Renalytix plc (NASDAQ: RNLX) (LSE: RENX), an artificial
intelligence-enabled in vitro diagnostics company, focused on
optimizing clinical management of kidney disease to drive improved
patient outcomes and advance value-based care, today reported
financial results for the fiscal third quarter ended March 31,
2023.
Recent Highlights (including post period
events)
- Continued progress with FDA De Novo
authorization review, with FDA indicating a target date for
decision completion by the end of the second calendar quarter of
2023
- Secured additional key insurance
coverage contracts for KidneyIntelX including:
- EmblemHealth, covering over three
million lives in New York Tri-state region
- CareFirst BlueCross BlueShield, the
largest health care plan in the U.S. Mid-Atlantic region
- Continuing to maintain contracted
pricing at or over the Medicare clinical lab fee schedule (CLFS) of
$950 per reportable test result
- Medicare payment for KidneyIntelX
established
- Claims submitted through the individual
claims review (ICR) process paid effective July 1, 2022
- Local Coverage Determinations (LCD) are
being progressed with two Medicare Administrative Contractors
supported by new published real-world utility evidence
- Milestone achievement converting
payment to full, long-term commercial insurance billing model at
Mount Sinai Health System
- Insurance payment for over 90% of
KidneyIntelX eligible Mount Sinai patients as of the end of the
fiscal third quarter
- Short-term reduction in Mount Sinai
test volumes during commercial insurance billing transition in the
first half of calendar 2023; order mechanisms now restored and
commercial testing has resumed
- Upcoming expansion of direct to primary
care physician sales capacity in the Florida and Texas markets
- Selection of EVERSANA to further enable
sales implementation in markets with large diabetes populations and
access to primary care practices
- With addition of the EVERSANA program,
there will be KidneyIntelX direct to primary care sales presence in
NY, IL, NC, SC, FL, and TX
- Completed $20.3 million equity
financing led by new institutional investors in February 2023
- Core participant in the consortium
granted $10 million by Horizon Europe Grant to advance personalized
medicine in treating chronic kidney disease
- Agreement with Veterans Affairs (VA) to
integrate KidneyIntelX testing with Veterans Health Administration
(VHA) electronic health record systems
- Release of data from two studies at
National Kidney Foundation Spring Clinical Meeting illustrating:
- KidneyIntelX performed well in
identifying higher-risk Black patients; understanding risk of
progression can substantially reduce disparities in access to
expensive SGLT2-inhibitor drug therapy
- Veterans may progress rapidly due to
higher prevalence of comorbid conditions. In accordance with the
goals of VHA Directive 1053, earlier identification of those at
high risk of DKD progression and death will help minimize the
overall DKD burden in the VHA.
- Publication of new patient case studies
in Diabetic Nephropathy demonstrating how KidneyIntelX can optimize
clinical management in early-stage kidney disease across multiple
physician specialties
Third Quarter 2023 Financial
Results
During the three months ended March 31, 2023,
the Company recognized $0.7 million of revenue (Q3 FY22: $0.8
million). Cost of revenue for the three months ended March 31, 2023
was $0.6 million (Q3 FY22: $0.7 million).
Operating expense for the three months ended
March 31, 2023 was $11.0 million compared with $14.7 million during
the prior year period. As previously stated in fiscal Q1, we have
taken action to lower annual expenditures by over $12 million
through program, vendor and employee reductions, with additional
opportunities to reduce expenditures under review.
Within operating expenses, research and
development expenses were $3.9 million for the three months ended
March 31, 2023, consistent with $3.9 million in expense for the
three months ended March 31, 2022.
General and administrative expenses were $7.1
million for the three months ended March 31, 2023, decreasing by
$3.7 million from $10.8 million for the three months ended March
31, 2022. The decrease was due to the cost reduction measures taken
earlier this year resulting in a $1.9 million decrease in employee
related expenses, a $1.2 million decrease in consulting and
professional fees, a $0.5 million decrease in insurance expense,
and a $0.1 million decrease in other operating expenses.
Net loss was $12.1 million for the three months
ended March 31, 2023 compared with $14.7 million for the prior year
period.
Cash and cash equivalents totaled $33.0 million
as of March 31, 2023.
The Company will host a corresponding conference
call and live webcast today to discuss the financial results and
key topics including business strategy, partnerships and regulatory
and reimbursement processes, at 8:30 a.m. (EDT) / 1:30 p.m.
(BST).
Conference Call Details:
To participate in the live conference call via telephone, please
register here. Upon registering, a dial-in number and unique PIN
will be provided in order for interested parties to join the
conference call.
Webcast Registration link:
https://edge.media-server.com/mmc/p/u32tnka9
For further information, please contact:
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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 |
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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, cost reduction measures and revenue
for future periods. Words such as “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “plans,” “seeks,” and similar
expressions are intended to identify forward-looking statements. We
may not actually achieve the plans and objectives disclosed in the
forward-looking statements, and you should not place undue reliance
on our forward-looking statements. Any forward-looking statements
are based on management’s current views and assumptions and involve
risks and uncertainties that could cause actual results,
performance or events to differ materially from those expressed or
implied in such statements. These risks and uncertainties include,
among others: that KidneyIntelX is based on novel artificial
intelligence technologies that are rapidly evolving and potential
acceptance, utility and clinical practice remains uncertain; we
have only recently commercially launched KidneyIntelX; and risks
relating to the impact on our business of the COVID-19 pandemic or
similar public health crises. These and other risks are described
more fully in our filings with the Securities and Exchange
Commission (SEC), including the “Risk Factors” section of our
annual report on Form 20-F filed with the SEC on October 31, 2022,
and other filings we make with the SEC from time to time. All
information in this press release is as of the date of the release,
and we undertake no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future events, or otherwise, except as required by law.
RENALYTIX PLC
Operational Update and Financial Results
for the Three and Nine Months ended March 31, 2023
Unless otherwise indicated, all references in
this report, to the terms “Renalytix,” “Renalytix plc,” “the
company,” “we,” “us” and “our” refer to Renalytix plc together with
its subsidiaries. We recommend that you read the discussion below
together with our audited financial statements and the notes
thereto, which appear in our Annual Report on Form 20-F for the
year ended June 30, 2022, filed with the Securities and Exchange
Commission on October 31, 2022 (our “Annual Report”).
The statements in this discussion regarding our
expectations regarding our market opportunity, partnerships,
reimbursement, regulatory approval, cash runway, cost reduction
measures, testing volume, revenue guidance, capital requirements
and future performance, as well as all other non-historical
statements are forward-looking statements. Forward-looking
statements involve known and unknown risks and uncertainties that
may cause our actual results, performance or achievements to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. These risks and uncertainties include, but are not
limited to, the risks and uncertainties set forth in the “Risk
Factors” section of our Annual Report and any subsequent reports
that we file with the SEC. See also the section titled
“Forward-Looking Statements” above.
OPERATIONAL REVIEW
About Renalytix
At Renalytix, we are introducing more accurate
prognosis and effective care management for the estimated 850
million people worldwide with chronic kidney disease. In the United
States alone, chronic kidney disease affects about 37 million
people and is responsible for one of the largest cost drivers in
the national medical system. Early identification, prognosis and
treatment beginning with primary care is essential if we are to
stem the growing health care, social cost and suffering associated
with kidney disease.
With our lead product, KidneyIntelX, the goal is
to drive the focus from kidney disease treatment to kidney health
management through a more accurate understanding of a patient’s
risk for kidney failure before it happens. KidneyIntelX leads
development in the new field of bioprognosis, a biology driven
approach to risk assessment that integrates information from a
simple blood draw and a patient’s health record to produce an
accurate picture of kidney health. A doctor can use KidneyIntelX
results to act on patients at high risk of kidney disease
progression or failure at an early stage where active management
and therapeutics have the best opportunity to impact outcomes and
cost before it is too late.
About KidneyIntelX
Our novel platform, KidneyIntelX, uses a
machine-learning enabled algorithm to process predictive blood
biomarkers with key features from a patient’s health record to
generate an early and accurate kidney health risk score. The score
identifies those patients at the most risk for kidney disease
progression and/or failure and further guides ongoing clinical
decisions.
KidneyIntelX is initially indicated for use with
adults who have diagnosed kidney disease and diabetes – diabetic
kidney disease or DKD. Future KidneyIntelX products in development
are intended to expand the indicated uses to include broader
chronic kidney disease, health equity strategies and kidney health
monitoring through treatment. Diabetes is the leading cause of
chronic kidney disease, representing nearly 40% of cases, and DKD
patients are the highest contributors to emergency room dialysis
starts. Unfortunately, many DKD patients are unaware that their
kidney disease has been progressing, often uncontrolled, for many
years and now find themselves making difficult decisions about
late-stage treatments.
KidneyIntelX was designed as an expandable
platform able to add indicated uses and a monitoring capability,
all within an FDA regulated, insurance reimbursable framework.
Operational Progress
Over the last several months, we have made
continued progress in establishing the commercial foundation for
KidneyIntelX.
Progressing towards “super-majority” insurance
coverage in multiple regional markets with large prevalence of
diabetes and kidney disease
We are demonstrating payment success across a
diverse cohort of insurance entities including individual state
Blue Cross Blue Shield and Medicaid plans, Medicare Advantage, and
other large for-profit and not-for profit insurance plans. Together
with payments from Medicare contractor National Government Services
under individual claim review, this growing diversity in payment is
providing the basis for our expectation that KidneyIntelX will
continue to achieve majority coverage in markets with large
populations of diabetes and kidney disease patients during calendar
2023. As a result, we are now able to concentrate resources and
focus on building sales, marketing, and customer service functions
to support test adoption in regions with comprehensive insurance
coverage.
Establishing comprehensive insurance coverage in
metropolitan New York has allowed us to proceed with the important
milestone of converting to a long-term commercial reimbursement
model within the Mount Sinai Health System during the first half of
calendar 2023 (second half of fiscal 2023). As discussed below,
this conversion from Mount Sinai as the sole payor of tests
performed at the hospital system is timely given recent commercial
insurance coverage awards in the region.
The Centers for Medicare & Medicaid Services
set the price for KidneyIntelX at $950 in 2019. To date, we have
matched or exceeded the Medicare price when negotiating commercial
insurance coverage contracts. To broaden access to the test, we
maintain a robust patient assistance program for those patients who
have limited insurance coverage and for whom KidneyIntelX is
indicated as a suitable test. We are particularly conscious of the
health inequity which is pervasive among diabetes and kidney
disease populations and endeavor to expand access to the advanced
prognosis benefits of KidneyIntelX wherever possible and permitted
under the law.
We believe the diversity and depth of
established insurance payment remains critical to establishing
long-term testing adoption and revenue growth and achieving this
coverage in a relatively short period since commercial testing
launch has been a core business strategy.
Continuing to publish on our growing real-world
evidence of KidneyIntelX effectiveness
We continue to accumulate longitudinal data from
our real-world evidence program leading to further peer-reviewed
evidence and support of the positive impact of KidneyIntelX.
Published utility study results in the Journal of Primary Care
Community Health on November 28, 2022 on 1,686 patients showed that
primary care physicians (PCPs) using KidneyIntelX were 4.5 times
more likely to prescribe advanced medication to their high-risk
patients in early-stage kidney disease, where the opportunity to
prevent significant kidney damage or kidney failure is greatest, as
compared to their low-risk patients. Additionally, providers were
nearly 2.5 times more likely to make a timely referral to a
specialist in high-risk patients compared to low-risk patients, and
20% more likely to initiate more adaptive and aggressive
anti-hypertensive (blood pressure control) strategies in these
high-risk patients. Notable clinical observations from this study
showed improvements in HbA1C levels for diabetes glucose control in
the high-risk group in the first six months, most likely the result
of both increased patient engagement combined with appropriate
medication changes. There was also a 15% improvement in UACR (urine
albumin to creatinine ratio), an important indicator of kidney
health, at the six-month mark in the low and intermediate-risk
groups.
We released new utility study data in April 2023
at the National Kidney Foundation Spring Clinical Meeting
illustrating that KidneyIntelX performed well in identifying
higher-risk Black patients; understanding risk of progression can
substantially reduce disparities in access to expensive
SGLT2-inhibitor drug therapy. In addition, new patient case studies
were published in Diabetic Nephropathy demonstrating how
KidneyIntelX can optimize clinical management in early-stage kidney
disease across multiple physician specialties.
This evidence builds on a previously published
study in the American Journal of Managed Care (AJMC) that indicated
that 98% of PCPs were somewhat, very or extremely likely to use
KidneyIntelX to predict which of their patients with DKD will
experience rapid progressive decline in their kidney function. We
believe this investment in real-world evidence is driving positive
insurance reimbursement decisions, and will eventually help support
inclusion of KidneyIntelX in key clinical guidelines for diabetes
and kidney health.
Horizon Europe Grant
We are also pleased to be a core member of a
consortium of industry, academic and clinical research leaders
awarded a $10 million Horizon Europe Grant to advance personalized
medicine in treating chronic kidney disease. The consortium,
PRIME-CKD, aims to validate and implement in clinical practice,
novel biomarker-based tests that predict response to existing drugs
used by patients with chronic kidney disease (CKD). PRIME-CKD is
funded by Horizon Europe, the European Union’s key funding program
for research and innovation. The total budget of the project is $10
million over a projected five-year period, with approximately 10%
of the budget targeted for commercial translation activities to be
undertaken by Renalytix. The project is closely aligned with
Renalytix’s objective of expanding the clinical utility of the
KidneyIntelX platform beyond prognosis to prediction and monitoring
of drug response.
Pursuing Food and Drug Administration (FDA) De
Novo marketing authorization for KidneyIntelX
We continue to make progress toward De Novo
marketing authorization of KidneyIntelX with the Food and Drug
Administration. While there are no guarantees, we remain optimistic
and are working diligently with the FDA towards a successful
outcome. FDA has indicated they are working towards a decision by
the end of the second calendar quarter of 2023. As part of the De
Novo process, and pending a successful outcome of the review, the
FDA will prepare a reclassification order and pursue certain
internal processes for this class of test prior to communicating
the final decision. The comprehensive data dossier submitted and
detailed review process by the FDA is reflective of the
breakthrough nature of this novel test.
Mount Sinai billing transition
In our fiscal third quarter we completed the
milestone of transitioning to a long-term commercial insurance
payment model for patients tested at the Mount Sinai Health System.
This transition is taking place with the completion of the
applicable portion of the 2018 license agreement under which Mount
Sinai covered the cost of the first six million dollars of
KidneyIntelX testing as part of a real-world evidence study.
Our ability to secure diversity of commercial
insurance for KidneyIntelX for a significant portion of the
diabetes and kidney disease population in New York City would not
be possible without established payment from Medicare, Medicare
Advantage and other large New York City concentrated payors. This
includes a recently disclosed coverage contract with the second
largest non-profit payor in the United States with 3.2 million
members and another coverage contract secured with a large
value-based care insurer covering 1.8 million members. We are now
experiencing a high-rate of payment across both public and private
insurance carriers in the New York region at or above our
established Medicare pricing of $950 per reportable result.
The transition to commercial payment for testing
at Mount Sinai has had a short-term adverse impact on testing
volumes, predominantly while testing was paused during the month of
March while the hospital communicated with its physicians about the
transition. In addition, certain study-related tests that were paid
under the completed real-world evidence portion of our license
agreement with Mount Sinai are no longer billable under current
commercial arrangements. These study-related tests currently
represent roughly 33% of the Mount Sinai testing volume, though we
expect that percentage to decrease in future quarters as we seek to
ramp up commercial testing in the Mount Sinai Health System.
Further, as is customary when diagnostic products move to
broad-scale commercial billing, the average selling price for
KidneyIntelX will now include a minority percentage of discounted
testing for patients qualifying for financial assistance and
out-of-network testing.
Encouragingly, we have begun to experience the
validatory effects of establishing commercial pay after extensive
real-world experience with a system as large and influential as
Mount Sinai with other key insurers and health systems looking to
adopt a KidneyIntelX guided clinical management program for
patients with diabetes and kidney disease.
Other commercial market development
Continued diversity of insurance coverage,
successful real-world evidence and a potentially positive FDA
decision in the short term will be important factors in the
quarters ahead to drive testing adoption and revenue growth. We are
pleased to begin seeing a more diverse group of physicians in
different locations in the United States ordering KidneyIntelX. We
are assessing more focused hiring of primary care sales and medical
science liaison personnel for deployment in areas with established
insurance payment.
We entered into an agreement with the Veterans
Administration to install the KidneyIntelX solution inside the VA
Health System’s cloud infrastructure and interface it with the VA
electronic health record systems. This marks a significant
milestone in ultimately enabling providers at VA Medical Centers
and outpatient clinics to order and receive test results in a
seamless manner, and eventually make KidneyIntelX accessible to
large numbers of veterans with diabetic kidney disease.
Financing
In March of 2022, we announced the completion of
a financing package yielding $26.8 million in gross proceeds for
the Company. The financing included an $8.8 million equity
subscription plus $21.2 million principal amount of convertible
bonds (net cash proceeds of $18 million).
In February 2023, the Company raised an
additional $20.3 million gross proceeds in a private placement of
ordinary shares and American Depositary Shares.
We are pleased to have achieved such financings
during this challenging capital market environment, which we
believe illustrates the strength of our kidney disease testing,
monitoring and informed care advantages. In these rounds, we have
welcomed substantial new institutional investors alongside
participation by longstanding shareholders.
Summary and Outlook
Our fundamental goals remain clear:
- Build testing
adoption on a regional basis;
- Continue to
secure diversified, long-term insurance coverage;
- Continue
building evidence of real-world benefit of KidneyIntelX use;
and
- Obtain FDA
marketing authorization
We believe the early-stage kidney health market
remains largely un-tapped and open for innovation. Renalytix is in
a position to alter both the fundamental cost of care in the short-
and long-term, maintain better health for millions of Americans
with diabetes and kidney disease, and reduce the threat of
unexpected kidney failure and dialysis. With the World Obesity
Federation reporting in March that 51% of the global population, or
more than 4 billion people, are expected to be overweight or obese
by 2035, kidney disease and diabetes, which run in parallel, will
remain significant threats to the global health care system. Now
more than ever, we will need a way to understand who is at risk for
advancing kidney disease (and, importantly, who is not), and to
whom new effective medication should be given and to determine how
they respond. Without a KidneyIntelX-like prognosis available at
the front end of chronic kidney disease, easily implemented and
understood by primary care physicians, it will be very challenging
to allocate medical resource efficiently, and alert patients and
their doctors to preventive measures to preserve health.
We believe we are in the process of validating a
new standard with KidneyIntelX that can be used by any physician in
any healthcare environment for preventative medicine, with
high-quality standards verified by third-party experts and
regulatory agencies, tested extensively in the real-world and, of
course, covered by a diverse set of insurance payors.
As discussed earlier in this section, during
this calendar year to date, we have secured important new
commercial insurance coverage for KidneyIntelX, continued to work
collaboratively with the FDA in their evaluation of our De Novo
marketing application for KidneyIntelX, enhanced our balance sheet
with new funding, and executed an important transition at Mount
Sinai to third-party commercial billing.
FINANCIAL REVIEW
Financial review of the three-month
period ended March 31, 2023 and comparison to prior year
period
Our operating loss for the three months ended
March 31, 2023, was $10.9 million (March 31, 2022: $14.5
million).
Revenue
During the three months ended March 31, 2023, we
recognized $0.7 million of revenue related to KidneyIntelX testing.
There was $0.8 million of revenue related to KidneyIntelX testing
for the three months ended March 31, 2022. The transition to
commercial payment for testing at Mount Sinai had a short-term
adverse impact on testing volumes, predominantly while testing was
paused at the hospital system during the month of March.
Cost of Revenue
During the three months ended March 31, 2023,
cost of revenue consisted of $0.6 million primarily attributable to
KidneyIntelX testing, including labor and materials costs directly
related to revenue generating activities. There was $0.7 million of
cost of revenue for the three months ended March 31, 2022. The
slight decrease in cost of revenue was primarily due to slightly
lower test volumes in the 2023 quarter.
Research and Development
Costs
Research and development expenses were $3.9
million for the three months ended March 31, 2023, consistent with
$3.9 million in expense for the three months ended March 31,
2022.
General and Administrative
Costs
General and administrative expenses were $7.1
million for the three months ended March 31, 2023, decreasing by
$3.7 million from $10.8 million for the three months ended March
31, 2022. The decrease was due to the cost reduction measures taken
earlier this year resulting in a $1.9 million decrease in employee
related expenses, $1.2 million decrease in consulting and
professional fees, a $0.5 million decrease in insurance expense,
and a $0.1 million decrease in other operating expenses.
Foreign Currency Gain
(Loss)
During the three months ended March 31, 2023, we
recorded an unrealized foreign currency loss of $0.5 million
primarily attributable to cash balances denominated in currencies
other than the functional currency. We recorded an unrealized
foreign currency gain of $2.4 million during the three months ended
March 31, 2022.
Fair Value Adjustments to VericiDx
Investment
The Company accounts for the investment in
VericiDx equity securities at fair value, with changes in fair
value recognized in the income statement. During the three months
ended March 31, 2023, we recorded a gain of $0.1 million to adjust
the VericiDx investment to fair value. We recorded a loss of $2.6
million during the three months ended March 31, 2022.
Fair Value Adjustment on Convertible
Notes
In April 2022, the Company issued amortizing
senior convertible bonds with a principal amount of $21.2 million
due in April 2027 (the "Bonds"). We elected to account for the
bonds at fair value with qualifying changes in fair value
recognized through the statements of operations until the notes are
settled. This excludes fair value adjustments related to
instrument-specific credit risk, which are recognized in other
comprehensive income. For the three months ended March 31, 2023, we
recorded a loss of $1.2 million to adjust the bonds to fair value.
There was no fair value adjustment for the three months ended March
31, 2022 as we had not issued convertible debt at that time.
Other Income
During the three months ended March 31, 2023, we
realized $0.03 million of interest income and $0.3 million of other
income related expense reimbursement. There was less than $0.1
million of interest expense recorded during the three months ended
March 31, 2022.
Financial review of the nine months
ended March 31, 2023 and comparison to prior year
period
Our operating loss for the nine months ended
March 31, 2023, was $32.3 million (March 31, 2022: $40.1
million).
Revenue
During the nine months ended March 31, 2023, we
recognized $2.7 million of revenue related to KidneyIntelX and $0.2
million of revenue related to services performed for AstraZeneca.
There was $1.9 million of revenue related to KidneyIntelX and $0.2
million of revenue related to services performed for AstraZeneca
for the nine months ended March 31, 2022. Increased KidneyIntelX
revenue was driven by increased test volumes in the current
period.
Cost of Revenue
During the nine months ended March 31, 2023,
cost of revenue consisted of $2.0 million primarily attributable to
KidneyIntelX testing, including labor and materials costs directly
related to revenue generating activities. There was $1.4 million of
cost of revenue for the nine months ended March 31, 2022. The
increase in cost of revenue was primarily due to increased test
volumes in the current period.
Research and Development
Costs
Research and development expenses decreased by
$1.0 million, from $12.0 million for the nine months ended March
31, 2022 to $11.0 million for the nine months ended March 31, 2023.
The decrease was primarily due to a $0.7 million decrease in
external consulting and professional fees, a $0.2 million decrease
in employee related expenses and $0.1 million decrease in other
expenses.
General and Administrative
Costs
General and administrative expenses decreased by
$6.9 million, from $29.0 million for the nine months ended March
31, 2022 to $22.2 million for the nine months ended March 31, 2023.
The decrease was primarily due to a $2.8 million decrease in
consulting and professional fees, a $1.5 million decrease in
insurance expense, a $2.3 million decrease in employee related
expenses, and a $0.3 million decrease in software and IT costs.
Foreign Currency Gain
(Loss)
During the nine months ended March 31, 2023, we
recorded an unrealized foreign currency gain of $0.2 million
primarily attributable to cash balances denominated in currencies
other than the functional currency. We recorded a foreign currency
gain of $4.6 million during the nine months ended March 31,
2022.
Fair Value Adjustments to VericiDx
Investment
We account for our investment in VericiDx using
the equity method of accounting and have elected to use the fair
value option to value the investment. During the nine months ended
March 31, 2023, we recorded a loss of $1.1 million to adjust the
VericiDx investment to fair value. We recorded a loss of $4.6
million during the nine months ended March 31, 2022.
Fair Value Adjustment on Convertible
Notes
In April 2022, the Company issued amortizing
senior convertible bonds with a principal amount of $21.2 million
due in April 2027 (the "Bonds"). We elected to account for the
bonds at fair value with qualifying changes in fair value
recognized through the statements of operations until the notes are
settled. This excludes fair value adjustments related to
instrument-specific credit risk, which are recognized in other
comprehensive income. For the nine months ended March 31, 2023, we
recorded a loss of $1.9 million to adjust the bonds to fair value.
There was no fair value adjustment for the nine months ended March
31, 2022 as we had not issued convertible debt at that time.
Other Income
During the nine months ended March 31, 2023, we
realized $0.1 million of interest income and $0.4 million of other
income related to Kantaro and expense reimbursement. There was less
than $0.1 million of interest income recorded during the nine
months ended March 31, 2022.
Liquidity and Capital
Resources
Since our inception, we have incurred net
losses. As of March 31, 2023, we had an accumulated deficit of
$167.2 million.
We expect to incur additional losses in the near
future, and we expect our expenses to increase in connection with
our ongoing activities, particularly as we continue to
commercialize and scale KidneyIntelX, as we conduct our ongoing and
planned clinical utility and other studies for KidneyIntelX,
develop and refine our artificial intelligence technology platform,
seek regulatory clearances or approvals for KidneyIntelX or any
other product we develop, establish and maintain partnerships with
healthcare systems, pursue our coverage and reimbursement strategy,
continue to build our sales force and continue to invest in our
infrastructure to support our manufacturing and other activities.
In addition, we expect to continue to incur additional costs
associated with operating as a public company in the United States
and the United Kingdom. The timing and amount of our operating
expenditures will depend largely on:
- the cost, progress
and results of our ongoing and planned validation studies and
health economic studies;
- the cost, timing
and outcome of entering into and maintaining partnership agreements
with healthcare systems for the commercial sale of
KidneyIntelX;
- the cost of
manufacturing clinical and commercial supply of KidneyIntelX;
- the cost, timing
and outcome of regulatory review of KidneyIntelX, including any
post-marketing studies that could be required by regulatory
authorities;
- the cost, timing
and outcome of identified and potential future commercialization
activities, including manufacturing, marketing, sales and
distribution, for KidneyIntelX;
- the costs and
timing of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and
defending any intellectual property-related claims, including any
claims by third parties that we are infringing upon their
intellectual property rights;
- the timing and
amount of future revenue, received from commercial sales of
KidneyIntelX;
- the sales price and
availability of adequate third-party coverage and reimbursement for
KidneyIntelX;
- the effect of
competing technological and market developments; and
- the extent to which
we acquire or invest in businesses, products and technologies,
although we currently have no commitments or agreements to complete
any such transactions.
To date, we have primarily financed our
operations through equity and debt financings. As of March 31,
2023, we had cash and cash equivalents of $33.0 million. We believe
that our cash and cash equivalents of $33.0 million as of March 31,
2023, will enable us to fund our current operating plan for at
least the next 12 months. Such expectation is based, in part, on
the achievement of certain assumed revenue; however, there is no
guarantee we will achieve this amount of revenue during the time
period we assume. Management assesses that various operating cost
mitigation options are available to the Company if needed. We have
based this estimate on assumptions that may prove to be wrong, and
we could use our available capital resources sooner than we
currently expect.
Cash Flows
Net cash used in operating activities
During the nine months ended March 31, 2023, net
cash used in operating activities was $25.5 million and was
primarily attributable to our $34.5 million net loss including a
$3.0 million net change in our operating assets and liabilities and
$6.1 million in noncash charges. The change in our operating assets
and liabilities was primarily attributable to a $2.9 million
increase in accounts payable and accrued expenses and other current
liabilities and a $0.1 million increase in accounts receivable,
prepaid expenses and other current assets. Noncash charges were
primarily related to $2.4 million in share-based compensation, $1.1
million fair value adjustment of our VericiDx securities, $1.9
million fair value adjustment of our convertible debt, a $0.3
million unrealized foreign exchange loss, $0.3 million of
depreciation and amortization and $0.1 million of non-cash lease
expense.
During the nine months ended March 31, 2022, net
cash used in operating activities was $31.8 million and was
primarily attributable to our $40.1 million net loss including a
$4.7 million net change in our operating assets and liabilities and
$3.7 million in noncash charges. The change in our operating assets
and liabilities was primarily attributable to a $7.0 million
increase in accrued expenses and other current liabilities, driven
by a $4.0 million current liability related to funds received from
the Icahn School of Medicine at Mount Sinai ahead of the April
equity investment, offset by a $2.9 million decrease in prepaid
expenses and other current assets. Noncash charges were primarily
related to $2.9 million in share-based compensation and the $4.6
million fair value adjustment of our Verici securities, offset by a
$4.2 million unrealized foreign exchange gain.
Net cash used in investing activities
During the nine months ended March 31, 2023, net
cash used in investing activities was $0.1 million, attributable to
the payment of long term deferred expenses.
During the nine months ended March 31, 2022, net
cash used in investing activities was $0.7 million, primarily
attributable to $0.6 million for purchases of lab and office
equipment and $0.1 million in software development costs.
Net cash from financing activities
During the nine months ended March 31, 2023, net
cash from financing activities was $16.5 million and was primarily
attributable to $20.3 million in gross proceeds from the issuance
of ordinary shares and $0.1 million in proceeds from the issuance
of ordinary shares under our employee stock purchase program offset
by $3.2 million in cash used to pay down the principal and interest
of the convertible debt and $0.7 million in cash paid for offering
costs related to the issuance of ordinary shares.
During the nine months ended March 31, 2022, net
cash provided by financing activities was $0.3 million and was
primarily attributable to $0.1 million in proceeds from the
issuance of ordinary shares under our employee stock purchase
program as well as $0.2 million in proceeds from the exercise of
stock options.
Cash and Cash Equivalents
We had cash and cash equivalents of $33.0
million as of March 31, 2023, which decreased from $41.3 million as
of June 30, 2022 due to normal operations as we continue to
commercialize KidneyIntelX and grow our business.
Critical accounting policies and
significant judgments and estimates
Our management's discussion and analysis of our
financial condition and results of operations is based on our
unaudited condensed consolidated financial statements, which we
have prepared in accordance with generally accepted accounting
principles in the United States, "U.S. GAAP". The preparation of
our unaudited condensed consolidated financial statements and
related disclosures requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, costs and
expenses, and the disclosure of contingent assets and liabilities
in our unaudited condensed consolidated financial statements. We
base our estimates on historical experience, known trends and
events and various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. We
evaluate our estimates and assumptions on an ongoing basis. Our
actual results may differ from these estimates under different
assumptions or conditions.
There have been no material changes to our
critical accounting policies from those described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report.
Recent accounting
pronouncements
See Note 3 to our financial statements found
elsewhere in this report for a description of recent accounting
pronouncements applicable to our financial statements.
JOBS Act transition period
In April 2012, the JOBS Act was enacted. Section
107 of the JOBS Act provides that an “emerging growth company” can
take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for
complying with new or revised accounting standards. An emerging
growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private
companies. We have elected to take advantage of the extended
transition period for complying with new or revised accounting
standards and, as a result, our financial statements may not be
comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates. We are in the
process of evaluating the benefits of relying on other exemptions
and reduced reporting requirements under the JOBS Act. Subject to
certain conditions, as an emerging growth company, we may rely on
certain of these exemptions, including without limitation
exemptions to the requirements for (1) providing an auditor’s
attestation report on our system of internal controls over
financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act and (2) complying with any requirement that may
be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the
auditor’s report providing additional information about the audit
and the financial statements, known as the auditor discussion and
analysis. We will remain an emerging growth company until the
earlier to occur of (a) the last day of the fiscal year (1)
following the fifth anniversary of the completion of our U.S. IPO,
(2) in which we have total annual gross revenues of at least $1.235
billion or (3) in which we are deemed to be a “large accelerated
filer” under the rules of the SEC, which means the market value of
our ordinary shares and ADSs that are held by non-affiliates
exceeds $700.0 million as of the prior December 31, or (b) the date
on which we have issued more than $1.0 billion in non-convertible
debt during the prior three-year period.
| |
|
RENALYTIX PLCCONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED) |
| |
| (in
thousands, except share and per share data) |
|
|
|
March 31, 2023 |
|
|
June 30, 2022 |
|
|
Assets |
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
$ |
33,027 |
|
|
$ |
41,333 |
|
|
Accounts receivable |
|
|
|
|
747 |
|
|
|
901 |
|
|
Prepaid expenses and other current assets |
|
|
|
|
1,879 |
|
|
|
2,445 |
|
|
Note receivable from Kantaro |
|
|
|
|
75 |
|
|
|
75 |
|
|
Receivable from affiliates |
|
|
|
|
— |
|
|
|
— |
|
|
Total current assets |
|
|
|
|
35,728 |
|
|
|
44,754 |
|
| Property and equipment,
net |
|
|
|
|
2,186 |
|
|
|
2,558 |
|
| Right of use asset |
|
|
|
|
187 |
|
|
|
— |
|
| Investment in VericiDx |
|
|
|
|
1,642 |
|
|
|
2,744 |
|
| Investment in Kantaro |
|
|
|
|
— |
|
|
|
9 |
|
| Other assets |
|
|
|
|
59 |
|
|
|
— |
|
|
Total assets |
|
|
|
$ |
39,802 |
|
|
$ |
50,065 |
|
| |
|
|
|
|
|
|
|
|
| Liabilities and Shareholders’
Equity |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
1,746 |
|
|
$ |
1,376 |
|
|
Accounts payable – related party |
|
|
|
|
1,453 |
|
|
|
1,083 |
|
|
Accrued expenses and other current liabilities |
|
|
|
|
5,872 |
|
|
|
3,060 |
|
|
Accrued expenses – related party |
|
|
|
|
1,011 |
|
|
|
1,496 |
|
|
Deferred revenue |
|
|
|
|
— |
|
|
|
46 |
|
|
Current lease liability |
|
|
|
|
129 |
|
|
|
— |
|
|
Convertible notes – current |
|
|
|
|
4,473 |
|
|
|
4,660 |
|
|
Payable to affiliate – current |
|
|
|
|
— |
|
|
|
55 |
|
|
Total current liabilities |
|
|
|
|
14,684 |
|
|
|
11,776 |
|
| Convertible notes –
noncurrent |
|
|
|
|
6,950 |
|
|
|
7,682 |
|
| Noncurrent lease
liability |
|
|
|
|
71 |
|
|
|
— |
|
|
Total liabilities |
|
|
|
|
21,705 |
|
|
|
19,458 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and contingencies
(Note 10) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
Ordinary shares, £0.0025 par value per share: 98,998,131 shares
authorized; 93,781,478 and 74,760,432 shares issued and outstanding
at March 31, 2023 and June 30, 2022, respectively |
|
|
|
|
286 |
|
|
|
228 |
|
|
Additional paid-in capital |
|
|
|
|
185,871 |
|
|
|
164,012 |
|
|
Accumulated other comprehensive loss |
|
|
|
|
(839 |
) |
|
|
(915 |
) |
|
Accumulated deficit |
|
|
|
|
(167,221 |
) |
|
|
(132,718 |
) |
|
Total shareholders’ equity |
|
|
|
|
18,097 |
|
|
|
30,607 |
|
|
Total liabilities and shareholders’ equity |
|
|
|
$ |
39,802 |
|
|
$ |
50,065 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
| |
|
RENALYTIX PLCCONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED) |
| |
| |
|
Three MonthsEnded |
|
|
Three MonthsEnded |
|
|
Nine MonthsEnded |
|
|
Nine MonthsEnded |
|
| (in
thousands, except share data) |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
Revenue |
|
$ |
724 |
|
|
$ |
812 |
|
|
$ |
2,885 |
|
|
$ |
2,139 |
|
| Cost of revenue |
|
|
603 |
|
|
|
685 |
|
|
|
2,010 |
|
|
|
1,404 |
|
| Gross profit |
|
|
121 |
|
|
|
127 |
|
|
|
875 |
|
|
|
735 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
3,943 |
|
|
|
3,887 |
|
|
|
11,026 |
|
|
|
12,019 |
|
|
General and administrative |
|
|
7,095 |
|
|
|
10,809 |
|
|
|
22,155 |
|
|
|
29,012 |
|
|
Performance of contract liability to affiliate |
|
|
— |
|
|
|
(32 |
) |
|
|
(19 |
) |
|
|
(163 |
) |
|
Total operating expenses |
|
|
11,038 |
|
|
|
14,664 |
|
|
|
33,162 |
|
|
|
40,868 |
|
| Loss from operations |
|
|
(10,917 |
) |
|
|
(14,537 |
) |
|
|
(32,287 |
) |
|
|
(40,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity in net (losses)
earnings of affiliate |
|
|
— |
|
|
|
(26 |
) |
|
|
(9 |
) |
|
|
11 |
|
| Foreign currency (loss)/gain,
net |
|
|
(461 |
) |
|
|
2,447 |
|
|
|
238 |
|
|
|
4,587 |
|
| Fair value adjustment to
VericiDx investment |
|
|
129 |
|
|
|
(2,575 |
) |
|
|
(1,070 |
) |
|
|
(4,596 |
) |
| Fair value adjustment to
convertible notes |
|
|
(1,168 |
) |
|
|
— |
|
|
|
(1,898 |
) |
|
|
— |
|
| Other (expense) income,
net |
|
|
310 |
|
|
|
(4 |
) |
|
|
521 |
|
|
|
8 |
|
| Net loss before income
taxes |
|
|
(12,107 |
) |
|
|
(14,695 |
) |
|
|
(34,505 |
) |
|
|
(40,123 |
) |
| Income tax expense |
|
|
1 |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
| Net loss |
|
|
(12,106 |
) |
|
|
(14,695 |
) |
|
|
(34,503 |
) |
|
|
(40,123 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per ordinary
share—basic and diluted |
|
$ |
(0.14 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.44 |
) |
|
$ |
(0.56 |
) |
| Weighted average ordinary
shares—basic and diluted |
|
|
85,560,783 |
|
|
|
72,297,309 |
|
|
|
78,366,984 |
|
|
|
72,274,979 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive income
(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of the convertible notes through other
comprehensive income |
|
|
593 |
|
|
|
— |
|
|
|
70 |
|
|
|
— |
|
|
Foreign exchange translation adjustment |
|
|
505 |
|
|
|
(2,632 |
) |
|
|
6 |
|
|
|
(5,120 |
) |
| Comprehensive loss |
|
|
(11,008 |
) |
|
|
(17,327 |
) |
|
|
(34,427 |
) |
|
|
(45,243 |
) |
The accompanying notes are an integral part of these condensed
consolidated financial statements.
|
|
|
RENALYTIX PLCCONDENSED 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 |
|
|
|
— |
|
0 |
|
— |
|
|
|
116 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
763 |
|
|
|
— |
|
|
|
— |
|
|
|
763 |
|
|
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,087 |
) |
|
|
— |
|
|
|
(1,087 |
) |
|
Changes in the fair value of the convertible notes through other
comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
397 |
|
|
|
— |
|
|
|
397 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,953 |
) |
|
|
(11,953 |
) |
| Balance at September 30,
2022 |
|
|
74,891,844 |
|
|
$ |
229 |
|
|
$ |
164,890 |
|
|
$ |
(1,605 |
) |
|
$ |
(144,671 |
) |
|
$ |
18,843 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
818 |
|
|
|
— |
|
|
|
— |
|
|
|
818 |
|
|
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
588 |
|
|
|
— |
|
|
|
588 |
|
|
Changes in the fair value of the convertible notes through other
comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(920 |
) |
|
|
— |
|
|
|
(920 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,444 |
) |
|
|
(10,444 |
) |
| Balance at December 31,
2022 |
|
|
74,891,844 |
|
|
$ |
229 |
|
|
$ |
165,708 |
|
|
$ |
(1,937 |
) |
|
$ |
(155,115 |
) |
|
$ |
8,885 |
|
|
Shares issued under the February 2023 private placement |
|
|
18,722,960 |
|
|
|
57 |
|
|
|
19,248 |
|
|
|
— |
|
|
|
— |
|
|
|
19,305 |
|
|
Shares issued under the employee share purchase program |
|
|
166,674 |
|
|
|
— |
|
|
|
145 |
|
|
|
— |
|
|
|
— |
|
|
|
145 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
770 |
|
|
|
— |
|
|
|
— |
|
|
|
770 |
|
|
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
593 |
|
|
|
— |
|
|
|
593 |
|
|
Changes in the fair value of the convertible notes through other
comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
505 |
|
|
|
— |
|
|
|
505 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,106 |
) |
|
|
(12,106 |
) |
| Balance at March 31, 2023 |
|
|
93,781,478 |
|
|
$ |
286 |
|
|
$ |
185,871 |
|
|
$ |
(839 |
) |
|
$ |
(167,221 |
) |
|
$ |
18,097 |
|
|
|
|
RENALYTIX PLCCONDENSED 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 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
942 |
|
|
|
— |
|
|
|
— |
|
|
|
942 |
|
|
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,632 |
) |
|
|
— |
|
|
|
(2,632 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,695 |
) |
|
|
(14,695 |
) |
| Balance at March 31, 2022 |
|
|
72,308,930 |
|
|
$ |
220 |
|
|
$ |
153,604 |
|
|
$ |
3,156 |
|
|
$ |
(127,565 |
) |
|
$ |
29,415 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
| |
|
RENALYTIX PLCCONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED) |
| |
|
(in thousands) |
|
Nine Months EndedMarch 31,
2023 |
|
|
Nine Months EndedMarch 31,
2022 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net loss |
|
$ |
(34,503 |
) |
|
$ |
(40,123 |
) |
| Adjustments to reconcile net
loss to net cash used in operating activities |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
388 |
|
|
|
354 |
|
|
Stock-based compensation |
|
|
2,358 |
|
|
|
2,880 |
|
|
Equity in losses (net earnings) of affiliate |
|
|
9 |
|
|
|
(11 |
) |
|
Reduction of Kantaro liability |
|
|
(55 |
) |
|
|
— |
|
|
Fair value adjustment to VericiDx investment |
|
|
1,070 |
|
|
|
4,596 |
|
|
Unrealized foreign exchange loss (gain) |
|
|
327 |
|
|
|
(4,169 |
) |
|
Fair value adjustment to convertible debt |
|
|
1,898 |
|
|
|
— |
|
|
Non-cash lease expense |
|
|
78 |
|
|
|
— |
|
| Changes in operating assets
and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
154 |
|
|
|
(415 |
) |
|
Prepaid expenses and other current assets |
|
|
(77 |
) |
|
|
(2,915 |
) |
|
Accounts payable |
|
|
358 |
|
|
|
673 |
|
|
Accounts payable – related party |
|
|
370 |
|
|
|
646 |
|
|
Accrued expenses and other current liabilities |
|
|
2,704 |
|
|
|
2,091 |
|
|
Accrued expenses – related party |
|
|
(485 |
) |
|
|
4,893 |
|
|
Deferred revenue |
|
|
(46 |
) |
|
|
(55 |
) |
|
Payable to affiliate – current |
|
|
— |
|
|
|
(163 |
) |
|
Other liabilities |
|
|
— |
|
|
|
(39 |
) |
| Net cash used in operating
activities |
|
|
(25,452 |
) |
|
|
(31,757 |
) |
| |
|
|
|
|
|
|
| Cash flows from investing
activities: |
|
|
|
|
|
|
| Purchases of property and
equipment |
|
|
— |
|
|
|
(619 |
) |
| Software development
costs |
|
|
— |
|
|
|
(103 |
) |
| Payment for long term deferred
expense |
|
|
(59 |
) |
|
|
— |
|
| Net cash used in investing
activities |
|
|
(59 |
) |
|
|
(722 |
) |
| |
|
|
|
|
|
|
| Cash flows from financing
activities: |
|
|
|
|
|
|
| Payment of convertible notes
principal and interest |
|
|
(3,262 |
) |
|
|
— |
|
| Proceeds from issuance of
ordinary shares |
|
|
20,296 |
|
|
|
— |
|
| Payment of offering costs |
|
|
(666 |
) |
|
|
— |
|
| Proceeds from the issuance of
ordinary shares under employee share purchase plan |
|
|
116 |
|
|
|
120 |
|
| Proceeds from exercise of
stock options |
|
|
— |
|
|
|
197 |
|
| Net cash (used in) provided by
financing activities |
|
|
16,484 |
|
|
|
317 |
|
| Effect of exchange rate
changes on cash |
|
|
721 |
|
|
|
(605 |
) |
| Net decrease in cash and cash
equivalents |
|
|
(8,306 |
) |
|
|
(32,767 |
) |
| Cash and cash equivalents,
beginning of period |
|
|
41,333 |
|
|
|
65,128 |
|
| Cash and cash equivalents, end
of period |
|
$ |
33,027 |
|
|
$ |
32,361 |
|
| Supplemental noncash investing
and financing activities: |
|
|
|
|
|
|
| Purchase of property and
equipment in accounts payable and accrued expenses |
|
$ |
— |
|
|
$ |
— |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
RENALYTIX PLC
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Business and risks
Renalytix and its wholly-owned subsidiaries,
Renalytix AI, Inc. and Renalytix AI Limited, (collectively,
“Renalytix”, or the “Company”) is an artificial
intelligence-enabled in vitro diagnostics company, focused on
optimizing clinical management of kidney disease to drive improved
patient outcomes and significantly lower healthcare costs.
KidneyIntelX, the Company’s first-in-class diagnostic platform,
employs a proprietary artificial intelligence-enabled algorithm
that combines diverse data inputs, including validated blood-based
biomarkers, inherited genetics and personalized patient data from
EHR systems, to generate a unique patient risk score. Additionally,
the Company has successfully completed a statement of work with
AstraZeneca Pharmaceuticals LP (“AstraZeneca”) to conduct a
feasibility study to determine the impact of the use of the
Company’s KidneyIntelX platform to optimize utilization of various
CKD agents. As a result of the initial success with AstraZeneca the
Company plans to pursue further collaborations with pharmaceutical
companies and make ‘Pharmaceutical Services Revenue’ a core part of
the business going forward with the goal of improving
guideline-based standard-of-care for optimal utilization of
existing and novel therapeutics using the KidneyIntelX testing
platform and proprietary care management software.
In August 2020, the Company created a
wholly-owned subsidiary of Renalytix AI plc, Renalytix AI Limited
(“Limited”) to facilitate operations in Ireland.
Since inception in March 2018, the Company has
focused primarily on organizing and staffing the Company, raising
capital, developing the KidneyIntelX platform, conducting clinical
validation studies for KidneyIntelX, establishing and protecting
its intellectual property portfolio and commercial laboratory
operations, pursuing regulatory clearance and developing a
reimbursement strategy. The Company has funded its operations
primarily through equity and debt financings.
The Company is subject to risks and
uncertainties common to early-stage companies in the diagnostics
industry, including, but not limited to, ability to secure
additional capital to fund operations, compliance with governmental
regulations, development by competitors of new technological
innovations, dependence on key personnel and protection of
proprietary technology. To achieve widespread usage, KidneyIntelX
and additional diagnostic products currently under development will
require extensive clinical testing and validation prior to
regulatory approval and commercialization. These efforts require
significant amounts of additional capital, adequate personnel, and
infrastructure and extensive compliance-reporting capabilities.
2. Liquidity and Going
Concern
The Company has incurred recurring losses and
negative cash flows from operations since inception and had an
accumulated deficit of $167.2 million as of March 31, 2023. The
Company anticipates incurring additional losses until such time, if
ever, that it can generate significant sales of KidneyIntelX or any
future products currently in development. Management believes its
cash and cash equivalents of $33.0 million as of March 31, 2023,
are sufficient to fund the projected operations for at least the
next twelve months from the issuance date of these financial
statements. Such expectation is based, in part, on the achievement
of a certain volume of assumed revenue; however, there is no
guarantee we will achieve this amount of revenue during the time
period we assume. Management assessed various additional operating
cost reduction options that are available to the Company and would
be implemented, if assumed levels of revenue are not achieved and
additional funding is not obtained.
Substantial additional capital will be necessary
to fund the Company's operations, expand its commercial activities
and develop other potential diagnostic related products. The
Company plans to seek additional funding through public or private
equity offerings, debt financings, other collaborations, strategic
alliances and licensing arrangements. The Company may not be able
to obtain financing on acceptable terms, or at all, and the Company
may not be able to enter into strategic alliances or other
arrangements on favorable terms, or at all. The terms of any
financing may adversely affect the holdings or the rights of the
Company’s shareholders. If the Company is unable to obtain funding,
the Company could be required to delay, curtail or discontinue
research and development programs, product portfolio expansion or
future commercialization efforts, which could adversely affect its
business prospect.
3. Basis of presentation and summary of
significant accounting policies
The accompanying unaudited interim condensed
consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States
(“U.S. GAAP”). Any reference in these notes to applicable guidance
is meant to refer to U.S. GAAP as found in the Accounting Standards
Codification (“ASC”) and Accounting Standards Updates (“ASU”) of
the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying
unaudited interim condensed consolidated financial statements
include all normal and recurring adjustments (which consist
primarily of accruals and estimates that impact the financial
statements) considered necessary to present fairly the Company’s
financial position as of March 31, 2023 and its results of
operations for the three and nine months ended March 31, 2023 and
2022 and cash flows for the nine months ended March 31, 2023 and
2022. Operating results for the three and nine months ended March
31, 2023, 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 nine
months ended March 31, 2023, approximately 73% of all receivables
related to Mount Sinai, approximately 15% of all receivables
related to Medicare claims and the remaining 12% of receivables
were due from other party payors. For the nine months ended March
31, 2022, 99% 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 March 31, 2023 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 March 31, 2023, the Company had a
cash balance of $33.0 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 March 31, 2023 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 elect 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. 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. During the three months ended March 31, 2023 the Company
did not recognize contra expense related to performance of the
contract liability due to the impending dissolution of Kantaro in
the second calendar quarter of 2023. During the nine months ended
March 31, 2023, the Company recognized $0.02 million, related to
the performance of the contract liability with Kantaro. During the
three and nine months ended March 31, 2022, the Company recognized
$0.03 million and $0.16 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.
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 March 31, 2023 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. As
of March 31, 2023, the Kantaro wind up was still in progress.
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 Depositary 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 March 31, 2023, the
diluted and basic net loss per share calculation excluded 4,958,513
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 nine
months ended March 31, 2023, the Company recognized $0.7 million
and $2.7 million, respectively, of testing services revenue. Sales
tax and other similar taxes are excluded from revenues. During the
three and nine months ended March 31, 2022, the Company recognized
$0.8 million and $1.9 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 nine months ended March 31,
2023, the Company recognized $0.0 million and $0.2 million,
respectively, of pharmaceutical services revenue where performance
obligations are satisfied over time. During the three and nine
months ended March 31, 2022 Company recognized $0.0 million and
$0.2 million, respectively, of pharmaceutical services revenue
where performance obligations are satisfied over time.
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) |
|
March 31, 2023 |
|
|
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) |
|
|
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
1,642 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Convertible notes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,423 |
|
|
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) |
|
March 31, 2023 |
|
|
Balance at July 1, 2022 |
|
$ |
12,342 |
|
|
Change due to payment of principal and interest |
|
$ |
(2,965 |
) |
|
Change in credit risk |
|
$ |
(70 |
) |
|
Change in time to maturity, stock price and Risk-Free Rates |
|
$ |
1,898 |
|
|
FX Impact |
|
$ |
218 |
|
|
Balance at March 31, 2023 |
|
$ |
11,423 |
|
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) |
|
|
|
March 31, 2023 |
|
|
June 30, 2022 |
|
|
Lab equipment |
|
|
|
$ |
1,142 |
|
|
$ |
1,143 |
|
|
Software |
|
|
|
|
1,499 |
|
|
|
1,476 |
|
|
Office equipment |
|
|
|
|
124 |
|
|
|
124 |
|
|
Office furniture |
|
|
|
|
35 |
|
|
|
35 |
|
|
Leasehold improvements |
|
|
|
|
576 |
|
|
|
576 |
|
|
Total |
|
|
|
|
3,376 |
|
|
|
3,354 |
|
|
Less accumulated depreciation and amortization |
|
|
|
|
(1,190 |
) |
|
|
(796 |
) |
|
|
|
|
|
$ |
2,186 |
|
|
$ |
2,558 |
|
Depreciation expense was $0.1 million and $0.3
million for the three and nine months ended March 31, 2023,
respectively. Depreciation expense was $0.1 million and $0.2
million for the three and nine months ended March 31, 2022,
respectively.
As of March 31, 2023 there was $1.1 million of
unamortized capitalized software development costs. Amortization
expense related to capitalized software development costs was $0.04
million and $0.1 million, respectively, for the three and nine
months ended March 31, 2023 and $0.03 million and $0.1 million,
respectively, for the three and nine months ended March 31,
2022.
As of March 31, 2023, the expected amortization
expense for software for the next five years and thereafter is as
follows:
|
(in thousands) |
|
|
|
|
2023 |
|
$ |
59 |
|
|
2024 |
|
|
180 |
|
|
2025 |
|
|
180 |
|
|
2026 |
|
|
135 |
|
|
2027 |
|
|
123 |
|
|
Thereafter |
|
|
411 |
|
|
|
|
$ |
1,088 |
|
7. Accrued expenses and other current
liabilities
Accrued expenses and other current liabilities
consisted of (in thousands):
| |
|
|
|
March 31, 2023 |
|
|
June 30, 2022 |
|
|
Consulting and professional fees |
|
|
|
$ |
248 |
|
|
$ |
551 |
|
| Research and development |
|
|
|
|
1,197 |
|
|
|
1,060 |
|
| Payroll and related
benefits |
|
|
|
|
3,771 |
|
|
|
1,437 |
|
| License Expense |
|
|
|
|
647 |
|
|
|
— |
|
| Other |
|
|
|
|
9 |
|
|
|
12 |
|
| |
|
|
|
$ |
5,872 |
|
|
$ |
3,060 |
|
8. Convertible Notes
In April 2022, the Company issued amortizing
senior convertible bonds with a principal amount of $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. As a result of the February 2023 private
placement and pursuant to conditions of the bond agreement, the
conversion price was adjusted to $8.2508 (previously $8.70) and the
floor price was adjusted to $6.8757 (previously $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. In January 2023, 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. As of March
31, 2023, $19.0 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 March 31, 2023, the fair value of the
Bonds was determined to be $11.4 million. During the three and nine
months ended March 31, 2023, the Company recognized a change in
fair value of the Notes related to the instrument-specific credit
risk of $0.6 million and $0.1 million, respectively, in the
statement of comprehensive loss. The Company recognized an increase
in fair value related to non-instrument specific credit risk of
$1.2 million during the three months ended March 31, 2023 and an
increase in fair value related to non-instrument specific credit
risk of $1.9 million in the consolidated statement of operations
during the nine months ended March 31, 2023.
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 March 31, 2023
(in thousands):
|
(in thousands) |
|
March 31, 2023 |
|
|
Assets |
|
|
|
|
Operating lease right-of-use assets, net of accumulated
amortization |
|
$ |
187 |
|
|
Liabilities |
|
|
|
|
Current |
|
$ |
129 |
|
|
Operating lease liabilities, current |
|
|
|
|
Non-current |
|
|
|
|
Operating lease liabilities, non-current |
|
$ |
71 |
|
|
Total lease liabilities |
|
$ |
200 |
|
The following table shows the lease costs for
the nine months ended March 31, 2023 (in thousands):
|
Lease costs (in thousands) |
Statement of operations classification |
March 31, 2023 |
|
|
Operating lease costs |
Operating expenses: research and development |
$ |
97 |
|
|
Short term lease costs |
Operating expenses: research and development |
$ |
32 |
|
|
Short term lease costs |
Operating expenses: general and administrative |
$ |
106 |
|
|
Short term lease costs |
Cost of goods sold |
$ |
284 |
|
|
Total lease costs |
|
$ |
519 |
|
|
Other information |
March 31, 2023 |
|
|
Cash paid for amounts included in the measurement of lease
liabilities (in thousands) |
$ |
97 |
|
|
Remaining lease term - operating leases (in years) |
|
1.6 |
|
|
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 |
|
$ |
42 |
|
|
2024 |
|
$ |
157 |
|
|
2025 |
|
$ |
46 |
|
|
Total |
|
$ |
245 |
|
The Company recognized rent expense of $0.2 million and $0.2
million during the three months ended March 31, 2023 and 2022,
respectively, and $0.5 million and $0.5 million during the nine
months ended March 31, 2023 and 2022, respectively.
10. Commitments and
contingencies
Leases
Lease payments under operating leases as of
March 31, 2023 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 $0.3 million for the three
and nine months ended March 31, 2023, respectively, and $0.1
million and $0.3 million for the three and nine months ended March
31, 2022, 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 $0.8 million and $1.6 million
under the ISMMS SRA for the three and nine months ended March 31,
2023, respectively, the Company incurred no expenses under the
ISMMS SRA for the three months ended March 31, 2022 and $0.4
million in research and development expenses under the ISMMS SRA
for the nine months ended March 31, 2022.
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 in 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 March 31, 2023, amounts due to ISMMS under
the CTA totaled $0.3 million and $0.2 million and $0.3 million was
expensed during the three and nine months ended March 31, 2023,
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 as of March 31, 2023.
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 March 31, 2023, the Company had 98,998,131
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 March 31, 2023, no cash dividends have been
declared or paid.
Private placement
On February 9, 2023, the Company entered into
security purchase agreements to sell an aggregate of 3,699,910
Ordinary Shares at a price of £0.90 per Ordinary Share and
7,511,525 American Depositary Shares ("ADSs"), at a price of $2.17
per ADS. The private placement generated gross cash proceeds of
$20.3 million, the net proceeds of which will be used for sales and
marketing, clinical product development, and corporate support and
financing costs.
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 March
31, 2023, there were 14,249,487 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 March 31, 2023 consist
of 2,984,799 options which vest equally over twelve quarters
following the grant date, 959,914 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, 473,800 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 nine months
ended March 31, 2023 and 2022 (in thousands):
|
|
|
Three months ended March 31, |
|
|
Nine Months Ended March 31, |
|
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
Research and development |
|
$ |
56 |
|
|
$ |
78 |
|
|
$ |
236 |
|
|
$ |
378 |
|
|
General and administrative |
|
|
709 |
|
|
|
845 |
|
|
$ |
2,108 |
|
|
|
2,432 |
|
|
Cost of revenue |
|
|
5 |
|
|
|
— |
|
|
$ |
7 |
|
|
|
— |
|
|
|
|
$ |
770 |
|
|
$ |
923 |
|
|
$ |
2,351 |
|
|
$ |
2,810 |
|
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 March 31, 2023 and
2022 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 March 31, 2023 and
2022, 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:
|
|
|
Nine Months Ended March 31, |
|
| |
|
2023 |
|
|
2022 |
|
|
Expected term (in years) |
|
|
6.1 |
|
|
6.0 |
|
|
Expected volatility |
|
|
66.9 |
% |
|
|
65.8 |
% |
|
Risk-free rate |
|
|
3.2 |
% |
|
|
1.43 |
% |
|
Dividend yield |
|
|
— |
% |
|
|
— |
% |
The weighted average fair value of the options
granted during the nine months ended March 31, 2023 was $1.16. The
weighted average fair value of the options granted during the nine
months ended March 31, 2022 was $6.02 per share.
The following table summarizes the stock option
granted to employees and non-employees for the nine months ended
March 31, 2023:
| |
|
Number ofshares underoption plan |
|
|
Weighted-averageexercise priceper option |
|
|
Weighted-averageremainingcontractuallife (in years) |
|
|
Outstanding at June 30, 2022 |
|
|
4,599,899 |
|
|
$ |
4.93 |
|
|
|
8.1 |
|
|
Granted |
|
|
555,300 |
|
|
$ |
1.85 |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(196,686 |
) |
|
$ |
9.77 |
|
|
|
|
|
Outstanding at March 31, 2023 |
|
|
4,958,513 |
|
|
$ |
4.39 |
|
|
|
7.0 |
|
|
Exercisable at March 31, 2023 |
|
|
3,870,316 |
|
|
$ |
4.13 |
|
|
|
6.4 |
|
|
Vested and expected to vest at March 31, 2023 |
|
|
4,958,513 |
|
|
$ |
4.39 |
|
|
|
7.0 |
|
As of March 31, 2023, there was $3.1 million in
unrecognized compensation cost related to unvested options that
will be recognized as expense over a weighted average period of
2.09 years. The aggregate intrinsic value of options outstanding
and options exercisable at March 31, 2023 and 2022 was $0.0 million
and $4.4 million, respectively.
Employee Share Purchase
Plan
The Company’s 2020 Employee Share Purchase Plan
(the “ESPP”) became effective on August 17, 2020. The ESPP
initially authorized the issuance of up to 850,000 of the Company’s
ordinary shares. The number of the Company’s ordinary shares 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 the Company’s
ordinary shares 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.
As of March 31, 2023, a total of 2,692,832 ordinary shares were
authorized for issuance under the ESPP.
Under the ESPP, eligible employees can purchase
the Company’s ordinary shares 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 ordinary shares at 85% of the lower of the
fair market value of the Company’s ordinary shares 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 ordinary shares for each calendar year in which such
rights are outstanding. During the nine months ended March 31,
2023, 298,086 shares were purchased under the ESPP.
In accordance with the guidance in ASC 718-50 –
Compensation – Stock Compensation, the ability to purchase the
Company’s ordinary shares 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 $0.03 million and $0.08 million three and nine months
ended March 31, 2023, respectively, and $0.02 million and $0.07
million during the three and nine months ended March 31, 2022,
respectively, related to the ESPP.
Restricted Stock Units
Activity for restricted stock units for the nine
months ended March 31, 2023 is as follows:
| |
|
Number ofRestricted
StockUnits |
|
|
Weighted-averageGrant
DateFair Value |
|
|
Non-vested balance at June 30, 2022 |
|
|
— |
|
|
$ |
- |
|
|
Granted |
|
|
131,380 |
|
|
$ |
1.53 |
|
|
Vested |
|
|
(62,100 |
) |
|
$ |
1.44 |
|
|
Forfeited |
|
|
(4,620 |
) |
|
$ |
1.69 |
|
|
Non-vested balance at December 31, 2022 |
|
|
64,660 |
|
|
$ |
1.61 |
|
The total fair value of restricted stock units
and performance stock units vested during the nine months ended
March 31, 2023 was $0.1 million. There were no vested restricted
stock units at March 31, 2022. Restricted stock units vest upon the
achievement of time-based service requirements.
At March 31, 2023, 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 1.1 years.
14. Related-party
transactions
EKF Diagnostic Holdings
During the three and nine months ended March 31,
2023, the Company incurred expenses of $0.03 million and $0.08
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 nine months ended March 31, 2022,
the Company incurred expenses of $0.1 million and $0.2 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, the Company’s IPO on Nasdaq in July 2020 and the
Company's private placements in March 2022 and February 2023. As of
March 31, 2023, amounts due to ISMMS totaled $2.5 million and are
included within accrued expenses and other current liabilities and
accounts payable on the balance sheet. During the three and nine
months ended March 31, 2023, the Company incurred expenses of $1.0
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 nine months ended
March 31, 2022, the Company incurred expenses of $0.2 million and
$2.9 million, 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 March 31, 2023, the Kantaro wind up was still in
progress, however, 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 nine months ended March 31,
2023, the Company recognized $0.0 and $0.02 million, respectively,
in the statement of operations related to services performed under
the Advisory Agreement. For the three and nine months ended March
31, 2023, $0.0 and $0.01 million of costs incurred related to the
performance of the Advisory Agreement services were included within
research and development and $0.0 and $0.01 million were included
in general and administrative expense, respectively. For the three
and nine months ended March 31, 2022, the Company recognized $0.1
million and $0.1 million in the condensed consolidated statements
of operations related to services performed under the Advisory
Agreement. For the three and nine months ended March 31, 2022,
$0.01 million and $0.1 million of costs incurred related to the
performance of the Advisory Agreement services were included within
research and development and $0.02 million and $0.06 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 March 31, 2023 and June 30, 2022.
Private placement
On February 9, 2023, the Company entered into
security purchase agreements to sell an aggregate of 3,699,910
Ordinary Shares, and 7,511,525 ADS, at a price of $2.17 per ADS and
£0.90 per Ordinary Share. The private placement generated gross
cash proceeds of $20.3 million, the net proceeds of which will be
used for sales and marketing, clinical product development, and
corporate support and financing costs. Certain related parties,
directors of the company and executive officers participated in the
private placement.
Mount Sinai subscribed for a total of 1,382,489
new American Depositary Shares at $2.17 per ADS.
Christopher Mills, Non-Executive Chairman, and
his related parties subscribed for a total of 346,375 Ordinary
Shares at £0.90 per Ordinary Share.
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 March 31, 2023 and 2022 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 ordinary
shares outstanding, as they would be anti-dilutive:
|
|
|
Nine Months Ended March 31, |
|
|
|
|
2023 |
|
|
|
2022 |
|
|
Stock options to purchase ordinary shares |
|
|
4,958,513 |
|
|
|
|
4,560,901 |
|
| Restricted stock units |
|
|
64,660 |
|
|
|
— |
|
|
Conversion of convertible note |
|
|
2,184,030 |
|
|
|
— |
|
|
|
|
|
7,207,203 |
|
|
|
|
4,560,901 |
|
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