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 substantiallysimilar to the Ordinary Shares including, but not limited to, any securities that are convertible into orexchangeable for, Ordinary Shares or enter into any transaction with the same economic effect asany of the foregoing during the period beginning on the date of this document and ending 365 daysafter 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 theperiod of 365 days from the date of Admission, it will not, without the prior written consent of the PrivatePlacement Agents, offer, sell or contract to sell, or otherwise dispose of any Ordinary Shares which it heldprior to the Private Placement (or any interest therein in respect thereof) or enter into any transaction withthe 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 dated3 June 2016 pursuant to which, subject to certain conditions (including as to Admission occurring), theCompany has appointed Cantor Fitzgerald Europe to act as its Nominated Adviser for the purposes of theAIM 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 £70,000exclusive of any applicable VAT;

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• the Company has given certain customary representations, warranties and undertakings to CantorFitzgerald Europe in respect of, among others, compliance with all applicable regulations. Inaddition, the Company has agreed to indemnify Cantor Fitzgerald Europe against certainliabilities;

• the Nominated Adviser Agreement entitles Cantor Fitzgerald Europe or the Company toterminate 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 purchaseprice of £7,082,000;

• 3,218,126 Ordinary Shares to Woodford Patient Capital Trust plc for an aggregate purchase priceof £5,921,351;

• 3,802,527 Ordinary Shares to CF Woodford Equity Income Fund for an aggregate purchase priceof £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, requireInvesco and Woodford to subscribe for Ordinary Shares at a price of £1.84 per Ordinary Share. TheCompany may require Invesco to purchase up to an aggregate of £20,518,000 in Ordinary Shares. TheCompany 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 dilutiveevent, as defined therein, Novartis is entitled to require the Company to issue to it such number of fullypaid Ordinary Shares necessary to maintain its shareholding at 19.5% of the total economic and votingrights in the Company. Novartis will be issued bonus shares immediately prior to Admission in connectionwith the drawdown of the commitment under the Subscription Agreement and the issuance of OrdinaryShares in the Private Placement. The maximum number of Ordinary Shares that may be issued by theCompany 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 isless than an agreed threshold specified in the Subscription Agreement, the parties have agreed that theFounders shall transfer certain of their Ordinary Shares to Woodford, Invesco and Novartis immediatelyprior 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 June2016, 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, concurrentlywith the Private Placement Shares and are fully convertible into Ordinary Shares in the Company at theoption of the noteholder. On closing of the Private Placement it is expected that the Company will havesatisfied the conditionality of the instrument. The Notes will be issued to Novartis on terms that arecustomary 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 dateof the instrument and accruing daily and constitute direct, unsecured indebtedness of the Companyranking ahead of any other unsecured obligations of the Company, and without any preferenceamong 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 inthe Company within 36 months of the date of the instrument, on one or more occasions, to serve aconversion notice on the Company to convert all or some only of the outstanding Notes into fullypaid 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 isentitled to receive an additional number of Ordinary Shares in the Company as is equal to thenumber of conversion shares into which such Notes are to convert, multiplied by 0.93, up to amaximum aggregate number of 1,453,520 such bonus shares.

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(e) It is a condition of the exercise of the Notes that such an exercise must not cause Novartis to holdmore 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 Notesshall automatically convert immediately prior to and conditional upon the occurrence of any Changeof Control. For the purposes of the instrument a “Change of Control” means the acquisition ofcontrol of the Company (as defined in section 1124 of the Corporation Tax Act 2010) by any personor 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 theCompany becomes subject to an insolvency event, enters into an insolvency arrangement, stopspayment of its debts generally, ceases to carry on its business or if the Company breaches itsundertaking not to issue further convertible loan notes or other debt that would rank above the Noteson insolvency.

(h) The Company has warranted to Novartis that the board of directors has the relevant authority to enterinto the instrument and issue and allot the conversion shares and bonus shares free from rights ofpre-emption.

(i) The Company has given undertakings to Novartis including agreeing not to, while the Notes remainin issue, issue any further convertible loan notes or other debt that would rank above the Notes oninsolvency and to maintain sufficient shareholder authority to satisfy in full, without the need for thepassing of any further resolutions of its shareholders, the most onerous of the outstanding rights ofconversion for the time being attaching to the Notes without first having to offer the same to anyexisting shareholders of the Company or any other person.

(j) The Company has undertaken to Novartis, while the Notes remain in issue, to notify Novartis assoon as practicable after the board or shareholder meeting (whichever is earliest) has resolved toimplement an adjustment event including the issue, cancellation, purchase, redemption or division ofequity 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 entitleNovartis to receive an adjustment to the number and nominal value of the shares to which they areentitled under the instrument so that they maintain the same proportion of the issued share capitaland votes exercisable at general meetings and the same entitlement to participate in distributions, aswould 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 Companyentered 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 PurchasedAssets 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 Companyin exchange for Ordinary Shares pursuant to the Subscription Agreement) and each of Mereo 1, Mereo 2and Mereo 3 agreed to make future payments to Novartis comprising amounts equal to ascending specifiedpercentages of tiered annual worldwide net sales (beginning at high single digits and reaching into doubledigits at higher sales) by such subsidiary of products that include the Compounds (Products). The levels ofascending percentages of tiered annual worldwide net sales are the same for each of Mereo 1, Mereo 2 andMereo 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 orleases all or substantially all of its assets, including a Compound and related assets, it will pay Novartis apercentage of the proceeds of such transaction. The Company will retain the majority of the proceeds fromsuch a transaction. Such percentage is the same for each of Mereo 1, Mereo 2 and Mereo 3 under therespective Purchase Agreements. The payment of a percentage of proceeds is not payable with respect toany transaction involving equity interests of Mereo, a merger or consolidation of Mereo, or a sale of anyassets of Mereo.

The rights to future payment to Novartis from the Group arising from the Purchase Agreements are thesame across all three products.

Pursuant to each of the Purchase Agreements, each of Mereo 1, Mereo 2 and Mereo 3 granted Novartis anirrevocable, transferable, royalty-free, worldwide and non-exclusive licence to use know-how includedwithin the Purchased Assets for Novartis’ activities unrelated to the Products. Each of Mereo 1, Mereo 2

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and Mereo 3 is also under an obligation to use commercially reasonable efforts to develop at least oneProduct 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 inobese men and osteogenesis imperfecta, subject to exceptions including where Novartis does not have theability to control such clinical trial activities and any existing contracts or relationships of Novartis. Underthe Purchase Agreements, Novartis agreed to indemnify each of Mereo 1, Mereo 2 and Mereo 3 for lossesarising from breaches of its representations, warranties and covenants in the Purchase Agreements, andfrom Novartis’ activities prior to the closing date with respect to the Compounds, Products and PurchasedAssets. Each of Mereo 1, Mereo 2 and Mereo 3 agreed to indemnify Novartis for losses arising frombreaches of its representations, warranties and covenants in the respective Purchase Agreement, and fromits 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 ProductExclusivity Agreement. Until 29 July 2016 the Group may not, directly or indirectly, acquire or in-licenseand conduct drug development activities with respect to any product (each, an Additional Product) otherthan the Compounds and any other Novartis products, unless (i) Novartis has given its prior writtenconsent thereto, or (ii) the Group has raised funds that are reasonably sufficient to fund drug developmentactivities 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 agreementwith Novartis (the Supply Services Agreements). Pursuant to each Supply Services Agreement, Novartiswill 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 Novartisservices to be performed, payment schedules and other commercial terms applicable to the relevant SupplyServices 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 attachedto the applicable Supply Services Agreement. Novartis will indemnify each subsidiary for, among otheritems, losses arising from third-party claims related to supplies of clinical materials not complying with therelevant specifications or current good manufacturing practices set forth in the applicable qualityagreement only if such clinical material (i) was not manufactured from drug substance inventory as setforth in the applicable Asset Purchase Agreement that did not comply with the specifications, (ii) wassupplied by or on behalf of Novartis and (iii) the relevant subsidiary complied with certain acceptance andrefusal 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 andwarranties and confidentiality provisions. Novartis’ obligation to indemnify each subsidiary under theSupply 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 MasterServices Agreement is a master form of contract for research and research-related services ICON mayprovide to the Group, including (i) regulatory, chemistry, manufacturing and controls and clinicaldevelopment 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) interactivetechnologies, (vii) certain legal representation and local sponsorship services, (viii) consultativecommercialisation 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) documentationand staffing (collectively, the ICON Services). The Group and ICON are to contract for ICON Servicesthrough separately executed statements of work (SOWs), specifying the ICON Services to be provided andany 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 andconditions of the applicable SOW and (ii) reasonable costs incurred by ICON on behalf of and approved bythe Company (the Pass-through Costs). In connection with the entry into any SOW, the Company willprovide an upfront payment to ICON equal to a mutually agreed proportion (but not less than 15%) of theestimated Pass-through Costs under such SOW.

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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 relatedactivities 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 relatedactivities in the same geographical area as ICON immediately after the expiration of the one-yearperiod.

ICON will indemnify the Group for losses arising out of third-party claims arising out of ICON’s grossnegligence or intentional misconduct, alleging that ICON’s performance or the Group’s use of the ICONServices violate third-party rights or arising out of a violation of applicable law, including data protectionlaws. The Group will indemnify ICON for losses arising out of the Group’s gross negligence or intentionalmisconduct, alleging that the Group’s use of any study materials provided by ICON violates third-partyrights, arising out of a violation of applicable law, including data protection laws or arising from the use oradministration of the applicable product candidate. To the extent the indemnified party’s losses arise fromthe negligence or intentional misconduct of such indemnified party, then the amount of the indemnifiedloss will be reduced in proportion to the percentage of the indemnified party’s responsibilities.

The Master Services Agreement contains customary provisions concerning data protection, confidentialityand regulatory matters. The Master Services Agreement has a five-year term, unless it is terminated earlierby either party upon 90 days’ prior written notice, on 30 days’ written notice if the other party commits amaterial breach of any provision of the Master Services Agreement or any SOW which, if capable ofremedy, is not remedied within 30 days of written notice, or immediately on notice if the other partyundergoes an insolvency related event. A SOW may be terminated by either party on 60 days’ writtennotice (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 August2015 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 on17 August 2020 based on the open market value of the Premises (the Principal Rent). In addition to thePrincipal Rent, the Company is responsible for value added tax on the Principal Rent and certain insurancecosts and service charges incurred by the Landlord.

The Company may break the Lease Agreement on 16 August 2020 by providing six months’ prior writtennotice to the Landlord. If the Company does not exercise its break option, the Landlord will decrease by50% 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 PrivatePlacement Shares. Except to the extent expressly mentioned, this summary relates to certain aspects ofthe 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 (exceptinsofar as express reference is made to the treatment of non-United Kingdom residents) who hold thePrivate Placement Shares as investments (other than in an individual savings account or a self-investedpersonal pension) and who are the absolute beneficial owners of both the Private Placement Shares andany dividends paid on them. This summary does not apply to certain classes of shareholder who aresubject to special rules, including those carrying on certain financial activities, those subject to specifictax regimes or benefitting from certain reliefs or exemptions, those connected with the Company orGroup and those for whom the Private Placement Shares are employment related securities. Thissummary also does not apply to shareholders that own (or are deemed to own) 5% or more of theOrdinary 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 lawand HMRC published practice (which may not be binding on HMRC) as at the date of this AdmissionDocument, which may change (potentially with retrospective effect).

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

13.2 Dividends

Dividends paid by the Company to shareholders will not be subject to any UK withholding tax. Theexpected 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 theaggregate amount of the dividend received. The dividend income received by the shareholder will beregarded as the top slice of the individual’s income and so will be taxed at the highest marginal rateapplicable to that individual. Under proposals contained in Finance Bill 2015-2016 to 2016-2017which, once enacted, will have effect from 6 April 2016, the first £5,000 of dividend income receivedby a UK-resident individual in a tax year (the “Dividend Allowance”) will be taxed at a nil rate. Tothe extent that a UK resident individual’s dividend income for the tax year exceeds the DividendAllowance and, when treated as the top slice of such individual shareholder’s income, falls abovesuch individual shareholder’s personal allowance but below the basic rate limit, such an individualshareholder will be subject to tax on that dividend income at the dividend basic rate of 7.5%. To theextent that such dividend income falls above the basic rate limit but below the higher rate limit, suchan individual shareholder will be subject to tax on that dividend income at the dividend upper rate of32.5%. To the extent that such dividend income falls above the higher rate limit, such an individualshareholder 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 ondividends paid by the Company unless (subject to special rules for such shareholders that are smallcompanies) the dividends fall within an exempt class and certain other conditions are met. Whether anexempt class applies and whether other conditions are met will depend upon the circumstances of theparticular shareholder, although it is expected that the dividends paid by the Company wouldnormally 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 theirown tax advisers in relation to their tax liabilities (in the United Kingdom and any other country) ondividends received from the Company.

13.3 Capital gains

A subsequent disposal of Private Placement Shares may, depending on the shareholder’scircumstances and subject to any available exemptions and reliefs (such as the annual exemptamount for individuals and indexation allowance for corporate shareholders), give rise to achargeable 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 orless and who dispose of Private Placement Shares during that period may be liable to UK tax on any capitalgain 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 effectfrom 6 April 2016, individual shareholders who pay tax at the basic rate will be liable to pay UK capitalgains tax on any chargeable gain at a rate of 10%. Higher and additional rate taxpayers will be liable to payUK capital gains tax at a rate of 20%. However, the first £11,100 of gains received by an individualshareholder in a tax year will be exempt from UK capital gains tax. Corporate shareholders will typicallyhave any chargeable gains added to their taxable profits and so such chargeable gains will be subject to UKcorporation 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.

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13.4 Inheritance tax

The Private Placement Shares will be assets situated in the UK for the purposes of UK inheritance tax. Agift or settlement of such assets by, or the death of, an individual Shareholder, may therefore give rise to aliability to UK inheritance tax regardless of where the Shareholder is resident or domiciled, subject to anyavailable exemption or relief. Generally, UK inheritance tax is not chargeable on gifts to individuals if thetransfer is made more than seven complete years prior to the death of the donor. A transfer of PrivatePlacement Shares at less than market value may be treated for inheritance tax purposes as a gift of PrivatePlacement 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 PlacementShares, which rules may bring them within the charge to inheritance tax. The inheritance tax rules arecomplex and Shareholders should consult a professional adviser in any case where those rules may berelevant, particularly in (but not limited to) cases where Shareholders intend to make a gift of PrivatePlacement Shares, to transfer Private Placement Shares at less than market value or to hold PrivatePlacement Shares through a company or trust arrangement. Shareholders should also seek professionaladvice in a situation where there is potential for a double charge to UK inheritance tax and an equivalenttax 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 ofPart 10 of the Corporation Tax Act 2010 as at the date of Admission and may continue to be so followingthe Private Placement. As a result, certain transactions entered into by the Company or other members ofthe Group may have tax implications for Shareholders. In particular, certain gifts, transfers of assets at lessthan market value or other transfers of value by the Company or other members of the Group may beapportioned to Shareholders for the purposes of United Kingdom inheritance tax, although the payment ofa dividend to a Shareholder or the payment of dividends or transfers of assets between members of theGroup will not normally attract such an apportionment.

Any charge to United Kingdom inheritance tax arising from such a transaction will primarily be a liabilityof the relevant company, although in certain circumstances Shareholders to whom greater than 5% of thevalue 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 mayresult in a reduction of a Shareholder’s base cost in his Ordinary Shares for the purposes of UnitedKingdom taxation of capital gains, although transfers of assets between members of the Group will notnormally attract such treatment. Shareholders should consult their own professional advisers on thepotential 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 PrivatePlacement 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 unconditionalagreements to transfer, shares admitted to trading on a recognised growth market provided that theshares are not listed on that or any other market. AIM has been recognised by HMRC as a recognisedgrowth market. Consequently, a transfer on sale of Ordinary Shares following their admission totrading on AIM will not be subject to stamp duty or SDRT for so long as the Ordinary Shares are notlisted 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 OrdinaryShares in this Private Placement and who hold such Ordinary Shares as capital assets for U.S. federalincome tax purposes. This section does not apply to a Shareholder who is member of a special class ofShareholders subject to special rules, including:

• a dealer in securities,

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• 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 securitiesholdings,

• 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 valueof the Ordinary Shares,

• a person that holds Ordinary Shares as part of a straddle or a hedging, integrated or conversiontransaction,

• 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 theConvention Between the Government of the United States of America and the Government of the UnitedKingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Preventionof Fiscal Evasion with Respect to Taxes on Income and on Capital Gains, all as of the date hereof and allsubject 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 suchShareholder 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 taxpurposes) created or organized in or under the laws of the United States, any state thereof, or theDistrict 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 andone 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 betreated as a U.S. person.

If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) is aShareholder, the tax treatment of a partner in the partnership will generally depend upon the status of thepartner and the activities of the partnership. A Shareholder that is a partnership, and partners in suchpartnership, should consult their own tax advisers regarding the tax consequences of acquiring, owning anddisposing of the Ordinary Shares.

Shareholders should consult their own tax advisors regarding the U.S. federal, state and local andother tax consequences of acquiring, owning and disposing of Ordinary Shares in their particularcircumstances.

This discussion addresses only U.S. federal income taxation. Shareholders should consult their own taxadvisors as to potential application of U.S. state and local tax laws, any other U.S. tax laws (such as thegift, alternative minimum, or estate tax) and other U.S. laws and foreign laws, including the laws of theUnited 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 foreigninvestment company (a “PFIC”) for U.S. federal income tax purposes for its current taxable year and forthe 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 theCompany 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

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• at least 50% of the value, determined on the basis of a quarterly average, of the Company’s grossassets 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 andgains from the disposition of assets that produce passive income. Cash is generally treated as an asset thatproduces passive income. If a foreign corporation owns at least 25% by value of the stock of anothercorporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionateshare of the assets of the other corporation, and as receiving directly its proportionate share of the othercorporation’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 theOrdinary Shares, even if the Company ceases to be treated as a PFIC, unless certain special elections aremade.

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 distributionsduring a single taxable year that are greater than 125% of the average annual distributionsreceived by such U.S. holder in respect of its Ordinary Shares during the three preceding taxableyears 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 forits Ordinary Shares;

• the amount allocated to the taxable year in which the U.S. holder realized the gain or excessdistribution will be taxed as ordinary income;

• the amount allocated to each prior year, with certain exceptions, will be taxed at the highest taxrate 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 thetax attributable to each prior year.

If the Company is determined to be a PFIC, the general tax treatment for U.S. holders described abovewould apply to indirect distributions and gains deemed to be realized by U.S. holders in respect of any ofthe 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 Companytreated as a “qualified electing fund” with respect to such U.S. Holder (such election, a QEF election) andthe Company provides certain required information to U.S. holders to give effect to such election. TheCompany intends to provide U.S. holders with such information as may be required to make a QEFelection effective.

A U.S. holder that makes a QEF election will be currently taxable on its pro rata share of the Company’sordinary earnings and net capital gain, at ordinary income and capital gain rates, respectively, for each ofthe Company’s taxable years, regardless of whether or not such U.S. holder receives distributions. SuchU.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 inthe Ordinary Shares and will not be taxed again as a distribution to such U.S. holder. U.S. holders shouldconsult 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, aU.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 anannual basis to avoid gain and excess distributions being treated as earned ratably over the U.S. holder’sholding 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 areregularly traded on a qualified exchange and, further, would not mitigate the adverse implications of PFICstatus with respect to any subsidiaries of the Company. The Company does not expect that its OrdinaryShares will be listed or sufficiently traded on such an exchange, and thus, the Company does not expect itsOrdinary Shares to be treated as marketable stock.

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If the Company is treated as a PFIC for any taxable year with respect to a U.S. holder and a QEF electionis not in effect, such U.S. holder may be able to make a deemed sale election if the Company ceases to betreated as a PFIC in subsequent taxable years. The effect of the deemed sale is generally to “purge” theCompany’s stock of its characterization as stock of a PFIC, and thereafter, such Company stock generallywould not be treated as stock of a PFIC with respect to such U.S. holder, provided that the Company doesnot become a PFIC again in a subsequent taxable year. Upon making a deemed sale election with respect tothe Company’s stock, generally such electing U.S. holder would be treated as having sold all of suchU.S. holder’s stock in the Company for its fair market value on the last day of the Company’s last taxableyear during which the Company was treated as a PFIC, and such deemed sale generally would be treated asa taxable disposition that is subject to the PFIC tax rules described above. The U.S. holder’s holding periodin the non-PFIC Ordinary Shares would be treated as beginning on the day following the deemed sale forpurposes of the PFIC rules. U.S. holders should consult their own tax advisors as to the availabilityand consequences of a deemed sale election.

A U.S. holder must generally file an IRS Form 8621 (“Information Return by a Shareholder of a PassiveForeign Investment Company or Qualified Electing Fund”) with its U.S. federal income tax return for anytaxable year in which the Company is a PFIC with respect to such U.S. holder. U.S. holders are urged toconsult 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-termcapital gains rates for a non-corporate U.S. holder if the Company is a PFIC either in the taxable year ofthe distribution or the preceding taxable year. Moreover, such U.S. holder’s Ordinary Shares will continueto be treated as stock in a PFIC if the Company was a PFIC at any time during such U.S. holder’s holdingperiod in its Ordinary Shares, even if the Company is not currently a PFIC (unless a deemed sale electionis made to purge characterization of a U.S. holder’s Ordinary Shares as stock of a PFIC, as discussedabove). Dividends that a U.S. holder receives that do not constitute qualified dividend income are noteligible for taxation at the preferential rate of taxation under current law applicable to qualified dividendincome. Instead, such U.S. holder will be subject to U.S. federal income tax at rates applicable to ordinaryincome 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 orconstructively. Such dividends will not be eligible for the dividends-received deduction generally allowedto 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 willbe 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 ofwhether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting fromcurrency exchange fluctuations during the period from the date a dividend payment is included in taxableincome to the date the payment is converted into U.S. dollars will be treated as ordinary income or loss andwill not be eligible for the special tax rate applicable to qualified dividend income. The currency gain orloss generally will be income or loss from sources within the United States for foreign tax credit limitationpurposes. If dividends received in pound sterling are converted into U.S. dollars on the day they arereceived, the U.S. holder generally will not be required to recognize foreign currency gain or loss inrespect 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 itsOrdinary Shares, such U.S. holder generally will recognize capital gain or loss for U.S. federal income taxpurposes 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 aholding period greater than one year. Such gain or loss will generally be income or loss from sourceswithin the United States for foreign tax credit limitation purposes. The deductibility of capital losses issubject 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” ofcertain 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

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dividends paid on Ordinary Shares and certain net gain from the sale or other taxable disposition ofOrdinary Shares, less certain deductions. U.S. holders should consult their own tax advisors concerning theeffect, if any, of this net investment income tax on holding Ordinary Shares in their particularcircumstances.

14.6 Backup withholding and information reporting

For a noncorporate U.S. holder, information reporting requirements, on Internal Revenue Service Form1099, generally will apply to:

• dividend payments or other taxable distributions made to such U.S. holder within the UnitedStates or by a U.S. payor; and

• the payment of proceeds to such U.S. holder from the sale of Ordinary Shares effected at aU.S. office of a broker.

Additionally, backup withholding may apply to such payments to a noncorporate U.S. holder that fails toprovide an accurate taxpayer identification number, is notified by the Internal Revenue Service that suchnoncorporate U.S. holder has failed to report all interest and dividends required to be shown on itsU.S. federal income tax returns, or in certain circumstances, fails to comply with applicable certificationrequirements. Certain U.S. holders (including, among others, corporations) are not subject to backupwithholding.

Backup withholding is not an additional tax. A noncorporate holder generally may obtain a refund of anyamounts withheld under the backup withholding rules that exceed such shareholder’s U.S. federal incometax 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 OrdinaryShares, during such U.S. holders’ taxable year must attach to their U.S. federal income tax return for suchyear certain information with respect to each asset (IRS Form 8938 “Statement of Specified ForeignFinancial Assets”) if the aggregate value of all of such assets exceeds $50,000 on the last day of the taxyear or more than $75,000 at any time during the tax year (or a higher dollar amount prescribed by theInternal 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 arenot held in an account maintained by a financial institution, including any stock or security issued by aperson 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 tofurnish 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 tothe 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 beappropriate and having due regard to the availability of cover and cost. Following Admission, the Group willhave in place directors’ and officers’ insurance policies offering cover in relation to errors and omissions in anamount considered by the Directors to be appropriate for similarly situated companies, in addition to publicoffering insurance.

16. Litigation and arbitration

There are no governmental, legal or arbitration proceedings (including any such proceedings that are pending orthreatened of which the Company is aware) during the period from the Company’s incorporation through the dateof this document that may have, or have had, a significant effect on the Company’s or Group’s financial positionor profitability.

17. Related-party transactions

In July 2015, the Group entered into Purchase Agreements with Novartis, pursuant to which the Group acquiredBCT-197, BGS-649 and BPS-804 and related intellectual property. In connection with this transaction, theCompany also entered into the Product Exclusivity Agreement and made a payment of $1,500,000 to Novartisrepresenting the Group’s contribution to a payment made by Novartis to a third party in satisfaction of all

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monetary obligations of Novartis to that third party in respect of BCT-197. In addition, Mereo 3 and Novartisentered 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 commercialisecertain therapeutic antibody product candidates. Under this Agreement, Mereo 3 agreed to pay to Novartismilestone payments based on achievement by Mereo 3 of key development and regulatory milestones and lowsingle 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 paragraph12 (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: “AdditionalInformation”.

The Company reimbursed £453,837 to Phase4 Partners Limited for expenses Phase4 incurred on the Company’sbehalf in connection with the Purchase Agreements, including office and travel costs of £105,257 and third-partyconsultants’ fees for diligence activities of £348,580. Denise Scots-Knight, Peter Bains, Kunal Kashyap, who areDirectors of the Company, and Alastair MacKinnon, John Richard and Charles Sermon, who are members ofSenior 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 tothe completion of the Purchase Agreements.

There were no other related-party transactions entered into by the Company or any member of the Group duringthe period from the Company’s inception through 2 June 2016 (the latest practicable date prior to publication ofthis document).

18. Working capital

The Directors are of the opinion, having made due and careful enquiry and taking into account the proceeds ofthe Private Placement, that the working capital available to the Company and the Group will be sufficient fortheir 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: “FinancialInformation” 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 Companyafter Admission, see paragraph 4 (Takeover regulation) of Part VII: “Directors, Senior Management andCorporate Governance”.

20.2 Under sections 974 to 991 of the Companies Act, if an offeror acquires or contracts to acquire (pursuant toa takeover offer) not less than 90% of the shares in the Company (in value and by voting rights) to whichsuch offer relates, it may then compulsorily acquire the outstanding shares not assented to the offer. Theofferor would do so by sending a notice to outstanding holders of shares telling them that it willcompulsorily acquire their shares and then, six weeks later, it would execute a transfer of the outstandingshares in its favour and pay the consideration to the Company, which would hold the consideration on trustfor the outstanding holders of shares. The consideration offered to the holders whose shares arecompulsorily acquired under the Companies Act must, in general, be the same as the consideration thatwas available under the takeover offer.

In addition, pursuant to section 983 of the Companies Act, if an offeror acquires or agrees to acquire notless than 90% of the shares in the Company (in value and by voting rights) to which the offer relates, anyholder of shares to which the offer relates who has not accepted the offer may require the offeror to acquirehis/her shares on the same terms as the takeover offer. The offeror would be required to give any holder ofshares notice of his/her right to be bought out within one month of that right arising. These sell-out rightscannot be exercised after the end of the period of three months from the last date on which the offer can beaccepted or, if later, three months from the date on which the notice is served on the holder of sharesnotifying him/her of their sell-out rights. If a holder of shares exercises his/her rights, the offeror is boundto acquire those shares on the terms of the offer or on such other terms as may be agreed.

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21. Auditor

21.1 Ernst & Young LLP (EY) whose registered address is 1 More London Place, London SE1 2AF, UnitedKingdom, has been the independent auditor of the Company since its incorporation in 2015. EY has nomaterial 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 inPart X: “Financial Information” of this document, and references thereto in the form and context in whichthey appear and has authorised the contents of those parts of this document which comprise its report forpurposes 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 filedand 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 theCompany.

23.3 Stratagem has given and has not withdrawn its written consent to the inclusion in this document of itsname, its intellectual property expert report in Part XVIII: “Intellectual Property Expert Report” of thisdocument, and references thereto in the form and context in which they appear and has authorised thecontents of those parts of this document which comprise its reports. As the Ordinary Shares have not beenand will not be registered under the Securities Act, Stratagem has not filed and will not be required to file aconsent 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 thisdocument which has been sourced to ClearView, in the form and context in which it appears. ClearView isresponsible for the inclusion of the information in this document which has been sourced to ClearView anddeclares that ClearView has taken all reasonable care to ensure that such information is, to the best of itsknowledge, in accordance with the facts and contains no omission likely to affect its import. ClearViewHealthcare Partners is a life science strategy consulting firm with strong pharmaceutical expertiseincluding pricing and market access. ClearView’s headquarters are located at One Newton Place, 275Washington 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 theCapital Raise (including AIM admission fees, professional fees and expenses (including VAT), taxes andthe costs of printing and distribution of documents) are estimated to amount to £2.3 million and arepayable by the Company. Included within the total is the private placement agency fees, in relation to theissue, 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 fullstatutory 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 bewaived.

25.4 The Company does not have any “key man” insurance policies on Directors or Senior Management of theGroup.

25.5 The Company has taken out “directors’ and officers’ insurance” in respect of the Directors and SeniorManagement on the terms which the Directors consider to be appropriate in the context of the business ofthe Group. Each of the Directors will have the benefit of a qualifying third-party indemnity (the terms ofwhich are in accordance with the Companies Act).

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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 theoffices 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 (Intellectualproperty 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’sinception through 31 December 2015 and the report thereon by EY set out in Part X: “FinancialInformation”;

(d) the unaudited pro forma financial information set out in Part XI: “Unaudited Pro Forma FinancialInformation”;

(e) the report from Stratagem set out in Part XVIII: “Intellectual Property Expert Report”; and

(f) this document.

Dated 3 June 2016

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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 becomingeffective 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 NominatedAdvisers, as appropriate

Application Form the application form that accompanies the Admission Document foruse 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, AndersEkblom 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 paperlesssettlement of trades in listed securities operated by EUROCLEAR

CRO contract research organisation

CREST Regulations the Uncertificated Securities Regulations 2001 (SI 2001/3755), asamended

Directors the Executive and Non-Executive Directors of the Company

Disclosure and Transparency Rules the disclosure rules and transparency rules made by the FCA underPart 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 theCREST Regulations) of CREST

Exchange Act the U.S. Securities Exchange Act of 1934, as amended

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Executive Directors the executive directors of the Company from time to time, comprisingas 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, JohnRichard, Enrique Millan, Frank Armstrong, NxtScience AB, KunalKashyap, 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 theInternational Accounting Standards Board

Institutional Shareholders Novartis, Invesco and Woodford

IRS Internal Revenue Service

Listing Rules Rules published by the Financial Conduct Authority establishingminimum requirements for the admission of securities to listing, thecontent, scrutiny and publication of listing particulars and thecontinuing obligations of issuers after admission

Lock-up Agreement the lock-up agreement entered into between the Company, Novartisand the Private Placement Agents on 3 June 2016 and described inPart 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 theCompany

Nominated Adviser Agreement the nominated adviser agreement entered into between CantorFitzgerald Europe and the Company dated 3 June 2016, further detailsof which are set out in paragraph paragraph 12.3 (Nominated AdviserAgreement) 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, PeterBains, Anders Ekblom, Peter Fellner and Paul Blackburn (all ofwhom 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, FrankArmstrong, Peter Bains, Paul Blackburn, Anders Ekblom and KunalKashyap

Notes the unsecured convertible loan notes issued pursuant to a convertibleloan note instrument, further details of which are set out in paragraph12.5 (Convertible Loan Note Instrument) of Part XV: “AdditionalInformation”

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Official List the Official List maintained by the FCA

Ordinary Shares prior to the Share Consolidation, ordinary shares of £0.001 each in theCompany 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 asthe Board and the Private Placement Agents may in their absolutediscretion determine

PDMR person discharging managerial responsibilities within the meaning ofsection 96B(1) of the FSMA

Private Placement Agency Agreement the private placement agency agreement entered into between theCompany, the Directors, the Founders that are party thereto (CharlesSermon, Alastair MacKinnon and John Richard) and the PrivatePlacement 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 andother prospective investors at the Private Placement Price, asdescribed in Part XII: “Details of the Private Placement”

Private Placement Price the price per share of £2.21 for which the Private Placement Sharesare 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 2010PD Amending Directive to the extent implemented in the RelevantMember State) and includes any relevant implementing measure ineach Relevant Member State

Prospectus Rules the prospectus rules made by the FCA under Part VI of the FSMArelating to offers of transferable securities to the public and admissionof 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 hasimplemented 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, PeterBains and Anders Ekblom

Research and Development Committee the research and development committee of the Company from timeto time, comprising as at the date of this document, Frank Armstrong,Peter Bains and Anders Ekblom

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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 subsequentconsolidation of the 59,220,888 outstanding ordinary shares of £0.001in nominal value into 19,740,296 ordinary shares of £0.003 innominal 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 anagreement dated 1 June 2016, further details of which are set out inparagraph 12.4 (Subscription Agreement) of Part XV: “Additionalinformation”

Subscription Account the bank account with the following details:

Bank: Royal Bank of ScotlandSort Code: 15-10-00Account No: 32510151Account Name: Capita Registrars Ltd re: Mereo BioPharmaCHAPS A/CSwift Code: RBOSGB2LIBAN: GB34RBOS15100032510151

Subscription Amount the aggregate price in respect of the Private Placement Sharessubscribed 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 bythe Financial Reporting Council

U.S. Holder as defined in paragraph 14.1 (U.S. federal income taxation) ofPart XV: “Additional Information”

USPTO U.S. Patent and Trademark Office

VAT valued added tax

WHO World Health Organization

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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 symptomaticassessment of exacerbations of COPD for evaluating frequency, severity, anddurations of exacerbations in clinical trials of COPD

Forced Expiratory Volume(FEV)

a measurement of the amount of air that can be forcibly exhaled with one breath.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 thedeepest 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

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PART XVIII

IINTELLECTUAL PROPERTY EXPERT REPORT

The DirectorsMereo BioPharma Group plcFourth FloorOne Cavendish PlaceLondonW1G 0QF

The Directors

RBC Europe LimitedRiverbank House2 Swan LaneLondonEC4R 3BF

Cantor Fitzgerald EuropeOne Churchill PlaceCanary WharfLondonE14 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 EuropeLimited and Cantor Fitzgerald Europe for inclusion in the admission document issued by the Company inconnection with the admission of the Company’s entire issued and to be issued ordinary share capital to tradingon 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 entireissued and to be issued ordinary share capital to trading on AIM. It is not to be transmitted to anyone else (otherthan your affiliates and professional advisers or as required by applicable law, regulation, court order, the rules ofa recognised stock exchange or for the purposes of contesting or seeking to establish a defence in any legal orregulatory proceedings or investigations in any jurisdiction, actual or threatened) nor is it to be relied upon byanyone else (other than your affiliates and professional advisers) or for any other purpose, quoted or referred toin 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 wehave taken all reasonable care to ensure that the information contained in this report is, to the best of ourknowledge and belief, in accordance with the facts and contains no omission likely to affect its interpretation.

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EXECUTIVE SUMMARY

The Company is an independent biopharmaceutical company based in the United Kingdom with a focus on theacquisition and development of innovative medicines that aim to address unmet medical needs in rare andspecialty disease areas and improve patient quality of life. The Company is the holding company of three distinctwholly owned subsidiary companies: Mereo BioPharma 1 Limited, Mereo BioPharma 2 Limited and MereoBioPharma 3 Limited.

BCT-197

Mereo BioPharma 1 Limited, acquired full rights and title to patents relating to BCT-197 from Novartis PharmaAG in July 2015. The BCT-197 portfolio includes key composition per se patents to acumapimod (P001) whichare due to expire in June 2024, although extension of protection for up to 5 years may be possible in certainjurisdictions once marketing authorisation is obtained. The BCT-197 portfolio also includes a patent family forthe use of acumapimod in treating AECOPD (P002), which it is anticipated will be granted in all countries wherethe application is currently pending (and has already been granted in South Africa and the US), and will, oncegranted, 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 alarge number of countries, including many countries in Europe and the United States, Canada and Japan. TheP002 family includes pending, allowed and granted cases and covers a large number of countries. The P002family is of particular commercial relevance, since it protects the use of acumapimod in treating AECOPD, andcould 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 yearsof market exclusivity. As the product is not yet authorised, data and marketing exclusivity will extend beyond theterm of the P001 patents. Assuming that marketing authorisation is obtained by the end of 2020, then data andmarketing 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 territorieswhere granted and enforced until 2033. A supplementary protection certificate (SPC) may be applied for in theEuropean 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 EuropeanUnion until 2035. If marketing authorisation is obtained in March 2023 or later, an SPC based on the P002 patentwould give potential protection if enforced until 2038.

Two PCT applications which relate to dosage regimens of BCT197 have recently been filed and are currentlyunpublished. P005 (PCT/GB16/05036) and P006 (PCT/GB16/050635) were filed on 8th March 2016 andnational applications stemming from these PCTs will, if granted, provide protection for the dosage regimens until2036.

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The following table summarises the patent term of the patent families for BCT-197 and data and marketingexclusivity in Europe:

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2038

SPC(2)(3)/TermExtension(1)P001 (compound per se ) granted

P002 (medical use) pending

EU Data & Marketing Exclusivity until 2030 depending on MA date(1)

SPC(2)(3)/Term Extension(1) until2038 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 PharmaAG in July 2015. The BGS-649 portfolio includes pending and allowed applications to BGS-649 formulationsand pending, allowed and granted cases for the use of BGS-649 in treating hypogonadism according to a specificdosing regimen (both in P003). The US dosing regimen patent has been granted as US Patent No. 9,295,668. TheUS formulation application has been allowed. Both European applications have received formal allowance andwill 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 authorisationis obtained. If marketing authorisation for the product is obtained before 2022, then the patent term (and the termof any SPC) will extend beyond the data and marketing exclusivity period in Europe.

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The territories covered by the BGS-649 portfolio are extensive. The following table summarises the patent termof the patent families for BGS-649 and data and marketing exclusivity in Europe:

P003 (formulations and medical use) pending SPC(2)/Term Extension(1) until 2037 depending on MA date

EU Data & Marketing Exclusivity until 2031/2032 depending on MA date(1)

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037

(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 PharmaAG in July 2015 (P004). Patents in the P004 family have been granted in a large number of countries and provideprotection for the BPS-804 antibody as well as nucleic acids encoding the antibody and the antibody’s use as amedicament. These patents are due to expire in 2028, although protection may be extended for up to 5 years incertain countries once marketing authorisation is obtained. Data and marketing exclusivity may extend protectionin Europe, depending on when marketing authorisation is granted. Two US provisional applications, relating to aspecific dosage regimen of BPS804 have been filed and are currently unpublished (P007). These may serve aspriority 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 theUnited States in March 2016 and received a positive opinion of the COMP with respect to orphan drugdesignation for the product in the European Union in May 2016, ratification of which is expected to be aformality. The grant of orphan drug designation in the European Union means that 10 years of marketingexclusivity will be available from the date of marketing authorisation in the European Union. The usual “8+2” (8years of data exclusivity + 2 years of market exclusivity) afforded to authorised medicinal products only protectsagainst another company’s reliance on the marketing authorisation holder’s data. It does not prevent anothercompany from independently developing and selling a competing product and is therefore only valuable in so faras 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 fromapproving a “similar medicinal product” for the same therapeutic indication and therefore gives broaderprotection than the usual data and market exclusivity. Where an application for a marketing authorisation for anorphan product includes the results of studies conducted in accordance with an agreed paediatric investigationplan (PIP) then a further two years of exclusivity is available.

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The following table summarises the patent term of the patent families for BPS-804 (Company’s patents) and dataand marketing exclusivity in Europe:

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033

P004 (antibody and use) mix of pending and granted SPC(2)/Term Extension(1) until2033 depending on MA date

EU Data & Marketing Exclusivity until 2032 depending on MA date(1)

(3)EU Marketing Exclusivity until 2032 depending on MA grant & orphan designation(1)

(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. StratagemIPM Ltd has been commissioned to review the registered patent rights owned by and licensed to the Companyand its subsidiaries and to provide this report.

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The contact details for Stratagem are as follows:

Stratagem IPM LtdMeridian CourtComberton RoadToftCambridge CB23 2RYUK

Tel: +44 (0) 1223 550740Fax: +44 (0) 1223 550748

The relevant attorney details are as follows:

Nicola Baker-Munton CPA, EPACatherine Lovell CPA, EPALaura Fletcher CPA, EPA

At Stratagem IPM Limited (“Stratagem”), we act as intellectual property advisors and patent and trade markattorneys. The professional staff at Stratagem are European Patent Attorneys and/or UK Chartered PatentAttorneys, who have the necessary technical specialism and are legally qualified to act for technology clientsbefore the UK Intellectual Property Office (UKIPO) and the European Patent Office (EPO). We also haveexpertise 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 PatentAttorney and European Patent Attorney with a joint honours degree in biology and biochemistry. Nicola spentnine years as an industrial practitioner at the Wellcome Foundation Limited, and has been advising companies inthe 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 inBiology. Before training as a patent attorney, Catherine gained valuable commercial experience in the field ofintellectual property licensing and technology transfer. Before joining Stratagem, Catherine spent 5 yearsworking as a Biotech Patent Attorney at AstraZeneca where she gained extensive experience of intellectualproperty due diligence and antibody patenting.

Laura Fletcher joined Stratagem in 2014 and is a UK Chartered Patent Attorney and European Patent Attorneywith an honours degree in Chemistry. Since working for Stratagem, Laura has managed portfolios and providedstrategic advice in the fields of novel chemistry, formulations, polymers and drug conjugates, working with start-ups and SMEs.

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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. Opinionsexpressed in this summary are based on the relevant facts and information known to us, and represent our honestbelief.

For all families, the ownership has been checked at the USPTO and EPO, although original documents, such ascontracts of employment of inventors, have not generally been sought. The correctness of the inventorship hasalso not been checked. The status of the cases is based on information supplied by the Company, and publicregisters for US and European applications.

Yours faithfully

Nicola Baker-Munton CPA, EPALaura Fletcher CPA, EPACatherine Lovell CPA, EPA

On behalf of Stratagem IPM Limited

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APPENDIX A—BCT-197

Patent Family P001—5-Membered heterocycle-based P38 kinase inhibitors. Based on an internationalapplication with the publication number WO2005/009973. The compound acumapimod is specifically named, onits own, in claim 103 of the European case and in claim 7 of the main US case. The claim set also includes claimsfor treatment of p38 kinase-mediated diseases or disorders, as well as process claims. The current claim scope iswell supported by the examples and the comparative data on the public recorded supports inventive step. Thispatent 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 GrantedAustralia 2004259662 Granted Malaysia PI20042496 AllowedBrazil PI0411825.1 Pending Mexico 290092 GrantedCanada

2526455 GrantedNewZealand 544230 Granted

China 200480018056.4 Granted Norway 334947 GrantedColombia 2432 Granted Russia 2381219 GrantedEgypt 858/2005 Pending Singapore 122993 GrantedEurope 1641764 Granted South Africa 2005/09018 GrantedEurope (Div) 2298743 Granted South Korea 1120857 GrantedHong Kong 1088895 Granted UAE P697/05 PendingHong Kong (Div) 1149764 Granted USA 7863314 GrantedIndia 234101 Granted USA (Div) 8242117 GrantedIndonesia IDP0031204 Granted USA (Cont.) 8410160 GrantedIsrael 172182 Granted USA (Cont.) 8580838 GrantedIceland 2916 GrantedIceland (Div) 9037 Pending

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EP1641764 and EP2298743 are both granted and are both in force in the following European territories:

Austria HungaryBelgium IrelandBulgaria ItalySwitzerland LithuaniaCyprus LuxembourgCzech Republic LatviaGermany MonacoDenmark NetherlandsEstonia PolandSpain PortugalFinland RomaniaFrance SwedenUnited Kingdom SloveniaGreece SlovakiaCroatia Turkey

Patent Family P002—Use of pyrazole derivative in the treatment of acute exacerbations of chronic obstructivepulmonary tissue. Based on an international application with the publication number WO2013/139809. Thisfamily provides robust protection for the use of acumapimod in treating AECOPD and should grant in allterritories.

Patent Family P002 summary table

Country Application no. Status Country Application no. Status

Algeria 140590 Pending New Zealand 628392 PendingAustralia 2013237503 Allowed Philippines 1-2014-502107 PendingBrazil 112014023107-9 Pending Russia 2014141893 PendingCanada 2866108 Pending Singapore 11201404941W PendingChina 201380015703.5 Pending South Africa 2014/05871 GrantedEgypt PCT/1325/2014 Pending South Korea 2014-7025904 PendingEurope 13710851.0 Allowed Taiwan 102109739 PendingHong Kong 15101000.9 Pending Thailand 1401005467 PendingIndonesia P00201405202 Pending UAE P977/14 PendingIsrael 234537 Pending United States 9,339,491 GrantedJapan 2015-500892 Pending United States 15/143,356 PendingMexico MX/A/2014/011291 Pending

Patent Family P005 – Dosage regimen of BCT197. International application No. PCT/GB16/05036 – not yetpublished.

Patent Family P006 – Dosage regimen of BCT197. International application No. PCT/GB16/050635 – not yetpublished.

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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 ashared priority. A patent has been granted in the US as US 9,295,668. The European applications have receivedformal 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 couldbe 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 PendingArgentina P120103283 Pending Israel 231234 PendingAustralia 2012304693 Allowed Japan 2014-529832 PendingAustralia 2012304694 Pending Japan 2014-529833 PendingBrazil 112014004879.7 Pending Mexico MX/a/14/002773 PendingBrazil 112014005434.7 Pending Mexico MX/a/14/002780 PendingCanada 2845929 Pending New Zealand 621476 PendingCanada 2846884 Pending Russia 2014113334 PendingChina 201280043378.9 Pending Russia 2014113575 PendingChina 201280043614.7 Pending Singapore 2014012132 PendingEgypt 188/2014 Pending South Africa 2014/01040 PendingEurope 12758965.3 Allowed South Korea 2014-7006170 PendingEurope 12758966.1 Allowed South Korea 2014-7006171 PendingGCC P/2012/22126 Pending United States 9,295,668 GrantedHong Kong 14109586.5 Pending United States 14/342813 AllowedIndia 1619/DELNP/2014 Pending United States 15/050,394 PendingIndia 2103/DELNP/2014 Pending

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APPENDIX C—BPS-804

Patent Family P004—Composition and methods for use of antibodies against sclerostin. Based on aninternational 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 GrantedArgentina AR068767 Granted Israel 204510 GrantedAustralia 2008309514 Granted Japan (Div) 5913181 GrantedBrazil PI0817879.8 Pending Japan (Div) 2016-014340 PendingCanada 2702005 Allowed Macau J/1084 GrantedChina 200880111133.9 Granted Mexico 305531 GrantedColombia 4223 Granted New Zealand 584158 GrantedEgypt PCT/573/2010 Pending Russia 018756 GrantedEurope 2203478 Granted Singapore 159880 GrantedEurope (Div) 13151551.2 Allowed South Africa 2010/01789 GrantedGCC GC0003999 Granted South Korea 1268675 GrantedHong Kong 1143173 Granted United States 7879322 GrantedHong Kong 13109055.8 Pending United States (Cont) 8246953 GrantedIndia 2067/DELNP/10 Pending United States (Cont) 8486661 Granted

EP2203478 is granted and is in force in the following European territories:

Austria IrelandBelgium IcelandBulgaria ItalySwitzerland LithuaniaCyprus LuxembourgCzech Republic LatviaGermany MaltaDenmark NetherlandsEstonia NorwaySpain PolandFinland PortugalFrance RomaniaUnited Kingdom SwedenGreece SloveniaCroatia SlovakiaHungary Turkey

Patent Family P007 – Dosage regimen. Two US Provisional Applications – not yet published.

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