Retroscreen Virology Group PLC Conditional -3-

Once new predictive and prognostic biomarkers and drug targets have been identified, the Directors believe that a range of commercialisation and partnering options are available to Retroscreen to realise shareholder value. These include research collaborations, co-development agreements and out-licensing deals, at different stages of development. The hVIVO platform provides an ideal opportunity for the Group to demonstrate proof of concept for a new product, and to build-out a licensing package with additional supportive data on dose selection and mechanism of action, prior to partnering and subsequent commercialisation to drive deal value. However, the Directors believe that the preferred partnering strategy will depend both on the disease area, the product development and expertise requirements and the probability, costs and timelines involved.

The Group could expect to receive a combination of upfront, milestone, and sales performance payments from a licensing and commercialisation partner, together with royalties on product sales. Market research indicates that the average headline deal value for a therapeutic product out-licensed at Phase II of a clinical trial is $170 million, excluding royalties, while for breakthrough products, the Directors' point to industry precedents for headline deals of even higher value for both biomarker and product based licensing deals.

   2.       Current trading and outlook

Increasing industry adoption of the hVIVO platform has resulted in Retroscreen being able to achieve two and a half years of exceptional growth. As a result, the majority of Retroscreen's workload to-date, reflected in utilisation of staff and quarantine facilities, has been employed for external client engagements, generating revenue and gross profit. The Directors expect to report revenue for the six months ended 30 June 2014 in excess of GBP14.0 million (H1'13, GBP12.0 million; 2013, GBP27.5 million) when the Company announces its half-year results in September 2014. This strong performance is due to a busy schedule of client engagements across two quarantine facilities, with the Group continuing to achieve improvements in gross profit margin (H1'13, 28.3 per cent; 2013, 30.2 per cent). The Company will also report an increased R&D expense as the Group continues to build its in-house R&D capability and preparations are made to implement the Group's R&D plan. Cash as at 30 June 2014 was GBP31.6 million (H1'13, GBP13.2 million; 2013, GBP35.8 million).

Retroscreen has reached an inflection point where it now needs to achieve a balance of external client revenue engagements with internal R&D studies. In order to accelerate the R&D programme the Directors are targeting a 70:30 balance of external client revenue engagements to internal R&D studies, which in time is expected to become an equal 50:50 balance as overall workload increases. This will be a significant transition for Retroscreen, such that in the next twelve months there may be lumpiness in balancing the prioritisation and timing of client revenue engagements and internal R&D studies. Accordingly, in the short term this is expected to lead to lower revenue for the second half of 2014. However, longer term as the Company diversifies its workload and expands its capacity, including the introduction of Chesterford Research Park in summer 2015, the Directors believe that the balancing of client revenue engagements and internal R&D studies should increase Retroscreen's overall utilisation of staff and facilities. The Directors believe this will drive cost efficiencies and gross profit margin improvement, which will in part contribute to the Company's increasing investment in R&D expense and requirement for cash.

In July 2014, Kym Denny and members of the senior management team completed an extensive client roadshow to announce the Group's broadening strategy and begin to explore potential collaborations with existing and new customers. The Company is delighted to report that it received very positive feedback on the client roadshow, particularly regarding the development of the new disease models.

The Directors anticipate strong progress with the new model development programme and in-house R&D programmes over the next 24 months. The Group plans to calibrate hVIVO in both asthma and COPD models, while elucidating a circuit plan for at least one target disease with the subsequent discovery of a first candidate biomarker. Once identified, the Group intends to meet with the regulators including the FDA to determine the most appropriate development pathway. This will allow the Group to start the clinical validation of the biomarker while seeking a collaboration or partnership for product development and commercialisation.

   3.       Use of proceeds

The Placing is intended to allow Retroscreen to further utilise the skills, resources and expertise that it has developed over the last two years, to accelerate sample generation and subsequent bioinformatics work in the race to identify novel biomarkers and drug targets in areas of high unmet medical need.

The Directors intend that the net proceeds of the Placing, being approximately GBP32.8 million, will be used by the Group principally for the following:

   --        Accelerate biomarker discovery programme in 'flu' and asthma; 
   --        Refine asthma model for product validation use; 
   --        Initiate COPD model development as the second airways disease opportunity; and 
   --        Broaden the Group's Challenge Agent repertoire.

The Company anticipates that the proceeds will be invested in these R&D programmes over the next 24 months.

   4.       Details of the Placing

The Group proposes to raise GBP33.6 million, approximately GBP32.8 million net of expenses, by way of a conditional, non-pre-emptive placing of 12,923,077 New Ordinary Shares at the Placing Price. The New Ordinary Shares have been placed by Numis as agent for the Company pursuant to the Placing Agreement with institutional and other professional investors. The Directors had considered whether the Company would be able to extend the offer of new Ordinary Shares to all existing Shareholders but, having discussed this with its professional advisers, decided that the expense of doing so could not be justified and would not be in the best interests of the Company.

The Placing Price represents a discount of approximately 18.8 per cent. to the closing mid-market price of the Ordinary Shares of 320 pence on 13 August 2014 (being the last practicable dealing day prior to the date of this document). The New Ordinary Shares will represent approximately 19.1 per cent. of the Ordinary Share capital as enlarged by the Placing and will, when issued, rank pari passu in all respects with the other Ordinary Shares then in issue, including all rights to all dividends and other distributions declared, made or paid following Admission.

The Placing Agreement is conditional upon (amongst other things) it not having been terminated, the passing of the Resolutions at the General Meeting and Admission occurring on or before 8.00 a.m. on 2 September 2014 (or such later date as Numis and the Company may agree, being not later than 8.30 a.m. on 16 September 2014).

The Placing Agreement contains warranties from the Company in favour of Numis in relation to (amongst other things) the Group and its business. In addition, the Company has agreed to indemnify Numis in relation to certain liabilities it may incur in undertaking the Placing. Numis has the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, it may terminate in the event that there has been a material breach of any of the warranties or for force majeure.

Application will be made for the New Ordinary Shares to be admitted to trading on AIM. It is expected that dealings in the New Ordinary Shares will commence on AIM on 2 September 2014.

   5.       Change of name

The Directors consider that the company name, Retroscreen Virology Group, which is a legacy of the Group's origins in the field of retroviruses, along with the strap line 'Conquering Viral Disease' is no longer appropriate to describe the business.

The Directors' expanded vision for the Group provides an ideal opportunity to change the company name and introduce more appropriate, forward looking branding. The Directors intend to adopt the name hVIVO, which is currently the Group's proprietary name for its technology platform, as the new company name. The new name will be implemented in the last quarter of 2014 and shareholder approval is not required for this name change under the Company's articles of association.

hVIVO provides the Company with a bold new name which encapsulates its pioneering vision of fundamentally understanding human biology and disease by working in partnership with human volunteers. In essence, hVIVO enables human biology to be studied in human volunteers, with the aim of conquering human disease, not just viral disease.

   6.       Related party transaction

As part of the Placing, Invesco, which is a related party for the purpose of the AIM Rules by virtue of being a "substantial shareholder", has agreed to subscribe for 4,230,769 New Ordinary Shares.

As at 13 August 2014 (being the last practicable date prior to the release of the Announcement), Invesco holds approximately 24.4 per cent. of the voting rights attached to the issued share capital of the Company. Immediately upon Admission, Invesco is expected to hold 17,569,338 Ordinary Shares representing 26.0 per cent. of the issued share capital as enlarged by the Placing.

The Directors consider, having consulted with the Company's nominated adviser, Numis, that the participation by Invesco is fair and reasonable in so far as its Shareholders are concerned.

The AIM Rules do not prohibit Invesco from exercising the voting rights attached to its holding of Ordinary Shares at the General Meeting.