rls global · exposed to a market with high growth rls operates in the global wound debridement...

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Initiation of Coverage

Equity Research 17 April 2020

KEY STATS

Ticker RLSC.ST Market First North

Share Price (SEK) 4.3 Market Cap (MSEK) 284 Net Debt 20E (MSEK) -41 Free Float 59 %

Avg. daily volume (‘000) 70

BEAR BASE BULL 3

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KEY FINANCIALS (SEKm)

2018 2019 2020E 2021E 2022E 2023E Net sales 3 1 3 55 57 62 EBITDA -21 -27 -22 9 3 7 EBIT -22 -27 -23 9 3 7

ANALYSTS

Erik Nordström [email protected] Oscar Bergman [email protected]

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OMXS 30

RLS Global

Platform Potential Redeye initiates coverage of RLS Global, a Swedish medtech company that develops unique,

high quality wound care products. We believe that the recent actions taken to become a pure

wound care company are strategically right and believe that there is a hidden potential in the

company’s proprietary buffered hypochlorite platform, from which its wound debridement

product ChloraSolv has been developed.

Unique asset

We think that RLS has a unique asset in its proprietary buffered hypochlorite platform,

through which we believe that many interesting wound care products can be developed

over the years to come. We believe that many investors are unaware of this and believe

that it constitutes a hidden potential.

Commercial appeal

RLS’s lead product ChloraSolv – which recently won a wound care tender agreement in

southern Sweden – is now approved in as many as 32 European countries. Its antibacterial

properties, time-saving characteristics and low treatment frequency represent key

competitive advantages over current products. We expect sales to start ramping up late

next year and see sales potential of around SEK 900 million by 2025, which should yield

royalties of nearly SEK 140 million for RLS.

Partnership prospect

We believe that RLS will enter into a licensing deal for ChloraSolv with a global sales

partner during 2021. We expect the partner to be responsible for the commercialization of

ChloraSolv on the US market and estimate the deal to be worth up to SEK 250 million with

double digit royalties on net sales.

Attractive price

We see the current share price as attractive and think that it does not fully reflect the

potential in ChloraSolv and the buffered hypochlorite platform. Furthermore, RLS has two

interesting years ahead including clinical data read-out in H1 2020 and partnership

conversations, which we think can act as key catalysts for the stock. However, if the corona

crisis continues during the second half of 2020 with the same intensity, we believe there

could be some delays.

We see RLS as an interesting case for the long-term investor and initiate coverage with a

Base Case of SEK 9 and a Bull- and Bear Case of SEK 14 and SEK 3, respectively.

RLS Global Sector: Medtech

REDEYE RATING

RLSC.ST VERSUS OMXS30

FAIR VALUE RANGE

Financials

People

Business

dsfdsf REDEYE Equity Research RLS Global 17 April 2020

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Investment Case Proprietary platform with huge potential

RLS has a unique asset in its proprietary buffered hypochlorite platform, through which we

believe that many attractive wound care products can be developed over the years to come.

We believe that many investors are unaware of this and see potential in it that is not fully

reflected in the current share price.

An unmatched product with high commercial attractiveness

Through its buffered hypochlorite platform, RLS has developed ChloraSolv, which is a wound

debridement product with antibacterial properties that provides easier and quicker treatment

than other competing debridement products. We believe that the company could enter into a

licensing agreement with a global sales partner, including double digit royalties, during next

year.

Exposed to a market with high growth

RLS operates in the global wound debridement market, which was valued at USD 768 million

in 2018 and is expected to reach USD 910 million in 2022, growing at a CAGR of 4.3%. We

estimate that the company’s product ChloraSolv has sales potential on this market of around

USD 90 million by 2025.

Potential catalysts ahead

RLS has two interesting years ahead. Key events include clinical data read-out in H1 2020, as

well as sales negotiations and partnership discussions. We view the read-out as a key near-

term catalyst for the stock, while a partnership deal might be the most important driver in the

foreseeable future.


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Bear Points By understanding the risks of an investment, better decisions can be made. Below, we list

some potential risks related to an investment in RLS.

Clinical trials

RLS is conducting a clinical trial, ChloraSolv 01, in 58 patients to validate the effect of

ChloraSolv on lower leg ulcers. The read-out should take place by the end of H1 2020. If the

product fails show good efficiency, the company may have to conduct another trial. This

would probably hurt the share’s performance.

Competition

Although RLS has a unique product in ChloraSolv and the global wound care companies’

portfolios lack efficient debridement products, the market is highly competitive with new

treatments constantly in development. If ChloraSolv fails to show efficacy benefits over

established treatments, we expect the company to struggle to find a capable sales partner.

Lengthy negotiations

The company operates in an industry characterized by long negotiations and high barriers to

entry. Negotiations can often last for one to two years and any delays, such as the

coronavirus crisis, can slow the ramp-up of sales.


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Company Description

RLS Global (RLS) was founded in 1996 and is a Gothenburg-based, Swedish medtech company focused on wound care. The company sells and develops minimal invasive and tissue preservation products, which are developed through RLS’s unique buffered hypochlorite-based technology platform. RLS has historically been focused on dental products, but during the last five years, the main focus has switched to wound care. This has resulted in ChloraSolv, which is a unique wound bed preparation gel intended for easy cleansing and debridement of chronic and infected lower leg ulcers. ChloraSolv was CE marked in April 2019 and is currently being launched in Europe. Today, RLS has 10 employees and the majority of its business and infrastructure is in Europe. The company went public in May 2012 when its shares were listed on Aktietorget (today Spotlight Stock Market) and since May 2017, the RLS stock is trading on Nasdaq First North.


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Share Price Performance

The RLS share has seen a poor share price performance on Nasdaq First North over the past

three years. In the last 12 months, it has been trading in the SEK 2.49-10.10 range, and it took

a big leap when ChloraSolv was granted a CE mark in April 2019. However, the positive

momentum wore off when a directed rights issue of SEK 50 million was announced in

September 2019.

In March 2020, the share took another jump upwards when ChloraSolv was awarded a

wound care tender by Region Kalmar County Council. This somewhat mitigated the negative

sentiment caused by the coronavirus crisis. As shown in the share price graph below, the

share is volatile and is currently trading some 50% below its 12-month high.

We believe the RLS share is trading at attractive levels for the long-term investor and that the

read-out from the ongoing ChloraSolv 01 study could act as a key near-term catalyst.

Share price development, 2017-2020 (SEK)

Source: Redeye Research

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Nasdaq First North RLS Global

All patients enrolled for ChloraSolv 01

Directed rights issue of SEK 50 million

ChloraSolv receives CE marking

Signs agreement with OneMedAB

ChloraSolv is awarded a wound care tender in Kalmar County Council, Sweden

European patent for ChloraSolvgranted

Karin Fischer is appointed new CEO

Publishingfinancial report for Q3'17


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Products and Patents

Until recently, RLS’s product portfolio consisted of three products: ChloraSolv, CariSolv, and

PeriSolv. While CariSolv and PeriSolv are dental care products, ChloraSolv has been

developed for wound care, primarily lower leg ulcers.

RLS has now decided to focus fully on wound care and will thus discontinue its dental care

products. As part of this strategy, RLS announced in February 2020 that Switzerland’s

REGEDENT AG will acquire PeriSolv in a SEK 4 million cash deal, with an additional

consideration until 2032 based on a percentage of products sold.

Accordingly, commercialization of ChloraSolv will be the focus for RLS in the future. We

consider the buffered hypochlorite-based platform to be a unique asset and believe that RLS

has great potential to develop new and interesting products through this platform.

Products

Source: RLS and Redeye Research

Patents

Source: RLS and Redeye Research

RLS has one patent covering preparation for treatment of wounds and sores comprising hypochlorite and amino acids. We believe this patent is sufficient to protect ChloraSolv and new products that might be developed, over the years to come.

As RLS has started to discontinue its dental care portfolio, we will only focus on ChloraSolv in

this report.

Patents

Filing date Description Valid until Granted Pending

2013-07-15 Preparation for treatment of

wounds and sores comprising

hypochlorite and amino acids.

2033-07-15 Belgium, France, Germany, Italy,

Netherlands, Spain, Sweden,

Switzerland, Mexico, US and Japan

Canada

Products

Name Market Launch year

ChloraSolv Diabetic Foot Ulcers 2019

PeriSolv* Periodontitis 2013

CariSolv* Caries 1997

*Discontinued


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ChloraSolv

ChloraSolv has been developed through RLS's buffered hypochlorite platform and is a product that treats wounds that are difficult to heal, primarily lower leg ulcers. The product was launched in 2019 and is a further development of RLS's dental products, CariSolv and PeriSolv. Today, the product has been approved for treatment of diabetic foot ulcers on 32 European markets (CE marking class III), but we presume it is currently used off label in other indications, such as venous leg ulcers and burns. Given the time of approval, the product is MDR-audited, meaning no regulatory adjustments are required when the new Medical Device Regulation comes into force in May 2020. In addition to its CE approval, ChloraSolv is currently under review by the Australian authority, TGA, and the company has also initiated a registration process in Kuwait, a market with high prevalence of lower leg ulcers. ChloraSolv

Source: RLS ChloraSolv is a gel that is applied to the wound through a syringe-like device. When the gel comes into contact with the wound, necrosis and biofilm are softened up, which after a few minutes allows them to be removed by a healthcare professional in a process called debridement. This allows treatment to be done without affecting adjacent tissue and thus, making it minimal invasive.

ChloraSolv addresses a large and widespread medical problem, difficult-to-treat wounds, which to a large extent affects diabetic patients and people with poor blood circulation. The pain and smell associated with such wounds limit a patient’s ability to live a normal life. If the wound worsens, it can lead to infection and eventually to amputation in the worst case. However, by facilitating the treatment process, which today is both time-consuming and costly, ChloraSolv can contribute to a reduced care burden.


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For a wound to heal, two vital steps must be completed:

Removal of non-viable necrotic tissue Killing the bacteria to prevent infections and inflammations

As can be seen in the picture below, ChloraSolv removes necrotic tissue and kills bacteria,

which is unique for a debridement product today.

ChloraSolv - Position in treatment chain

Source: Leaper DJ, Schultz G, Carville K, Fletcher J, Swanson T, Drake R. Extending the TIME concept: what have we learned in the past 10 years? Int Wound J 2014; 9 (Suppl. 2):1–19;

Thanks to the antibacterial properties of ChloraSolv, it is also possible to combat the

development of antibiotic-resistant bacteria by reducing the use of antibiotics in wound

treatment.

Debridement with ChloraSolv can be performed at a patient’s home by a nurse in a gentle

process that is considerably faster than current alternatives. As time is a scarce resource in

the healthcare sector, this is a significant advantage. In addition, ChloraSolv is considered

easy to use1 as the debridement process can be performed by a nurse without requiring

special education, which is not the case with many other debridement methods, such as

sharp debridement etc.

1 Based on interviews with medical staff


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ChloraSolv - Workflow

Source: RLS The workflow of ChloraSolv can be summarized as follows:

1. A thin layer of the mixed gel is applied directly to the wound. The gel is left to work for 2 minutes

2. Dissolved necrotic tissue is removed by gentle scraping with a blunt instrument or a scoop, and the wound surface is rinsed with water or isotonic sodium chloride

3. The gel is reapplied to clean the wound

4. The wound surface is again rinsed with water or isotonic sodium chloride solution and then wiped dry

5. The wound is protected with a suitable wound dressing ChloraSolv is sold in a package including the syringe-like device as well as two solutions (a

gel containing amino acids and a solution containing sodium hypochlorite). Each package is

sufficient to debride a wound area of approximately 60 cm2 and the price is around SEK 150.

According to the company, ChloraSolv is sold through batches consisting of five units and

the product is being manufactured in Sweden by a contract manufacturer. We see this as

very positive as the company can provide a fast delivery onces orders are being placed.


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Business Model and Strategy RLS’s business model is based on developing proprietary products that are sold through global as well as local partners with extensive experience in wound care. The targeted partners are also offering complementary products and the main focus is on high penetration in selected markets. The foundation of RLS’s strategy can be summarized in five focus areas:

Continue to build on the company’s unique buffered hypochlorite platform

Enter new clinical areas, such as burns and areas outside chronical wound

management

Create success through establishing strong partnerships

Enter new markets

Further develop the clinical data portfolio

These five focus areas are together realizing RLS’s business model. However, establishing partnerships and selling products on the wound debridement market is a time-consuming and personal-intense process and the negotiations do often take 1-2 years. Below, we illustrate the pathway from product development to sales in Sweden. Pathway to market - Sweden


RLS is currently having conversations with the purchasing units of different regions in Sweden. The company has recently entered into a collaboration with OneMed, giving it access to OneMed’s sales network in municipalities and regions where OneMed has supplier agreements. In March 2020, RLS announced that ChloraSolv, as an effect of this collaboration has been awarded the wound care tender agreement in the Kalmar County Council and its municipalities. The outcome of the clinical evaluation has been very positive and ChloraSolv can now be offered to healthcare providers in the region. We see this as a strength that validates the product and believe that the Kalmar region can act as good reference for RLS in its negotiations with other regions going forward.

However, as negotiations can be lengthy and product cycles long, we expect the sales ramp-

up for ChloraSolv to start in late 2021. In the global market, we believe RLS will enter into an

agreement with a sales and distribution partner by 2021, which will bring opportunities in the

US and other interesting markets.


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Wound Debridement In order for a wound to heal, cells must migrate into the wound bed and multiply. However, when the tissue is devitalized, the cell migration is impeded as the environment is ideal for bacterial proliferation. As an effect, the inflammatory response is prolonged and the excess production of proinflammatory cytokines is enhanced. This has, in turn, a detrimental effect on the wound healing procedure and it locks the wound into a state of chronicity. However, the problem can be overcome by using wound debridement. Wound debridement is a treatment process including mechanical removal of dead, damaged or infected tissue. Today, there are several debridement methods that can be used:

Sharp debridement

Biologic debridement

Enzymatic debridement Autolytic debridement

Use of mechanical dressings

Debridement by using medical devices Use of antimicrobial alginate and fiber dressings

The choice of method is dependent on a patient’s health status, wound condition, care environment, treatment availability and the competence of the practitioner. Below, we briefly describe each treatment method.

Sharp debridement

Sharp debridement is a debridement process where necrotic tissues are removed manually, using a scalpel, scissors, curette or other sharp instruments. Sharp debridement is a quick and commonly used debridement method today, mainly used on larger, contaminated wounds. However, it is painful for the patient. Since the instruments being used are largely reusable, the primarily costs related to sharp debridement are labour costs. Thus, it is difficult to assess the total market value of the method.

Biologic debridement

Biological debridement is a slow and gentle process using medical maggots or larvae. This method has become more common in recent years, although the market share is still less than 1%. However, it requires acceptance by both patients and staff, and it has proved more popular in Europe than in the US. The method is based on the concept that fly larvae secrete enzymes that dissolve necrotic tissue, which the larvae then eat. The larvae can be grown at the hospital, but there are also some companies that specialize in this field. BioMonde is the leader in the segment and has developed a teabag-like polyester package called BioBag that contains the maggots.

Enzymatic debridement

Enzymatic debridement is a process in which an active topical agent is applied to the wound to facilitate the debridement process. This debridement method is dominant in the US and Santyl from Smith & Nephew, which was launched during the 1960’s, is the undisputed market leader in the segment.


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Autolytic debridement

Autolytic debridement is a debridement method where the wound bed clears itself of debris

with the help of gels and dressings. These products - which are commonly hydrogels,

hydrocolloids and films - help to establish a moist wound bed which enables the process.

Among the clear benefits of autolytic debridement are the low cost and that it constitutes a

gentle treatment. However, the treatment process is slow. Popular debridement products in

the autolytic segment are lodosorb (Smith & Nephew) and Prontosan (B. Braun).

Mechanical dressings

Debridement with mechanical dressings traditionally includes the application of a wet gauze

and its removal once dry. Removal of the gauze also removes debris, but it is often painful for

the patient. In addition, the process is labour-intensive and frequently also removes viable

tissue. Accordingly, the use of mechanical dressings is not very common in developed

markets. The leading product on the market is DebriSoft (Lohmann & Rauscher), but B. Braun

launched the Prontosan Debridement Pad a couple of years ago. This microfibre pad is used

in combination with its Prontosan irrigation solution.

Devices

Debridement of wounds can also be performed using devices that remove debris

mechanically. Although it is a fast and gentle process, it is associated with high

costs. Manufacturers of debridement devices often apply a razor and blades business model

in order to sell high margin consumables and the leading product on this market is Verjaset

from Smith & Nephew.

Antimicrobial Alginates and Fiber dressings

Alginates can effectively be used for preparations of different types of materials being used in

wound dressings, such as films, wafers, nanofibers, hydrogels, foams and topical agents.

Wound dressings from alginates are enabling a moist wound bed, absorbing wound fluid as

well as minimizing the risk of infections. The leading company in the segment is ConvaTec,

which is selling its anti-biofilm product Aquacel Aq+. Debridement through aliginates and

fiber dressing is associated with moderate costs and the method is considered as slow.

Sales by debridement method, 2017

Source: SmartTRAK and Redeye Research

42%

32%

17%

7%

2% 0%

Enzymatic

AM Alginates & Fiber Dressings

Autolytic

Device

Mechanical dressings

Biologic


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Diabetic Foot Ulcers Diabetes is a chronic, metabolic disease that is characterized by higher levels of blood sugar and it causes severe damage of the heart, blood vessels, eyes, kidneys, and nerves in the longer term. According to the World Health Organization (WHO), there are around 423 million people suffering from diabetes globally, making it one of the most prevalent diseases in the world. The most common form of diabetes is type 2 diabetes, which occurs when the body becomes resistant to insulin or does not make enough. The prevalence of type 2 diabetes has risen dramatically in countries of all income levels over the last three decades, which is partly due to an increasing middle class population. The other form of diabetes is called type 1 diabetes (formerly known as juvenile diabetes or insulin-dependent diabetes), which is a chronic disease that is caused by an innate deficiency of the pancreas, which produces too little or no insulin at all. Diabetes can affect the body in many different ways and one of the most common and

complex complications is diabetic foot ulcers. In a 2002 study conducted in the north west of

England, the prevalence of foot ulcers among patients with diabetes was seen to be 1.7%,

while the annual incidence was 2.2%2. However, higher annual incidence rates have been

determined among US veterans with diabetes (5%), and among the global diabetic

population, the annual incidence rate has been as high as 6%3. Furthermore, the International

Diabetes Federation estimates there are 9.1-26.1 million people with diabetes worldwide who

develop foot ulcers every year.

However, the number of diabetic patients with a history of foot ulcers is considerably higher than the number of patients with an active ulcer. Around 12.9 million to 49 million people globally (3.1-11.8% of the diabetic population) have had at least one foot ulcer during their life and among these, 1.0 million to 3.5 million people are living in the US. Additionally, the lifetime incidence of diabetic foot ulcers is estimated to be in the range 19-34%. Thus, diabetic foot ulcers constitute a serious problem among diabetic patients and it is associated with a high cost-burden on society. More than half of all diabetic foot ulcers become infected and the risk of death among patients with diabetic foot ulcers is 2.5 times higher than for non-ulcer diabetic patients. As much as 20% of all severe and moderate infections lead to amputation and if this is the case, more than 70% are dead within five years. However, it is hard to assess whether the high mortality is also the result of other co-factors, such as lack of activity. The direct costs of treating patients with diabetic foot ulcers exceed the costs related to many types of cancer. Around USD 60 billion is spent annually in the US on diabetic complications related to the lower end of the body and approximately USD 10 billion of these costs stem from diabetic foot ulcers. European data is more difficult to find, but we estimate that around USD 8 billion is spent annually on diabetic foot ulcers in the region. Diabetic foot ulcers can be healed, though. By using appropriate therapy methods such as surgical debridement and off-loading of pressure, many patients can be healed and amputation can be avoided. European data shows that around 77% of all diabetic foot ulcers are healed within a year from their occurrence.

2 Abbot CA, Carrington AL, Ashe H, et al. The North-West Diabetes Foot Care Study: incidence of, and risk factors for, new diabetic foot ulceration in a community-based patient cohort. Diabetic Med 2002;19:377-84. 3 Zhang P, Lu J, Jing Y, Tang S, Zhu D, Bi Y. Global epidemiology of diabetic foot ulceration: a systematic review and meta-analysis. Ann Med 2017;49:106-16.


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Diabetic Foot Ulcer Development

Source: Armstrong, David G., Andrew JM Boulton, and Sicco A. Bus. "Diabetic foot ulcers and their recurrence."New England Journal of Medicine376.24 (2017): 2367-2375.; (2) BioMedGPS However, diabetic foot ulcers tend to be recurring and the recurrence rate is around 40% within the first year and up to 60% within three years. The reasons for recurrence can be many and a couple of risk factors are presented in the figure below. Reasons for recurring foot ulcers

Source: Armstrong, David G., Andrew JM Boulton, and SiccoA. Bus. "Diabetic foot ulcers and their recurrence."New England Journal of Medicine376.24 (2017): 2367-2375.; (2) BioMedGPS


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Recurrence can be prevented through preventive interventions and the effect of five different activities is listed below.

Interventions

Source: Armstrong, David G., Andrew JM Boulton, and SiccoA. Bus. "Diabetic foot ulcers and their recurrence."New England Journal of Medicine376.24 (2017): 2367-2375.; (2) BioMedGPS

In the table above, the mean effect size of intervention is the percentage reduction in the risk of a recurring foot ulcer in the intervention group compared with the control group. The mean effect size of adherence is the percentage reduction in risk of a recurring foot ulcer in the group of patients that adhered to the study treatment compared with those who did not. A negative percentage means that the risk has increased. As demonstrated in the table, adherence to treatment is significantly important to clinical outcome. Active therapy in combination with a focus on improving care during the remission is an efficient strategy to achieve an improved life quality for many diabetic patients around the world.

Interventions

Category

No. of studies Mean sample size (range) Mean effect size % (range) No. of studies Mean effect size %

Integrated foot care 4 179 (53 to 549) 30.9 (9.1 to 100) 2 76.7

Self-management 4 138 (70 to 225) 54.3 (-5.4 to 90.0) 1 98.0

Patient education 2 152 (131 to 172) -13.4 (-26.3 to-0.5) 2 85.5

Therapeutic footwear 9 181 (46 to 400) 47.2 (-14.6 to 92.9) 2 58.1

Foot surgery 7 73 (40 to 207) 61.8 (10.4 to 100) None -

Effect of the intervention Effect of adherence to treatment


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Venous Leg Ulcers Venous leg ulcers (VLU) are, just like diabetic foot ulcers, difficult to heal. The annual incidence is around 0.1-0.3% and the complication is more prevalent among the elderly population, primarily people over 60. We believe there are around 1.2 and 0.75 million patients in the US and the EU, respectively, even though we reckon that there is a large hidden number of patients that do not seek care for their wounds. Venous leg ulcers often occur as an implication of obesity, sedentary lifestyles, arterial abnormalities or chronic venous diseases and it is considered to be caused by pressure-related abnormalities in the blood flow. Thus, it has historically been more prevalent in the western world. Standard of care is the application of weekly dressings with compression bandages, which are intended to supply pressure and keep the wound clean and moist. However, only 50-75% of all venous leg ulcers are completely healed after six months of treatment and the recurrence rate is approximately 40% and 50% after three and five years, respectively. The high recurrence rate is mainly related to the difficult-to-heal nature of the wounds as well as an ongoing venous or arterial disorder. Treatment of Venous Leg Ulcers

Source: Alavi, et. al 2016 There has been a lack of improvement in the development of treatment options in recent

years. As mentioned above, standard of care is the use of wound dressings, which are both

slow and inconvenient for patients. Wound care companies have historically focused on

diabetic foot ulcers, meaning that the market for venous leg ulcer treatments is less

competitive. In addition, few of the approved treatments for diabetic foot ulcers have shown

good data in treating venous leg ulcers.


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Given the high recurrence rates and the chronic nature, treatment of venous leg ulcers is associated with a high cost burden on society. According to a large US study, VLU patients had around 50% higher costs than non-VLU patients4. The disease burden of VLU patients compared to non-VLU patients was approximately USD 6,400 higher for Medicare patients and USD 7,100 more for privately insured patients. Other studies have estimated the total healthcare cost at USD 16,000 per treatment period, which is highly affected by indirect costs5. Applying an average treatment cost of USD 10,000 per treatment period and patient suggests total healthcare costs for VLU in the US of around USD 7.5 billion. Costs are slightly more difficult in estimate in Europe. According to several UK studies, costs

are estimated to be in the USD 1,000-6,000 range per patient. Using a cost somewhere in the

middle of the range, USD 3,500, we can estimate that the European market is around USD 4.2

billion. Of these total costs, individual treatments are estimated to account for around 25%,

corresponding to around USD 1.9 billion and USD 1.1 billion in the US and the EU,

respectively.

4 Rice, et al. Journal of Medical Economics Vol. 17, No. 5, 2014, 347-356 5 Alavi, et al. J Am Acad Dermatol, april 2016, 627-640.


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Market Overview One of the most important steps in the active treatment of diabetic foot ulcers, venous leg ulcers and other infected wounds is to keep the wound clean and free from bacteria. This is advantageously done through debridement. According to SmartTRAK, the global market for wound debridement products was worth USD 768 million in 2018 and is expected to reach USD 910 million by 2022, growing at a CAGR of 4.3%. Furthermore, SmartTRAK estimates that debridement products represent around 11% of the total wound care market, which was valued at USD 7 billion in 2018 and is expected to reach USD 8.4 billion in 2022, at a CAGR of 4.1%. The growth of the debridement market is expected to be driven by a growing prevalence of chronic wounds, a stronger pipeline of products and an increasing knowledge about the importance of dealing with biofilm. Global wound debridement market, 2018-2022 (SEKm) Sales by segment, 2018

Source: SmartTRAK and Redeye Research Wound debridement can be performed in many different ways and since many debridement products have other wound-healing properties, such as wound bed protection and bacteria killing, the market is relatively difficult to estimate. Today, there are around 250 million severe wounds globally and the majority of these heal without the need for debridement. However, when it comes to diabetic foot ulcers and venous leg ulcers, around 50-60% of all wounds require some form of debridement. This is also the case for other types of wounds, such as burns, infected surgical, trauma and arterial wounds. The number of wounds being debrided every year varies with geography, though, which is mainly related to reimbursement system and healthcare development. According to SmartTRAK, around 10 million wounds are debrided in the US and 5EU every year (5 million in the US and 5 million in 5EU), and the US accounts for approximately 70% of the global debridement market. US clinicians mainly use advanced devices and biologics, while gels and dressings are popular in Europe and the rest of the world.

768

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2018 2022E

CAGR 4.3% 11%

89%

Debridement Other wound care products


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Sales by geography, 2017

Source: SmartTRAK and Redeye Research Looking at market shares, Smith & Nephew is the clear market leader with a 2017 market share of 51%. Its biologic drug, Santyl, is the best-selling product on the debridement market with annual sales of around USD 300 million. Additionally, the company dominates the device debridement market with Versajet and also offers dressings including lodosorb and Intrasite hydrogel. Market shares, 2017

Source: SmartTRAK and Redeye Research

72%

20%

8%

US EU RoW

51%

22%

3%

3%2%

2%2%

1% 14%

Smith & Nephew ConvaTec Medline

Integra Lohman & Rauscher Acelity

B.Braun Söring GmbH Other


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Clinical Evidence As described above, both diabetic foot ulcers and venous leg ulcers are difficult to heal, especially as they tend to recur. Additionally, they represent a huge cost-burden on society. The healing process is often impaired by inflammations as well as infections, and new dressings and treatments often fail to address this issue. However, hypochlorite and chloramines, which are formed when ChloraSolv is used, have been shown to have antibacterial and antiseptic properties, meaning that they can be useful in treating chronic wounds. Thus, the potential for ChloraSolv as well as potential future products that can be developed through RLS’s buffered hypochlorite platform is huge. Below, we describe RLS’s two clinical trials.

Dolores study

Between 2014 and 2015, RLS conducted its CR Dolores study to compare chloramine-based treatment with current standard treatment with respect to absolute decrease in ulcer area of infected diabetic ulcers. The study was an explorative multi-center study with a treatment period of 12 weeks and a follow-up period of another 12 weeks (24 weeks in total). The aim of the study was to determine whether chloramine-based preparations can be used together with weekly dressings in order to improve the healing process of diabetic foot ulcers. A total of 34 patients completed the 12-week study and they were randomly divided into two groups of 17 patients in each. The mean age in each group was 70 years and the patients included had a history of diabetes for more than 20 years and diabetic foot ulcers for around 1.5 years. In the chloramine group, the gel was applied to the ulcer for two minutes followed by debridement without using any sharp instruments. This was repeated once weekly, and the wound was finally rinsed with water. The ulcer was then dressed with a non-adhesive, protective dressing and this procedure lasted for ten minutes. For the patients in the standard treatment group, debridement of the ulcer was done once a week in accordance with guidelines from International Working Group of Diabetic Foot, including use of sharp instruments. To keep a moist wound environment, the wound was dressed with hydrocolloid, alginate dressings or foam. Silver, adjusted antiseptic agents, or PHMB were also used in a few cases. Regardless of group, patients were given standard of care advice concerning risk factors and diabetic treatment in general. In addition, appropriate off-loading was considered in all patients and oral antibiotic treatment was offered in cases where signs of infection in underlying tissue were observed. The size of the treated ulcers was measured once a week during the 12-week treatment period and the final evaluation was conducted at the end of the follow-up period (24 weeks after start of treatment). The status was then documented by classifying the ulcers as ‘’healed’’ or ‘’not healed’’, determining the occurrence of adverse events, and defining the healing time.


21

Relative change in ulcer area

Source: Berqvist K, Almhöjd U, Herrmann I, Eliasson B. The role of chloramines in treatment of diabetic foot ulcers: an exploratory multicentre randomised controlled trial. Clinical Diabetes and Endocrinology; 2016 2:6; The chart above shows the relative change in ulcer area after treatment for the two treatment groups. After five weeks of treatment, the difference in relative reduction in ulcer area between the two groups was statistically significant (p=0.016). The relative decrease per week in the chloramine group was 19.4% (95% confidence interval of 12.2-26.0 and p<0.0001) and the between-group difference was 11.7% (95% confidence interval of 6.4-16.7 and p=0.083). Thus, the difference in relative decrease between the two groups was not statistically significant. In terms of healing time, the number of healed ulcers was numerically higher in the chloramine group during the early phase of the study. After nine weeks of treatment, seven patients in the chloramine group had been healed, compared to only one patient in the control group. At the end of the treatment phase with chloramines (after 12 weeks), another two patients in the control group had been healed. After the follow-up period (after 24 weeks), when both groups received standard treatment, there were more patients that had healed in both groups.


22

Healing time

Source: Berqvist K, Almhöjd U, Herrmann I, Eliasson B. The role of chloramines in treatment of diabetic foot ulcers: an exploratory multicentre randomised controlled trial. Clinical Diabetes and Endocrinology; 2016 2:6; However, the number of pre-specified adverse events in the chloramine group was: 7 patients with increased pain, 4 patients with injuries that were not related to the study and 2 patients with an increase in wound size of up to 50%. The corresponding number of events in the control group was 5, 3 and 2 patients, respectively. In addition, there was one fracture in each group that was not study-related. The conclusion from the study is that chloramines can be used to perform safe treatment of infected diabetic foot ulcers. Both the absolute and the relative ulcer area improved, while the healing time was shorter. Furthermore, the number of healed ulcers was higher in the chloramine group during the first two months of the trial. However, the differences were not statistically significant after 12 and 24 weeks, which indicates that chloramine treatments are most efficient in the early phases of treatment. In addition, chloramine-based treatments are easy to use and can be valuable as they provide non-surgical treatments. The CR Dolores enabled the CE approval of ChloraSolv (2019) and it also provided the basis for the ongoing ChloraSolv 01 study (with expected read-out in the middle of 2020).


23

Clinical trials

Source: RLS

ChloraSolv 01 study

The ongoing ChloraSolv 01 study is a prospective, open, single-arm, multi-center study being performed at nine different sites. The study includes 58 patients and has two main objectives:

To evaluate the debriding effect of ChloraSolv on chronic (more than one month) lower leg ulcers

To evaluate change of devitalized tissue, change in wound area, pain, wound condition, need for sharp debridement, and overall evaluation of the product and safety parameters

Patients included in the study are being treated 1-2 times per week during six weeks and the debridement time is being logged. As the study is being focused on chronic lower leg ulcers, the focus area is broadened, which doubles the size of the addressable market (the Dolores study only focused on diabetic foot ulcers). We expect a read-out by the end of H1 2020.

Even though we believe the ChloraSolv 01 study will likely be sufficient to attract a global sales partner, RLS has stated that it plans to conduct further clinical trials in order broaden the indications even more. We consider this a good strategy and appreciate the company’s ambition to constantly improve and find new markets.

Study

Method

Objectives

Patients

Timetable

ChloraSolv 01 Study

Principal Investigator –Professor Jan Apelqvist. Prospective, open, single-arm and multi-center pilot study (9 sites).

To evaluate the debriding effect of ChloraSolv on chronic (more than one month) lower leg ulcers. To evaluate change in devitalized tissue, change in wound area, pain during treatment, condition of the wound, need for sharp debridement and overall evaluation of the product and safety parameters.

58 subjects (incl. 10% drop-out).

First subject included in January 2019. Last patient included in January 2020.

CR Dolores Study

Explorative, open, randomized, controlled multi-center study. Compare chloramine-based treatment with current standard of care for 12 weeks and follow-up for 24 weeks.

To show superiority of CR Dolores treatment compared to the standard treatment with respect to absolute decrease in ulcer area of infected ulcers. Relative change in ulcer area, ulcers healed, signs of infection, pain and EQ-5D.

17 patients in each group. Mean age: ~70. Diabetes: >20 years. Foot ulcers: ~1.5 years.

Q1 2014 to Q3 2015.


24

Competing Products The market potential for ChloraSolv is relatively difficult to assess since there are no similar products on the market today6. Smith & Nephew is the clear market leader in the wound debridement market with a product portfolio including Santyl (dermal ulcers and burns). The product, which is only regulatory approved on the US market, is an enzymatic, active, topical gel that facilitates the debridement process. According to drugs.com, Santyl is priced at around USD 270 and one package is sufficient for multiple treatments. Santyl was originally developed by Healthpoint, which was acquired by Smith & Nephew in 2012 for USD 782 million. Healthpoint’s primary focus was on bioactive wound care and in 2012, the company recorded sales of around USD 190 million with Santyl as the main driver. Under Smith & Nephew’s umbrella, Santyl has generated annual sales of around USD 300 million. Another potential competitor is Prontosan by B.Braun. The product is a CE marked medical

device product that was upgraded from Class IIb to Class III in 2008. The product contains

polyhexanide- which inhibits bacterial growth - and undecylenamide opropyl betaine (Betain) -

which decreases surface tension. This combination of substances acts effectively on biofilm,

by enabling a better penetration as well as ensuring the purification of the wound. According

to drugs.com, Prontosan is priced at around USD 30, and one package is sufficient for

multiple treatments.

Among available treatments today, we see Prontosan as the most likely competitor to

ChloraSolv. However, we consider ChloraSolv to be a unique product and believe that its

antibacterial properties, easy-of-use, time-saving characteristics and low treatment frequency

constitute a huge competitive advantage over current treatments.

In addition to the described products above, we have identified a few other emerging

debridement products (see table below). When it comes to NexoBrid, it is worth mentioning

that MediWound entered into an agreement with Vericel during 2019, through which the

commercial rights in the American territories will be transfered to Vericel. As part of the

agreement, MediWound will be responsible for the development activities to obtain marketing

approval from the FDA and for manufacturing and supply of the product. The terms of the

licensing agreement included an upfront payment of USD 17.5 million, an additional payment

of USD 7.5 million upon US approval, and potential milestone payments of up to USD 125

million. In addition, MediWound will receive royalties on net sales of around 10%. Even though

deals including drugs tend to be of higher value, we believe this can act as a good reference

deal for ChloraSolv, although we estimate a lower deal value.

Other emerging debridement products

Source: SmartTRAK and Redeye Research.

6 A debridement product with antibacterial properties that enables a quick debridement 1-2 times a week.

Company Product Technology Launch status

MediWound NexoBrid Enzyme US 2020

MediWound EscharEx Enzyme US 2020/2021

Next Science BlastX AM Hydrogel Market

Medline/PluroGen Plurogel Hydrogel Market

Medaxis debritom+ Waterjet device CE Mark

Integra VolTAC Microcurrent dressing Market

Curasonix Curason Ultrasonic device CE Mark


25

Estimates We use a top-down approach to forecast sales for ChloraSolv in the US and the EU for the coming ten years. In our Base Case scenario, we only include diabetic foot ulcers (DFU) and venous leg ulcers (VLU), even though ChloraSolv has only received CE approval for DFU. The reason why we choose to include VLU is because the indication is included in the ongoing ChloraSolv 01 study.

Sales forecast, 2020-2030 (SEK)

Source: Redeye Research As mentioned above, we believe the sales ramp-up for ChloraSolv will start in late 2021, by when we expected sales to reach approximately SEK 36 million. However, we believe that RLS will enter into an agreement with a global sales partner during 2021, meaning that its revenue from 2021 and onwards will stem from royalties and milestone payments. We assume the terms of the deal to include:

A total deal value of SEK 250 million An upfront payment of SEK 50 million Milestone payments contingent upon US approval and sales Tiered royalties of 15% of net sales

For DFU, we estimate that around 6% of the diabetic population in the two regions has an active ulcer and that 50% of these patients have an infected ulcer. Furthermore, we assume a six-week treatment period with two debridement treatments per week. In other words, 12 ChloraSolv treatments per patient and wound. For VLU we estimate 1.2 million and 0.75 million patients in US and the EU, respectively. Among these, we assume that 50% has an active, infected ulcer. As with DFU, we apply a six-week treatment period with two ChloraSolv debridement treatments per week. We apply a sales price of SEK 150 and assume an inflation rate of 2%. Sales are estimated by multiplying the sales price per treatment kit with the number of ChloraSolv treatments. We estimate peak sales of almost SEK 2.7 billion by 2030, which will generate royalties to RLS of approximately SEK 400 million.

2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

US

No. of DFU patients with infected ulcers 900,000 918,000 936,360 955,087 974,189 993,673 1,013,546 1,033,817 1,054,493 1,075,583 1,097,095

ChloraSolv penetration 0% 0% 1% 4% 6% 9% 14% 16% 18% 21% 23%

No. of wounds treated with ChloraSolv 0 0 8,427 34,383 61,374 89,431 136,829 167,478 189,809 222,646 246,846

Total number of treatments 0 0 101,127 412,598 736,487 1,073,167 1,641,945 2,009,740 2,277,706 2,671,749 2,962,156

Price per treatment (SEK) 150 153 156 159 162 166 169 172 176 179 183

Sales 0 0 15,781,861 65,677,792 119,579,556 177,729,386 277,364,480 346,284,007 400,304,312 478,948,097 541,627,826

No. of VLU patients with infected ulcers 600,000 612,000 624,240 636,725 649,459 662,448 675,697 689,211 702,996 717,056 731,397

ChloraSolv penetration 0% 0% 1% 3% 6% 8% 12% 14% 16% 18% 20%

No. of wounds treated with ChloraSolv 0 0 4,994 20,375 36,370 52,996 81,084 99,246 112,479 131,938 146,279

Total number of treatments 0 0 59,927 244,502 436,437 635,951 973,004 1,190,957 1,349,752 1,583,259 1,755,352


Sales 0 0 9,352,214 38,920,173 70,861,959 105,321,118 164,364,137 205,205,337 237,217,370 283,821,094 320,964,638

EU

No. of DFU patients with infected ulcers 1,800,000 1,836,000 1,872,720 1,910,174 1,948,378 1,987,345 2,027,092 2,067,634 2,108,987 2,151,167 2,194,190

ChloraSolv penetration 0.1% 1% 5% 7% 9% 14% 18% 23% 27% 32% 32%

No. of wounds treated with ChloraSolv 1,620 16,524 101,127 137,533 175,354 268,292 364,877 465,218 569,426 677,617 691,170

Total number of treatments 19,440 198,288 1,213,523 1,650,391 2,104,248 3,219,500 4,378,519 5,582,612 6,833,118 8,131,410 8,294,038


Sales 2,916,000 30,338,064 189,382,331 262,711,169 341,655,876 533,188,159 739,638,615 961,900,018 1,200,912,935 1,457,668,120 1,516,557,912

No. of VLU patients with infected ulcers 375,000 382,500 390,150 397,953 405,912 414,030 422,311 430,757 439,372 448,160 457,123

ChloraSolv penetration 0.1% 1% 5% 6% 8% 12% 16% 20% 24% 28% 28%

No. of wounds treated with ChloraSolv 300 3,060 18,727 25,469 32,473 49,684 67,570 86,151 105,449 125,485 127,994

Total number of treatments 3,600 36,720 224,726 305,628 389,676 596,204 810,837 1,033,817 1,265,392 1,505,817 1,535,933


Sales 540,000 5,618,160 35,070,802 48,650,217 63,269,607 98,738,548 136,970,114 178,129,633 222,391,284 269,938,541 280,844,058

Total Sales 3,456,000 35,956,224 249,587,207 415,959,351 595,366,998 914,977,212 1,318,337,345 1,691,518,995 2,060,825,900 2,490,375,852 2,659,994,434

Royalties 0 5,393,434 37,438,081 62,393,903 89,305,050 137,246,582 197,750,602 253,727,849 309,123,885 373,556,378 398,999,165

Upfront 0 50,000,000 0 0 0 0 0 0 0 0 0

Milestones 0 0 20,000,000 0 0 50,000,000 0 0 0 130,000,000 0

RLS revenue 3,456,000 55,393,434 57,438,081 62,393,903 89,305,050 187,246,582 197,750,602 253,727,849 309,123,885 503,556,378 398,999,165


26

Financials RLS does not yet earn any recurring revenues from ChloraSolv. The booked sales for the previous years include a few small, single orders plus sales derived from the discontinued dental care portfolio. However, we believe the company will enter into a licensing deal for ChloraSolv during 2021, by when we expect the product to generate royalties of around SEK 5.4 million. Income Statement, 2015-2023 (SEKm)

Source: Redeye Research We expect RLS to report positive EBIT in 2021, thanks to the upfront payment of SEK 50 million included in the assumed partnership deal. Furthermore, we expect the first milestone payment to be received in 2022, when ChloraSolv has been granted PMA approval by the FDA.

Net sales7, 2015-2023, (SEKm) EBIT, 2015-2023 (SEKm)


7 Excluding one-off items

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E

Income Statement

SEKm 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E

Net sales 2.1 2.9 2.3 2.6 1.0 3.5 5.4 37.4 62.4

Other operating income 0.1 0.3 0.2 0.4 0.3 0.4 50.0 20.0 0.0

Total operating income 2.2 3.2 2.6 3.1 1.4 3.8 55.4 57.4 62.4

Operating expenses -10.8 -16.4 -21.3 -23.8 -26.8 -26.1 -44.1 -51.5 -52.5

EBITDA -8.5 -13.2 -18.7 -20.7 -25.4 -22.2 11.3 6.0 9.9

margin -405% -457% -800% -791% -2487% -643% 210% 16% 16%

Depreciations and writedowns -0.3 -0.5 -0.6 -1.2 -1.2 -0.6 -2.8 -2.9 -3.1

EBIT -8.8 -13.7 -19.3 -21.9 -26.7 -22.8 8.5 3.1 6.8

margin -419% -474% -826% -835% -2609% -661% 158% 8% 11%

Net financial income 0.0 -0.1 0.0 0.0 -0.3 -0.2 -0.3 -0.4 -0.3

Profit/loss after financial items -8.9 -13.8 -19.3 -21.9 -27.0 -23.1 8.2 2.7 6.5

Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net profit/loss -8.9 -13.8 -19.3 -21.9 -27.0 -23.1 8.2 2.7 6.5

EPS -0.21 -0.25 -0.33 -0.37 -0.46 -0.39 0.14 0.05 0.11


27

Valuation We value RLS through a discounted cash flow model (DCF) with a WACC of 13%. We set terminal year to 2030 and apply a terminal growth rate of 2%. Our Base Case valuation is based purely on ChloraSolv, since it is the only project at the clinical stage. However, we view RLS’s buffered hypochlorite platform as a unique asset from which other wound care products with similar market potential can be developed in the future. However, the platform’s great potential is challenging to value in a Base Case scenario. DCF valuation

Source: Redeye Research With an estimated net cash position of SEK 30 million, our DCF model suggests a fair value per share of SEK 9 in a Base Case scenario. We also provide a sensitivity analysis to show how sensitive our valuation is to changes in WACC and terminal growth rate. Sensitivity analysis


RLS: Base case assumptions (SEKm)

Assumptions 2020-2030 2020-2023 2023-2030 DCF value

CAGR Sales 61% 161% 30% WACC 13.0%

EBIT margin (avg.) -30% -157% 39% PV of FCF 178

PV of Terminal value 386

Terminal EV 564

Growth of FCF 2.0% Net cash 30

EBIT margin 48%

DCF Value 594

Number of shares (m) 67

Fair value per share (SEK) 9

WACC

10.0% 12.0% 13.0% 14.0% 16.0%

1.00% 13.0 9.6 8.4 7.4 5.9

1.50% 13.6 9.9 8.7 7.6 6.0

2.00% 14.2 10.3 9 7.8 6.1

2.50% 14.9 10.6 9.2 8.0 6.2

3.00% 15.7 11.0 9.5 8.2 6.4

Terminal growth rate


28

Peer Group In addition to our DCF model, we provide a peer group analysis below in which we include a

few peers with relatively similar market opportunity. However, it is difficult to find a fully

comparable company as RLS has a unique product in ChloraSolv as well as a buffered

hypochlorite platform with substantial potential.

Among the listed companies below, we see MediWound as the closest peer. Promore

Pharma is also interesting, although the company is a biotech company with two late stage

clinical projects.

Peer group comparison (SEKm)


As can be seen in the peer table above, RLS trades well below its peer group mean in both EV

(SEK 714 million) and market cap (SEK 763 million). This reinforces our view that the share

offers upside potential at current levels.

Company Market EV Market Cap

Moberg Pharma* Sweden 1,400 1,200

Promore Pharma Sweden 141 151

MediWound USA 266 541

Next Science USA 1,667 1,807

S2Medical Sweden 97 116

Mean 714 763

Median 266 541

RLS Global 254 284

* Before the carve out of its OTC portfolio


29

Shareholders Shareholders

Source: Holdings (2020-04-16) and Redeye Research

We think that RLS has a solid shareholder base with several well-known investors, such as

Familjen Lundin and Stena, among the ten largest shareholders. We see this as a strength

and believe it constitutes an important endorsement of the business.

In addition, the largest shareholder, RLS Global Intressenter AB, is the holding company of the

management team and board. We consider management and board member holdings to be

positive, since this means they have skin in the game.

Overall, we see the shareholder base as a strength for the company and believe that the

downside risk is somewhat lower for RLS than for many of its peers.

# Name or institution No. of shares SEKm Capital Votes1 RLS Global Intressenter AB 18,000,000 76 26.38% 26.38%

2 Joki Invest AB 9,653,403 41 14.47% 14.47%

3 Familjen Lundin 4,450,000 19 8.16% 8.16%

4 Stena 3,500,000 15 5.25% 5.25%

5 Avanza Pension 2,309,035 10 3.46% 3.46%

6 Viable Solutions AB 1,690,809 7 2.53% 2.53%

7 Nordnet Pensionsförsäkring 1,676,049 7 2.51% 2.51%

8 Joachim Cederblad 1,500,000 6 2.25% 2.25%

9 Rune Löderup 818,616 4 1.23% 1.23%

10 Joey Runge 794,000 3 1.19% 1.19%

Others 22,325,783 97 32.57% 32.57%


30

Management and Board

Name Position Shares Experience

Board of Directors

Peter Hentschel Chairman since 2017 25,000 shares Peter Hentschel was born in 1949 and is the

Chairman of RLS since August 2017. Before RLS,

Hentschel had several executive positions at

Mölnlycke Healthcare among others. Other

assignments include Chairman of Reapplix AS.

Karin Eliasson Board member since 2017 27,000 shares Karin Eliasson was born in 1961 and became

Board member in August 2017. Before RLS,

Eliasson had executive positions at Autoliv Inc.,

SCA and Telia Sonera. Other assignments include

Executive Advisor and Member of the Board at

Karolinska Universitetssjukhuset as well as

Councilor at Skandia.

Steve Krognes Board member since 2016 1,487,578 shares via RLS

Global Intressenter AB

(which includes

16,553,396 shares)

Steve Krognes was born in 1968 and became

Board member in August 2016. Before RLS, he

served as CFO at Genentech and Head of M&A at

Roche, among others. Other assignments include

CFO at Denali Therapeutics Inc and Board

member of Corvus Pharmaceuticals.

Christer Hägglund Board member since 2012 3,436,784 shares via RLS

Global Intressenter AB

(which includes

16,553,396 shares)

Christer Hägglund was born in 1953 and is Board

member since August 2012. Before RLS,

Hägglund assumed several assignments at

Rentals United AB.

Name Position Shares Experience

Management

Karin Fischer CEO 150,000 shares and

287,500 warrants

Karin Fischer was born in 1976 and is the CEO

of RLS since Augsust 2018. Before joining RLS,

Fischer served as Senior Director Business

Development at Getinge and Sales and

Marketing Director Americas at Xvivo Perfusion.

Furthermore, Fischer held various positions at

Johnson & Johnson between 2000-2014.

Anders Husmark Chief Business Development

Officer (CFBDO)

25,000 shares and

175,000 warrants

Anders Husmark was born in 1960 and is the

Chief Business Development Officer of RLS

since September 2017. Before joining RLS,

Husmark held various positions at Mölnlycke

Healthca,re including Country Manager Sweden

and R&D Director.

Eva Jagenheim CFO 143,750 warrants Eva Jagenheim was born in 1966 and is the

Chief Financial Officer of RLS since April 2019.

Before joining RLS, Jagenheim served as CFO

at Crispin Porter Bogusky, CFO at Softhouse

Consulting AB, Group Business Controller at

Adera, Business Consultant at Arthur Andersen

and Auditor at PwC.

Mats Ahlenius CTO 12,500 shares and

100,000 warrants

Mats Ahlenius was born in 1962 and is the Chief

Technology Officer of RLS since September

2016. Before joining RLS, Ahlenius held various

positions at Mölnlycke Healthcare, including

Development Manager, Research Manager and

Innovation Manager, among others. Ahlenius

has also been working at AstraZeneca where he

served as Clinical Project Manager for Nexium.

REDEYE Equity Research RLS Global 17 April 2020

31

Valuation

Bear Case SEK 3 Base Case SEK 9 Bull Case SEK 14 In our Bear Case, we assume a scenario where ChloraSolv fails to show statistically significant results in the ongoing clinical trial, ChloraSolv 01. This means that RLS has to conduct a new trial, which will cause delays in partnership negotiations as well as sales ramp-up. We expect that a partnership deal will take place in 2023 instead of 2021 and assume a lower royalty rate of 10%.

We set terminal year to 2030 and apply a terminal growth rate and EBIT margin of 2% and 32%, respectively.

In our Base Case scenario, we assume that ChloraSolv shows good results in the ongoing clinical trial and that RLS enters into a partnership deal in 2021. The deal includes an upfront payment of SEK 50 million with potential milestones of up to SEK 200 million as well as royalties of 15% on ChloraSolv sales.


In our Bull Case scenario, we assume that ChloraSolv shows great results in its ongoing clinical trial and that RLS strikes a partnership deal including a royalty rate of 20%.

Furthermore, new indications including burns, trauma and pressure ulcers are included from 2022 and onwards, which results in a sales CAGR of 210 % during 2023-2030, compared with 161% in our Base Case scenario.



32

Summary Redeye Rating The rating consists of three valuation keys, each constituting an overall assessment of several factors that are rated

on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.

Rating changes in the report

People: 4

RLS has an experienced Board and Management team with good knowledge of the industry. The long-term goals are realistic and

sound and the Management team is enthusiastic about the company and its products.

Business: 3

RLS has an interesting product in ChloraSolv, which we believe has good commercial potential in the global wound care market. In

addition, the company possesses a buffered hypochlorite platform, from which we believe new interesting wound care products

can be developed over the years to come. However, the company has currently no recurring revenues and we expect the sales

ramp-up for ChloraSolv to start in late 2021.

Financials: 2

RLS is currently focused on commercialization of ChloraSolv and is not yet profitable.


33

PROFITABILITY 2018 2019 2020E 2021E 2022E ROE -52% -64% -38% 17% 6% ROCE -52% -63% -52% 18% 6% ROIC -301% -266% -140% -118% 113% EBITDA margin -791% -2609% -643% 15% 6% EBIT margin -836% -2609% -661% 15% 5% Net margin -836% -2643% -489% 12% 4%

Please comment on the changes in Rating factors…

INCOME STATEMENT 2018 2019 2020E 2021E 2022E Net sales 3 1 3 55 57 Total operating costs -23 -28 -26 -47 -54 EBITDA -21 -27 -22 9 3 Depreciation 0 0 0 0 0 Amortization -1 0 -1 0 0 Impairment charges 0 0 0 0 0 EBIT -22 -27 -23 9 3 Share in profits 0 0 0 0 0 Net financial items 0 0 0 0 0 Exchange rate dif. 0 0 0 0 0 Pre-tax profit -22 -27 -23 9 3 Tax 0 0 6 -2 -1 Net earnings -22 -27 -17 7 2

BALANCE SHEET 2018 2019 2020E 2021E 2022E Assets Current assets Cash in banks 23 40 41 55 42 Receivables 0 3 0 6 6 Inventories 1 1 0 6 6 Other current assets 1 0 0 0 0 Current assets 26 44 42 66 54 Fixed assets Tangible assets 0 0 0 1 1 Associated comp. 0 0 0 0 0 Investments 0 0 0 0 0 Goodwill 0 0 0 0 0 Cap. exp. for dev. 0 0 0 0 0 O intangible rights 12 14 0 2 2 O non-current assets 0 0 0 0 0 Total fixed assets 13 15 0 3 3 Deferred tax assets 1 0 0 0 0 Total (assets) 39 59 42 69 57 Liabilities Current liabilities Short-term debt 0 0 0 15 0 Accounts payable 0 0 0 6 6 O current liabilities 6 6 6 6 6 Current liabilities 6 6 7 27 12 Long-term debt 0 0 0 0 0 O long-term liabilities 0 0 0 0 0 Convertibles 0 0 0 0 0 Total Liabilities 6 6 7 27 12 Deferred tax liab 0 0 0 0 0 Provisions 0 0 0 0 0 Shareholders' equity 32 52 35 42 45 Minority interest (BS) 0 0 0 0 0 Minority & equity 32 52 35 42 45 Total liab & SE 39 59 42 69 57

FREE CASH FLOW 2018 2019 2020E 2021E 2022E Net sales Total operating costs Depreciations total EBIT Taxes on EBIT NOPLAT Depreciation Gross cash flow Change in WC Gross CAPEX Free cash flow

CAPITAL STRUCTURE 2018 2019 2020E 2021E 2022E Equity ratio 84% 89% 84% 61% 79% Debt/equity ratio 1% 0% 1% 37% 0% Net debt -22 -40 -41 -40 -42 Capital employed 10 12 -6 2 2 Capital turnover rate 0.1 0.0 0.1 0.8 1.0

GROWTH 2018 2019 2020E 2021E 2022E Sales growth 12% -61% 238% 1,503% 4% EPS growth (adj) 0% 0% -38% -139% -63%

DATA PER SHARE 2018 2019 2020E 2021E 2022E EPS 0.00 -0.41 -0.25 0.10 0.04 EPS adj 0.00 -0.41 -0.25 0.10 0.04 Dividend 0.00 0.00 0.00 0.00 0.00 Net debt 0.00 -0.60 -0.62 -0.60 -0.63 Total shares 0.00 66.70 66.70 66.70 66.70

VALUATION 2018 2019 2020E 2021E 2022E EV -22.4 -40.3 256.4 257.5 255.3 P/E 0.0 0.0 -17.6 44.6 120.0 P/E diluted 0.0 0.0 -17.6 44.6 120.0 P/Sales 0.0 0.0 86.1 5.4 5.2 EV/Sales -8.5 -39.4 74.2 4.6 4.4 EV/EBITDA 1.1 1.5 -11.5 30.1 79.4 EV/EBIT 1.0 1.5 -11.2 30.1 82.9 P/BV 0.0 0.0 8.4 7.1 6.7

SHARE INFORMATION Reuters code RLSC.ST List First North Share price 4.5 Total shares, million 66.7 Market Cap, MSEK 297.5 MANAGEMENT & BOARD CEO Karin Fischer CFO Eva Jagenheim IR Chairman Peter Hentschel FINANCIAL INFORMATION ANALYSTS Redeye AB Erik Nordström Mäster Samuelsgatan 42, 10tr [email protected] 111 57 Stockholm Oscar Bergman [email protected]

SHARE PERFORMANCE GROWTH/YEAR 18/20E 1 month 3.2 % Net sales 14.9 % 3 month -16.5 % Operating profit adj 2.1 % 12 month -31.2 % EPS, just 0.0 % Since start of the year -18.9 % Equity 4.5 %

SHAREHOLDER STRUCTURE % CAPITAL VOTES RLS Global Intressenter AB 26.4 % 26.4 % Joki Invest AB 14.5 % 14.5 % Familjen Lundin 6.7 % 6.7 % Stena 5.2 % 5.3 % Avanza Pension 3.5 % 3.5 % Viable Solutions AB 2.5 % 2.5 % Nordnet Pensionsförsäkring 2.5 % 2.5 % Joachim Cederblad 2.2 % 2.3 % Rune Löderup 1.2 % 1.2 % Joey Runge 1.2 % 1.2 %

DCF VALUATION CASH FLOW, MSEK WACC (%) 13.0 % NPV FCF (2020-2021) NPV FCF (2022-2028) NPV FCF (2029-) Non-operating assets Interest-bearing debt Fair value estimate MSEK Assumptions 2020-2026 (%) Average sales growth Fair value e. per share, SEK EBIT margin Share price, SEK


34

Redeye Rating and Background Definitions Company Quality

Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE. These

are the building blocks that enable a company to deliver sustained operational outperformance and attractive long-

term earnings growth.

Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely

accepted and tested investment criteria and used by demonstrably successful investors and investment firms. Each

sub-category may also include a complementary check that provides additional information to assist with

investment decision-making.

If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score for

each sub-category. The overall score for a category is the average of all sub-category scores, based on a scale that

ranges from 0 to 5 rounded up to the nearest whole number. The overall score for each category is then used to

generate the size of the bar in the Company Quality graphic.

People

At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a business

is a significant part of understanding the long-term drive of the company. It all comes down to doing business with

people you trust, or at least avoiding dealing with people of questionable character.

The People rating is based on quantitative scores in seven categories:

Passion, Execution, Capital Allocation, Communication, Compensation, Ownership, and Board.

Business

If you don’t understand the competitive environment and don’t have a clear sense of how the business will engage

customers, create value and consistently deliver that value at a profit, you won’t succeed as an investor. Knowing

the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.

The Business rating is based on quantitative scores grouped into five sub-categories:

Business Scalability, Market Structure, Value Proposition, Economic Moat, and Operational Risks.

Financials

Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the

financial soundness of a business. Also, these ratios are key factors that will impact a company’s financial

performance and valuation. However, you only need a few to determine whether a company is financially strong or

weak.

The Financial rating is based on quantitative scores that are grouped into five separate categories:

Earnings Power, Profit Margin, Growth Rate, Financial Health, and Earnings Quality.


35

Redeye Equity Research team

Management Björn Fahlén

[email protected]

Håkan Östling

[email protected]

Technology Team Jonas Amnesten

[email protected]

Henrik Alveskog

[email protected]

Havan Hanna

[email protected]

Kristoffer Lindström

[email protected]

Erika Madebrink

[email protected]

Fredrik Nilsson

[email protected]

Tomas Otterbeck

[email protected]

Eddie Palmgren

[email protected]

Magnus Skog

[email protected]

Oskar Vilhelmsson

[email protected]

Viktor Westman

[email protected]

Linus Sigurdsson (Trainee)

[email protected]

Editorial Eddie Palmgren

[email protected]

Mark Siöstedt

[email protected]

John Hintze

[email protected]

Johan Kårestedt (Trainee)

[email protected]

Life Science Team Gergana Almquist

[email protected]

Oscar Bergman

[email protected]

Anders Hedlund

[email protected]

Arvid Necander

[email protected]

Erik Nordström

[email protected]

Klas Palin

[email protected]

Jakob Svensson

[email protected]

Ludvig Svensson

[email protected]


36

Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:

For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are not allowed to trade in financial instruments of the company in question, from the date Redeye publishes its analysis plus one trading day after this date.

An analyst may not engage in corporate finance transactions without the express approval of management and may not receive any remuneration directly linked to such transactions.

Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.

Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-making. Redeye Rating (2020-04-18)

Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB.

Rating People Business Financials

5p 12 10 3 3p - 4p 98 75 30 0p - 2p 8 33 85 Company N 118 118 118

CONFLICT OF INTERESTS

Erik Nordström owns shares in the company : No Oscar Bergman owns shares in the company : No Redeye performs/have performed services for the Company and receives/have

received compensation from the Company in connection with this.

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