Renalytix Reports Financial Results for Third Quarter of Fiscal Year 2023
LONDON and SALT LAKE CITY, June 09, 2023 (GLOBE NEWSWIRE) -- 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, today reported financial results for the fiscal third quarter ended March 31, 2023.*Recent Highlights (including post period events)*
· Continued progress with FDA De Novo authorization review, with FDA indicating a target date for decision completion by the end of the second calendar quarter of 2023
· Secured additional key insurance coverage contracts for KidneyIntelX including:
· EmblemHealth, covering over three million lives in New York Tri-state region
· CareFirst BlueCross BlueShield, the largest health care plan in the U.S. Mid-Atlantic region
· Continuing to maintain contracted pricing at or over the Medicare clinical lab fee schedule (CLFS) of $950 per reportable test result
· Medicare payment for KidneyIntelX established
· Claims submitted through the individual claims review (ICR) process paid effective July 1, 2022
· Local Coverage Determinations (LCD) are being progressed with two Medicare Administrative Contractors supported by new published real-world utility evidence
· Milestone achievement converting payment to full, long-term commercial insurance billing model at Mount Sinai Health System
· Insurance payment for over 90% of KidneyIntelX eligible Mount Sinai patients as of the end of the fiscal third quarter
· Short-term reduction in Mount Sinai test volumes during commercial insurance billing transition in the first half of calendar 2023; order mechanisms now restored and commercial testing has resumed
· Upcoming expansion of direct to primary care physician sales capacity in the Florida and Texas markets
· Selection of EVERSANA to further enable sales implementation in markets with large diabetes populations and access to primary care practices
· With addition of the EVERSANA program, there will be KidneyIntelX direct to primary care sales presence in NY, IL, NC, SC, FL, and TX
· Completed $20.3 million equity financing led by new institutional investors in February 2023
· Core participant in the consortium granted $10 million by Horizon Europe Grant to advance personalized medicine in treating chronic kidney disease
· Agreement with Veterans Affairs (VA) to integrate KidneyIntelX testing with Veterans Health Administration (VHA) electronic health record systems
· Release of data from two studies at National Kidney Foundation Spring Clinical Meeting illustrating:
· KidneyIntelX performed well in identifying higher-risk Black patients; understanding risk of progression can substantially reduce disparities in access to expensive SGLT2-inhibitor drug therapy
· Veterans may progress rapidly due to higher prevalence of comorbid conditions. In accordance with the goals of VHA Directive 1053, earlier identification of those at high risk of DKD progression and death will help minimize the overall DKD burden in the VHA.
· Publication of new patient case studies in Diabetic Nephropathy demonstrating how KidneyIntelX can optimize clinical management in early-stage kidney disease across multiple physician specialties*Third Quarter 2023 Financial Results*
During the three months ended March 31, 2023, the Company recognized $0.7 million of revenue (Q3 FY22: $0.8 million). Cost of revenue for the three months ended March 31, 2023 was $0.6 million (Q3 FY22: $0.7 million).
Operating expense for the three months ended March 31, 2023 was $11.0 million compared with $14.7 million during the prior year period. As previously stated in fiscal Q1, 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 $3.9 million for the three months ended March 31, 2023, consistent with $3.9 million in expense for the three months ended March 31, 2022.
General and administrative expenses were $7.1 million for the three months ended March 31, 2023, decreasing by $3.7 million from $10.8 million for the three months ended March 31, 2022. The decrease was due to the cost reduction measures taken earlier this year resulting in a $1.9 million decrease in employee related expenses, a $1.2 million decrease in consulting and professional fees, a $0.5 million decrease in insurance expense, and a $0.1 million decrease in other operating expenses.
Net loss was $12.1 million for the three months ended March 31, 2023 compared with $14.7 million for the prior year period.
Cash and cash equivalents totaled $33.0 million as of March 31, 2023.
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. (EDT) / 1:30 p.m. (BST).
*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/u32tnka9**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 / Nick Moore / Samira Essebiyea
*Investec Bank plc (Joint Broker)* *Tel: 020 7597 4000*
Gary Clarence / Shalin Bhamra
*Walbrook PR Limited* *Tel: 020 7933 8780 *or renalytix@walbrookpr.com
Paul McManus / Alice Woodings Mob: 07980 541 893 / 07407 804 654
*CapComm Partners*
Peter DeNardo
*Tel: 415-389-6400* or investors@renalytix.com
*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, cost reduction measures 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 and Nine Months ended March 31, 2023*
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, cost reduction measures, testing volume, 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 health care, 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 are intended 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 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 last several months, we have made continued progress in establishing the commercial foundation for KidneyIntelX.
Progressing towards “super-majority” insurance coverage in multiple regional markets with large prevalence of diabetes and kidney disease
We are demonstrating payment success across a diverse cohort of insurance entities including individual state Blue Cross Blue Shield and Medicaid plans, Medicare Advantage, and other large for-profit and not-for profit insurance plans. Together with payments from Medicare contractor National Government Services under individual claim review, this growing diversity in payment is providing the basis for our expectation that KidneyIntelX will continue to achieve majority coverage in markets with large populations of diabetes and kidney disease patients during calendar 2023. As a result, we are now able to concentrate resources and focus on building sales, marketing, and customer service functions to support test adoption in regions with comprehensive insurance coverage.
Establishing comprehensive insurance coverage in metropolitan New York has allowed us to proceed with the important milestone of converting to a long-term commercial reimbursement model within the Mount Sinai Health System during the first half of calendar 2023 (second half of fiscal 2023). As discussed below, this conversion from Mount Sinai as the sole payor of tests performed at the hospital system is timely given recent commercial insurance coverage awards in the region.
The Centers for Medicare & Medicaid Services set the price for KidneyIntelX at $950 in 2019. To date, we have matched or exceeded the Medicare price when negotiating commercial insurance coverage contracts. To broaden access to the test, we maintain a robust patient assistance program for those patients who have limited insurance coverage and for whom KidneyIntelX is indicated as a suitable test. We are particularly conscious of the health inequity which is pervasive among diabetes and kidney disease populations and endeavor to expand access to the advanced prognosis benefits of KidneyIntelX wherever possible and permitted under the law.
We believe the diversity and depth of established insurance payment remains critical to establishing long-term testing adoption and revenue growth and achieving this coverage in a relatively short period since commercial testing launch has been a core business strategy.
Continuing to publish on our growing real-world evidence of KidneyIntelX effectiveness
We continue to accumulate longitudinal data from our real-world evidence program leading to further peer-reviewed evidence and support of the positive impact of KidneyIntelX. Published utility study results in the Journal of Primary Care Community Health on November 28, 2022 on 1,686 patients showed that primary care physicians (PCPs) using KidneyIntelX were 4.5 times more likely to prescribe advanced medication to their high-risk patients in early-stage kidney disease, where the opportunity to prevent significant kidney damage or kidney failure is greatest, as compared to their low-risk patients. Additionally, providers were nearly 2.5 times more likely to make a timely referral to a specialist in high-risk patients compared to low-risk patients, and 20% more likely to initiate more adaptive and aggressive anti-hypertensive (blood pressure control) strategies in these high-risk patients. Notable clinical observations from this study showed improvements in HbA1C levels for diabetes glucose control in the high-risk group in the first six months, most likely the result of both increased patient engagement combined with appropriate medication changes. There was also a 15% improvement in UACR (urine albumin to creatinine ratio), an important indicator of kidney health, at the six-month mark in the low and intermediate-risk groups.
We released new utility study data in April 2023 at the National Kidney Foundation Spring Clinical Meeting illustrating that KidneyIntelX performed well in identifying higher-risk Black patients; understanding risk of progression can substantially reduce disparities in access to expensive SGLT2-inhibitor drug therapy. In addition, new patient case studies were published in Diabetic Nephropathy demonstrating how KidneyIntelX can optimize clinical management in early-stage kidney disease across multiple physician specialties.
This evidence builds on a previously published study in the American Journal of Managed Care (AJMC) that indicated that 98% of PCPs were somewhat, very or extremely likely to use KidneyIntelX to predict which of their patients with DKD will experience rapid progressive decline in their kidney function. We believe this investment in real-world evidence is driving positive insurance reimbursement decisions, and will eventually help support inclusion of KidneyIntelX in key clinical guidelines for diabetes and kidney health.
Horizon Europe Grant
We are also pleased to be a core member of a consortium of industry, academic and clinical research leaders awarded a $10 million Horizon Europe Grant to advance personalized medicine in treating chronic kidney disease. The consortium, PRIME-CKD, aims to validate and implement in clinical practice, novel biomarker-based tests that predict response to existing drugs used by patients with chronic kidney disease (CKD). PRIME-CKD is funded by Horizon Europe, the European Union’s key funding program for research and innovation. The total budget of the project is $10 million over a projected five-year period, with approximately 10% of the budget targeted for commercial translation activities to be undertaken by Renalytix. The project is closely aligned with Renalytix’s objective of expanding the clinical utility of the KidneyIntelX platform beyond prognosis to prediction and monitoring of drug response.
Pursuing Food and Drug Administration (FDA) De Novo marketing authorization for KidneyIntelX
We continue to make progress toward De Novo marketing authorization of KidneyIntelX with the Food and Drug Administration. While there are no guarantees, we remain optimistic and are working diligently with the FDA towards a successful outcome. FDA has indicated they are working towards a decision by the end of the second calendar quarter of 2023. As part of the De Novo process, and pending a successful outcome of the review, the FDA will prepare a reclassification order and pursue certain internal processes for this class of test prior to communicating the final decision. The comprehensive data dossier submitted and detailed review process by the FDA is reflective of the breakthrough nature of this novel test.
Mount Sinai billing transition
In our fiscal third quarter we completed the milestone of transitioning to a long-term commercial insurance payment model for patients tested at the Mount Sinai Health System. This transition is taking place with the completion of the applicable portion of the 2018 license agreement under which Mount Sinai covered the cost of the first six million dollars of KidneyIntelX testing as part of a real-world evidence study.
Our ability to secure diversity of commercial insurance for KidneyIntelX for a significant portion of the diabetes and kidney disease population in New York City would not be possible without established payment from Medicare, Medicare Advantage and other large New York City concentrated payors. This includes a recently disclosed coverage contract with the second largest non-profit payor in the United States with 3.2 million members and another coverage contract secured with a large value-based care insurer covering 1.8 million members. We are now experiencing a high-rate of payment across both public and private insurance carriers in the New York region at or above our established Medicare pricing of $950 per reportable result.
The transition to commercial payment for testing at Mount Sinai has had a short-term adverse impact on testing volumes, predominantly while testing was paused during the month of March while the hospital communicated with its physicians about the transition. In addition, certain study-related tests that were paid under the completed real-world evidence portion of our license agreement with Mount Sinai are no longer billable under current commercial arrangements. These study-related tests currently represent roughly 33% of the Mount Sinai testing volume, though we expect that percentage to decrease in future quarters as we seek to ramp up commercial testing in the Mount Sinai Health System. Further, as is customary when diagnostic products move to broad-scale commercial billing, the average selling price for KidneyIntelX will now include a minority percentage of discounted testing for patients qualifying for financial assistance and out-of-network testing.
Encouragingly, we have begun to experience the validatory effects of establishing commercial pay after extensive real-world experience with a system as large and influential as Mount Sinai with other key insurers and health systems looking to adopt a KidneyIntelX guided clinical management program for patients with diabetes and kidney disease.
Other commercial market development
Continued diversity of insurance coverage, successful real-world evidence and a potentially positive FDA decision in the short term will be important factors in the quarters ahead to drive testing adoption and revenue growth. We are pleased to begin seeing a more diverse group of physicians in different locations in the United States ordering KidneyIntelX. We are assessing more focused hiring of primary care sales and medical science liaison personnel for deployment in areas with established insurance payment.
We entered into an agreement with the Veterans Administration to install the KidneyIntelX solution inside the VA Health System’s cloud infrastructure and interface it with the VA electronic health record systems. This marks a significant milestone in ultimately enabling providers at VA Medical Centers and outpatient clinics to order and receive test results in a seamless manner, and eventually make KidneyIntelX accessible to large numbers of veterans with diabetic kidney disease.
Financing
In March of 2022, we announced the completion of a financing package yielding $26.8 million in gross proceeds for the Company. The financing included an $8.8 million equity subscription plus $21.2 million principal amount of convertible bonds (net cash proceeds of $18 million).
In February 2023, the Company raised an additional $20.3 million gross proceeds in a private placement of ordinary shares and American Depositary Shares.
We are pleased to have achieved such financings during this challenging capital market environment, which we believe illustrates the strength of our kidney disease testing, monitoring and informed care advantages. In these rounds, we have welcomed substantial new institutional investors alongside participation by longstanding shareholders.
Summary and Outlook
Our fundamental goals remain clear:
· Build testing adoption on a regional basis;
· Continue to secure diversified, long-term insurance coverage;
· Continue building evidence of real-world benefit of KidneyIntelX use; and
· Obtain FDA marketing authorization
We believe the early-stage kidney health market remains largely un-tapped and open for innovation. Renalytix is in a position to alter both the fundamental cost of care in the short- and long-term, maintain better health for millions of Americans with diabetes and kidney disease, and reduce the threat of unexpected kidney failure and dialysis. With the World Obesity Federation reporting in March that 51% of the global population, or more than 4 billion people, are expected to be overweight or obese by 2035, kidney disease and diabetes, which run in parallel, will remain significant threats to the global health care system. Now more than ever, we will need a way to understand who is at risk for advancing kidney disease (and, importantly, who is not), and to whom new effective medication should be given and to determine how they respond. Without a KidneyIntelX-like prognosis available at the front end of chronic kidney disease, easily implemented and understood by primary care physicians, it will be very challenging to allocate medical resource efficiently, and alert patients and their doctors to preventive measures to preserve health.
We believe we are in the process of validating a new standard with KidneyIntelX that can be used by any physician in any healthcare environment for preventative medicine, with high-quality standards verified by third-party experts and regulatory agencies, tested extensively in the real-world and, of course, covered by a diverse set of insurance payors.
As discussed earlier in this section, during this calendar year to date, we have secured important new commercial insurance coverage for KidneyIntelX, continued to work collaboratively with the FDA in their evaluation of our De Novo marketing application for KidneyIntelX, enhanced our balance sheet with new funding, and executed an important transition at Mount Sinai to third-party commercial billing.
*FINANCIAL REVIEW*
*Financial review of the three-month period ended March 31, 2023 and comparison to prior year period*
Our operating loss for the three months ended March 31, 2023, was $10.9 million (March 31, 2022: $14.5 million).
*Revenue*
During the three months ended March 31, 2023, we recognized $0.7 million of revenue related to KidneyIntelX testing. There was $0.8 million of revenue related to KidneyIntelX testing for the three months ended March 31, 2022. The transition to commercial payment for testing at Mount Sinai had a short-term adverse impact on testing volumes, predominantly while testing was paused at the hospital system during the month of March.
*Cost of Revenue*
During the three months ended March 31, 2023, cost of revenue consisted of $0.6 million primarily attributable to KidneyIntelX testing, including labor and materials costs directly related to revenue generating activities. There was $0.7 million of cost of revenue for the three months ended March 31, 2022. The slight decrease in cost of revenue was primarily due to slightly lower test volumes in the 2023 quarter.
*Research and Development Costs*
Research and development expenses were $3.9 million for the three months ended March 31, 2023, consistent with $3.9 million in expense for the three months ended March 31, 2022.
*General and Administrative Costs*
General and administrative expenses were $7.1 million for the three months ended March 31, 2023, decreasing by $3.7 million from $10.8 million for the three months ended March 31, 2022. The decrease was due to the cost reduction measures taken earlier this year resulting in a $1.9 million decrease in employee related expenses, $1.2 million decrease in consulting and professional fees, a $0.5 million decrease in insurance expense, and a $0.1 million decrease in other operating expenses.
*Foreign Currency Gain (Loss)*
During the three months ended March 31, 2023, we recorded an unrealized foreign currency loss of $0.5 million primarily attributable to cash balances denominated in currencies other than the functional currency. We recorded an unrealized foreign currency gain of $2.4 million during the three months ended March 31, 2022.
*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 March 31, 2023, we recorded a gain of $0.1 million to adjust the VericiDx investment to fair value. We recorded a loss of $2.6 million during the three months ended March 31, 2022.
*Fair Value Adjustment on Convertible Notes*
In April 2022, the Company issued amortizing senior convertible bonds with a principal amount of $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 other comprehensive income. For the three months ended March 31, 2023, 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 March 31, 2022 as we had not issued convertible debt at that time.
*Other Income*
During the three months ended March 31, 2023, we realized $0.03 million of interest income and $0.3 million of other income related expense reimbursement. There was less than $0.1 million of interest expense recorded during the three months ended March 31, 2022.
*Financial review of the nine months ended March 31, 2023 **and comparison to prior year period*
Our operating loss for the nine months ended March 31, 2023, was $32.3 million (March 31, 2022: $40.1 million).
*Revenue*
During the nine months ended March 31, 2023, we recognized $2.7 million of revenue related to KidneyIntelX and $0.2 million of revenue related to services performed for AstraZeneca. There was $1.9 million of revenue related to KidneyIntelX and $0.2 million of revenue related to services performed for AstraZeneca for the nine months ended March 31, 2022. Increased KidneyIntelX revenue was driven by increased test volumes in the current period.
*Cost of Revenue*
During the nine months ended March 31, 2023, cost of revenue consisted of $2.0 million primarily attributable to KidneyIntelX testing, including labor and materials costs directly related to revenue generating activities. There was $1.4 million of cost of revenue for the nine months ended March 31, 2022. The increase in cost of revenue was primarily due to increased test volumes in the current period.
*Research and Development Costs*
Research and development expenses decreased by $1.0 million, from $12.0 million for the nine months ended March 31, 2022 to $11.0 million for the nine months ended March 31, 2023. The decrease was primarily due to a $0.7 million decrease in external consulting and professional fees, a $0.2 million decrease in employee related expenses and $0.1 million decrease in other expenses.
*General and Administrative Costs*
General and administrative expenses decreased by $6.9 million, from $29.0 million for the nine months ended March 31, 2022 to $22.2 million for the nine months ended March 31, 2023. The decrease was primarily due to a $2.8 million decrease in consulting and professional fees, a $1.5 million decrease in insurance expense, a $2.3 million decrease in employee related expenses, and a $0.3 million decrease in software and IT costs.
*Foreign Currency Gain (Loss)*
During the nine months ended March 31, 2023, we recorded an unrealized foreign currency gain of $0.2 million primarily attributable to cash balances denominated in currencies other than the functional currency. We recorded a foreign currency gain of $4.6 million during the nine months ended March 31, 2022.
*Fair Value Adjustments to VericiDx Investment*
We account for our investment in VericiDx using the equity method of accounting and have elected to use the fair value option to value the investment. During the nine months ended March 31, 2023, we recorded a loss of $1.1 million to adjust the VericiDx investment to fair value. We recorded a loss of $4.6 million during the nine months ended March 31, 2022.
*Fair Value Adjustment on Convertible Notes*
In April 2022, the Company issued amortizing senior convertible bonds with a principal amount of $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 other comprehensive income. For the nine months ended March 31, 2023, we recorded a loss of $1.9 million to adjust the bonds to fair value. There was no fair value adjustment for the nine months ended March 31, 2022 as we had not issued convertible debt at that time.
*Other Income*
During the nine months ended March 31, 2023, we realized $0.1 million of interest income and $0.4 million of other income related to Kantaro and expense reimbursement. There was less than $0.1 million of interest income recorded during the nine months ended March 31, 2022.
*Liquidity and Capital Resources*
Since our inception, we have incurred net losses. As of March 31, 2023, we had an accumulated deficit of $167.2 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, as we conduct our ongoing and planned clinical utility and other studies for KidneyIntelX, 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, continue to build our sales force 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 and the United Kingdom. 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, 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, although we currently have no commitments or agreements to complete any such transactions.
To date, we have primarily financed our operations through equity and debt financings. As of March 31, 2023, we had cash and cash equivalents of $33.0 million. We believe that our cash and cash equivalents of $33.0 million as of March 31, 2023, 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 nine months ended March 31, 2023, net cash used in operating activities was $25.5 million and was primarily attributable to our $34.5 million net loss including a $3.0 million net change in our operating assets and liabilities and $6.1 million in noncash charges. The change in our operating assets and liabilities was primarily attributable to a $2.9 million increase in accounts payable and accrued expenses and other current liabilities and a $0.1 million increase in accounts receivable, prepaid expenses and other current assets. Noncash charges were primarily related to $2.4 million in share-based compensation, $1.1 million fair value adjustment of our VericiDx securities, $1.9 million fair value adjustment of our convertible debt, a $0.3 million unrealized foreign exchange loss, $0.3 million of depreciation and amortization and $0.1 million of non-cash lease expense.
During the nine months ended March 31, 2022, net cash used in operating activities was $31.8 million and was primarily attributable to our $40.1 million net loss including a $4.7 million net change in our operating assets and liabilities and $3.7 million in noncash charges. The change in our operating assets and liabilities was primarily attributable to a $7.0 million increase in accrued expenses and other current liabilities, driven by a $4.0 million current liability related to funds received from the Icahn School of Medicine at Mount Sinai ahead of the April equity investment, offset by a $2.9 million decrease in prepaid expenses and other current assets. Noncash charges were primarily related to $2.9 million in share-based compensation and the $4.6 million fair value adjustment of our Verici securities, offset by a $4.2 million unrealized foreign exchange gain.
Net cash used in investing activities
During the nine months ended March 31, 2023, net cash used in investing activities was $0.1 million, attributable to the payment of long term deferred expenses.
During the nine months ended March 31, 2022, net cash used in investing activities was $0.7 million, primarily attributable to $0.6 million for purchases of lab and office equipment and $0.1 million in software development costs.
Net cash from financing activities
During the nine months ended March 31, 2023, net cash from financing activities was $16.5 million and was primarily attributable to $20.3 million in gross proceeds from the issuance of ordinary shares and $0.1 million in proceeds from the issuance of ordinary shares under our employee stock purchase program offset by $3.2 million in cash used to pay down the principal and interest of the convertible debt and $0.7 million in cash paid for offering costs related to the issuance of ordinary shares.
During the nine months ended March 31, 2022, net cash provided by financing activities was $0.3 million and was primarily attributable to $0.1 million in proceeds from the issuance of ordinary shares under our employee stock purchase program as well as $0.2 million in proceeds from the exercise of stock options.
*Cash and Cash Equivalents*
We had cash and cash equivalents of $33.0 million as of March 31, 2023, 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.
*RENALYTIX PLC*
*CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)*
(in thousands, except share and per share data) *March 31, 2023* *June 30, 2022*
Assets
Current assets:
Cash and cash equivalents $ 33,027 $ 41,333
Accounts receivable 747 901
Prepaid expenses and other current assets 1,879 2,445
Note receivable from Kantaro 75 75
Receivable from affiliates — —
Total current assets 35,728 44,754
Property and equipment, net 2,186 2,558
Right of use asset 187 —
Investment in VericiDx 1,642 2,744
Investment in Kantaro — 9
Other assets 59 —
Total assets $ 39,802 $ 50,065
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable 1,746 $ 1,376
Accounts payable – related party 1,453 1,083
Accrued expenses and other current liabilities 5,872 3,060
Accrued expenses – related party 1,011 1,496
Deferred revenue — 46
Current lease liability 129 —
Convertible notes – current 4,473 4,660
Payable to affiliate – current — 55
Total current liabilities 14,684 11,776
Convertible notes – noncurrent 6,950 7,682
Noncurrent lease liability 71 —
Total liabilities 21,705 19,458
Commitments and contingencies (Note 10)
Shareholders’ equity:
Ordinary shares, £0.0025 par value per share: 98,998,131 shares
authorized; 93,781,478 and 74,760,432 shares issued and
outstanding at March 31, 2023 and June 30, 2022, respectively 286 228
Additional paid-in capital 185,871 164,012
Accumulated other comprehensive loss (839 ) (915 )
Accumulated deficit (167,221 ) (132,718 )
Total shareholders’ equity 18,097 30,607
Total liabilities and shareholders’ equity $ 39,802 $ 50,065
^
The accompanying notes are an integral part of these condensed consolidated financial statements.
*RENALYTIX PLC*
*CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)* *Three Months
Ended* *Three Months
Ended* *Nine Months
Ended* *Nine Months
Ended*
(in thousands, except share data) *March 31, 2023* *March 31, 2022* *March 31, 2023* *March 31, 2022*
Revenue $ 724 $ 812 $ 2,885 $ 2,139
Cost of revenue 603 685 2,010 1,404
Gross profit 121 127 875 735
Operating expenses:
Research and development 3,943 3,887 11,026 12,019
General and administrative 7,095 10,809 22,155 29,012
Performance of contract liability to affiliate — (32 ) (19 ) (163 )
Total operating expenses 11,038 14,664 33,162 40,868
Loss from operations (10,917 ) (14,537 ) (32,287 ) (40,133 )
Equity in net (losses) earnings of affiliate — (26 ) (9 ) 11
Foreign currency (loss)/gain, net (461 ) 2,447 238 4,587
Fair value adjustment to VericiDx investment 129 (2,575 ) (1,070 ) (4,596 )
Fair value adjustment to convertible notes (1,168 ) — (1,898 ) —
Other (expense) income, net 310 (4 ) 521 8
Net loss before income taxes (12,107 ) (14,695 ) (34,505 ) (40,123 )
Income tax expense 1 — 2 —
Net loss (12,106 ) (14,695 ) (34,503 ) (40,123 )
Net loss per ordinary share—basic and diluted $ (0.14 ) $ (0.20 ) $ (0.44 ) $ (0.56 )
Weighted average ordinary shares—basic and diluted 85,560,783 72,297,309 78,366,984 72,274,979
Other comprehensive income (loss):
Changes in the fair value of the convertible notes through other comprehensive income 593 — 70 —
Foreign exchange translation adjustment 505 (2,632 ) 6 (5,120 )
Comprehensive loss (11,008 ) (17,327 ) (34,427 ) (45,243 )
^
The accompanying notes are an integral part of these condensed consolidated financial statements.
*RENALYTIX PLC*
*CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)* *Ordinary shares* *Additional*
*paid-in* *Accumulated *
*other *
*comprehensive* *Accumulated* *Total*
*shareholders’*
*(in thousands, except share and per share data)* *Shares* *Amount* *capital* *income (loss)* *deficit* *equity*
Balance at July 1, 2022 74,760,432 $ 228 $ 164,012 $ (915 ) $ (132,718 ) $ 30,607
Shares issued under the employee share purchase program 131,412 1 115 — — 116
Stock-based compensation expense — — 763 — — 763
Currency translation adjustments — — — (1,087 ) — (1,087 )
Changes in the fair value of the convertible notes through other comprehensive income — — — 397 — 397
Net loss — — — — (11,953 ) (11,953 )
Balance at September 30, 2022 74,891,844 $ 229 $ 164,890 $ (1,605 ) $ (144,671 ) $ 18,843
Stock-based compensation expense — — 818 — — 818
Currency translation adjustments — — — 588 — 588
Changes in the fair value of the convertible notes through other comprehensive income — — — (920 ) — (920 )
Net loss — — — — (10,444 ) (10,444 )
Balance at December 31, 2022 74,891,844 $ 229 $ 165,708 $ (1,937 ) $ (155,115 ) $ 8,885
Shares issued under the February 2023 private placement 18,722,960 57 19,248 — — 19,305
Shares issued under the employee share purchase program 166,674 — 145 — — 145
Stock-based compensation expense — — 770 — — 770
Currency translation adjustments — — — 593 — 593
Changes in the fair value of the convertible notes through other comprehensive income — — — 505 — 505
Net loss — — — — (12,106 ) (12,106 )
Balance at March 31, 2023 93,781,478 $ 286 $ 185,871 $ (839 ) $ (167,221 ) $ 18,097
*RENALYTIX PLC*
*CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)* *Ordinary shares* *Additional*
*paid-in* *Accumulated *
*other *
*comprehensive* *Accumulated* *Total*
*shareholders’*
*(in thousands, except share and per share data)* *Shares* *Amount* *capital* *income (loss)* *deficit* *equity*
Balance at July 1, 2021 72,197,286 $ 220 $ 150,407 $ 8,276 $ (87,442 ) $ 71,461
Shares issued under the employee share
purchase plan 10,920 — 120 — — 120
Exercise of stock options 32,500 — 86 — — 86
Stock-based compensation expense — — 997 — — 997
Currency translation adjustments — — — (2,585 ) — (2,585 )
Net loss — — — — (10,106 ) (10,106 )
Balance at September 30, 2021 72,240,706 $ 220 $ 151,610 $ 5,691 $ (97,548 ) $ 59,973
Exercise of stock options 68,224 — 111 — — 111
Stock-based compensation expense — — 941 — — 941
Currency translation adjustments — — — 97 — 97
Net loss — — — — (15,322 ) (15,322 )
Balance at December 31, 2021 72,308,930 $ 220 $ 152,662 $ 5,788 $ (112,870 ) $ 45,800
Exercise of stock options — — — — — —
Stock-based compensation expense — — 942 — — 942
Currency translation adjustments — — — (2,632 ) — (2,632 )
Net loss — — — — (14,695 ) (14,695 )
Balance at March 31, 2022 72,308,930 $ 220 $ 153,604 $ 3,156 $ (127,565 ) $ 29,415
^
The accompanying notes are an integral part of these condensed consolidated financial statements.
*RENALYTIX PLC*
*CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)*
*(in thousands)* *Nine Months Ended*
*March 31, 2023* *Nine Months Ended*
*March 31, 2022*
Cash flows from operating activities:
Net loss $ (34,503 ) $ (40,123 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 388 354
Stock-based compensation 2,358 2,880
Equity in losses (net earnings) of affiliate 9 (11 )
Reduction of Kantaro liability (55 ) —
Fair value adjustment to VericiDx investment 1,070 4,596
Unrealized foreign exchange loss (gain) 327 (4,169 )
Fair value adjustment to convertible debt 1,898 —
Non-cash lease expense 78 —
Changes in operating assets and liabilities:
Accounts receivable 154 (415 )
Prepaid expenses and other current assets (77 ) (2,915 )
Accounts payable 358 673
Accounts payable – related party 370 646
Accrued expenses and other current liabilities 2,704 2,091
Accrued expenses – related party (485 ) 4,893
Deferred revenue (46 ) (55 )
Payable to affiliate – current — (163 )
Other liabilities — (39 )
Net cash used in operating activities (25,452 ) (31,757 )
Cash flows from investing activities:
Purchases of property and equipment — (619 )
Software development costs — (103 )
Payment for long term deferred expense (59 ) —
Net cash used in investing activities (59 ) (722 )
Cash flows from financing activities:
Payment of convertible notes principal and interest (3,262 ) —
Proceeds from issuance of ordinary shares 20,296 —
Payment of offering costs (666 ) —
Proceeds from the issuance of ordinary shares under employee share purchase plan 116 120
Proceeds from exercise of stock options — 197
Net cash (used in) provided by financing activities 16,484 317
Effect of exchange rate changes on cash 721 (605 )
Net decrease in cash and cash equivalents (8,306 ) (32,767 )
Cash and cash equivalents, beginning of period 41,333 65,128
Cash and cash equivalents, end of period $ 33,027 $ 32,361
Supplemental noncash investing and financing activities:
Purchase of property and equipment in accounts payable and accrued expenses $ — $ —
^
The accompanying notes are an integral part of these condensed consolidated financial statements.
*
*
*RENALYTIX PLC *
*NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS *
*1. Business and risks *
Renalytix and its wholly-owned subsidiaries, Renalytix AI, Inc. and Renalytix AI Limited, (collectively, “Renalytix”, or the “Company”) is an artificial intelligence-enabled in vitro diagnostics company, focused on optimizing clinical management of kidney disease to drive improved patient outcomes and significantly lower healthcare costs. KidneyIntelX, the Company’s first-in-class diagnostic platform, employs a proprietary artificial intelligence-enabled algorithm that combines diverse data inputs, including validated blood-based biomarkers, inherited genetics and personalized patient data from EHR systems, to generate a unique patient risk score. Additionally, the Company has successfully completed a statement of work with AstraZeneca Pharmaceuticals LP (“AstraZeneca”) to conduct a feasibility study to determine the impact of the use of the Company’s KidneyIntelX platform to optimize utilization of various CKD agents. As a result of the initial success with AstraZeneca the Company plans to pursue further collaborations with pharmaceutical companies and make ‘Pharmaceutical Services Revenue’ a core part of the business going forward with the goal of improving guideline-based standard-of-care for optimal utilization of existing and novel therapeutics using the KidneyIntelX testing platform and proprietary care management software.
In August 2020, the Company created a wholly-owned subsidiary of Renalytix AI plc, Renalytix AI Limited (“Limited”) to facilitate operations in Ireland.
Since inception in March 2018, the Company has focused primarily on organizing and staffing the Company, raising capital, developing the KidneyIntelX platform, conducting clinical validation studies for KidneyIntelX, establishing and protecting its intellectual property portfolio and commercial laboratory operations, pursuing regulatory clearance and developing a reimbursement strategy. The Company has funded its operations primarily through equity and debt financings.
The Company is subject to risks and uncertainties common to early-stage companies in the diagnostics industry, including, but not limited to, ability to secure additional capital to fund operations, compliance with governmental regulations, development by competitors of new technological innovations, dependence on key personnel and protection of proprietary technology. To achieve widespread usage, KidneyIntelX and additional diagnostic products currently under development will require extensive clinical testing and validation prior to regulatory approval and commercialization. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities.
*2. Liquidity and Going Concern *
The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $167.2 million as of March 31, 2023. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of KidneyIntelX or any future products currently in development. Management believes its cash and cash equivalents of $33.0 million as of March 31, 2023, are sufficient to fund the projected operations for at least the next twelve months from the issuance date of these financial statements. Such expectation is based, in part, on the achievement of a certain volume of assumed revenue; however, there is no guarantee we will achieve this amount of revenue during the time period we assume. Management assessed various additional operating cost reduction options that are available to the Company and would be implemented, if assumed levels of revenue are not achieved and additional funding is not obtained.
Substantial additional capital will be necessary to fund the Company's operations, expand its commercial activities and develop other potential diagnostic related products. The Company plans to seek additional funding through public or private equity offerings, debt financings, other collaborations, strategic alliances and licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms, or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders. If the Company is unable to obtain funding, the Company could be required to delay, curtail or discontinue research and development programs, product portfolio expansion or future commercialization efforts, which could adversely affect its business prospect.
*3. Basis of presentation and summary of significant accounting policies *
The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals and estimates that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2023 and its results of operations for the three and nine months ended March 3