Aroa Biosurgery : December Quarterly Report and Appendix 4C

ASX ANNOUNCEMENT/MEDIA RELEASE 28 January 2022

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A R O A B I O S U R G E R Y D E C E M B E R 2 0 2 1 4 C - C O M M E N T A R Y

Financial Highlights

• Net cash flow outflow from operations was NZ$0.8 million for the quarter, compared to $2.8 million in the previous quarter.
• Net cash outflow from investing activities was NZ$1.4 million for the quarter, reflecting costs of AROA's manufacturing facility expansion.
• Strong cash balance of NZ$62.9 million as at 31 December 2021, and the Company is debt free.
• FY22 guidance for product revenue (on a constant currency basis1) maintained at NZ$34-37million2 (up 58%-71% on FY21).

Operational Highlights

• Over five million AROA devices applied in treating patients to date.
• AROA's US direct field sales team continues to penetrate new Myriad™ accounts despite COVID-19 headwinds and limited access, establishing a strong foundation for future growth.
• Construction completed with qualification now underway for AROA's second manufacturing facility to support approximately NZ$100 million in annual sales. Qualification is expected to be completed in Q1 CY22.
• Peer-reviewedstudy further validates properties and qualities of AROA ECM technology, providing a deeper understanding of how these features can improve clinical outcomes.
• Launch of new phase IV Myriad Registry study in the US, with patient enrollments now underway. This is AROA's largest prospective study to date, targeting 300 patients across ten US sites over a three-year period, and is intended to document the use of Myriad Matrix™ and Myriad Morcells™ in a broad range of surgical procedures.
• Patient enrollment underway for a pilot study evaluating the use of AROA's Symphony™ products in the treatment of diabetic foot ulcers ('DFUs') in the US. The pilot study is expected to conclude in Mid-CY22.
• AROA will host an investor webinar today at 9.30am AEDT to discuss the results.Click hereto register.

Soft tissue regeneration company Aroa Biosurgery Limited (ASX:ARX, 'AROA' or the 'Company') is pleased to provide an update on its activities for the quarter ended 31 December 2021.

1. Constant currency removes the impact of exchange rate movements. This approach is used to assess the AROA group's underlying comparative financial performance without any distortion from changes in foreign exchange rates, specifically the USD. The NZD/USD exchange rate of 0.72 has been used in the constant currency analysis, representing the AROA group's budget rate for FY22. All references in this announcement to 'constant currency' are as set out in this footnote.
2. Given the dynamic and evolving impact of COVID-19, the guidance is subject to there being no material decline in US medical procedure numbers or sustained disruption to AROA's manufacturing or transportation activities. It assumes an average NZD/USD exchange rate of 0.72.

AROA BIOSURGERY LIMITED ARBN 638 867 473 NZCN 1980577 64 Richard Pearse Drive, Auckland 2022, New Zealand

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Financial commentary and outlook

Cash receipts from customers for Q3 FY22 were NZ$9.1 million, compared to NZ$8.6 million for Q2 FY22. This increase reflects the continued solid sales performance during the quarter following H1 FY22's strong sales performance.

Net cash outflow from operating activities for Q3 FY22 was NZ$0.8 million, compared to NZ$2.8 million for Q2 FY22 (noting that Q2 FY22 included a one-off interest payment of NZ$1.5 million).

Net cash outflow from investing activities was NZ$1.4 million for Q3 FY22, compared to NZ$1.2m for Q2 FY22, reflecting AROA's investment into expanding its manufacturing facility.

Cash inflows from financing activities was NZ$0.2 million, compared to a net cash inflow of NZ$38.0 million in the previous quarter.

AROA ended the quarter with cash on hand of NZ$62.9 million, providing the Company with adequate cash reserves to further invest in expanding its US commercial operations and to accelerate and broaden its research and development pipeline.

AROA maintains its FY22 product revenue guidance (on a constant currency basis) of NZ$34-37 million. This reflects a 58-71% increase on FY21 product revenue on a constant currency basis. Product gross margins are expected to be between 73-75%. EBITDA will be negative as previously forecast. Given the dynamic and evolving impact of COVID-19, guidance is subject to there being no material decline in US medical procedure numbers and assumes an average NZD/USD exchange rate of 0.72. In view of the community outbreak of Omicron in New Zealand, guidance is also subject to there being no sustained disruption to AROA's manufacturing or transportation activities. AROA continues to monitor and actively manage for these risks.

AROA delivered its half-yearly report for H1 FY22 in November 2021, with highlights including:3

• H1 FY22 product revenue (unaudited) grew 110% on H1 FY21 and 39% on H2 FY21, to NZ$17.2 million on a constant currency basis;
• H1 FY22 product revenue (unaudited) was $17.7 million on a reported basis;
• Total reported H1 FY22 revenue (unaudited), inclusive of project fees was NZ$17.9 million;
• Product gross margin percentage was up 13% on H1 FY21 and 5% on H2 FY21, to 75% on a constant currency basis; and
• Cash balance of NZ$65.3 million as at 30 September 2021, and no debt.

In accordance with ASX Listing Rule 4.7C.3, AROA advises that an aggregate amount of NZ$102,000 was paid during the quarter to the Company's five Non-Executive Directors for directors' fees.

Appendix A provides a summary of actual expenditure, compared to the estimated use of funds set out in AROA's IPO Prospectus, in accordance with ASX Listing Rule 4.7C. Cash expenditure is consistent with the use of funds set out in that Prospectus.

3 Refer to AROA's ASX announcement dated 25 November 2021 for more information.

AROA BIOSURGERY LIMITED ARBN 638 867 473 NZCN 1980577 64 Richard Pearse Drive, Auckland 2022, New Zealand

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Sales

Over five million AROA devices have been applied in treating patients to date.

The Company continued to invest in its US commercial operations, and currently has 28 field sales representatives focused on Myriad sales. Clinical evaluations and value committee approvals within hospital accounts are continuing despite COVID-19 headwinds and limited access. AROA is pleased with the progress made in a difficult operating environment. Myriad is currently approved for use in 46 accounts, further validating its potential and establishing a strong foundation for future growth.

Manufacturing

Construction has completed of AROA's second manufacturing facility to support approximately NZ$100 million in annual sales. The facility is now undergoing qualification for use, and the Company expects this to be completed in Q1 CY22. Operating capacity from the expansion will come on-line in phases as necessary based on demand.

Peer-reviewed study further validates AROA ECM technology

The Company gained further validation for its AROA ECM platform technology, through the publication in November 2021 of a peer-reviewed study which provides a deepened understanding of the biological properties and potential healing qualities of that technology.

AROA undertook the study, titled ""Further Structural Characterization of Ovine Forestomach Matrix and Multi-Layered Extracellular Matrix Composites for Soft Tissue Repair"4 (published in the Journal of Biomaterials Applications and available online at

https://journals.sagepub.com/doi/10.1177/08853282211045770), to scientifically characterize AROA ECM.

The study found that AROA's proprietary non-destructive processes remove unwanted cells from the tissue while leaving other native structural features of the tissue extracellular matrix intact. These include 'residual vascular channels' which are a unique feature of the AROA ECM platform technology due to its highly vascular source tissue, ovine forestomach matrix. The residual vascular channels serve as templates to enable rapid cell repopulation and vascularization of the AROA ECM grafts, and is thought to support a more rapid establishment of a capillary bed and vasculature in patients. Overall, the products were also shown to promote and accelerate the migration and proliferation of keratinocyte, a process that is known to aid wound closure.5

The research also described the unique composition of AROA's Symphony device, which combines the structure and biology of AROA ECM with hyaluronic acid, a naturally occurring polymer which is known to play a key role in wound healing, moisture retention, cellular processes, and blood vessel

1. Smith, M. J., S. G. Dempsey, R. W. Veale, C. G. Duston-Fursman, C. A. F. Rayner, C. Javanapong, D. Gerneke, S. G. Dowling, B. A. Bosque, T. Karnik, M. J. Jerram, A. Nagarajan, R. Rajam, A. Jowsey, S. Cutajar, I. Mason, R. G. Stanley, A. Campbell, J. Malmstrom, C. H. Miller and B. C. H. May (2021). "Further structural characterization of ovine forestomach matrix and multi-layered extracellular matrix composites for soft tissue repair." J Biomater Appl 36(6): 996-1010.
2. Pastar, I., O. Stojadinovic, and M. Tomic-Canic. 2008. 'Role of keratinocytes in healing of chronic wounds', Surg Technol Int, 17: 105-12.

AROA BIOSURGERY LIMITED ARBN 638 867 473 NZCN 1980577 64 Richard Pearse Drive, Auckland 2022, New Zealand

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formation.6

Launch and enrollment for Myriad Registry study

AROA has launched a Phase IV Registry study to evaluate AROA's Myriad Matrix and Myriad Morcells products in a wide range of surgical specialties and procedures. This is AROA's largest prospective study to date, targeting 300 patients across ten US sites over a three-year period. Patients enrolled in the study will undergo a range of surgical procedures, including abdominal dehiscence repair, necrotizing soft tissue infection, lower extremity complex non-healing wounds, pressure injury reconstruction, pilonidal sinus disease reconstruction, hidradenitis suppurativa reconstruction and anal fistula. The study will assess factors including time to complete healing, percentage rate of surgical complications and time to 100% granulation of the graft. The first patient was enrolled in the study in January 2022.

Enrollment for DFU pilot study

Enrollment commenced and is currently underway for AROA's pilot study evaluating AROA's Symphony products in the treatment of non-healing DFUs. Symphony has been developed to support the 'proliferative' phase of healing to reduce the time to wound closure, particularly in patients whose healing is severely impaired or compromised due to disease. Research indicates that up to one-third of the half a billion people with diabetes worldwide will develop a DFU over the course of their lifetime7 and that an estimated one in six patients with a DFU will go on to require lower limb amputation.8 DFUs are the leading cause of non-traumatic amputations in the US and are estimated to cost the US health care system $9-13 billion per annum.9,10

The pilot study will involve ten patients in the US and will evaluate treatment, over a 12-week period, of their non-healing DFUs with Symphony. The study is expected to conclude in mid-CY22, following which the Company intends to launch a Phase IV clinical study.

Quarterly webinar

The Company will hold a webinar with CEO Brian Ward and CFO James Agnew today, Friday 28 January 2022 at 9:30am AEDT, to discuss the December 2021 quarterly results released to the ASX this morning.

Investors can register for the webinar via the following link:

https://us02web.zoom.us/j/86383529033?pwd=Q2VmZGc4SFdJN2F0VXMxbUxSYnEyQT09

Investors can submit questions prior to the webinar to [e-mail] do so via the Q&A

1. Allison, D. D., and K. J. Grande-Allen. 2006. 'Review. Hyaluronan: a powerful tissue engineering tool', Tissue Engineering, 12: 2131-40.
2. Armstrong, D.G., et al., Five year mortality and direct costs of care for people with diabetic foot complications are comparable to cancer. J Foot Ankle Res, 2020. 13(1): p. 16.
3. Boulton, A.J.M., et al., Diagnosis and Management of Diabetic Foot Complications, in Diagnosis and Management of Diabetic Foot Complications. 2018: Arlington (VA).
4. Rice, J.B., et al., Burden of diabetic foot ulcers for medicare and private insurers. Diabetes Care, 2014. 37(3): p. 651-8.
5. Barshes, N.R., et al., The system of care for the diabetic foot: objectives, outcomes, and opportunities. Diabet Foot Ankle, 2013. 4.

AROA BIOSURGERY LIMITED ARBN 638 867 473 NZCN 1980577 64 Richard Pearse Drive, Auckland 2022, New Zealand

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function on Zoom.

Update to AROA Share Plan loan

As disclosed in AROA's IPO Prospectus, AROA operated an employee incentive share plan ('Share Plan') from 2014 pursuant to which the Company offered certain employees and senior executives unpaid ordinary shares in the Company ('Plan Shares') with payment due by the 10th anniversary of their issue. The Share Plan was wound-up in connection with AROA's admission to the ASX's official list and the Company offered employees (but not directors) who held unpaid Plan Shares an interest free loan to pay up such shares (the 'Loan'). The maximum aggregate Loan from the Company was approximately NZ$0.80 million. The Loan terms provide that it must be repaid by the earlier of 31 March 2022 or upon the Plan Shares being sold.

As at 19 January 2022, the aggregate amount of the Loan to existing AROA employees was approximately NZ$0.38 million. Following consideration of the relevant factors (including employee retention), the Board has approved an extension to the Loan repayment date for employees who remain employed by AROA as at 31 March 2022. Under the new terms, the Loan must be repaid by the earlier of (a) 28 February 2024, (b) the last date of their employment with AROA or (c) upon the Plan Shares being sold. The remaining terms of the Loan are unchanged. Individuals who cease employment with AROA before 31 March 2022 will not qualify for this extension.

Investor Relations

AROA delivered an investor presentation as part of the Bell Potter Healthcare Conference on 9 November 2021.

A replay of the presentation can be viewed at https://youtu.be/3L-kG8oJJL0.

< ENDS >

Authorised on behalf of the Aroa Biosurgery Board of Directors by Brian Ward, CEO.

Contacts

Investor Simon Hinsley Investor Relations [e-mail]+ 61 401 809 653

Media
Australia	New Zealand
Matthew Wright	Piet De Jong
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About AROA™

Aroa Biosurgery is a soft-tissue regeneration company committed to 'unlocking regenerative healing for everybody'. We develop, manufacture, sell and distribute medical and surgical products to improve healing in complex wounds and soft tissue reconstruction. Our products are developed from a proprietary AROA ECM™ technology platform, a novel extracellular matrix

AROA BIOSURGERY LIMITED ARBN 638 867 473 NZCN 1980577 64 Richard Pearse Drive, Auckland 2022, New Zealand

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