Renalytix plc

("Renalytix" or the "Company")

 

Renalytix Reports Financial Results for First Quarter of Fiscal Year 2023

 

LONDON and SALT LAKE CITY, November 30, 2022 - Renalytix plc (NASDAQ: RNLX) (LSE: RENX), an artificial intelligence-enabled in vitro diagnostics company, focused on optimizing clinical management of kidney disease to drive improved patient outcomes and advance value-based care, announces its financial results for the fiscal first quarter ended September 30, 2022.

 

Recent Highlights (including post period events)

·         New commercial coverage for KidneyIntelX; now 30 private insurance and network provider contracts executed to date including:

o         Largest private payer in Illinois with 8.1 million members

o         Largest independent provider network in the tristate North Carolina, South Carolina and Virginia, with over 100,000 health care providers in-network

·         Over 1,200 KidneyIntelX tests performed in the first quarter of fiscal 2023, a record, of which over 80% were billable, yielding approximately $1.0 million revenue

·         Achieved Medicare payment for KidneyIntelX through the individual claims review (ICR) process based on our Medicare clinical lab fee schedule (CLFS) pricing of $950 per test

·         33 state Medicaid programs contracted to date

·         Publication of new real-world evidence in Primary Care and Community Health in which KidneyIntelX resulted in a 4.5-fold increase in new drug prescriptions (for SGLT2 inhibitors) for high-risk compared to low-risk patients, observed reduction of HbA1c levels in highest risk patients who were prescribed SGLT2 inhibitors, and more than a 20% increase in antihypertensive therapeutic prescriptions in high-risk patients

·         Continued data generation and analysis reinforcing the benefits of KidneyIntelX as part of collaborative De Novo process with the FDA, with anticipation that the agency's review is nearing completion. Data supports significant breakthrough in risk stratification for patients with diabetic kidney disease

·         KidneyIntelX clinical utility and health economics validated in multiple data releases at American Society of Nephrology

·         Data results published in American Journal of Managed Care supporting adoption and clinical utility of KidneyIntelX; 98% of 401 primary care physicians surveyed confirmed KidneyIntelX has value as a risk decision tool

First Quarter 2023 Financial Results

During the three months ended September 30, 2022, the Company recognized $1.0 million of revenue (Q1 FY22: $0.5 million). Cost of revenue for the three months ended September 30, 2022 was $0.7 million (Q1 FY22: $0.2 million).

Operating expense for the three months ended September 30, 2022 was $12.0 million compared with $12.1 million during the prior year period. As stated in August, we have taken action to lower annual expenditures by over $12 million through program, vendor and employee reductions, with additional opportunities to reduce expenditures under review.

Within operating expenses, research and development expenses were $3.8 million for the three months ended September 30, 2022, a decrease of $0.2 million, from $4.0 million for the three months ended September 30, 2021. The decrease was primarily due to a $0.2 million decrease in employee related expenses.

General and administrative expenses were $8.2 million for the three months ended September 30, 2022, increasing by $0.1 million from $8.1 million for the three months ended September 30, 2021. The increase was primarily due to a $0.6 million increase in employee related expenses, which included $0.3 million of severance expense offset by a $0.5 million decrease in insurance expense.

Net loss was $12.0 million for the three months ended September 30, 2022 compared with $10.1 million for the prior year period.

Cash and cash equivalents totaled $31.0 million as of September 30, 2022.

The Company will host a corresponding conference call and live webcast today to discuss the financial results and key topics including business strategy, partnerships and regulatory and reimbursement processes, at 8:30 a.m. (ET) / 1:30 p.m. (GMT).

Conference Call Details:

To participate in the live conference call via telephone, please register here. Upon registering, a dial-in number and unique PIN will be provided in order for interested parties to join the conference call.

Webcast Registration link:  https://edge.media-server.com/mmc/p/88vepbze

For further information, please contact:

 

Renalytix plc	www.renalytix.com
James McCullough, CEO	Via Walbrook PR
Stifel (Nominated Adviser, Joint Broker)	Tel: 020 7710 7600
Alex Price / Nicholas Moore
Investec Bank plc (Joint Broker)	Tel: 020 7597 4000
Gary Clarence / Daniel Adams
Walbrook PR Limited	Tel: 020 7933 8780 or [email protected]
Paul McManus / Alice Woodings	Mob: 07980 541 893 / 07407 804 654
CapComm Partners
Peter DeNardo	Tel: 415-389-6400 or [email protected]

 

About Renalytix

Renalytix (LSE: RENX) (NASDAQ: RNLX) is the global founder and leader in the new field of bioprognosis™ for kidney health. The company has engineered a new solution that enables early-stage chronic kidney disease progression risk assessment. The Company's lead product, KidneyIntelX™, has been granted Breakthrough Designation by the U.S. Food and Drug Administration and is designed to help make significant improvements in kidney disease prognosis, transplant management, clinical care, patient stratification for drug clinical trials, and drug target discovery (visit www.kidneyintelx.com). For more information, visit www.renalytix.com.

Forward-Looking Statements

Statements contained in this press release regarding matters that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Examples of these forward-looking statements include statements concerning: the commercial prospects of KidneyIntelX, including whether KidneyIntelX will be successfully adopted by physicians and distributed and marketed, the rate of testing with KidneyIntelX in health care systems, expectations and timing of announcement of real-world testing evidence, the potential for KidneyIntelX to be approved for additional indications, our expectations regarding the timing and outcome of regulatory and reimbursement decisions, the ability of KidneyIntelX to curtail costs of chronic and end-stage kidney disease, optimize care delivery and improve patient outcomes, and our expectations and guidance related to partnerships, testing volumes and revenue for future periods. Words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "seeks," and similar expressions are intended to identify forward-looking statements. We may not actually achieve the plans and objectives disclosed in the forward-looking statements, and you should not place undue reliance on our forward-looking statements. Any forward-looking statements are based on management's current views and assumptions and involve risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. These risks and uncertainties include, among others: that KidneyIntelX is based on novel artificial intelligence technologies that are rapidly evolving and potential acceptance, utility and clinical practice remains uncertain; we have only recently commercially launched KidneyIntelX; and risks relating to the impact on our business of the COVID-19 pandemic or similar public health crises. These and other risks are described more fully in our filings with the Securities and Exchange Commission (SEC), including the "Risk Factors" section of our annual report on Form 20-F filed with the SEC on October 31, 2022, and other filings we make with the SEC from time to time. All information in this press release is as of the date of the release, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

 

RENALYTIX PLC

 

Operational Update and Financial Results for the three months ended September 30, 2022

 

Unless otherwise indicated, all references in this report, to the terms "Renalytix," "Renalytix plc," "the company," "we," "us" and "our" refer to Renalytix plc together with its subsidiaries. We recommend that you read the discussion below together with our audited financial statements and the notes thereto, which appear in our Annual Report on Form 20-F for the year ended June 30, 2022, filed with the Securities and Exchange Commission on October 31, 2022 (our "Annual Report").

The statements in this discussion regarding our expectations regarding our market opportunity, partnerships, reimbursement, regulatory approval, cash runway, revenue guidance, capital requirements and future performance, as well as all other non-historical statements are forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks and uncertainties set forth in the "Risk Factors" section of our Annual Report and any subsequent reports that we file with the SEC. See also the section titled "Forward-Looking Statements" above.

OPERATIONAL REVIEW

About Renalytix

At Renalytix, we are introducing more accurate prognosis and effective care management for the estimated 850 million people worldwide with chronic kidney disease. In the United States alone, chronic kidney disease affects about 37 million people and is responsible for one of the largest cost drivers in the national medical system. Early identification, prognosis and treatment beginning with primary care is essential if we are to stem the growing social cost and suffering associated with kidney disease.

With our lead product, KidneyIntelX, the goal is to drive the focus from kidney disease treatment to kidney health management through a more accurate understanding of a patient's risk for kidney failure before it happens. KidneyIntelX leads development in the new field of bioprognosis, a biology driven approach to risk assessment that integrates information from a simple blood draw and a patient's health record to produce an accurate picture of kidney health. A doctor can use KidneyIntelX results to act on patients at high risk of kidney disease progression or failure at an early stage where active management and therapeutics have the best opportunity to impact outcomes and cost before it is too late.

About KidneyIntelX

Our novel platform, KidneyIntelX, uses a machine-learning enabled algorithm to process predictive blood biomarkers with key features from a patient's health record to generate an early and accurate kidney health risk score. The score identifies those patients at the most risk for kidney disease progression and/or failure and further guides ongoing clinical decisions.

KidneyIntelX is initially indicated for use with adults who have diagnosed kidney disease and diabetes - diabetic kidney disease or DKD.  Future KidneyIntelX products in development intend to expand the indicated uses to include broader chronic kidney disease, health equity strategies and kidney health monitoring through treatment. Diabetes is the leading cause of chronic kidney disease, representing nearly 40% of its cases, and DKD patients are the highest contributors to emergency room dialysis starts. Unfortunately, many DKD patients are unaware that their kidney disease has been progressing, often uncontrolled, for many years and now find themselves making difficult decisions about late-stage treatments.

KidneyIntelX was designed as an expandable platform able to add indicated uses and a monitoring capability, all within an FDA regulated, insurance reimbursable framework.

Operational Progress

Over the past year, KidneyIntelX expanded within the Mount Sinai Health System and launched at Wake Forest Baptist Health, Capital District Physicians' Health Plan (CDPHP), veterans' affairs (VA) medical centers and among independent primary care physicians.

A full electronic health record (EHR) integrated deployment of KidneyIntelX with population health support in the Mount Sinai Health System has now yielded actionable reports for approximately 5,000 patients. Utility results from our first real-world deployment at scale is yielding key evidence of the benefits of KidneyIntelX, particularly at the all-important primary care level. Patients and doctors are now clearly seeing benefits in the short-term from advanced risk assessment and follow-on action early in the disease cycle. Our experience with our physician-led health insurance partner, CDPHP, in upstate New York has been equally robust.

Implementing with the VA medical system has been slower than planned due to the complexities in introducing a new test and integrating its use into the VA system. However, we have now begun to overcome implementation hurdles and are beginning to see an increasing number of orders and corresponding testing volumes. We remain convinced that KidneyIntelX will play an important role nationally in the VA system which serves an estimated one million veterans with diabetes and kidney disease.  Again, insurance coverage remains in place with a nationwide 10-year government insurance contract for KidneyIntelX payment throughout the VA system.

Expert experience is reflected in the design of the KidneyIntelX test report and the newly launched product website: www.kidneyintelx.com. We believe our education and support program will be an important resource to help inform and improve care for early-stage DKD patients and support future hospital system deployments of KidneyIntelX, which we believe could be achieved more rapidly as a result of the knowledge we have derived from our hospital system implementations to date.  

Current outlook

Building KidneyIntelX into a standard of care in the United States and a global market with 850 million people with chronic kidney disease requires extensive data production, regulatory approvals, physician and patient education, and of course, comprehensive reimbursement.  While it sometimes seems this set of milestones takes a long time to accomplish, we are reminded that Renalytix is still a young company that received its first funding four years ago. To have achieved real insurance coverage for KidneyIntelX testing in the complex U.S. market in such a short time we believe is extraordinary. We believe that since the data is comprehensive and showing clear benefit, acceleration of adoption is likely to continue to occur. The social need could not be higher to establish innovative preventative medicine strategies such as KidneyIntelX at the front-end of diabetes and kidney disease.

Operational progress continued into the first quarter of fiscal 2023 with over 1,200 tests performed. More than 80% of these were billable, yielding about $1.0 million revenue for the quarter. These are record amounts for us in quarterly testing volumes and revenue.

FINANCIAL REVIEW

Financial review of the three-month period ended September 30, 2022 and comparison to prior year period

Our operating loss for the three months ended September 30, 2022, was $11.7 million (September 30, 2021: $11.8 million).

Revenue

During the three months ended September 30, 2022, we recognized $1.0 million of revenue related to KidneyIntelX testing. There was $0.5 million of revenue related to KidneyIntelX testing for the three months ended September 30, 2021.

Cost of Revenue

During the three months ended September 30, 2022, cost of revenue consisted of $0.7 million primarily attributable to KidneyIntelX testing, including labor and materials costs directly related to revenue generating activities. There was $0.2 million of cost of revenue for the three months ended September 30, 2021.

Research and Development Costs

Research and development expenses decreased by $0.2 million, from $4.0 million for the three months ended September 30, 2021 to $3.8 million for the three months ended September 30, 2022. The decrease was primarily due to a $0.2 million decrease in employee related expenses.

General and Administrative Costs

General and administrative expenses increased by $0.1 million, from $8.1 million for the three months ended September 30, 2021 to $8.2 million for the three months ended September 30, 2022. The increase was primarily due to a $0.6 million increase in employee related expenses, which included $0.3 million of severance expense offset by a $0.5 million decrease in insurance expense. As stated in August, we have taken action to lower annual expenditures by over $12 million through program, vendor and employee reductions, with additional opportunities to reduce expenditures under review.

Foreign Currency gain

During the three months ended September 30, 2022, we recorded an unrealized foreign exchange gain of $1.7 million primarily attributable to cash balances denominated in currencies other than the functional currency. We recorded an unrealized foreign currency gain of $2.3 million during the three months ended September 30, 2021.

Fair Value Adjustments to VericiDx Investment

The Company accounts for the investment in VericiDx equity securities at fair value, with changes in fair value recognized in the income statement. During the three months ended September 30, 2022, we recorded a loss of $0.9 million to adjust the VericiDx investment to fair value. We recorded a loss of $0.6 million during the three months ended September 30, 2021.

Fair value adjustment on convertible notes

In April 2022, the Company issued amortizing senior convertible bonds with a principal amount $21.2 million due in April 2027 (the "Bonds"). We elected to account for the bonds at fair value with qualifying changes in fair value recognized through the statements of operations until the notes are settled. This excludes fair value adjustments related to instrument-specific credit risk, which are recognized in OCI. For the three months ended September 30, 2022, we recorded a loss of $1.2 million to adjust the bonds to fair value. There was no fair value adjustment for the three months ended September 30, 2021 as we had not issued convertible debt at that time.

Other income

During the three months ended September 30, 2022, we realized $0.1 million of other income from Kantaro for additional services performed outside the scope of the operating agreement. During the three months ended September 30, 2021, we received $0.01 million of interest income as a result of interest earned on cash deposits.

Liquidity and Capital Resources

Since our inception, we have incurred net losses. As of September 30, 2022, we had an accumulated deficit of $144.7 million.

We expect to incur additional losses in the near future, and we expect our expenses to increase in connection with our ongoing activities, particularly as we continue to commercialize and scale KidneyIntelX, particularly as we conduct our ongoing and planned clinical utility and other studies for KidneyIntelX for its commercial launch, develop and refine our artificial intelligence technology platform, seek regulatory clearances or approvals for KidneyIntelX or any other product we develop, establish and maintain partnerships with healthcare systems, pursue our coverage and reimbursement strategy and continue to invest in our infrastructure to support our manufacturing and other activities. In addition, we expect to continue to incur additional costs associated with operating as a public company in the United States. The timing and amount of our operating expenditures will depend largely on:

·         the cost, progress and results of our ongoing and planned validation studies and health economic studies;

·         the cost, timing and outcome of entering into and maintaining partnership agreements with healthcare systems for the commercial sale of KidneyIntelX;

·         the cost of manufacturing clinical and commercial supply of KidneyIntelX;

·         the cost, timing and outcome of regulatory review of KidneyIntelX, including any post-marketing studies that could be required by regulatory authorities;

·         the cost, timing and outcome of identified and potential future commercialization activities, including manufacturing, marketing, sales and distribution, for KidneyIntelX;

·         the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, including any claims by third parties that we are infringing upon their intellectual property rights;

·         the timing and amount of future revenue, if any, received from commercial sales of KidneyIntelX;

·         the sales price and availability of adequate third-party coverage and reimbursement for KidneyIntelX;

·         the effect of competing technological and market developments; and

·         the extent to which we acquire or invest in businesses, products and technologies, such as Kantaro, although we currently have no other commitments or agreements to complete any such transactions.

To date, we have primarily financed our operations through equity and debt financings. As of September 30, 2022, we had cash and cash equivalents of $31.0 million. We believe that our existing cash will enable us to fund our current operating plan for at least the next 12 months. Such expectation is based, in part, on the achievement of certain assumed revenue; however, there is no guarantee we will achieve this amount of revenue during the time period we assume. Management assesses that various operating cost mitigation options are available to the Company if needed. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

Cash Flows

Net cash used in operating activities

During the three months ended September 30, 2022, net cash used in operating activities was $7.1 million and was primarily attributable to our $12.0 million net loss including a $1.7 million net change in our operating assets and liabilities and $3.1 million in noncash charges. The change in our operating assets and liabilities was primarily attributable to a $1.7 million increase in accounts payable and accrued expenses and other current liabilities. Noncash charges were primarily related to $0.8 million in share-based compensation, $0.9 million fair value adjustment of our VericiDx securities, $0.9 million fair value adjustment of our convertible debt, $0.5 million unrealized foreign exchange loss and $0.1 million of depreciation and amortization.

During the three months ended September 30, 2021, net cash used in operating activities was $10.5 million and was primarily attributable to our $10.1 million net loss including $0.3 million in noncash charges and a $0.1 million net change in our operating assets and liabilities.

Net cash used in investing activities

During the three months ended September 30, 2022, no cash was used for investing activities.

During the three months ended September 30, 2021, net cash used in investing activities was $0.3 million, primarily attributable to a $0.2 million for purchases of lab and office equipment.

Net cash used in financing activities

During the three months ended September 30, 2022, net cash used in financing activities was $0.9 million and was primarily attributable to $1.0 million in cash used to pay down the principal of the convertible debt, offset by $0.1 million in proceeds from the issuance of ordinary shares under our employee stock purchase program.

During the three months ended September 30, 2021, net cash provided by financing activities was $0.2 million and was primarily attributable to $0.1 million in proceeds from the issuance of ordinary shares under employee stock purchase program as well as $0.1 million in proceeds from the exercise of stock options.

Cash and Cash Equivalents

We had cash and cash equivalents of $31.0 million as of September 30, 2022, which decreased from $41.3 million as of June 30, 2022 due to normal operations as we continue to commercialize KidneyIntelX and grow our business.

Critical accounting policies and significant judgments and estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, "U.S. GAAP". The preparation of our unaudited condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our unaudited condensed consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report.

Recent accounting pronouncements

See Note 3 to our financial statements found elsewhere in this report for a description of recent accounting pronouncements applicable to our financial statements.

JOBS Act transition period

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. An emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and, as a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation exemptions to the requirements for (1) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier to occur of (a) the last day of the fiscal year (1) following the fifth anniversary of the completion of our U.S. IPO, (2) in which we have total annual gross revenues of at least $1.235 billion or (3) in which we are deemed to be a "large accelerated filer" under the rules of the SEC, which means the market value of our ordinary shares and ADSs that are held by non-affiliates exceeds $700.0 million as of the prior December 31, or (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.