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 second quarter and first half
ended December 31, 2022.
Recent Highlights (including post period
events)
- Expanded insurance coverage for
KidneyIntelX including:
- One of the largest not-for-profit
health insurers covering over three million lives in the Northeast
U.S.
- Largest private payer in Illinois with
over eight million members
- 35 state Medicaid plans including
recent additions of Texas and Florida
- 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
- Over 2,500 KidneyIntelX tests performed
in the first half year of fiscal 2023 of which over 80% were
billable
- Increasing diversity of commercially
billable testing volume, particularly among primary care physician
practices ordering through the MyIntelX portal
- Continued progress with FDA De Novo
authorization review; FDA has indicated a target date for
completion in the second calendar quarter of 2023
- Completed $20.3 million equity
financing led by new institutional investors
- Core participant in $10 million Horizon
Europe Grant to advance personalized medicine in treating chronic
kidney disease
- Agreement with Veterans Administration
to integrate KidneyIntelX testing with VA hospital electronic
health record systems
- Publication of new real-world evidence
in Journal of 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; early evidence suggested that the introduction
of SGLT2i contributed to an observed reduction in HbA1c levels most
notably in high-risk patients, and a more than a 20% change in dose
or type of antihypertensive therapeutic prescriptions in high vs.
low-risk patients
- KidneyIntelX clinical utility and
health economics validated in multiple data releases at American
Society of Nephrology Kidney Week 2022, and multiple presentations
on clinical utility data accepted for presentation at National
Kidney Foundation Spring Clinical Meeting 2023, American Diabetes
Association 83rd Scientific Session, and American Association of
Nurse Practitioners Annual Meeting, including data from Wake
Forest, Mount Sinai, UPenn, and CANVAS cohorts
Second Quarter 2023 Financial
Results
During the three months ended December 31, 2022,
the Company recognized $1.2 million of revenue (Q1 FY22: $0.8
million). Cost of revenue for the three months ended December 31,
2022 was $0.7 million (Q1 FY22: $0.5 million).
Operating expense for the three months ended
December 31, 2022 was $10.1 million compared with $14.1 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 $3.3 million for the three months ended
December 31, 2022, a decrease of $0.8 million, from $4.1 million
for the three months ended December 31, 2021. The decrease was
primarily due to a $1.6 million decrease in external consulting and
professional fees, offset by a $0.8 million increase in employee
related expenses.
General and administrative expenses were $6.8
million for the three months ended December 31, 2022, decreasing by
$3.3 million from $10.1 million for the three months ended December
31, 2021. The decrease was due to the cost reduction measures taken
earlier this year resulting in a $1.5 million decrease in
consulting and professional fees, a $1.0 million decrease in
employee related expenses, a $0.5 million decrease in insurance
expense, and a $0.3 million decrease in other operating
expenses.
Net loss was $10.4 million for the three months
ended December 31, 2022 compared with $15.3 million for the prior
year period.
Cash and cash equivalents totaled $23.8 million
as of December 31, 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. (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/oub5knjk
For further information, please contact:
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Renalytix plc |
www.renalytix.com |
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James McCullough, CEO |
Via Walbrook PR |
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Stifel (Nominated Adviser, Joint Broker) |
Tel: 020 7710 7600 |
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Alex Price / Nicholas Moore / Nick Moore / Samira Essebiyea |
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Investec Bank plc (Joint Broker) |
Tel: 020 7597 4000 |
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Gary Clarence / Shalin Bhamra |
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Walbrook PR Limited |
Tel: 020 7933 8780 or
renalytix@walbrookpr.com |
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Paul McManus / Alice Woodings |
Mob: 07980 541 893 / 07407 804 654 |
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CapComm Partners |
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| Peter DeNardo |
Tel: 415-389-6400 or investors@renalytix.com |
About RenalytixRenalytix (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
StatementsStatements 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 and Six Months ended December 31, 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 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 the recently awarded individual claim review payment from
Medicare contractor National Government Services, this growing
diversity in payment is providing us with the basis to expect 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 in
metropolitan New York has allowed us to proceed with the important
milestone of converting to a long term commercial reimbursement
model with Mount Sinai Health System in our fiscal third quarter of
this year (quarter ending March 31, 2023). As discussed below, this
conversion from Mount Sinai as the sole payor of tests performed
under the real-world evidence program begun in 2021 is timely in
the March quarter.
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, we maintain a
robust patient assistance program for those patients who have
limited insurance coverage and for whom KidneyIntelX is indicated
as a 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 is a unique
feature of our business strategy in a relatively short time period
since commercial testing launch.
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
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 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.
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.
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 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 (quarter ending
March 31, 2023) 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 payer 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 will have a short-term adverse impact on testing
volumes, predominantly in the month of March. 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.
Further, 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 positive FDA decision 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 last year, 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, post period end, 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.
Current Trading 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 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 the
current third fiscal quarter of 2023, we have secured important new
commercial insurance coverage for KidneyIntelX, held constructive
interactions with the FDA regarding our De Novo application,
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 December 31, 2022 and comparison to prior year
period
Our operating loss for the three months ended
December 31, 2022, was $9.6 million (December 31, 2021: $13.8
million).
Revenue
During the three months ended December 31, 2022,
we recognized $1.0 million of revenue related to KidneyIntelX
testing and $0.2 million of revenue related to pharmaceutical
services. There was $0.6 million of revenue related to KidneyIntelX
testing and $0.2 million of revenue related to pharmaceutical
services for the three months ended December 31, 2021.
Cost of Revenue
During the three months ended December 31, 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 $0.5 million of
cost of revenue for the three months ended December 31, 2021.
Research and Development
Costs
Research and development expenses decreased by
$0.8 million, from $4.1 million for the three months ended December
31, 2021 to $3.3 million for the three months ended December 31,
2022. The decrease was primarily due to a $1.6 million decrease in
external consulting and professional fees, offset by a $0.8 million
increase in employee related expenses.
General and Administrative
Costs
General and administrative expenses decreased by
$3.3 million, from $10.1 million for the three months ended
December 31, 2021 to $6.8 million for the three months ended
December 31, 2022. The decrease was due to the cost reduction
measures taken earlier this year resulting in a $1.5 million
decrease in consulting and professional fees, a $1.0 million
decrease in employee related expenses, a $0.5 million decrease in
insurance expense, and a $0.3 million decrease in other operating
expenses.
Foreign Currency loss
During the three months ended December 31, 2022,
we recorded an unrealized foreign exchange loss of $0.1 million
primarily attributable to cash balances denominated in currencies
other than the functional currency. We recorded an unrealized
foreign currency loss of $0.2 million during the three months ended
December 31, 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 December 31, 2022, we recorded a loss of $0.3 million to
adjust the VericiDx investment to fair value. We recorded a loss of
$1.4 million during the three months ended December 31, 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 December 31, 2022, we recorded a loss of $0.4 million to
adjust the bonds to fair value. There was no fair value adjustment
for the three months ended December 31, 2021 as we had not issued
convertible debt at that time.
Other income
During the three months ended December 31, 2022,
we realized $0.06 million of interest income and $0.04 million of
other income related to Kantaro. There was no other income recorded
during the three months ended December 31, 2021.
Financial review of the six months ended
December 31, 2022 and comparison to prior year
period
Our operating loss for the six months ended
December 31, 2022, was $21.4 million (December 31, 2021: $25.6
million).
Revenue
During the six months ended December 31, 2022,
we recognized $2.0 million of revenue related to KidneyIntelX and
$0.2 million of revenue related to services performed for
AstraZeneca. There was $1.1 million of revenue related to
KidneyIntelX and $0.2 million of revenue related to services
performed for AstraZeneca for the six months ended December 31,
2021.
Cost of Revenue
During the six months ended December 31, 2022,
cost of revenue consisted of $1.4 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 six months ended December 31, 2021.
Research and Development
Costs
Research and development expenses decreased by
$1.0 million, from $8.1 million for the six months ended December
31, 2021 to $7.1 million for the six months ended December 31,
2022. The decrease was primarily due to a $1.5 million decrease in
external consulting and professional fees, offset by a $0.5 million
increase in employee related expenses.
General and Administrative
Costs
General and administrative expenses decreased by
$3.1 million, from $18.2 million for the six months ended December
31, 2021 to $15.1 million for the six months ended December 31,
2022. The decrease was primarily due to a $1.6 million decrease in
consulting and professional fees, a $1.0 million decrease in
insurance expense, a $0.4 million decrease in employee related
expenses, a $0.2 million decrease in software and IT costs, offset
by a $0.1 million increase in other operating expenses.
Foreign Currency Gain
(Loss)
During the six months ended December 31, 2022,
we recorded an unrealized foreign exchange gain of $0.7 million
primarily attributable to intercompany loans and cash balances
denominated in currencies other than the functional currency. We
recorded a foreign currency gain of $2.1 million during the six
months ended December 31, 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 six months ended
December 31, 2022, we recorded a loss of $0.7 million to adjust the
bonds to fair value. There was no fair value adjustment for the six
months ended December 31, 2021 as we had not issued convertible
debt at that time.
Other income
During the three months ended December 31, 2022,
we realized $0.1 million of interest income and $0.1 million of
other income related to Kantaro. There was less than $0.1 million
of other income recorded during the three months ended December 31,
2021.
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 six months ended
December 31, 2022, we recorded a loss of $2.0 million to adjust the
VericiDx investment to fair value. We recorded a loss of $2.0
million during the six months ended December 31, 2021.
Liquidity and Capital
Resources
Since our inception, we have incurred net
losses. As of December 31, 2022, we had an accumulated deficit of
$155.6 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 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 December 31,
2022, we had cash and cash equivalents of $23.8 million. We believe
that our cash and cash equivalents of $23.8 million as of December
31, 2022, combined with proceeds from a $20.3 million gross
fundraise completed in February 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 six months ended December 31, 2022,
net cash used in operating activities was $15.4 million and was
primarily attributable to our $22.4 million net loss including a
$3.0 million net change in our operating assets and liabilities and
$4.0 million in noncash charges. The change in our operating assets
and liabilities was primarily attributable to a $2.5 million
increase in accounts payable and accrued expenses and other current
liabilities and a $0.5 million increase in prepaid expenses and
other current assets. Noncash charges were primarily related to
$1.6 million in share-based compensation, $1.2 million fair value
adjustment of our VericiDx securities, $0.7 million fair value
adjustment of our convertible debt, a $0.3 million unrealized
foreign exchange loss and $0.2 million of depreciation and
amortization.
During the six months ended December 31, 2021,
net cash used in operating activities was $24.7 million and was
primarily attributable to our $25.4 million net loss including $2.3
million in noncash charges and a $1.6 million net change in our
operating assets and liabilities. The change in our operating
assets and liabilities was primarily attributable to a $2.5 million
increase in prepaid expenses and other current assets offset by a
$1.4 million decrease in accounts payable and accrued expenses.
Noncash charges were primarily related to $1.9 million in
share-based compensation and the $2.0 million fair value adjustment
of our VericiDx securities, offset by a $1.9 million unrealized
foreign exchange gain.
Net cash used in investing activities
During the six months ended December 31, 2022,
net cash used in investing activities was $0.1 million,
attributable to the purchase of long term assets.
During the six months ended December 31, 2021,
net cash used in investing activities was $0.4 million, primarily
attributable to $0.3 million for purchases of lab and office
equipment and $0.1 million in software development costs.
Net cash used in financing activities
During the six months ended December 31, 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 six months ended December 31, 2021,
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 $23.8
million as of December 31, 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.
RENALYTIX PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| (in
thousands, except share and per share data) |
|
|
|
December 31, 2022 |
|
|
June 30, 2022 |
|
|
Assets |
|
|
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
$ |
23,816 |
|
|
$ |
41,333 |
|
|
Accounts receivable |
|
|
|
|
820 |
|
|
|
901 |
|
|
Prepaid expenses and other current assets |
|
|
|
|
1,868 |
|
|
|
2,445 |
|
|
Note receivable from Kantaro |
|
|
|
|
75 |
|
|
|
75 |
|
|
Receivable from affiliates |
|
|
|
|
22 |
|
|
|
— |
|
|
Total current assets |
|
|
|
|
26,601 |
|
|
|
44,754 |
|
| Property
and equipment, net |
|
|
|
|
2,295 |
|
|
|
2,558 |
|
| Right of
use asset |
|
|
|
|
213 |
|
|
|
— |
|
|
Investment in VericiDx |
|
|
|
|
1,487 |
|
|
|
2,744 |
|
|
Investment in Kantaro |
|
|
|
|
— |
|
|
|
9 |
|
| Other
assets |
|
|
|
|
64 |
|
|
|
— |
|
|
Total assets |
|
|
|
$ |
30,660 |
|
|
$ |
50,065 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
2,208 |
|
|
$ |
1,376 |
|
|
Accounts payable – related party |
|
|
|
|
1,940 |
|
|
|
1,083 |
|
|
Accrued expenses and other current liabilities |
|
|
|
|
4,489 |
|
|
|
3,060 |
|
|
Accrued expenses – related party |
|
|
|
|
931 |
|
|
|
1,496 |
|
|
Deferred revenue |
|
|
|
|
— |
|
|
|
46 |
|
|
Current lease liability |
|
|
|
|
129 |
|
|
|
— |
|
|
Convertible notes – current |
|
|
|
|
4,590 |
|
|
|
4,660 |
|
|
Payable to affiliate – current |
|
|
|
|
— |
|
|
|
55 |
|
|
Total current liabilities |
|
|
|
|
14,287 |
|
|
|
11,776 |
|
|
Convertible notes – noncurrent |
|
|
|
|
7,388 |
|
|
|
7,682 |
|
|
Noncurrent lease liability |
|
|
|
|
100 |
|
|
|
— |
|
|
Total liabilities |
|
|
|
|
21,775 |
|
|
|
19,458 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
Ordinary shares, £0.0025 par value per share: 79,869,543 shares
authorized; 74,891,844 and 74,760,432 shares issued and outstanding
at December 31, 2022 and June 30, 2022, respectively |
|
|
|
|
229 |
|
|
|
228 |
|
|
Additional paid-in capital |
|
|
|
|
165,708 |
|
|
|
164,012 |
|
|
Accumulated other comprehensive loss |
|
|
|
|
(1,937 |
) |
|
|
(915 |
) |
|
Accumulated deficit |
|
|
|
|
(155,115 |
) |
|
|
(132,718 |
) |
|
Total shareholders’ equity |
|
|
|
|
8,885 |
|
|
|
30,607 |
|
|
Total liabilities and shareholders’ equity |
|
|
|
$ |
30,660 |
|
|
$ |
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 |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
| (in
thousands, except share data) |
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Revenue |
|
$ |
1,192 |
|
|
$ |
845 |
|
|
$ |
2,161 |
|
|
$ |
1,327 |
|
| Cost of
revenue |
|
|
711 |
|
|
|
492 |
|
|
|
1,407 |
|
|
|
719 |
|
| Gross
profit |
|
|
481 |
|
|
|
353 |
|
|
|
754 |
|
|
|
608 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
3,326 |
|
|
|
4,134 |
|
|
|
7,083 |
|
|
|
8,132 |
|
|
General and administrative |
|
|
6,810 |
|
|
|
10,071 |
|
|
|
15,060 |
|
|
|
18,203 |
|
|
Performance of contract liability to affiliate |
|
|
(7 |
) |
|
|
(70 |
) |
|
|
(19 |
) |
|
|
(131 |
) |
|
Total operating expenses |
|
|
10,129 |
|
|
|
14,135 |
|
|
|
22,124 |
|
|
|
26,204 |
|
| Loss
from operations |
|
|
(9,648 |
) |
|
|
(13,782 |
) |
|
|
(21,370 |
) |
|
|
(25,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity
in net (losses) earnings of affiliate |
|
|
— |
|
|
|
37 |
|
|
|
(9 |
) |
|
|
37 |
|
| Foreign
currency (loss)/gain, net |
|
|
(108 |
) |
|
|
(163 |
) |
|
|
699 |
|
|
|
2,140 |
|
| Fair
value adjustment to VericiDx investment |
|
|
(345 |
) |
|
|
(1,414 |
) |
|
|
(1,199 |
) |
|
|
(2,021 |
) |
| Fair
value adjustment to convertible notes |
|
|
(440 |
) |
|
|
— |
|
|
|
(730 |
) |
|
|
— |
|
| Other
income, net |
|
|
97 |
|
|
|
— |
|
|
|
211 |
|
|
|
12 |
|
| Net loss
before income taxes |
|
|
(10,444 |
) |
|
|
(15,322 |
) |
|
|
(22,398 |
) |
|
|
(25,428 |
) |
| Income
tax expense |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
| Net
loss |
|
|
(10,444 |
) |
|
|
(15,322 |
) |
|
|
(22,397 |
) |
|
|
(25,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss
per ordinary share—basic and diluted |
|
$ |
(0.14 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.35 |
) |
| Weighted
average ordinary shares—basic and diluted |
|
|
74,891,844 |
|
|
|
72,285,941 |
|
|
|
74,848,278 |
|
|
|
72,258,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of the convertible notes through other
comprehensive income |
|
|
(920 |
) |
|
|
— |
|
|
|
(523 |
) |
|
|
— |
|
|
Foreign exchange translation adjustment |
|
|
588 |
|
|
|
97 |
|
|
|
(499 |
) |
|
|
(2,488 |
) |
|
Comprehensive loss |
|
|
(10,776 |
) |
|
|
(15,225 |
) |
|
|
(23,419 |
) |
|
|
(27,916 |
) |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
RENALYTIX PLC
CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY (UNAUDITED)
|
|
|
Ordinary shares |
|
|
Additionalpaid-in |
|
|
Accumulated other
comprehensive |
|
|
Accumulated |
|
|
Totalshareholders’ |
|
|
(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 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RENALYTIX PLC
CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY (UNAUDITED)
|
|
|
Ordinary shares |
|
|
Additionalpaid-in |
|
|
Accumulated other
comprehensive |
|
|
Accumulated |
|
|
Totalshareholders’ |
|
|
(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 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
RENALYTIX PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED)
|
(in thousands) |
|
Six Months EndedDecember 31,
2022 |
|
|
Six Months EndedDecember 31,
2021 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net loss |
|
$ |
(22,397 |
) |
|
$ |
(25,428 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
258 |
|
|
|
226 |
|
|
Stock-based compensation |
|
|
1,584 |
|
|
|
1,938 |
|
|
Equity in losses (net earnings) of affiliate |
|
|
9 |
|
|
|
(37 |
) |
|
Reduction of Kantaro liability |
|
|
(55 |
) |
|
|
— |
|
|
Fair value adjustment to VericiDx investment |
|
|
1,199 |
|
|
|
2,021 |
|
|
Unrealized foreign exchange loss (gain) |
|
|
271 |
|
|
|
(1,864 |
) |
|
Fair value adjustment to convertible debt |
|
|
730 |
|
|
|
— |
|
|
Non-cash lease expense |
|
|
52 |
|
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
81 |
|
|
|
(229 |
) |
|
Prepaid expenses and other current assets |
|
|
494 |
|
|
|
(2,543 |
) |
|
Receivable from affiliates |
|
|
(22 |
) |
|
|
(34 |
) |
|
Accounts payable |
|
|
2,773 |
|
|
|
(15 |
) |
|
Accounts payable – related party |
|
|
(1,083 |
) |
|
|
646 |
|
|
Accrued expenses and other current liabilities |
|
|
1,367 |
|
|
|
(304 |
) |
|
Accrued expenses – related party |
|
|
(566 |
) |
|
|
1,113 |
|
|
Deferred revenue |
|
|
(46 |
) |
|
|
(55 |
) |
|
Payable to affiliate – current |
|
|
— |
|
|
|
(131 |
) |
|
Other liabilities |
|
|
— |
|
|
|
(38 |
) |
| Net
cash used in operating activities |
|
|
(15,351 |
) |
|
|
(24,734 |
) |
|
|
|
|
|
|
|
|
| Cash
flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
— |
|
|
|
(290 |
) |
|
Software development costs |
|
|
— |
|
|
|
(98 |
) |
|
Payment for long term deferred expense |
|
|
(64 |
) |
|
|
— |
|
| Net
cash used in investing activities |
|
|
(64 |
) |
|
|
(388 |
) |
|
|
|
|
|
|
|
|
| Cash
flows from financing activities: |
|
|
|
|
|
|
|
Payment of convertible notes principal and interest |
|
|
(1,648 |
) |
|
|
— |
|
|
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 |
|
|
(1,532 |
) |
|
|
317 |
|
|
Effect of exchange rate changes on cash |
|
|
(570 |
) |
|
|
(395 |
) |
| Net
decrease in cash and cash equivalents |
|
|
(17,517 |
) |
|
|
(25,200 |
) |
| Cash
and cash equivalents, beginning of period |
|
|
41,333 |
|
|
|
65,128 |
|
| Cash
and cash equivalents, end of period |
|
$ |
23,816 |
|
|
$ |
39,928 |
|
|
Supplemental noncash investing and financing activities: |
|
|
|
|
|
|
|
Purchase of property and equipment in accounts payable and accrued
expenses |
|
$ |
— |
|
|
$ |
254 |
|
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 the first stage of 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. Further, in December
2020 the Company entered into a master service agreement with
AstraZeneca for future services of this nature. 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 $155.1 million as of December 31, 2022. 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 $23.8 million as of December 31, 2022,
combined with proceeds from a $20.3 million gross fundraise
completed in February 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 December 31, 2022 and its results of
operations for the three and six months ended December 31, 2022 and
2021 and cash flows for the six months ended December 31, 2022 and
2021. Operating results for the three and six months ended December
31, 2022, are not necessarily indicative of the results that may be
expected for the year ending June 30, 2023. The unaudited interim
condensed consolidated financial statements, presented herein, do
not contain the required disclosures under U.S. GAAP for annual
financial statements. The accompanying unaudited interim condensed
consolidated financial statements should be read in conjunction
with the annual audited consolidated financial statements and
related notes as of and for the year ended June 30, 2022.
Principles of consolidation
The unaudited interim condensed consolidated
financial statements include the accounts of Renalytix plc, and its
wholly-owned subsidiaries, Renalytix AI, Inc. and Renalytix AI
Limited. All inter-company balances and transactions have been
eliminated in consolidation. The Company accounts for investments
in which it has significant influence but not a controlling
financial interest using the equity method of accounting.
Use of estimates
The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and reported amounts of expenses during the reporting period.
Actual results could differ from those estimates. Due to the
uncertainty of factors surrounding the estimates or judgments used
in the preparation of the consolidated financial statements, actual
results may materially vary from these estimates.
Estimates and assumptions are periodically
reviewed, and the effects of revisions are reflected in the
consolidated financial statements in the period they are determined
to be necessary. Significant areas that require management’s
estimate include the assumptions used in determining the fair value
of share-based awards, determining the fair value of the bonds,
recording the prepaid/accrual and associated expense for research
and development activities performed for the Company by third
parties, determining useful lives of property and equipment and
capitalized software, the assessment of noncontrolling interest and
equity method investments.
Segment information
The Company manages its operations as a single
operating segment for the purposes of assessing performance and
making operating decisions. The Company’s singular focus is to make
significant improvements in kidney disease diagnosis and prognosis,
clinical care, patient stratification for drug clinical trials, and
drug target discovery.
Foreign currency
The Company’s consolidated financial statements
are presented in U.S. dollars, the reporting currency of the
Company. The functional currency of Renalytix plc and Renalytix AI
Limited is GB Pounds. The functional currency of Renalytix AI, Inc.
is the U.S. dollar. Assets and liabilities of Renalytix plc and
Renalytix AI Limited are translated at the rate of exchange at
period-end, while the statements of operations are translated at
the weighted average exchange rates in effect during the reporting
period. The net effect of these translation adjustments is shown as
a component of accumulated other comprehensive income (loss).
Transaction gains and losses resulting from exchange rate changes
on transactions denominated in currencies other than the functional
currency are included in income in the period in which the change
occurs and reported in the consolidated statements of operations
and comprehensive loss.
Concentrations of credit risk and major
customers
Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of
cash and accounts receivable balances. Periodically, the Company
maintains deposits in accredited financial institutions in excess
of federally insured limits. The Company deposits its cash in
financial institutions that it believes have high credit quality
and are not exposed to any unusual credit risk beyond the normal
credit risk associated with commercial banking relationships and
has not experienced any losses on such accounts.
The Company’s accounts receivable are derived
from revenue earned from customers located in the U.S. For the six
months ended December 31, 2022 and 2021 approximately 94% and 99%,
respectively, of all receivables were outstanding from two
customers, Mount Sinai and AstraZeneca. The remaining receivables
were due from other third party payors. The Company performs
initial and ongoing credit reviews on customers, which involve
consideration of the customers’ financial information, their
location, and/or other factors to assess the customers’ ability to
pay.
Fair value of financial
instruments
At December 31, 2022 and June 30, 2022, the
Company’s financial instruments included accounts receivable,
prepaid expenses and other current assets, accounts payable and
accrued expenses and other current liabilities. The carrying
amounts of these assets and liabilities approximates fair value due
to their short-term nature. The convertible notes are recorded at
their estimated fair value.
Fair value option
Under the Fair Value Option Subsections of ASC
subtopic 825-10, Financial Instruments – Overall, the Company has
the irrevocable option to report most financial assets and
financial liabilities at fair value on an instrument-by-instrument
basis, with changes in fair value reported in earnings (see Note
5). The Company has elected to measure and record the convertible
notes at their estimated fair value.
Cash and cash equivalents
The Company considers all highly liquid
investments purchased with an original maturity of 90 days or less
to be cash equivalents. As of December 31, 2022, the Company had a
cash balance of $23.8 million. As of June 30, 2022, the Company had
a cash balance of $41.3 million.
Accounts receivable
Accounts receivable are recorded at the invoice
amount and are non-interest bearing. The Company considers
receivables past due based on the contractual payment terms. The
Company reserves specific receivables if collectability is no
longer reasonably assured. Estimates for allowances for doubtful
accounts are determined based on existing contractual obligations,
historical payment patterns, and individual customer circumstances.
No reserves have been recorded as of December 31, 2022 or June 30,
2022.
Property and equipment
Property and equipment are recorded at cost.
Depreciation is determined using the straight-line method over the
estimated useful lives ranging from three to ten years.
Expenditures for maintenance and repairs are expensed as incurred
while renewals and betterments are capitalized. When property and
equipment are sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any
resulting gain or loss is reflected in operations.
Leases
Effective July 1, 2022, the Company adopted
Accounting Standards Codification (“ASC”), Topic 842, Leases (“ASC
842”), using the required modified retrospective approach and
utilizing the effective date as its date of initial
application.
At the inception of an arrangement, the Company
determines whether the arrangement is or contains a lease based on
the unique facts and circumstances present. Most leases with a term
greater than one year are recognized on the balance sheet as
right-of-use assets, lease liabilities and, if applicable,
long-term lease liabilities. The Company has elected not to
recognize on the balance sheet, leases with terms of one year or
less. Operating lease liabilities and their corresponding
right-of-use assets are recorded based on the present value of
lease payments over the expected remaining lease term. However,
certain adjustments to the right-of-use asset may be required for
items such as incentives received, initial direct costs, or
prepayments. The interest rate implicit in lease contracts is
typically not readily determinable. As a result, the Company
utilizes its incremental borrowing rates, which are the rates
incurred to borrow on a collateralized basis over a similar term an
amount equal to the lease payments in a similar economic
environment.
In accordance with the guidance in ASC 842,
components of a lease should be split into three categories: lease
components (e.g., land, building, etc.), non-lease components
(e.g., common area maintenance, consumables, etc.), and
non-components (e.g., property taxes, insurance, etc.). Then the
fixed and in-substance fixed contract consideration (including any
related to non-components) must be allocated based on the
respective relative fair values to the lease components and
non-lease components.
Upon adoption, the Company did elected the
package of practical expedients and the hindsight practical
expedient but did not elect the easement practical expedient which
is not applicable to the Company as the Company does not have any
ground leases. In accordance with the package of practical
expedients, the Company has not reassessed any of their existing or
expired contracts or any other agreements that were previously
concluded to not contain a lease for the following practical
expedient guidance: (1) whether the arrangement is or contains a
lease, (2) lease classification and (3) whether previously
capitalized costs continue to qualify as initial direct costs.
Performance of contract liability to
affiliate
In May 2020, the Company and the Icahn School of
Medicine at Mount Sinai entered into an operating agreement
(“Kantaro Operating Agreement”) to form a joint venture, Kantaro
Biosciences LLC (“Kantaro”), for the purpose of developing and
commercializing laboratory tests for the detection of antibodies
against SARS-CoV-2 originally developed by Mount Sinai. Kantaro has
partnered with Bio-Techne Corporation to develop and launch the new
test which is designed for use in any authorized clinical testing
laboratory without the need for proprietary equipment. During the
three and six months ended December 31, 2022, the Company
recognized $0.01 million and $0.02 million, respectively, related
to the performance of the contract liability with Kantaro. During
the three and six months ended December 31, 2021, the Company
recognized $0.1 million and $0.1 million, respectively, related to
the performance of the contract liability with Kantaro. This
represents the allocation of costs for performing services on
behalf of Kantaro. On December 31, 2022, the members and managers
of Kantaro decided that it was in the best interest of Kantaro to
wind up the Kantaro business. As part of the termination agreement,
the members agreed that Renalytix has no further liability to
perform services on behalf of Kantaro.
Equity method investments
The Company accounts for equity investments
where it owns a non-controlling interest, but has the ability to
exercise significant influence, under the equity method of
accounting. Under the equity method of accounting, the original
cost of the investment is adjusted for the Company’s share of
equity in the earnings of the equity investee and reduced by
dividends and distributions of capital received, unless the fair
value option is elected, in which case the investment balance is
marked to fair value each reporting period and the impact of
changes in fair value of the equity investment are reported in
earnings.
Kantaro Biosciences LLC
As the Company can exert significant influence
over, but does not control, Kantaro’s operations through voting
rights or representation on Kantaro’s board of directors, the
Company accounts for this investment using the equity method of
accounting. The Company records its share in Kantaro’s earnings and
losses in the condensed consolidated statement of operations. The
Company assesses its investment for other-than-temporary impairment
when events or changes in circumstances indicate that the carrying
amount of the investment might not be recoverable and recognize an
impairment loss to adjust the investment to its then-current fair
value. The Company owned 25% of the membership equity units in
Kantaro at December 31, 2022 and June 30, 2022. On December 31,
2022, the members and managers of Kantaro decided that it was in
the best interest of Kantaro to wind up the business and
unanimously signed a termination agreement. As part of the
termination agreement, the members agreed to wind up Kantaro's
business and dissolve it promptly after the effective date of the
termination agreement.
Impairment assessment
The Company evaluates its investments that are
in unrealized loss positions, if any, and equity method investments
for other-than-temporary impairment on a quarterly basis (see note
3). Such evaluation involves a variety of considerations, including
assessments of the risks and uncertainties associated with general
economic conditions and distinct conditions affecting specific
issuers or investees. Factors considered by the Company include (i)
the length of time and the extent to which an investment’s fair
value has been below its cost; (ii) the financial condition, credit
worthiness, and near-term prospects of the issuer; (iii) the length
of time to maturity; (iv) future economic conditions and market
forecasts; (v) the Company’s intent and ability to retain its
investment for a period of time sufficient to allow for recovery of
market value; (vi) an assessment of whether it is more likely than
not that the Company will be required to sell its investment before
recovery of market value; and (vii) whether events or changes in
circumstances indicate that the investment’s carrying amount might
not be recoverable.
Software development costs
The Company follows the provisions of ASC 985,
Software, which requires software development costs for software to
be marketed externally to be expensed as incurred until the
establishment of technological feasibility, at which time those
costs are capitalized until the software is available for general
release and amortized over its estimated useful life of ten years.
Technological feasibility is established upon the completion of a
working model that has been validated.
Revenue recognition
The Company accounts for revenue under ASC 606 –
Revenue from Contracts with Customers (“ASC 606”). Pursuant to ASC
606, the Company recognizes revenue when a customer obtains control
of promised goods or services. The Company records the amount of
revenue that reflects the consideration that it expects to receive
in exchange for those goods or services. The Company applies the
following five-step model in order to determine this amount: (i)
identification of the promised goods or services in the contract;
(ii) determination of whether the promised goods or services are
performance obligations, including whether they are distinct in the
context of the contract; (iii) measurement of the transaction
price, including the constraint on variable consideration; (iv)
allocation of the transaction price to the performance obligations;
and (v) recognition of revenue when (or as) the Company satisfies
each performance obligation.
The Company only applies the five-step model to
contracts when it is probable that it will collect the
consideration to which it is entitled in exchange for the goods or
services that it transfers to the customer. Once a contract is
determined to be within the scope of ASC 606 at contract inception,
the Company reviews the contract to determine which performance
obligations it must deliver and which of these performance
obligations are distinct. Certain contracts have options for the
customer to acquire additional services. The Company evaluates
these options to determine if a material right exists. If, after
that evaluation, it determines a material right does exist, it
assigns value to the material right based upon the renewal option
approach. The Company recognizes as revenue the amount of the
transaction price that is allocated to each performance obligation
when that performance obligation is satisfied or as it is
satisfied. The Company uses present right to payment and customer
acceptance as indicators to determine the transfer of control to
the customer occurs at a point in time. Sales tax and other similar
taxes are excluded from revenues.
Cost of revenue
Cost of revenue consists of costs directly
attributable to the services rendered, including labor costs and
lab consumables directly related to revenue generating
activities.
Research and development
expenses
Research and development costs consist primarily
of costs incurred in connection with the development of
KidneyIntelX and other studies for KidneyIntelX to determine
clinical value and performance in different CKD populations.
Research and development costs are expensed as incurred.
Share-based compensation
The Company measures equity classified
share-based awards granted to employees and nonemployees based on
the estimated fair value on the date of grant and recognizes
compensation expense of those awards over the requisite service
period, which is the vesting period of the respective award.
Restricted stock units are measured at the fair value of our
American Depository Shares on the date of grant. The Company
accounts for forfeitures as they occur. For share-based awards with
service-based vesting conditions, the Company recognizes
compensation expense on a straight-line basis over the service
period. The fair value of each stock option grant is estimated on
the date of grant using the Black-Scholes option-pricing model,
which requires inputs based on certain subjective assumptions,
including the expected stock price volatility, the expected term of
the option, the risk-free interest rate for a period that
approximates the expected term of the option, and the Company’s
expected dividend yield. The Company was a privately-held
organization prior to November 2018 and has been a publicly-traded
company for a limited period of time and therefore lacks
company-specific historical and implied volatility information for
its shares. Therefore, it estimates its expected share price
volatility based on the historical volatility of publicly-traded
peer companies and expects to continue to do so until such time as
it has adequate historical data regarding the volatility of its own
traded share price. The expected term of the Company’s stock
options has been determined utilizing the “simplified” method for
awards that qualify as “plain-vanilla” options. The risk-free
interest rate is determined by reference to the U.S. Treasury yield
curve in effect at the time of grant of the award for time periods
approximately equal to the expected term of the award. Expected
dividend yield is none based on the fact that the Company has never
paid cash dividends on ordinary shares and does not expect to pay
any cash dividends in the foreseeable future.
The Company classifies share-based compensation
expense in its condensed consolidated statement of operations and
comprehensive loss in the same manner in which the award
recipient’s payroll costs are classified or in which the award
recipient’s service payments are classified.
Income taxes
Income taxes are accounted for under the asset
and liability method as required by FASB ASC Topic 740, Income
Taxes (ASC 740). Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A reduction
in the carrying value of the deferred tax assets is required when
it is not more likely than not that such deferred tax assets are
realizable.
FASB ASC Subtopic 740-10, Accounting for
Uncertainty of Income Taxes(ASC 740-10), defines the criterion an
individual tax position must meet for any part of the benefit of
the tax position to be recognized in financial statements prepared
in conformity with U.S. GAAP. The Company may recognize the tax
benefit from an uncertain tax position only if it is more likely
than not such tax position will be sustained on examination by the
taxing authorities, based solely on the technical merits of the
respective tax position. The tax benefits recognized in the
financial statements from such a tax position should be measured
based on the largest benefit having a greater than 50% likelihood
of being realized upon ultimate settlement with the tax authority.
In accordance with disclosure requirements of ASC 740-10, the
Company’s policy on income statement classification of interest and
penalties related to income tax obligations is to include such
items as part of income tax expense.
Comprehensive loss
Comprehensive loss includes net loss as well as
other changes in shareholders’ equity that result from transactions
and economic events other than those with shareholders. For the
periods presented changes in shareholders’ equity includes foreign
currency translation as well as changes in fair value of the
convertible note due to changes in instrument specific credit risk.
The change in instrument specific credit risk was calculated as the
change in the risk yield from the convertible debt issuance date to
the valuation date. The instrument specific credit risk at issuance
date was calibrated such that the fair value of the convertible
bond was equal to the issue price as of the issuance date. The risk
yield was adjusted to reflect the change in credit spreads between
the issuance date and the valuation date.
Net loss per ordinary share
Basic net loss per ordinary share is computed by
dividing net loss by the weighted average number of ordinary shares
outstanding during each period. Diluted net loss per ordinary share
includes the effect, if any, from the potential exercise or
conversion of securities, such as options and convertible debt
which would result in the issuance of incremental ordinary
shares.
The dilutive effect of convertible securities is
calculated using the if-converted method. Under the if-converted
method, interest charges applicable to the convertible debt as well
as nondiscretionary adjustments which include any expenses or
charges that are determined based on the income (loss) for the
period are added back to net income. The convertible debt is
assumed to have been converted at the beginning of the period (or
at time of issuance, if later).
For the quarter ended December 31, 2022, the
diluted and basic net loss per share calculation excluded 4,977,699
shares related to stock options, as the exercise price of these
options was greater than their market value. Therefore, the
weighted average number of shares used to calculate both basic and
diluted net loss per share are the same.
Emerging growth company
The Company is an emerging growth company as
defined in the Jumpstart Our Business Startups Act of 2012, as
amended (the “JOBS Act”). Under the JOBS Act, companies have
extended transition periods available for complying with new or
revised accounting standards. The Company has elected to avail
itself of this exemption and, therefore, while the Company is an
emerging growth company it will not be subject to new or revised
accounting standards at the same time that they become applicable
to other public emerging growth companies that have not elected to
avail themselves of this exemption.
Recently issued accounting
pronouncements
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses: Measurement of Credit Losses
on Financial Instruments, which requires measurement and
recognition of expected credit losses for financial assets held at
the reporting date based on historical experience, current
conditions, and reasonable and supportable forecasts. This is
different from the current guidance as this will require immediate
recognition of estimated credit losses expected to occur over the
remaining life of many financial assets. The new guidance will be
effective for the Company on July 1, 2023. The Company is currently
evaluating the impact of adopting this guidance to its consolidated
financial statements.
In August 2020, the FASB issued ASU 2020-06,
Debt - Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging - Contracts in Entity’s Own Equity
(Subtopic 815-40), Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity (“ASU2020-06”). ASU 2020-06
eliminates two of the three models in ASC 470-20 that require
issuers to separately account for embedded conversion features and
eliminates some of the requirements for equity classification in
ASC 815-40-25 for contracts in an entity’s own equity. The guidance
also requires entities to use the if-converted method for all
convertible instruments in the diluted earnings per share
calculation and generally requires them to include the effect of
potential share settlement for instruments that may be settled in
cash or shares. It is effective for annual periods beginning after
December 15, 2023, and interim periods therein. The Company
evaluated the effect ASU 2020-06 and it is not expected to have a
material impact on the consolidated financial statements.
4. Revenue
Testing services revenue
Testing services revenue is generated from the
KidneyIntelX platform, which provides analytical services to
customers. Each individual test is a performance obligation that is
satisfied at a point in time upon completion of the testing process
(when results are reported) which is when control passes to the
customer and revenue is recognized. During the three and six months
ended December 31, 2022, the Company recognized $1.0 million and
$2.0 million, respectively of testing services revenue. Sales tax
and other similar taxes are excluded from revenues. During the
three and six months ended December 31, 2021, the Company
recognized $0.7 million and $1.1 million, respectively of testing
services revenue.
Pharmaceutical services revenue
Pharmaceutical services revenue is generated
from the provision of analytical services to customers. Contracts
with customers generally include an initial upfront payment and
additional payments upon achieving performance milestones. The
Company uses present right to payment and customer acceptance as
indicators to determine the transfer of control to the customer
which may occur at a point in time or over time depending on the
individual contract terms. Sales tax and other similar taxes are
excluded from revenues.
During the three and six months ended December
31, 2022, the Company recognized $0.2 million and $0.2 million,
respectively, of pharmaceutical services revenue where performance
obligations are satisfied over time. During the three and six
months ended December 31, 2021 Company recognized $0.2 million and
$0.2 million, respectively, of pharmaceutical services revenue
where performance obligations are satisfied over time.
Professional services revenue
Professional services revenue consists of
services related to the creation of a branded care navigation
portal/pathway for use with KidneyIntelX. Revenue is recognized
when control of the promised services is transferred to customers
and the performance obligation is fulfilled in an amount that
reflects the consideration that the Company expects to be entitled
in exchange for those services.
The Company did not recognize any professional
services revenue during the three and six months ended December 31,
2022 or during the three and six months ended December 31,
2021.
Deferred revenue
Deferred revenue represents the allocated
transaction price to the material right which will be recognized as
revenue when the renewal options are exercised which is expected to
occur over the next few months.
The following table summarizes the changes in
deferred revenue:
| (in
thousands) |
|
December 31, 2022 |
|
|
June 30, 2022 |
|
|
|
Balance, beginning of period |
|
$ |
46 |
|
|
$ |
122 |
|
|
| Deferral of revenue |
|
|
— |
|
|
|
67 |
|
|
| Revenue recognized |
|
|
(46 |
) |
|
|
(143 |
) |
|
| Balance, end of period |
|
$ |
— |
|
|
$ |
46 |
|
|
5. Fair value measurements and the fair
value option
Assets and liabilities recorded at fair value on
a recurring basis in the condensed consolidated balance sheets are
categorized based upon the level of judgment associated with the
inputs used to measure their fair values. Fair value is defined as
the exchange price that would be received for an asset or an exit
price that would be paid to transfer a liability in the principal
or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement
date. Valuation techniques used to measure fair value must maximize
the use of observable inputs and minimize the use of unobservable
inputs. The authoritative guidance on fair value measurements
establishes a three-tier fair value hierarchy for disclosure of
fair value measurements as follows:
- Level 1 - Quoted
prices (unadjusted in active markets for identical assets or
liabilities)
- Level 2 - Inputs
other than quoted prices in active markets that are observable
either directly or indirectly
- Level 3 -
Unobservable inputs in which there is little or no market data,
which require the Company to develop its own assumptions
This hierarchy requires the use of observable
market data when available and to minimize the use of unobservable
inputs when determining fair value. The following fair value
hierarchy table presents information about the Company’s assets
measured at fair value on a recurring basis:
|
|
|
Fair value measurement at |
|
|
|
|
reporting date using |
|
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
1,487 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Convertible notes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,978 |
|
|
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
2,744 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Convertible notes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,342 |
|
As further described in Note 8, in April 2022 the Company issued
convertible promissory notes (the “Notes”) to various investors.
The fair value option, as prescribed by ASC 815, Derivatives and
Hedging, was elected and applied in connection with the preparation
of these consolidated financial statements. The fair value of the
Notes is determined using a scenario-based analysis that estimates
the fair value based on the probability-weighted present value of
expected future investment returns, considering each of the
possible outcomes available to the noteholders.
The Company adjusts the carrying value of the Notes to their
estimated fair value at each reporting date, with qualifying
increases or decreases in the fair value recorded as change in fair
value of convertible promissory notes in the statements of
operations and comprehensive loss. Changes in the fair value
resulting from changes in the instrument-specific credit risk will
be presented separately in other comprehensive income.
|
(in thousands) |
|
December 31, 2022 |
|
|
Balance at July 1, 2022 |
|
$ |
12,342 |
|
|
Change due to payment of principal and interest |
|
$ |
(1,629 |
) |
|
Change in credit risk |
|
$ |
523 |
|
|
Change in time to maturity, stock price and Risk-Free Rates |
|
$ |
730 |
|
|
FX Impact |
|
$ |
12 |
|
|
Balance at December 31, 2022 |
|
$ |
11,978 |
|
Non-financial assets and liabilities
The Company’s non-financial assets, which
primarily consist of property and equipment and equity method
investments, are not required to be measured at fair value on a
recurring basis, and instead are reported at carrying value in its
condensed consolidated balance sheet. However, on a periodic basis
or whenever events or changes in circumstances indicate that they
may not be fully recoverable, the respective carrying value of
non-financial assets are assessed for impairment and, if ultimately
considered impaired, are adjusted and written down to their fair
value, as estimated based on consideration of external market
participant assumptions.
6. Property and equipment
Property and equipment consists of (in
thousands):
|
(in thousands) |
|
|
|
December 31, 2022 |
|
|
June 30, 2022 |
|
|
Lab equipment |
|
|
|
$ |
1,142 |
|
|
$ |
1,143 |
|
|
Software |
|
|
|
|
1,473 |
|
|
|
1,476 |
|
|
Office equipment |
|
|
|
|
124 |
|
|
|
124 |
|
|
Office furniture |
|
|
|
|
35 |
|
|
|
35 |
|
|
Leasehold improvements |
|
|
|
|
576 |
|
|
|
576 |
|
|
Total |
|
|
|
|
3,350 |
|
|
|
3,354 |
|
|
Less accumulated depreciation and amortization |
|
|
|
|
(1,055 |
) |
|
|
(796 |
) |
|
|
|
|
|
$ |
2,295 |
|
|
$ |
2,558 |
|
Depreciation expense was $0.1 million and $0.2
million for the three and six months ended December 31, 2022,
respectively. Depreciation expense was $0.1 million and $0.2
million for the three and six months ended December 31, 2021,
respectively.
As of December 31, 2022 there was $1.1 million
of unamortized capitalized software development costs. Amortization
expense related to capitalized software development costs was $0.1
million and $0.1 million, respectively for the three and six months
ended December 31, 2022 and $0.02 million and $0.1 million,
respectively for the three and six months ended December 31,
2021.
As of December 31, 2022, the expected
amortization expense for software for the next five years and
thereafter is as follows:
|
(in thousands) |
|
|
|
|
2023 |
|
$ |
89 |
|
|
2024 |
|
|
178 |
|
|
2025 |
|
|
178 |
|
|
2026 |
|
|
132 |
|
|
2027 |
|
|
120 |
|
|
Thereafter |
|
|
432 |
|
|
|
|
$ |
1,129 |
|
7. Accrued expenses and other current
liabilities
Accrued expenses and other current liabilities
consisted of (in thousands):
|
|
|
|
|
December 31, 2022 |
|
|
June 30, 2022 |
|
|
Consulting and professional fees |
|
|
|
$ |
218 |
|
|
$ |
551 |
|
| Research
and development |
|
|
|
|
1,058 |
|
|
|
1,060 |
|
| Payroll
and related benefits |
|
|
|
|
2,867 |
|
|
|
1,437 |
|
| License
Expense |
|
|
|
|
315 |
|
|
|
— |
|
|
Other |
|
|
|
|
31 |
|
|
|
12 |
|
|
|
|
|
|
$ |
4,489 |
|
|
$ |
3,060 |
|
8. Convertible Notes
In April 2022, the Company issued amortizing
senior convertible bonds with a principal amount $21.2 million in
amortizing senior convertible bonds due in April 2027 (the
"Bonds"). The Bonds were issued at 85% par value with total net
proceeds of $18.0 million and accrue interest at an annual rate of
5.5%, payable quarterly in arrears, in cash or ADSs valued at the
ADS Settlement Price at the option of the Company. The principal
and interest payments are due in equal quarterly installments
starting in July 2022. The Bonds contain various conversion and
redemption features. The initial conversion price for the
Convertible Bonds of $8.70 has been set at a 20 per cent. premium
to the Reference ADS Price. The Conversion Price may reset down at
12, 24 and 36 months, depending on share price performance and save
in limited circumstances, the Bonds have a hard floor in the
conversion price of $7.25. Between amortization dates, the
Convertible Bond Investor retains the right to advance future
amortization payments, provided that (a) there shall be no
amortization advancements during the first 12 months, (b) no more
than 2 amortization advancements may occur in any 12 month period,
and (c) no more than 1 amortization advancement may occur in any 3
month period.
The Convertible Bond Investor is also permitted
to defer up to two amortization payments to a subsequent
amortization date. The Company retains the option to repay any
deferred amortization in cash at 100 per cent. of the nominal
amount In July 2022, the Company made a cash amortization payment
of $1.4 million, which consisted of $1.1 million of principal and
$0.3 million of interest. In October 2022, the company made an
interest payment of $0.3 million. As of December 31, 2022, $20.1
million of principal was outstanding.
On issuance, the Company elected to account for
the Bonds at fair value in accordance with ASC 815, Derivatives and
Hedging, with qualifying changes in fair value being recognized
through the statements of operations until the Bonds are settled.
Changes in fair value related to instrument-specific credit risk
are recognized through comprehensive loss until the Bonds are
settled. The fair value of the bonds is determined using a
scenario-based analysis that estimates the fair value based on the
probability-weighted present value of expected future investment
returns, considering each of the possible outcomes available to the
noteholders. Significant assumptions used in the fair value
analysis include the volatility rate, risk-free rate, dividend
yield and risky yield. As of December 31, 2022, the fair value of
the Bonds was determined to be $11.9 million. During the three and
six months ended December 31, 2022, the Company recognized a change
in fair value of the Notes related to the instrument-specific
credit risk of $0.9 million and $0.5 million, respectively, in the
statement of comprehensive loss. The Company recognized an increase
in fair value related to non-instrument specific credit risk of
$0.4 million during the three months ended December 31, 2022 and an
increase in fair value related to non-instrument specific credit
risk of $0.7 million in the consolidated statement of operations
during the six months ended December 31, 2022.
9. Leases
The Company leases certain office space and
laboratory space. At the inception of an arrangement, the Company
determines whether the arrangement is or contains a lease based on
the unique facts and circumstances present. The Company does not
recognize right-of-use assets or lease liabilities for leases
determined to have a term of 12 months or less. Many of the
Company's leases contain variable non-lease components such as
maintenance, taxes, insurance, and similar costs for the spaces it
occupies.
Variable executory costs, as it relates to net
leases, are excluded from the calculation of the lease liability.
Variable executory costs include costs relating to utilities,
repairs, maintenance, insurance, common area expenses, and taxes
paid for the leased asset during its economic life. The Company
expenses the variable lease payments in the period in which it
incurs the obligation to pay such variable amounts and will be
included in variable lease costs in the leases footnote disclosure.
These variable lease payments are not included in the Company's
calculation of its right-of-use assets or lease liabilities.
Upon adoption of ASC 842, the Company elected
the package of practical expedients and the hindsight practical
expedient but did not elect the easement practical expedient which
is not applicable to the Company as the Company does not have any
ground leases. In accordance with the package of practical
expedients, the Company has not reassessed any of their existing or
expired contracts or any other agreements that were previously
concluded to not contain a lease for the following practical
expedient guidance: (1) whether the arrangement is or contains a
lease, (2) lease classification and (3) whether previously
capitalized costs continue to qualify as initial direct costs.
The Company leased lab space in Salt Lake City,
UT, under a five-year lease, the term of which commenced in
November 2019. The Company has measured its right-of-use assets and
lease liabilities based on lease terms ending in October 2024.
The Company leased lab space in New York City,
NY under an initial three-month lease, the term of which commenced
in February 2019. The Company has classified this lease as a
short-term lease as the Company concluded that the noncancelable
terms of this lease was less than one year at the commencement and
none of the Company's renewals or amendments were for additional
noncancelable terms greater than one year.
The Company leased lab space in St. Petersburg,
FL from under an initial one-year term, the term of which commenced
in January 2022. The Company has classified this lease as a
short-term lease as the Company concluded that the noncancelable
terms of this lease was less than one year at the commencement and
none of the Company's renewals or amendments were for additional
noncancelable terms greater than one year.
The Company leased office space in New York
City, NY under an initial month-to-month term, the term of which
commenced in June 2018. The lease did not have termination or
formal renewal options however the Company can renew their spaces
if they are still needed and are still available at the end of the
term. The Company has classified this lease as a short-term lease
as the Company concluded that the noncancelable terms of this lease
was less than one year at the commencement and none of the
Company's renewals or amendments were for additional noncancelable
terms greater than one year.
The Company identified and assessed the
following significant assumptions in recognizing its right-of-use
assets and corresponding lease liabilities during the adoption of
ASC 842:
As the Company's leases do not provide an
implicit rate, it estimated the incremental borrowing rate for each
lease by considering average interest rates on commercial real
estate loans during 2022 which range from 2.2%, for established
borrowers with excellent credit ratings, to 18.0%, for borrowers
early in the business’ life cycle and with lower credit ratings. As
the Company is an early-stage biotech company with minimal
revenues, the Company concluded that a 10.0% IBR, the approximate
midpoint between the average commercial real estate loans during
2022, is an appropriate discount rate to use for the Utah lease,
which was the only lease existing as of the adoption date.
The following table shows the lease balance
sheet classification of leases for the quarter ended December 31,
2022 (in thousands):
|
(in thousands) |
|
December 31, 2022 |
|
|
Assets |
|
|
|
|
Operating lease right-of-use assets, net of accumulated
amortization |
|
$ |
213 |
|
|
Liabilities |
|
|
|
|
Current |
|
$ |
129 |
|
|
Operating lease liabilities, current |
|
|
|
|
Non-current |
|
|
|
|
Operating lease liabilities, non-current |
|
$ |
100 |
|
|
Total lease liabilities |
|
$ |
229 |
|
The following table shows the lease costs for
the six months ended December 31, 2022 (in thousands):
|
Lease costs (in thousands) |
Statement of operations classification |
December 31, 2022 |
|
|
Operating lease costs |
Operating expenses: research and development |
$ |
72 |
|
|
Short term lease costs |
Operating expenses: research and development |
$ |
8 |
|
|
Short term lease costs |
Operating expenses: general and administrative |
$ |
24 |
|
|
Short term lease costs |
Cost of goods sold |
$ |
183 |
|
|
Total lease costs |
|
$ |
287 |
|
|
Other information |
December 31, 2022 |
|
|
Cash paid for amounts included in the measurement of lease
liabilities (in thousands) |
$ |
72 |
|
|
|
|
|
|
Remaining lease term - operating leases (in years) |
|
1.9 |
|
|
Discount rate - operating leases |
|
10 |
% |
The future minimum payments for noncancelable
leases with terms in excess of one year as of December 31, 2022 are
payable as follows (in thousands):
|
2023 |
|
$ |
84 |
|
|
2024 |
|
$ |
157 |
|
|
2025 |
|
$ |
46 |
|
|
Total |
|
$ |
287 |
|
The Company recognized rent expense of $0.2 million and $0.1
million during the three months ended December 31, 2022 and 2021,
respectively, and $0.3 million and $0.2 million during the six
months ended December 31, 2022 and 2021, respectively.
10. Commitments and
contingencies
Leases
Lease payments under operating leases as of
December 31, 2022 and information about the Company’s lease
arrangements are disclosed in Note 9, "Leases".
DaVita Inc.
In January 2021, the Company entered into a
Master Care Coordination Services Agreement with DaVita Inc.
(“DaVita”) whereby DaVita agreed to provide certain care
coordination services to covered patients as requested by the
Company ("Care Coordination Services"), with those covered patients
identified by the Company’s KidneyIntelX diagnostic and subject to
insurance coverage ("Covered Patients"). Those covered patients may
also be included in connection with various clinical research
studies or quality improvement initiatives (each a “Study”). Both
parties agreed to establish a joint steering committee to oversee
the care coordination services and exchange and evaluate results of
each Study. The Company will pay DaVita a monthly fixed fee based
on the number of covered patients. The initial term of the
agreement is three years with successive one-year renewals upon
written mutual agreement of both parties. For the Care Coordination
Services furnished by DaVita (or an affiliate of DaVita) under the
terms of a statement of work, the Company shall pay DaVita (or such
affiliate of DaVita) a monthly payment of (a) $10.00 in respect of
Care Coordination Services multiplied by the number of Covered
Patients, plus (b) $3.50, in respect of patient engagement
services, multiplied by the number of Covered Patients. No expenses
were recorded in the periods related to this agreement.
Employment agreements
The Company has entered into employment
agreements with certain key executives providing for compensation
and severance in certain circumstances, as set forth in the
agreements.
Retirement plans
The Company maintains a defined contribution
401(k) retirement plan which covers all U.S. employees. Employees
are eligible after three months of service. Under the 401(k) plan,
participating employees may make contributions in an amount up to
the limit set by the Internal Revenue Service on an annual basis.
The Company has a safe harbor plan and makes contributions to
employee accounts of 5% of compensation (as defined by the plan).
The Company contributed $0.1 million and $0.2 million for the three
and six months ended December 31, 2022, respectively, and $0.1
million and $0.2 million for the three and six months ended
December 31, 2021, respectively.
Legal proceedings
The Company is not a party to any litigation and
does not have contingency reserves established for any litigation
liabilities. At each reporting date, the Company evaluates whether
or not a potential loss amount or a potential range of loss is
probable and reasonably estimable under the provisions of the
authoritative guidance that addresses accounting for
contingencies.
11. License and services
agreements
Mount Sinai license and sponsored
research agreements
On May 30, 2018, the Company entered into an
exclusive license agreement (the “ISMMS License Agreement”) and, on
March 7, 2019, a sponsored research agreement (the “ISMMS SRA”)
with Mount Sinai. Under the terms of the ISMMS License Agreement,
ISMMS granted the Company (i) an exclusive, sublicensable license
to use certain patent rights covering specific inventions
concerning the utilization of biomarkers guided artificial
intelligence techniques for detecting kidney functional decline
(the “ISMMS Technology”), (ii) a non-exclusive license under
unregistered licensed copyrights and licensed know-how and (iii) an
exclusive option to obtain licensed technology conceived after May
30, 2018. The Company is obligated to pay Mount Sinai $1.5 million
and $7.5 million in commercial milestone payments upon achieving
worldwide net sales of KidneyIntelX of $50.0 million and $300.0
million, respectively. The Company is also obligated to pay Mount
Sinai a 4% to 5% royalty on net sales of KidneyIntelX, subject to
customary reductions. Royalties are payable on a product-by-product
basis from first commercial sale of such product until the later of
(1) expiration of the last valid claim of a licensed patent
covering such product or (2) on a country-by-country basis, 12
years from first commercial sale of such product in such country.
Moreover, the Company is obligated to pay Mount Sinai between 15%
and 25% of any consideration received from a sublicensee.
As part of the ISMMS SRA, the Company has agreed
to fund several research projects to further develop the ISMMS
Technology. The Company incurred $0.0 million and $0.8 million
under the ISMMS SRA for the three and six months ended December 31,
2022 , respectively, and $0.2 million and $0.4 million in research
and development expenses under the ISMMS SRA for the three and six
months ended December 31, 2021, respectively.
Mount Sinai clinical trial agreement
In July 2021, the Company entered into a
Clinical Trial Agreement (the "CTA") with ISMMS. Under the CTA,
ISMMS will undertake a sponsored clinical trial entitled, “A
prospective decision impact trial of KidneyIntelX in patients with
Type 2 diabetes and existing chronic kidney disease”. The clinical
trial is to be conducted at ISMMS with Renalytix agreeing to pay
ISMMS is accordance with the agreed upon budget. The clinical trial
is expected to last up to four years with a total estimated budget
of $3.2 million. As of December 31, 2022, amounts due to ISMMS
under the CTA totaled $0.2 million and $0.0 million $0.1 million
was expensed during the three and six months ended December 31,
2022, respectively.
Joslin diabetes center
agreement
In October 2018, the Company purchased a
worldwide exclusive license agreement (the “Joslin Agreement”) with
the Joslin Diabetes Center, Inc. (“Joslin”) that was previously
entered into with EKF Diagnostics Holding Plc (“EKF”), a related
party, in July 2017. The license agreement provides the Company
with the right to develop and commercialize licensed products
covering a novel methodology of diagnosing and predicting kidney
disease using certain biomarkers (the “Joslin Diabetes
Technology”).
Under the terms of the Joslin Agreement, the
Company is obligated to pay Joslin aggregate commercial milestone
payments of $0.3 million and $1.0 million in commercial milestone
payments upon achieving worldwide net sales of licensed products
and processes of $2.0 million and $10.0 million, respectively. The
Company accrued for the $0.3 million milestone payment as the
Company achieved $2.0 million of worldwide net sales in the
calendar year. The Company is also obligated to pay Joslin a 5%
royalty on net sales of any licensed products or licensed
processes, subject to customary reductions. The Company accrued
$0.3 million of royalties due to Joslin for the quarter ended
December 31, 2022. Moreover, the Company is obligated to pay Joslin
25% of any consideration received from a sublicensee.
The Joslin Agreement initially expires on July
31, 2025 and is subject to an automatic five-year extension unless
either party notifies the other party of its intent not to extend
the agreement at least 180 days prior to initial expiration. Either
party may terminate the Joslin Agreement earlier upon an uncured
material breach of the agreement by the other party, the insolvency
of the other party, or in the event the other party is unable to
perform its obligations under the agreement for a specified period.
Additionally, Joslin may terminate the agreement in the event that
the Company ceases developing or commercializing licensed products
or processes, if the Company fails to maintain certain required
insurance policies, and if the Company fails to pay patent expenses
related to the licensed patents.
12. Shareholders’ equity
Ordinary shares
As of December 31, 2022, the Company had
79,869,543 ordinary shares authorized on a fully diluted basis.
Each share entitles the holder to one vote on all matters submitted
to a vote of the Company’s shareholders. Ordinary shareholders are
entitled to receive dividends as may be declared by the board of
directors. From inception through December 31, 2022, no cash
dividends have been declared or paid.
13. Share-based
compensation
Equity Incentive Plans
In November 2018, Company established the
Renalytix plc Share Option Plan (the “Plan”) and a U.S. Sub-Plan
and Non-Employee Sub-Plan. The Plans provide for the Company to
grant options, restricted share awards and other share-based awards
to employees, directors and consultants of the Company. As of
December 31, 2022, there were 10,739,229 shares available for
future issuance under the Plans.
The Plans are administered by the board of
directors. The exercise prices, vesting and other restrictions are
determined at their discretion, except that all options granted
have exercise prices equal to the fair value of the underlying
ordinary shares on the date of the grant and the term of stock
option may not be greater than ten years from the grant date.
The options granted as of December 31, 2022
consist of 2,299,799 options which vest equally over twelve
quarters following the grant date, 962,600 options which vest 25%
on the one year anniversary and equally over twelve quarters
following the one year anniversary and 500,000 which vest 1/12th
immediately and the remainder equally over the remaining eleven
quarters, 475,300 which vest 25% on the one year anniversary, 50%
on 2nd anniversary and 25% on the third anniversary and 40,000
which vest in eight equal quarterly instalments commencing on the
Vesting Commencement date. If options remain unexercised after the
date one day before the tenth anniversary of grant, the options
expire. On termination of employment, any options that remain
unexercised are either forfeited immediately or after a delayed
expiration period, depending on the circumstances of termination.
Upon the exercise of awards, new ordinary shares are issued by the
Company.
The Company recorded share-based compensation
expense in the following expense categories in the condensed
consolidated statements of operations for the three and six months
ended December 31, 2022 and 2021 (in thousands):
|
|
|
Three months ended December 31, |
|
|
Six Months Ended December 31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Research and development |
|
$ |
113 |
|
|
$ |
121 |
|
|
$ |
180 |
|
|
$ |
394 |
|
|
General and administrative |
|
|
700 |
|
|
|
792 |
|
|
|
1,396 |
|
|
|
599 |
|
|
Cost of revenue |
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
|
$ |
815 |
|
|
$ |
913 |
|
|
$ |
1,578 |
|
|
$ |
993 |
|
The fair value of options is estimated using the
Black-Scholes option pricing model, which takes into account inputs
such as the exercise price, the value of the underlying ordinary
shares at the grant date, expected term, expected volatility,
risk-free interest rate and dividend yield. The fair value of each
grant of options during the three months ended December 31, 2022
and 2021 were determined using the methods and assumptions
discussed below.
- The expected term
of employee options is determined using the “simplified” method, as
prescribed in SEC’s Staff Accounting Bulletin No. 107, whereby the
expected life equals the arithmetic average of the vesting term and
the original contractual term of the option due to the Company’s
lack of sufficient historical data.
- The expected
volatility is based on historical volatility of the publicly-traded
common stock of a peer group of companies.
- The risk-free
interest rate is based on the interest rate payable on U.S.
Treasury securities in effect at the time of grant for a period
that is commensurate with the assumed expected term.
- The expected
dividend yield is none because the Company has not historically
paid and does not expect for the foreseeable future to pay a
dividend on its ordinary shares.
For the three months ended December 31, 2022 and
2021, the grant date fair value of all option grants was estimated
at the time of grant using the Black-Scholes option-pricing model
using the following weighted average assumptions:
|
|
|
Six Months Ended December 31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
Expected term (in years) |
|
|
6.1 |
|
|
6.04 |
|
|
Expected volatility |
|
|
66.9 |
% |
|
|
65.8 |
% |
|
Risk-free rate |
|
|
3.2 |
% |
|
|
1.28 |
% |
|
Dividend yield |
|
|
— |
% |
|
|
— |
% |
The weighted average fair value of the options
granted during the six months ended December 31, 2022 was $1.16.
The weighted average fair value of the options granted during the
six months ended December 31, 2021 was $7.10 per share.
The following table summarizes the stock option
granted to employees and non-employees for the six months ended
December 31, 2022:
|
|
|
Number ofshares underoption plan |
|
|
Weighted-averageexercise priceper option |
|
|
Weighted-averageremainingcontractuallife (in years) |
|
|
Outstanding at June 30, 2022 |
|
|
4,599,899 |
|
|
$ |
4.00 |
|
|
|
8.1 |
|
|
Granted |
|
|
555,300 |
|
|
$ |
1.50 |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(177,500 |
) |
|
$ |
8.43 |
|
|
|
|
|
Outstanding at December 31, 2022 |
|
|
4,977,699 |
|
|
$ |
3.56 |
|
|
|
7.2 |
|
|
Exercisable at December 31, 2022 |
|
|
3,721,211 |
|
|
$ |
3.21 |
|
|
|
6.6 |
|
|
Vested and expected to vest at December 31, 2022 |
|
|
4,977,699 |
|
|
$ |
3.56 |
|
|
|
7.2 |
|
As of December 31, 2022, there was $3.8 million
in unrecognized compensation cost related to unvested options that
will be recognized as expense over a weighted average period of
2.15 years. The aggregate intrinsic value of options outstanding
and options exercisable at December 31, 2022 and 2021 was $0.0
million and $18.0 million, respectively.
Employee Share Purchase
Plan
The Company’s 2020 Employee Share Purchase Plan
(the “ESPP”) became effective on August 17, 2020. The ESPP
authorizes the issuance of up to 850,000 shares of the Company’s
common stock. The number of shares of the Company’s common stock
that may be issued pursuant to rights granted under the ESPP shall
automatically increase on January 1st of each year, commencing on
January 1, 2021 and continuing for ten years, in an amount equal to
the lesser of one percent of the total number of shares of the
Company’s common stock outstanding on December 31st of the
preceding calendar year, and 2,000,000 ordinary shares, subject to
the discretion of the board of directors or remuneration committee
to determine a lesser number of shares shall be added for such
year.
Under the ESPP, eligible employees can purchase
the Company’s common stock through accumulated payroll deductions
at such times as are established by the board of directors or
remuneration committee. Eligible employees may purchase the
Company’s common stock at 85% of the lower of the fair market value
of the Company’s common stock on the first day of the offering
period or on the purchase date. Eligible employees may contribute
up to 15% of their eligible compensation. Under the ESPP, a
participant may not purchase more than $25,000 worth of the
Company’s common stock for each calendar year in which such rights
are outstanding. During the six months ended December 31, 2022,
131,412 shares were purchased under the ESPP.
In accordance with the guidance in ASC 718-50 –
Compensation – Stock Compensation, the ability to purchase shares
of the Company’s common stock at 85% of the lower of the price on
the first day of the offering period or the last day of the
offering period (i.e. the purchase date) represents an option and,
therefore, the ESPP is a compensatory plan under this guidance.
Accordingly, share-based compensation expense is determined based
on the option’s grant-date fair value as estimated by applying the
Black Scholes option-pricing model and is recognized over the
withholding period. The Company recognized share-based compensation
expense of $0.02 million and $0.05 million three and six months
ended December 31, 2022, respectively, and $0.02 million and $0.05
million during the three and six months ended December 31, 2021,
respectively, related to the ESPP.
Restricted Stock Units
Activity for restricted stock units for the six
months ended December 31, 2022 is as follows:
|
|
|
Number ofRestricted Stock
Units |
|
|
Weighted-averageGrant
Date Fair Value |
|
|
Non-vested balance at June 30, 2022 |
|
|
— |
|
|
$ |
- |
|
|
Granted |
|
|
131,380 |
|
|
$ |
1.53 |
|
|
Vested |
|
|
(41,400 |
) |
|
$ |
1.44 |
|
|
Forfeited |
|
|
— |
|
|
$ |
- |
|
|
Non-vested balance at December 31, 2022 |
|
|
89,980 |
|
|
$ |
1.57 |
|
The total fair value of restricted stock units
and performance stock units vested during the six months ended
December 31, 2022 was $0.06 million. There were no vested
restricted stock units at December 31, 2021. Restricted stock units
vest upon the achievement of time-based service requirements.
At December 31, 2022, total unrecognized
compensation expense related to non-vested restricted stock units
was approximately $0.1 million. Unrecognized compensation expense
relating to restricted stock units that are deemed probably of
vesting is expected to be recognized over a weighted-average period
of approximately 1.2 years.
14. Related-party
transactions
EKF Diagnostic Holdings
During the three and six months ended December
31, 2022, the Company incurred expenses of $0.03 million and $0.05
million, respectively, related to employees of EKF who provided
services to Renalytix and this amount is included in general and
administrative expenses in the condensed consolidated statements of
operations. During the three and six months ended December 31,
2021, the Company incurred expenses of $0.05 million and $0.1
million, respectively, related to employees of EKF who provided
services to Renalytix and this amount is included in general and
administrative expenses in the condensed consolidated statements of
operations.
Icahn School of Medicine at Mount
Sinai
In May 2018, the Company secured its cornerstone
license agreement with the Icahn School of Medicine at Mount Sinai
("ISMMS") for research and clinical study work and intended
commercialization by the Company (see Note 11). As part of the
collaboration, ISMMS became a shareholder in the Company and has
subsequently made equity investments both in the Company’s IPO on
AIM in November 2018, the subsequent sale of ordinary shares in
July 2019 and the Company’s IPO on Nasdaq in July 2020. As of
December 31, 2022, amounts due to ISMMS totaled $4.0 million and
are included within accrued expenses and other current liabilities
and accounts payable on the balance sheet. During the three and six
months ended December 31, 2022, the Company incurred expenses of
$0.0 million and $1.4 million, respectively, which are included in
research and development expenses in the condensed consolidated
statement of operations. During the three and six months ended
December 31, 2021, the Company incurred expenses of $1.5 million
and $2.7, respectively, million which are included in research and
development expenses in the condensed consolidated statement of
operations.
Kantaro Biosciences LLC
In connection with the formation of Kantaro, the
Company entered into a five-year Advisory Services Agreement
(“Advisory Agreement”) pursuant to which the Company has agreed to
provide certain advisory services to Kantaro. Pursuant to the
Kantaro Operating Agreement, Kantaro issued 750 Class A Units to
Mount Sinai in exchange for Mount Sinai granting licenses to
Kantaro under certain intellectual property rights of Mount Sinai
and 250 Class A Units to the Company as the sole consideration for
the services to be rendered by the Company under the Advisory
Agreement. A portion of the Company’s units are subject to
forfeiture if, prior to December 31, 2021, Kantaro terminates the
Advisory Agreement as a result of an uncured material breach of the
Advisory Agreement or in the event the Company is acquired by a
hospital or health system that serves all or any portion of the
service areas served by Mount Sinai. The Company determined the
fair value of the services to be provided under the Advisory
Agreement was $2.0 million and the fair value of the Class A units
received from Kantaro was $2.0 million. Fair value was determined
using discounted cash flows which is a Level 3 measurement in the
fair value hierarchy. The method requires several judgments and
assumptions which include discount rates and future cash flows,
among others. As a result of the prior year impairment charge
discussed in Note 3, the carrying value of the Kantaro investment
was written down to zero.
A contributing factor to the impairment
consideration for Kantaro was lower forecasted sales volume and
consequently, a lower time commitment from Renalytix employees.
Based on these circumstances, the Company adjusted the liability to
perform services to Kantaro under the Advisory Agreement during the
year ended June 30, 2021. On December 31, 2022, the members and
managers of Kantaro decided that it was in the best interest of
Kantaro to wind up the business and unanimously signed a
termination agreement. As part of the termination agreement, the
members agreed to wind up Kantaro's business and dissolve it
reasonably promptly after the effective date of the termination
agreement. As of December 31, 2022, the total liability associated
with the services was $0.0, as the termination agreement relieved
Renalytix of its obligation to provide services to Kantaro.
For the three and six months ended December 31,
2022, the Company recognized $0.01 million and $0.02 million,
respectively, in the statement of operations related to services
performed under the Advisory Agreement. For the three and six
months ended December 31, 2022, $0.01 million of costs incurred
related to the performance of the Advisory Agreement services were
included within research and development and $0.01 million were
included in general and administrative expense, respectively. For
the three and six months ended December 31, 2021, the Company
recognized $0.1 million in the condensed consolidated statements of
operations related to services performed under the Advisory
Agreement. For the three and six months ended December 31, 2021,
$0.05 million and $0.09 million of costs incurred related to the
performance of the Advisory Agreement services were included within
research and development and $0.02 million and $0.05 million were
included within general and administrative expense,
respectively.
In addition to the equity granted at formation,
in May 2020 the Company and Mount Sinai each committed to making a
loan to Kantaro. Mount Sinai committed to lend an initial amount of
$0.3 million and an additional $0.5 million thereafter. The Company
committed to lend an initial amount of $0.08 million and an
additional $0.17 million thereafter. Each loan bears interest at a
per year rate equal to 0.25%, compounded monthly, until repaid, and
is repayable from the first amounts that would otherwise constitute
cash available for distribution to the members of Kantaro (provided
that each loan repayment will be made, 75% to Mount Sinai and 25%
to the Company based on each investor’s proportionate ownership).
The Company loaned Kantaro $0.25 million and initially recorded a
note receivable. The loan had a carrying value of approximately
$0.075 million at December 31, 2022 and June 30, 2022.
15. Net loss per ordinary
share
Basic net loss per ordinary share is computed by dividing net
loss by the weighted average number of ordinary shares outstanding
during each period. Diluted net loss per ordinary share includes
the effect, if any, from the potential exercise or conversion of
securities, such as options which would result in the issuance of
incremental ordinary shares. Potentially dilutive securities
outstanding as of December 31, 2022 and 2021 have been excluded
from the computation of diluted weighted average shares outstanding
as they would be anti-dilutive. Therefore, the weighted average
number of shares used to calculate both basic and diluted net loss
per share are the same.
The following potentially dilutive securities have been excluded
from the computation of diluted weighted-average shares of common
stock outstanding, as they would be anti-dilutive:
|
|
|
Six Months Ended December 31, |
|
|
|
|
2022 |
|
|
|
2021 |
|
|
Stock options to purchase common stock |
|
|
4,977,699 |
|
|
|
|
4,372,901 |
|
|
Conversion of convertible note |
|
|
2,071,264 |
|
|
|
— |
|
|
|
|
|
7,048,963 |
|
|
|
|
4,372,901 |
|
16. Subsequent Events
The Company has evaluated subsequent events from the condensed
consolidated balance sheet date through the date at which the
condensed financial statements were available to be issued, and
determined there are no other items requiring disclosure beyond
those disclosed below.
In February 2023, the Company announced a $20.3 million private
placement of Ordinary Shares and American Depository Shares (the
"Fundraise"), the net proceeds of which will be used for sales and
marketing, clinical product development, corporate support and
financing costs. The Fundraise was comprised of subscriptions for
3,699,910 Ordinary Shares and 7,511,525 ADSs, at a price of $2.17
per ADS and £0.90 per Ordinary Share.
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