ReNeuron Group — A transformational year

ReNeuron is a UK clinical-stage company developing a portfolio of stem cell-based therapies and technologies. Its two lead clinical assets are the human retinal progenitor cell (hRPC) line for the treatment of retinitis pigmentosa (RP) and the CTX cell line for the treatment of stroke disability. In a Phase I/IIa trial, the company is testing an hRPC product in patients with RP. Positive data have been presented to date, with additional Phase IIa data expected in H120. ReNeuron is currently enrolling patients (a total of 130 patients is expected) in a Phase IIb study investigating whether CTX will improve a patient’s functionality following a stroke (6–24 months after). Initial data are expected in mid-2021. Additionally, the company has early-stage exosome and induced pluripotent stem cells technologies. ReNeuron was established in 1998, listed on AIM in 2005 and has approximately 60 employees.

We value ReNeuron at £197m or 624p/share, vs £198m or 625p/share previously. We have rolled forward our model, in addition to updating for FX rates and net cash. Our valuation is based on a risk-adjusted net present valuation (rNPV) of CTX in stroke patients (274p/share), hRPC in RP patients (175p/share) and hRPC in cone rod dystrophy (CRD) patients (35p/share), Fosun partnership (72/share), in addition to a cash position as of 30 September of £21.3m (67p/share). We have updated our probability of success in the RP programme to 25% (from 20%) as early data continue to impress. With data now expected for the CTX programme in mid-2021 (from Q420 at time of our last published note) we now expect the launch of CTX in 2024 (versus 2023 previously). We have also updated R&D costs for the programme with the expansion of the number of patients expected to be enrolled.

ReNeuron has reported results for the six-month period ending 30 September. Revenue increased substantially year-on-year to £6.0m (vs £27,000 in the six-month period ending 30 September 2018) as a result of the Fosun Pharma upfront. R&D costs rose 22% to £9.2m (vs £7.5m) as a result of the progression of the clinical hRPC and CTX programmes, while admin costs remained flat at £2.6m. Tax credits fell to £1.2m (vs £1.5m). The Fosun Pharma upfront more than offset rises in R&D and decreases in tax income as ReNeuron recorded a net loss of £3.9m for the period. Cash and equivalents of £21.3m should enable a cash reach into 2021.

ReNeuron is subject to the risks typically associated with drug development, including the possibility of unfavourable outcomes in clinical trials and regulatory reviews, success of competitors and commercial decisions by partners or potential partners. Specifically, it will be the outcome of the CTX Phase III stroke trial and the evolving data from the Phase I/IIa hRPC in RP that will determine the company’s eventual success. The cell therapy industry remains in its infancy and ReNeuron’s ability to navigate significant hurdles that arise from an evolving regulatory, manufacturing, logistical and pricing/reimbursement landscape will be critical to is success. In its CTX programme, ReNeuron is operating in a therapeutic area (stroke) with a poor track record for success with well know difficulties in recruiting patients, so this is a particularly high-risk indication. However, we note that many failures in the field have been in acute stroke studies where placebo effects can be high, while ReNeuron is focusing on the chronic downstream disability caused by a stroke. In the RP programme, long-term durability of responses and safety will be critical to its success.

Initial data announced earlier in the year for the hRPC programme in RP, followed by further announcements covering the maturing data set, have revealed a product with substantial promise in a difficult to treat disease. Retinitis pigmentosa (RP) is an inherited, degenerative eye disease that can be caused by any of over 100 different gene mutations. Historically there has been no disease modifying treatments available for the disease and approved treatments have focused on managing symptoms of the disease. However, cell and gene therapies are offering new opportunities to either correct or replace these defective genes. Most notable is the approval in 2017 of Luxturna for RPE65 mutated retinal dystrophies, including patients with RPE65 mutated retinitis pigmentosa. However, while new treatments like Luxturna are offering new hope to a small group of patients, the disease remains a major unmet need with many therapies in development focused on addressing single mutations and not the whole pool of mutations. ReNeuron’s hRPC therapy is a cell-based therapy and is not mutation specific, which means it could potentially address the whole RP patient population.

Cell and gene therapies offer a unique prospect of dramatically improving a patient’s outcomes through one-off administration of a product. Gene therapies are typically focused on replacing or editing one or a few genes, and while often extremely effective, these are by their nature limited to narrow patient populations. Cell therapies are not limited to a single gene defect and instead look to replace a flawed cell population with a correct one.

Cell therapies typically take two forms, autologous or allogenic. Autologous therapies utilise a patient’s own cells, while allogenic therapies utilise a central donor. As a patient’s own cells, autologous therapies benefit from being compatible and will not promote an immune reaction. However, each product must be custom made for each patient, which involves technical manufacturing and logistics. Allogenic products on the other hand are often from a single or a few donors. While the products have the potential to produce an immune response in a patient (graft versus host, hosts versus graft), the relative simplicity of manufacturing (one product for all) and the ability to be readily used (off the shelf) present substantial benefits. Additionally, the probability of an immune response can be reduced via either correct engineering of the cells or utilising them in an immune limited organ like the eye.

ReNeuron’s human retinal progenitor cells (hPRC) are allogenic (isolated from fetal retina) and can differentiate into various components of the retina. This allows for a range of defects to be corrected from one product. To date ReNeuron has no reported cases of immune reactions with its hPRC products in the eye. While initial clinical testing was done with fresh cells, the company has developed a cryopreserved formulation (with a nine-month shelf life). This has been tested safely in patients; however, formulation work is ongoing as the small bleb that is formed at the site of operation has been seen to take longer to resolve then with fresh cells.

The Phase I trial enrolled 12 patients with severe eyesight problems (all patients were legally blind with an ETDRS letter score ranging from 0–1 with only one patient able to read one letter). The dose was escalated in the trial from 200,000 to 1,000,000 cells, with the patients at the highest dose receiving the cryopreserved formulation. Safety was the primary endpoint and the trial reported a good profile.

In the Phase IIa part of the trial, 10 patients were enrolled with better eyesight at baseline than in Phase I part (ETRDS range of 9 to 56 at baseline). Patients were all treated with 1,000,000 cryopreserved cells. The primary endpoint is change in ETDRS letters read from baseline to 24 months post-treatment. Interim visits at one, two, three, six, nine, 12 and 18 months are being undertaken. A clinical meaningful improvement in sight is an improvement of 10–15 ETDRS letters (two to three lines on the ETDRS chart). ReNeuron is currently in discussions with regulatory authorities to expand the number of patients in the Phase IIa trial by up to an additional 12 patients. In the company’s view this would enable only one subsequent pre-approval study and could enable a quicker route to market.

Efficacy data presented by ReNeuron at AAO (in San Francisco in October 2019) on its hRPC therapy continue the impressive trend seen in data earlier in the year. Exhibit 1 highlights the per-patient changes from baseline in ETDRS letters read. Comparing the mean and individual trends of ETDRS improvement over nine months it is evident that ReNeuron’s hRPC therapy is having a positive effect on a patient’s sight. However, with small patient numbers, particularly at the longer follow-up times, more data are needed to clarify the treatment effect. As more patients hit longer-term follow-up, the persistence, safety and value of the therapy will become clearer.

The mean improvements of the whole patient population (currently eight patients’ data available) were confounded by two patients who had procedure (surgery) related adverse events leading to vision loss. All eight patients had reached three months of follow-up at the time of the most recent data presentation. At this time period, no mean improvement in the treated eye over the untreated was observed (Exhibit 2: 6.1 vs 6.8 respectively), although four out of the eight patients had an ETDRS improvement over 10, with three out of four achieving above 20 ETDRS improvement. When the two patients who had surgery-related adverse events were removed from the data (Exhibit 2), the remaining six patients demonstrated a mean ETDRS improvement of 17.8 (vs 8.3 in untreated eye) at three months. In four patients who had achieved six months of follow-up, a mean improvement in Early Treatment Diabetic Retinopathy Study (ETDRS) letters of 18.5 was observed compared with 7.8 in the untreated eye. One patient had achieved nine months of follow-up and demonstrated an ETDRS improvement of 12 versus -1 in the untreated eye.

Regulatory bodies, notably the US FDA, have been keen to rapidly accelerate these new life-changing cell and gene treatments to approval. For example, the only approved retinal gene therapy Luxturna was approved (on data from 41 patients) on a measured change from baseline over one year in a in a multi-luminance mobility test (as assessed by the ability of a subject to navigate a course accurately and at a reasonable pace at different levels of environmental illumination). ReNeuron could gain approval with a similar package; however, more mature data and further discussions with regulators are needed in order to crystallise the path to approval.

Safety to date has been in line with what is to be expected for the type of surgical treatment. Patients in the Phase I/II study had to undertake vitrectomy surgery and subretinal injection of the hRPC product. Vitrectomy surgery is a common procedure that often involves three small incisions in the white of the eye to allow access to the vitreous gel (jelly like material). The vitreous gel is often partly or fully removed to allow access to the retina, at which point a subretinal injection is carried out.

To date, one patient has had a retinal pigment epithelium (RPE) tear and another has persistent subretinal fluid. This is consistent with what has been observed with other advanced therapies. For example, in the two clinical trials required for Luxturna’s approval, 10% (n=4/41) of patients who underwent a similar surgical procedure had a retinal tear, which compares to 12.5% (n=1/8) of ReNeuron’s patients treated to date. Side effects when performing these surgical procedures are dependent on the health of a patient’s eye; improved selection of patients who have healthier eyes may enable ReNeuron to decrease the incidence of adverse effects. However, we expect ReNeuron to continue to observe similar side effects as its trial progresses. We believe hRPC’s current Phase I/II safety profile would be acceptable to regulatory agencies, however long-term evolution of the data will ultimately inform this.

Few competitors exist in RP. However, through its acquisition of Nightstar, Biogen is quickly advancing a product through clinical trials that aims to address a sub-population of RP patients. Biogen is developing NSR-RPGR (AAV8-RPGR), a gene therapy for X-linked retinitis pigmentosa (XLRP). XLRP is typically associated with men and is thought to account for 10–15% of the total RP population (source: NCBI). It is often characterised by a mutation in the GTPase regulator (RPGR) gene, which leads to loss of photoreceptor cells and a gradual deterioration of vision, potentially leading to complete blindness.

NSR-RPGR is an AAV (adeno-associated virus) vector carrying the RPGR gene. It is being tested in a Phase I/II trial and is currently undergoing a Phase II/III dose expansion (XIRUS). Data to date have been positive with the latest Phase I data presented at AAO in San Francisco in October 2019. 18 patients were included in the data set, with safety as the primary endpoint. There were 65 reports of adverse events, 52 of which were mild and 40 of which were resolved. 18 events were related to the surgery and 13 believed to be related to the treatment. One severe adverse event occurred, which was resolved. Improvements in microperimetry (a visual field test) occurred in 50% of treated eyes compared to 8.3% of untreated eyes at one month. At three months, 33% of treated eyes experienced an improvement in microperimetry, while no untreated eyes experienced improvement. At six months, 36.6% of treated eyes saw improvement and again no untreated eyes experienced improvements.

ReNeuron’s most advanced product is a conditionally immortalised neural stem cell-derived CTX cell line for the treatment of stroke disability. CTX has been tested in a Phase IIa clinical trial (PISCES II) and ReNeuron is now recruiting patients in a Phase IIb clinical trial (PISCES III). The trial is expected to enrol 130 patients (2:1 ratio of treatment arm to placebo arm) with initial data expected in mid-2021. The primary endpoint is the number of patients who achieve an improvement in Modified Rankin Scale (mRS) by ≥1 point (Exhibit 3) at six months from baseline. mRS is a scale designed to measure the levels of disability in patients who have suffered a neurological disability like a stroke. The scale is ranked from 0 to 6, with 0 identifying patients who are healthy with no symptoms and 6 patients who are deceased. The six-point mRS endpoint was used as a secondary endpoint in the Phase II study (PISCES II), which found that the response rate was maintained 12 months post-transplantation. 35% of patients demonstrated a clinically meaningful improvement at 12 months post-implantation.

The PISCES III trial is designed to monitor improvements in the function of stoke patients who remain disabled six to 24 months following their treatment. The trial is split into a treatment arm and a control arm; both patient populations undergo surgery to the skull, with patients in the treatment arm receiving an injection of CTX to the site of the stroke. Patients in the placebo arm do not receive any therapy. Only patients with an mRS of 3 (moderate disability – requires some help but can walk unassisted) or 4 (moderate severe disability – requires assistance to walk) could be enrolled into the trial. The study will enrol patients at 40 centres.

Trial enrolment has been slower than expected to date; one factor that may have led to this is patients’ reluctance to undergo invasive surgery when they have only a 50% chance of receiving treatment. To speed up enrolment, ReNeuron has increased the chance for patients who enter the trial to receive treatment. Two-thirds of patients in the trial (86 out of 130 patients) will now receive treatment compared with half previously. The company has expanded the number of patients enrolled to 130 from 110 previously in order to maintain the correct statistical powering of the trial with this change in trial design. Additionally, the company has expanded the window of patients who are eligible for treatment and it now includes those who are six to 24 months post-stroke from six to 12 months previously. We note the Phase IIa trial was in patients who were two to 12 months post-stroke and it is unknown if this expanded patient population will receive similar, better or worse outcomes than the previously selected population.

The Phase II trial evaluated CTX injected into the putamen of the brain on the affected side. It was a 21-patient Phase II trial with the primary aim of determining whether CTX could reduce disability and improve patient outcomes during the rehabilitation phase. The trial failed to meet its primary endpoint of a two-point improvement in ARAT #2 (grasp a 2.5cm3 block and move it from A to B positions in <60 seconds) in two patients.

In the key secondary endpoint of improvement in mRS (Exhibit 3), 35% of patients responded at 12 months post-treatment by at least a one-point improvement in mRS. In patients with some residual upper limb movement, a greater than one-point improvement was seen in 50% of patients at 12 months. This patient population is the target population of the Phase IIb study (PISCES III).

The procedure was generally well tolerated (86%, 18/21 experienced an adverse event of some kind), with seven patients experiencing a severe adverse event. These were attributed to the stroke itself or surgical complications, eg vomiting, headache and infection. One death resulted from sepsis of unknown origin but was not deemed attributable to the treatment.

Stroke is the fifth most common cause of death in the US and a major cause of adult disability. About 800,000 people in the US (and 150,000 in the UK) have a stroke each year, of which around 85% are ischaemic (caused by a blood clot) and the rest are haemorrhagic (caused by a ruptured blood vessel). This could be expected to rise as a consequence of ageing demographics in the US, Europe and Japan, although the actual incidence rate may be declining as a result of better education and preventative measures for those at risk. Approximately half of the survivors experience disability that has an adverse impact on their life. The economic costs of stroke are high in terms of the direct costs of providing medical care to patients, but the indirect costs (lost productivity, long-term care and quality of life) are the larger burden on society. The direct costs of stroke are estimated at $33bn a year in the US, with a similar amount for European markets. The use of pharmacological agents in the treatment of ischaemic stroke is currently limited to the use of thrombolytic agents in the acute phase.

It is widely recognised by payors and prescribers that cell and gene therapies could provide huge clinical benefit and in some conditions be curative, but the high potential cost of such therapies remains of concern. Allogenic approaches like those being developed by ReNeuron will be needed to bring down costs. Additionally, substantial long-term data will be a critical part of the reimbursement equation, as evidenced by the recent struggles of cell therapies with initially immature data packages like Kymriah and Yescarta, or gene therapies like Luxturna or Zolgensma to gain appropriate reimbursement.

In August 2017, the FDA approved Novartis’s CAR-T Kymriah for use in paediatric patients with acute lymphoblastic leukemia (ALL), priced at $475,000 for the one-off treatment. This initiated a debate on how much these innovative therapies are worth and subsequent approvals of other costly cell and gene therapies such as Luxturna ($425,000 for one eye), Yescarta ($373,000) and Zolgensma ($2.1m) have fuelled these discussions.

All of these therapies face ongoing discussions with payors over what is the appropriate pricing model for the treatment. Some companies are offering payment over time if selected efficacy milestones are hit. However, while this is operationally and logistically possible with a small number of approved therapies and relatively small patient populations, this will prove substantially more difficult with an increasing number of approved therapies. A recent example is Novartis securing a contract in Germany for an outcomes-based payment structure with GWQ ServicePlus, which represents approximately 13 million medical insurance policyholders. The contract is arranged so that Novartis will repay part of the drug cost to GWQ if certain undisclosed survival outcomes are not reached. We note this is a temporary pilot programme until the National Association of Statutory Health Insurance Funds (GKV-Spitzenverband), which represents 90% of the population of Germany, concludes its negotiations with Novartis. In the UK, after extensive discussions, the National Institute for Health and Care Excellence (NICE) approved Kymriah in paediatric ALL in September 2018 and more recently (February 2019) in DLBCL. Originally NICE did not deem Kymriah cost effective in DLBCL; however, further negotiations have led to a lower price. Of direct relevance to ReNeuron and its hRPC programme is the recommendation by NICE for the use of Luxturna (for the treatment of inherited retinal dystrophy arising from mutation in RPE65 gene) in the NHS at an unknown net price but assumed substantial discount. If ReNeuron can maintain a low cost base for its allogenic products, it will offer them a substantial competitive advantage over any autologous therapies.

As the sector grows and systems are put in place, we believe many of the reimbursement challenges faced by cell and gene manufacturers will be addressed; however, it remains one of the key sensitivities for the sector as whole.

ReNeuron continues to develop its next-generation technologies, notably its exosome and induced pluripotent stem cells (iPS) platforms. Within the body, exosomes are mediators of cell-to-cell communication and can carry various cellular components including proteins and RNAs. The function of exosomes is twofold, firstly to transport cellular components and secondly to protect them from breakdown until needed. ReNeuron has developed a stem cell CTX derived exosome platform. In August 2019, the company announced a grant-funded collaboration with the European Cancer Stem Cell Research Institute at Cardiff University to develop CTX stem cell-derived exosomes for the delivery of therapeutic nucleic acids across the blood brain barrier.

ReNeuron has developed a process for reprogramming the CTX neural stem cells into CTX-derived, induced pluripotent stem cells (iPSCs). This essentially enables the stem cells to then differentiate into any type of stem cell (including bone, muscle and skin) and not just nerve. In October 2019 the company presented data that demonstrated the stability and scalability of these cells. The company is currently exploring multiple CTX=iPSC derived cell lines with the aim of out-licensing the technology.

In April 2019, ReNeuron announced it had signed an out-licence agreement with Shanghai Fosun Pharma (‘Fosun’) a Shanghai and Hong Kong listed (market cap c £6.7bn) pharmaceutical company. The deal included a £6m upfront payment with a further £6m expected in near-term operational milestones and an additional £8m in future regulatory milestones. We expect the £6m of near-term operational milestones to be split evenly between £3m of revenue in 2021 (financial year ending 31 March 2021) and 2022 (financial year ending 31 March 2022) and include them in our revenue forecasts. ReNeuron is also eligible to receive an additional £60m in sales-related milestones and a tiered royalty rate of between 12% and 14%.

The deal is focused on the development, manufacture and commercialisation in China of ReNeuron’s CTX and hRPC cell therapies. Fosun is responsible for the funding of development and commercialisation activities. Initially ReNeuron will supply CTX and hRPC cells until the appropriate tech transfer has been undertaken, after which Fosun will undertake its own manufacturing.

ReNeuron is subject to the risks typically associated with drug development, including the possibility of unfavourable outcomes in clinical trials and regulatory reviews, success of competitors and commercial decisions by partners or potential partners. Specifically, it will be the outcome of the CTX Phase III stroke trial and the evolving data from the Phase I/IIa hRPC in RP that will determine the company’s eventual success. The cell therapy industry remains in its infancy and ReNeuron’s ability to navigate significant hurdles that arise from an evolving regulatory, manufacturing, logistical and pricing/reimbursement landscape will be critical to is success. In its CTX programme, ReNeuron is operating in a therapeutic area (stroke) with a poor track record for success with well know difficulties in recruiting patients, so this is a particularly high-risk indication. However, we note that many failures in the field have been in acute stroke studies where placebo effects can be high, while ReNeuron is focusing on the chronic downstream disability caused by a stroke. In the RP programme, long-term durability of responses and safety will be critical to its success.

We value ReNeuron at £197m or 624p/share vs £198m or 625p/share previously. We have rolled forward our model, in addition to updating for FX rates and net cash. Our valuation is based on risk adjusted net present valuation (rNPV) of CTX in stroke patients (274p/share), hRPC in RP patients (175p/share) and hRPC in cone rod dystrophy (CRD) patients (35p/share), Fosun partnership (72p/share) in addition to a cash position of £21.3m (67p/share) at 30 September. We expect the £6m of near-term operational milestones to be split evenly between £3m of revenue in FY21 and FY22 and include them in our revenue forecasts. The £8m in regulatory milestones we expect to be split across the approvals of both CTX and hRPC in China with remaining £60m sales milestones split across the lifetimes of both products. We have assumed an average royalty rate of 13%.

We have updated our probability of success in the RP programme to 25% (from 20%) as early data continue to impress. With data now expected for the CTX programme in mid-2021 (from Q420 at the time of our last published note), we now expect the launch of CTX in 2024 (versus 2023 previously). We have also updated R&D costs for the programme with the expansion of the number of patients expected to be enrolled.

ReNeuron has reported results for the six-month period ending 30 September.

Revenue increased substantially year-on-year to £6.0m (vs £0.03m in the six-month period ending 30 September 2018) as a result of the Fosun Pharma upfront. Other operating income consisted wholly of government grants of £0.06m, down from £2.40m (£0.51m government grants plus £1.89m exclusivity fee received during licensing negotiations) in the associated period in 2018. We do not forecast any substantial further revenue for the second half of the financial year and forecast full year (FY20 – 31 March 2020 year-end) revenue of £6.1m.

R&D costs rose 22% to £9.23m (vs £7.54m) mainly as a result of the progression of the PISCES III clinical trial, with hRPC also contributing. Admin costs remained flat at £2.58m. We retain our full year R&D forecasts at £24.7m. However, we now increase our FY21 R&D spend to £28.6m (vs our previous forecast of £27.9m) to reflect the expected increase in patient numbers and extended timeline in the PISCES III study.

ReNeuron continues to hold some cash and investments in US dollars to hedge against operational spend and a strengthening of the US dollar. Financial income dropped to £0.59m (vs £0.89m) as a result of a decreased foreign exchange gain for the period of £0.42m (vs £0.75m).

Although tax credits for the period increased over 2018 to £1.85m (vs £1.46m), total tax income fell as ReNeuron paid international tax of £0.60m on the Fosun upfront resulting in total tax income of £1.25m (vs £1.46m).

The Fosun Pharma upfront more than offset rises in R&D and decreases in tax income as ReNeuron recorded a net loss of £3.9m for the period. We forecast a net loss for the full financial year (ending 31 March 2020) of £19.2m.

Cash consumed by operations reduced to £5.15m in the period vs £7.54m in 2018. Cash and equivalents of £21.3m should enable a cash reach into FY21. To bridge this funding gap, we have increased our illustrative debt in 2021 to £30m (from £16m previously). This was driven by a more expanded R&D cost than originally anticipated.