Acquisition of Dermatonics

• Provides access to new sales channels for AxisBiotix products and platform for SkinBiotix technology with focus in woundcare
• Immediately revenue and profit accretive, as well as cash flow positive, with additional potential cost synergies
• Revenues of c.£1.8 million and adjusted EBITDA of c.£0.23 million in FY23
• Brings on board additional operational, sales and regulatory affairs expertise
• Consideration of up to £2.93 million comprising £1.68 million initial cash consideration and £1.25 million earn-out over the next three years
• Acquisition financed through £1.6 million drawdown from new £5.0 million convertible bond facility (see separate announcement)

25 January 2024 - SkinBioTherapeutics plc (AIM: SBTX, or the "Company"), the life science business focused on skin health, announces that it has entered into an agreement to acquire the issued share capital of Dermatonics Limited, a specialist in innovative topical and dermatological products in the skincare/woundcare space.

The initial consideration is £1.68 million plus £1.25 million earn-out over three years, in a cash-free and debt-free acquisition. Completion will take place upon clearance of funds being drawn down from the CLN facility which is expected to take place no later than 25 January 2024.

This acquisition aligns directly with SkinBioTherapeutic's stated strategy to seek accretive inorganic opportunities that provide immediate synergies and accelerated routes to market. In addition, the acquisition provides inorganic revenue growth and reduces losses at a Group level.

Operational and commercial highlights

• Expands SkinBioTherapeutics' product range and customer base

o Established and reputable topical and dermatological company in the skincare/woundcare space

o Products range from heal balm, treatments for warts & verrucas, to dry skin relief

o Dermatonics is ISO13285 registered and products are either Class1 Medical Devices or Cosmetics

o Strong retail customer following and testimonials [Trustpilot 4.9]

• Provides sales platform and new sales channels for SkinBiotix technology and products

o Access to mainstream retailers including Boots and Superdrug, ecommerce (Amazon) and also into specialist podiatry clinics

o Access to new geographies in Europe and Asia

o Opportunity for product development in the MediBiotix pillar in woundcare

• Immediately accretive - Dermatonics is currently revenue generating, profitable and cash flow positive, with the additional potential for cost synergies

Further details of Dermatonics are set out below.

Financial highlights

• SkinBioTherapeutics is acquiring 100% of the share capital for up to £2.93 million

o Initial cash consideration of £1.68 million

o Further contingent consideration of up to £1.25 million in cash, payable upon achievement of financial performance targets over 2024, 2025 and 2026

• Initial acquisition funding provided through £1.6 million draw down of £5.0 million convertible bond facility ('new Facility', see separate announcement)

Further acquisition

The Company is in advanced negotiations and diligence to acquire a second company in a similar sector, with total consideration of less than £2 million, where cash flow is positive and there are business synergies; this acquisition is currently expected to be completed in Q1 2024.

Stuart Ashman, CEO of SkinBioTherapeutics, said:

"We are delighted to announce our first acquisition as part of our ongoing consolidation strategy in the skincare and hygiene sectors.

"As we have said repeatedly, we have steered a careful course of finding revenue generating and profitable companies that also provide operational synergies to our underlying business. Dermatonics ticks all of these boxes.

"We also gain access to a great customer base including high street retail brands like Boots and Superdrug, plus e-commerce, including Amazon, and more specialist healthcare outlets. Importantly, for the longer term, we gain a platform to back our SkinBiotix™ technology into for our MediBiotix woundcare and skin healing pillar.

"We believe SkinBioTherapeutics and Dermatonics are very complementary as businesses, and we are looking forward to working with the Dermatonics team."

Greg Andrell, CEO of Dermatonics, said:

"We have grown Dermatonics over the past 16 years to become a well known and trusted set of brands in the specialist skincare / woundcare market. It makes total sense to us to combine forces with SkinBioTherapeutics who looks at skin care in a similar way to us; we focus on natural ingredients and SBTX focuses on the microbiome. Together, we are stronger, with a broader range of products and an exciting SkinBio technology platform behind them, solid financial resources and scale to enjoy cost efficiencies and synergies. We are excited about the opportunity to become part of the SkinBioTherapeutics team."

Shareholder presentation and Q&A

CEO, Stuart Ashman, and CFO, Manprit Randhawa, will provide a live presentation about the terms and rationale of the acquisition of Dermatonics and the financing details via the Investor Meet platform Friday 26 January at 10:00 am GMT.

596/2014.

As stated in the FY results on 30 November 2023, the Group put in place a strategy to accelerate growth through a dual track of organic growth of its own portfolio and inorganic growth through the acquisition of companies that either manufacture or sell a variety of branded topical products for common dermatological conditions to NHS hospitals, dispensing practices and national pharmacy chains.

Management was clear that any targets which the Group was interested in purchasing would have to be accretive from a revenue and earnings perspective from day one, and thus reduce the operating cash burn. The overall goal of the Group was to become a cash generating entity within 12-18 months of each acquisition.

The Directors believe that Dermatonics' business and financial performance fulfils all the criteria set by SkinBioTherapeutics, and provides an accretive and synergistic growth opportunity for the Company.

Introduction to Dermatonics

Dermatonics was established in 2008 and specialises in the production of innovative topical and dermatological products in the skincare/woundcare space, with the aim of using natural ingredients wherever possible.

The company's strategy has been to focus its development activities in areas where it identifies room for improvement in products currently available on the market, producing more effective treatments that provide faster results and/or less application.

The business is based in St Ives, Cambridgeshire, employing six staff, mainly made up of sales and operations / back office staff.

The business is being sold by its sole owner, Greg Andrell, who also runs the business, supported by his Operations Manager, Tom Waughman. Mr Andrell will remain involved post-completion in a position to ensure performance targets are achieved as agreed in the terms of the deferred consideration.

Within the sales and operations team, there are Regulatory Affairs and accounts roles which will be added to in-house capabilities at SkinBioTherapeutics (currently regulatory affairs is outsourced).

Sales roles will remain in place, and there is the potential to push AxisBiotix-Ps through these individuals and channels in time.

Financial performance

For the financial year ended 31 January 2023, Dermatonics reported unaudited revenues of £1.82 million and an adjusted EBITDA of £230k adjusting for one off items (£150k stock write off and £123k bad debt). Financial year to date revenues and profits reflect upward momentum with higher revenue and improved margins. As at 31 August 2023, Dermatonics had total assets of £558k.

The acquisition of Dermatonics is expected to be immediately financially accretive through additional revenues and profits.

Product range

The range of products is available at https://www.dermatonics.co.uk.

The business is ISO 13485 registered, and products are either Class 1 Medical Devices or Cosmetics. The products are well proven in the UK market with excellent customer following and reviews, including a 4.9 rating on Trustpilot.

The prescription range products are also well established and four products are currently listed on the UK Drug Tariff set by the NHS.

All manufacturing is outsourced to UK third parties.

Diversified sales routes

Dermatonics has developed five routes to market (channel or distributor) for its products, resulting in diversified revenue streams:

• Prescription (UK Drug Tariff) sales (e.g. Boots, SuperDrug, +well, Cohens chemist
• Export (e.g.) Alliance Health, AAH, Citysuper,)
• OTC Pharmacy (e.g. Boots, SuperDrug, +well, Cohens chemist, PSUK)
• E-commerce direct to consumer (e.g. Douylin e-commerce, Amazon, Aster DM Healthcare
• Podiatry clinics (e.g. Shuropody)

Geographically, Dermatonics' products are available in the UK, Europe (Portugal, Spain), Baltics, and Vietnam.

Academic links

Besides a positive customer following, Dermatonics has strong links with key opinion leaders in the podiatry space who have been long term users and /or have consulted on the creation of new products:

• Professor Stuart Baird, Emeritus professor of Podiatry, Glasglow Caledonian University and former Chair of Royal College of Podiatry. He is an international leader in the implementation of diabetic footcare services
• Michelle Scott, Chair of The Royal College of Podiatry
• Rebecca Penzer, Editorial Board Member of Dermatological Nursing and Senior lecturer in Dermatology.

Within the academic and clinical environment, there have been four published studies in connection with Dermatonics's products and technology.

Rationale for acquisition

SkinBioTherapeutics, through its AxisBiotix pillar, aims to develop and market systems of products which aim to heal skin from within (Gut-Skin Axis) and heal from outside (using a range of topicals).

Within the R&D pipeline in SkinBioTherapeutics, are a range of programmes and cost centres which aim to develop topicals using the SkinBioTherapeutics technologies over the coming years as new products / applications are launched, as well as for the current product AxisBiotix-Ps.

SkinBioTherapeutics believes this accretive acquisition fulfils a number of strategic, commercial and operational goals, and is in line with the Company's stated growth strategy.

• Diversifies SkinBioTherapeutics' product portfolio, and sales and distribution channels

Dermatonics is an established and reputable topical and dermatological company in the skincare/woundcaremarket with products classed as either Class 1 Medical Devices or Cosmetics. It markets its products through various sales channels globally and its products are trusted by healthcare professionals, podiatrists and customers.

As well as generating additional revenues from these new products, Dermatonics presents an opportunity to capitalise on these sales channels for existing and new SkinBioTherapeutics products. There is also the opportunity for product development in the MediBiotix Pillar as Dermatonics's creams are also proven to be effective in hard to heal skin/wounds.

• Immediately accretive through revenues generated and cost synergies:

Dermatonics is revenue and profit making, and cash generative, and therefore, would immediately add to SkinBioTherapeutics' financial position.

The acquisition is cash-free and debt-free.

The earn-out has been structured to ensure Dermatonics continues to perform as anticipated. Senior director experience is being retained to ensure a smooth transition as well as performance alignment on deferred consideration.

Additional senior, regulatory and sales expertise

Dermatonics has a small staff of six including regulatory affairs and bookkeeping. These roles will add to SkinBioTherapeutics' in-house capabilities, in particular, regulatory affairs which is currently outsourced.

The sales staff will be incorporated into the SkinBioTherapeutics team, and as well as being responsible for Dermatonics products, will also be able to take on SkinBioTherapeutics' own products and channels, such as for AxisBiotix-Ps.

At the senior level, the operations manager, Tom Waughman, will report into Stuart Ashman, CEO of SkinBioTherapeutics. He is responsible for day-to-day management of overall operations.

In summary, the Directors of SkinBioTherapeutics anticipate that this acquisition provides the platform for SkinBioTherapeutics to gain access to reputable brands within the skincare/woundcare market in the UK, access to various sales channels and revenue and profitability with scope for future growth.

Caution regarding forward looking statements