Progressing toward a pivotal moment

ReNeuron Group 27 July 2016 Outlook

ReNeuron Group

Progressing toward a pivotal moment

FY16 results & outlook

Pharma & biotech

27 July 2016

Price

3.14p

Market cap

£99m

$1.32/£

Net cash (£m) at 31 March 2016

65.7

Shares in issue

3,164.6m

Free float

60.5%

Code

RENE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.2

7.4

(46.6)

Rel (local)

0.4

1.5

(47.3)

52-week high/low

5.8p

2.4p

Business description

ReNeuron is a UK biotech company developing allogeneic cell therapies. CTX neural stem cells are in development for ischaemic stroke disability (Phase II) and critical limb ischaemia (Phase I) and hRPC (human retinal progenitor cells) are being studied for retinitis pigmentosa (Phase I/II).

Next events

CTX Phase II stroke data/start Phase II/III study

H216/H117

CTX: CLI Phase I data/Phase II study start

H216/H117

hRPC: safety and efficacy data

2017

Exosome: Phase I clinical study start

H217

Analysts

Dr Linda Pomeroy

+44 (0)20 3077 5738

Lala Gregorek

+44 (0)20 3681 2527

ReNeuron Group is a research client of Edison Investment Research Limited

Investor focus is currently on the readout of ReNeuron’s Phase II stroke disability study with its CTX cells, due in Q416. Alongside this there are a number of other data readouts and progression of its pipeline potentially in the near term. ReNeuron has significant financial resources to support its broad clinical development programme over the next two to three years. Adjusting for cash, strengthening of the $:£ exchange rate and revised clinical timeline for CTX in stroke (patient recruitment completed in June 2016), we raise our rNPV to £249m (vs £233m).

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

0.0

(10.3)

(0.50)

0.0

N/A

N/A

03/16

0.0

(12.8)

(0.44)

0.0

N/A

N/A

03/17e

0.0

(26.7)

(0.74)

0.0

N/A

N/A

03/18e

0.0

(32.6)

(0.91)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Well-funded for pipeline development

ReNeuron has the funds to continue to significantly advance its cell-based therapies: CTX, hRPC and exosomes. CTX stem cells are currently in a Phase II study for stroke disability and a Phase I safety trial for critical limb ischaemia (CLI). The hRPC (human retinal progenitor cells) candidate is in a US Phase I/II study for retinitis pigmentosa (RP). Finally, ReNeuron has recently selected the early-stage exosome programme’s initial clinical target, glioblastoma multiforme (GBM).

Entering a period of potential catalysts

Primary investor focus is on the readout of the Phase II stroke study expected in Q416, with ≥2 responders in the revised 21-patient cohort required to pass the futility hurdle. The company has indicated that positive data would enable a Phase II/III study to commence in 2017, with potential data in 2019. While currently the main focus is on the stroke study, other newsflow is expected from the CLI study (Phase I data readout in Q416), RP study (Phase I/II safety and efficacy data readout 2017) and further preclinical data from the exosome nanomedicine programme and potential move into the clinic in H217. Further out, there could be an RP Phase II/III start (2018) with a readout in 2019 and CLI Phase II data in 2018.

Valuation: Raised to £249m, or 7.9p per share

Our valuation has increased to £249m (vs £233m) or 7.9p per share (vs 7.4p per share), primarily due to a change in the $:£ rate used (1.32 vs 1.5). We have also rolled the model forward to H216 (CY), used FY16 reported cash of £65.7m and pushed the potential launch date of CTX in the treatment of stroke out to 2020 (vs 2019) due to more clarity on the timelines for data readouts (last patient recruited in June 2016, with a three-month follow up, data readout due in Q416). In our model the stroke study is valued at £125m (excluding cash and other programmes), indicating its importance to the company. ReNeuron is well-funded, which should enable it to execute on its expanding clinical trial programme, resulting in a number of potential key inflection points over the next 24 months.

Investment summary

Company description: Advancing cell therapy area

ReNeuron is a UK clinical-stage company developing a portfolio of stem cell-based therapies. Three programmes are in clinical development: the lead programme, CTX, is in a Phase II study for ischaemic stroke disability and in a Phase I dose-escalation study for critical limb ischaemia. The company was established in 1998, listed on AIM in 2005 and has 45 employees. In 2013, ReNeuron raised £25.3m (gross) through a placement of 1,014m shares at 2.5p to new investors including Invesco, Abingworth and the Wales Life Sciences Investment Fund, and secured a £7.8m grant package from the Welsh government to build a new manufacturing and research facility in South Wales. Following this, in 2015, it raised £68.4m (£65m net) through a placement of 1,367.4m shares at 5p per share. Woodford Investment Management (WIM) is now the biggest shareholder, with c 35%, having acquired a large part of Invesco’s previous holding, following Neil Woodford’s move from Invesco to WIM. Olav Hellebø was appointed CEO in September 2014.

Valuation: Raised to £249m, or 7.9p per share

Our valuation has increased to £249m (vs £233m) or 7.9p per share (vs 7.4p per share), primarily due to a change in the $:£ rate used (1.32 vs 1.5). We have also rolled the model forward to H216 (CY), used FY16 reported cash of £65.7m and pushed the potential launch date of CTX in the treatment of stroke out to 2020 (vs 2019) due to more clarity on the timelines for data readouts and the Phase II/III study. We note that this does not include a contribution for the earlier-stage exosome nanomedicine platform as it is currently preclinical. We expect to revisit this when its first target is taken into the clinic H217. There are a number of potential short-term catalysts, with the CTX Phase II data in stroke expected in Q416, along with the Phase I CLI data.

Financials: Well-funded to move the clinical pipeline forward

On our forecasts, ReNeuron is funded to the end of 2018, which should enable significant advancement of the two pivotal clinical studies (stroke Phase II/III study and RP Phase II/III study) and advancement of the CLI Phase II study and Phase I exosome study in GBM. With £65.7m in cash as of March 2016, ReNeuron has the resources to progress to potential valuation inflection points and continue to develop its broad portfolio. We expect ReNeuron to continue accelerating its investment in operating activities, particularly within R&D in line with the progression of its clinical pipeline.

Sensitivities: PISCES-II outcome important to progress

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 II (PISCES-II) stroke trial that will determine next development steps and the product’s eventual commercial potential. The industry’s track record of R&D in stroke is poor, so this is a particularly high-risk indication. Recruitment of patients into stroke and CLI trials has also historically been a rate-limiting factor for a number of clinical studies and ReNeuron may face similar constraints in the future. Hence, there can be little assurance that our current estimates for completion of the trial programmes and subsequent next steps, particularly the stroke study, will be met. ReNeuron is well-financed and has reasonable visibility on the regulatory and clinical pathways, following discussions with the regulators, compared to a few years ago. Nonetheless, it is still exposed to the sensitivities normally associated with novel drug development.


Outlook: Well-placed to significantly progress

ReNeuron is a leading, clinical-stage stem cell business. It is developing novel cell-based therapies that target areas of significant unmet or poorly met medical need. Stem cell therapy holds the prospect of revolutionising the treatment of a number of debilitating human conditions. The field of stem cell research has advanced significantly in recent years, with a number of clinical studies producing encouraging early signs of the efficacy of various types of stem cells in treating a range of indications such as immune disorders, neurodegenerative and cardiovascular disease, bone and cartilage repair, and diabetes. The clear clinical and commercial appeal is that, rather than addressing the symptoms of a disease, stem cell therapy seeks to address the cause of the condition, to effect repair or reversal of the disease through the regeneration of the affected tissue.

ReNeuron is one of the pioneers in the field of stem cells, having developed proprietary technology platforms, notably based on the CTX neural stem cell line, derived and immortalised from a single donor cell. It is developing these multipotent adult stem cells specifically for allogeneic administration (as opposed to autologous procedures). The final product can be cryopreserved, stored and transported, with a simple procedure to prepare the cells for injection, thereby offering a genuine “off-the-shelf” cell-based therapy (Exhibit 3). ReNeuron has indicated that it possesses a broad, multi-layered patent estate including patents around the cell cryopreservation technology.

ReNeuron’s lead product is targeting ischaemic stroke disability and is currently in a Phase II study. Following the announcement of completed patient recruitment in June 2016 and including the required three-month follow-up, we now expect data readout by end CY16. We note that the time to data has shifted back six months compared to previous projections (data in mid-2016), but this is not uncommon for stroke clinical trials and the uncertainty of patient recruitment timing. ReNeuron also has a separate hRPC cell line programme that is also in the clinic for use in retinal indications. The lead product is currently in a Phase I/II study with safety and efficacy data due in CY17. Exhibit 1 summarises these platforms.

Finally, ReNeuron has an exosome nanomedicine (nanoparticles that play a key role in cell-to-cell communication) platform (Exhibit 2), which is derived from its CTX cell line. This programme has recently advanced with encouraging preclinical data indicating that the exosomes expressed from CTX cells inhibit the growth and migration of glioblastoma cells in preclinical models of the disease. As a result, ReNeuron has selected GBM, a type of brain cancer, as the first clinical target for this programme. We expect this to enter the clinic in H217.

Exhibit 1: CTX and hRPC platform technologies

Exhibit 2: Exosome nanomedicine platform

Source: Company presentation

Source: Company presentation

Exhibit 1: CTX and hRPC platform technologies

Source: Company presentation

Exhibit 2: Exosome nanomedicine platform

Source: Company presentation

Following the efficacy and clinical progress of ReNeuron’s product pipeline, a key determining factor in a cell-based therapy’s commercial uptake, is manufacturing capability. Here, ReNeuron is well-placed, having invested significant effort in developing robust and scalable processes for the large-scale manufacture of CTX cells. It has established methods to scale up the manufacture of the cell lines, including rapid cell culture techniques, cryopreservation methodologies, potency assays and the development of protocols for automated manufacturing processes. As part of this, ReNeuron is establishing a manufacturing and development facility at Pencoed Technology Park in South Wales (having received a grant from the Welsh government). The 25,700 sq ft facility has been fitted out to house R&D laboratories, clean rooms for automated cell culture and office accommodation. The GMP facility will have sufficient capacity to support late-stage clinical trials and early commercialisation.

Exhibit 3: CTX – GMP validated, cryopreserved, “off-the-shelf” cell-based therapy

Source: Company presentation

The last aspect to consider is that of pricing. The field of cell therapy has a considerably higher cost of goods than small molecules or biological molecules. ReNeuron appears well-placed in this context as its stem cell treatments can be easily scaled to commercial quantities (at reasonable costs), they are administered “off-the-shelf” and do not have onerous supply chain requirements and currently there is no need for immunosuppressive co-treatments. Alongside this, management has directed the development focus on therapeutic areas where the cost burden is high and current treatments are inadequate, hence providing a strong cost benefit rationale for reimbursement. The pipeline is summarised in Exhibit 4.

Exhibit 4: Clinical pipeline

Product

Indication

Status

Next milestones

Notes

CTX cell line

Stroke disability

21-pt Phase II (PISCES-II) study

End-2016: Final results
H117: Phase II/III start

PISCES-II is a futility study, to confirm the efficacy signals observed in the 11-patient PISCES Phase I study, prior to launching a large pivotal study. Observational (OSIS) study complements recruitment into PISCES-II and provides pseudo control group.

CTX cell line

Critical limb ischaemia

6-pt Phase I study

End-2016: Phase I data
H117: Initiate Phase II study

Phase I study part-funded by UK BioMedical Catalyst.

hRPC cell line

Retinitis pigmentosa

15-pt Phase I/II study

H117: Phase I/II safety data
H217: Phase I/II efficacy data

US-focused programme, supported by $0.25m grant from the Foundation Fighting Blindness.

ExoPr0 Exosomes (CTX-derived)

Glioblastoma multiforme

Preclinical

H217: Phase I trial starts

Preclinical studies ongoing; recent data have indicated inhibition of glioblastoma cells in preclinical models of the disease. As a result, glioblastoma multiforme (a type of brain cancer) has been selected as the first clinical target.

Source: ReNeuron and Edison Investment Research


A year of potential across its portfolio

ReNeuron has a broad clinical pipeline with multiple data readouts anticipated in the next two to three years. The programmes in the clinic are currently a Phase II trial in stroke, a Phase I trial in CLI and a Phase I/II trial in RP.

CTX: Stroke PISCES-II first data readout by end-2016

Standardised CTX neural stem cells are being evaluated in a 21-patient Phase II trial for reducing disability following an ischaemic stroke. For an overview of stroke and potential therapies, please see our initiation report. The PISCES-II study has been described as a futility study, designed to provide a clear and definitive signal of efficacy with CTX cells. An overview of the Phase II trial is outlined in Exhibit 5. In June 2016, ReNeuron announced that it had completed patient recruitment. The final patient enrolled requires a three-month follow-up and, as a result, we now expect data readout by end CY16. We note that the time to data has shifted back six months compared to previous projections (data in mid-2016), but this is not uncommon for stroke clinical trials due tothe uncertainty of patient recruitment timing.

Exhibit 5: PISCES-II clinical study design

Trial design

Overview

Aim

To determine whether treatment with 20m CTX cells can improve recovery in the use of a paretic arm in acute stroke patients, in order to justify a larger controlled pivotal study.

Summary design

UK, multi-centre (10 sites), open-label, single arm (no comparator) study.

Design details

21 pts; 40-89 yrs; stroke occurred within 8-12 weeks; patient must have a paretic (loss of movement) arm at both 4 and 8 weeks after a stroke (<5% chance of recovering use of arm).

Primary endpoints

≥2 point improvement in Action Research Arm Test (ARAT)* score, six months post-treatment. Specifically, test number 2 of ARAT (grasp a 2.5cm3 block and move it from A to B positions in <60 seconds) with paretic arm.

Secondary endpoints

Multiple 12-month assessments, including changes in ARAT scores for upper limb function; modified NIHSS; Rankin Focused Assessment (RFA) version of mRS; Barthel Index (BI); and safety/tolerability.

Start date

Jun 2014.

Completion dates

Three-month follow-up data Q416, June 2017: full study completion date.

Trial design

Aim

Summary design

Design details

Primary endpoints

Secondary endpoints

Start date

Completion dates

Overview

To determine whether treatment with 20m CTX cells can improve recovery in the use of a paretic arm in acute stroke patients, in order to justify a larger controlled pivotal study.

UK, multi-centre (10 sites), open-label, single arm (no comparator) study.

21 pts; 40-89 yrs; stroke occurred within 8-12 weeks; patient must have a paretic (loss of movement) arm at both 4 and 8 weeks after a stroke (<5% chance of recovering use of arm).

≥2 point improvement in Action Research Arm Test (ARAT)* score, six months post-treatment. Specifically, test number 2 of ARAT (grasp a 2.5cm3 block and move it from A to B positions in <60 seconds) with paretic arm.

Multiple 12-month assessments, including changes in ARAT scores for upper limb function; modified NIHSS; Rankin Focused Assessment (RFA) version of mRS; Barthel Index (BI); and safety/tolerability.

Jun 2014.

Three-month follow-up data Q416, June 2017: full study completion date.

Source: Edison Investment Research, clinicaltrials.gov. Note: *See previous notes for details of the ARAT score and the reasons for its use.

This follows a promising Phase I study that showed a good safety profile and evidence of sustained reductions in neurological impairment and spasticity. The Phase I (PISCES, Pilot Investigation of Stem Cells in Stroke) study treated 11 patients (males, ≥60 years) who remained moderately to severely disabled six months to five years following an ischaemic stroke. With small patient numbers (and in the absence of a control group), we are wary of reading too much into the efficacy outcomes from PISCES, although it is worth noting that across multiple assessments of disability the data indicate a benefit in favour of CTX treatment. Of particular note, the one-point improvement in mRS in three of 11 patients (~25% response rate) after 24 months (vs 4/11 responders at 12 months) is regarded as clinically meaningful given that each point on the six-point scale (0 = symptom free, 6 = dead) relates to a significant change in a patient’s disability. For an overview of the results please see our update note published on 23 April 2015.

Potential next steps

Interim data analysis of the 21 patients is expected by the end of 2016. This is a significant potential catalyst for the stock. ReNeuron has commenced formal discussions with the regulatory authorities of Europe (EMA) and the US (FDA). Subject to the results of the Phase II study, the company is planning for a randomised, controlled, pivotal Phase II/III clinical trial with CTX in stroke disability. We expect this to include between 200 and 250 treated patients with a small placebo group due to the ethics of surgery without treatment. We expect this to start in 2017, with potential data readout in H119. The trial represents another inflection point for the stock if a positive result is achieved.

Interestingly, positive stroke study data could also pave the way for accelerated approval in Japan, now that legislation has been passed that permits regenerative medicines to seek conditional approval (valid for up to seven years and fully reimbursed) on Phase II safety/efficacy data alone. This would be subject to bridging studies and pursued alongside a partner.

CTX: Critical limb ischaemia Phase I data expected end 2016

The second clinical programme uses standardised CTX neural stem cells to treat critical limb ischaemia (CLI). CLI is the severe “end stage” of peripheral arterial disease (PAD), caused by atherosclerosis (the hardening and narrowing of the arteries that restricts blood flows) and is associated with diabetes, obesity and the common cardiovascular risk factors. CLI may involve the large blood vessels, the small vessels, or both. The number of CLI patients is projected to grow to almost 2.8 million in the US by 2020, but if the prevalence of diabetes continues to rise at the current rate, this could increase to over 3.5 million. The first line of treatment is angioplasty, stents and surgery, but around a quarter of patients progress to limb amputation.

The CTX cell therapy candidate for CLI is in a six-patient Phase I ascending dose trial in the UK. Exhibit 6 gives an overview of the trial.

Exhibit 6: CLI Phase I clinical study overview

Trial design

Overview

Aim

To investigate the safety and tolerability of intramuscular (gastrocnemius) injections of human neural stem cell product, CTX, in patients with peripheral arterial disease (Fontaine Stage II through IV).

Summary design

Multi-centre, open label, non-comparative, ascending dose safety study, using CTX cells to treat patients with lower limb ischaemia, with follow-up over 12 months.

Design details

6 pts; Men and women, aged >50 years with peripheral arterial occlusive disease (Fontaine Stage II through IV) of one leg or both, unsuitable for surgical revascularisation, an ankle/brachial pressure index (ABPI) of <0.9 or a toe/brachial index of <0.7. Treatment: one patient will be treated at one time with a single dose of CTX cells. Three ascending doses (20, 50 or 80 million cells), allocated sequentially, will be tested in six patients (3 dose cohorts of 3-6 patients). All receive 10 intramuscular injections of CTX DP into the gastrocnemius muscle of their ischaemic leg on a single occasion (most severely affected leg if in both legs). Eight scheduled visits to the clinic for monitoring over the 12 month follow-up period.

Primary endpoints

Safety, measured by numbers of relevant adverse events, health screening, physical examination (overall and of the treated limb), immunological response, amputation and concomitant medications in the first year after treatment.

Start date

April 2014.

Completion dates

December 2016. Initial safety data Q416.

Trial design

Aim

Summary design

Design details

Primary endpoints

Start date

Completion dates

Overview

To investigate the safety and tolerability of intramuscular (gastrocnemius) injections of human neural stem cell product, CTX, in patients with peripheral arterial disease (Fontaine Stage II through IV).

Multi-centre, open label, non-comparative, ascending dose safety study, using CTX cells to treat patients with lower limb ischaemia, with follow-up over 12 months.

6 pts; Men and women, aged >50 years with peripheral arterial occlusive disease (Fontaine Stage II through IV) of one leg or both, unsuitable for surgical revascularisation, an ankle/brachial pressure index (ABPI) of <0.9 or a toe/brachial index of <0.7. Treatment: one patient will be treated at one time with a single dose of CTX cells. Three ascending doses (20, 50 or 80 million cells), allocated sequentially, will be tested in six patients (3 dose cohorts of 3-6 patients). All receive 10 intramuscular injections of CTX DP into the gastrocnemius muscle of their ischaemic leg on a single occasion (most severely affected leg if in both legs). Eight scheduled visits to the clinic for monitoring over the 12 month follow-up period.

Safety, measured by numbers of relevant adverse events, health screening, physical examination (overall and of the treated limb), immunological response, amputation and concomitant medications in the first year after treatment.

April 2014.

December 2016. Initial safety data Q416.

Source: Edison Investment Research; clinicaltrials.gov.

ReNeuron has stated that it has recently prioritised CTX cell batches towards the PISCES-II stroke study in preference to the CLI safety study. However, it expects to announce the safety data in Q416, with the intention of starting a Phase II (if data support it) in H117. Management has indicated a Phase II will be a control design, with stratification of patients and endpoints including clinical (ulcer size, pain, amputation) and pharmacodynamics (capillary refill, oxygenation, arterial pressure).

hRPC for retinitis pigmentosa Phase I/II trial initiated

The third clinical programme is a product derived from human retinal progenitor cells (hRPCs) for the treatment of retinitis pigmentosa (RP). It is being developed in collaboration with the Schepens Eye Research Institute (part of Harvard Medical School) and the Institute for Ophthalmology, University College London.

RP is a group of hereditary diseases of the eye that lead to progressive loss of sight due to cells in the retina becoming damaged and eventually dying. RP and other degenerative diseases of the retina, such as age-related macular degeneration (AMD), represent some of the most common causes of blindness in the Western world. RP affects around 100,000 patients in the US and 180,000 in Europe, with no effective treatments available as yet and only one Phase III study being conducted by Spark Therapeutics in a specific subset of patients with a single gene deficiency. Industry and academic research efforts focus on gene therapy and stem cell-based strategies, with both approaches demonstrating promising initial results. The contained nature of the eye means retinal diseases are particularly attractive for such novel approaches.

hRPC is currently in a 15-pt Phase I/II study, following encouraging data from the assessment of hRPC in animal models. These studies have shown that hRPCs were well tolerated, safe and that a subretinal injection with hRPC could help to rescue photoreceptors, without causing adverse effects, and therefore prevent loss of visual acuity. The most recently published study reports on injected hRPCs, that they are well tolerated, safe and preserved the retinal structure and vision up to six months post-injection. The cells also integrated into tissue without adverse effects.

Exhibit 7: Preclinical efficacy data

Source: Company presentation

The first RP patient has been treated in the ongoing Phase I/II study. The study is being conducted at the Massachusetts Eye and Ear Infirmary (Boston) and is the first clinical trial activity in the US for ReNeuron. An outline of the trial design is shown in Exhibit 8.

Exhibit 8: Phase I/II trial for hRPC in RP overview

Trial design

Overview

Aim

First-in-human Phase I/IIa, Open-Label, Prospective Study of the Safety and Tolerability of Subretinally Transplanted Human Retinal Progenitor Cells (hRPC) in Patients With Retinitis Pigmentosa (RP).

Summary design

Dose-escalation study in adult patients with established RP.

Design details

Total: 15 pts, Phase I: three dose groups of three subjects each, Phase II: six additional patients at highest safe dose.

Primary endpoints

Safety.

Secondary endpoints

Efficacy: measured by visual acuity, visual field, retinal sensitivity and retinal structure.

Start date

December 2015.

Completion dates

March 2017, Safety data expected H117, efficacy data H217.

Trial design

Aim

Summary design

Design details

Primary endpoints

Secondary endpoints

Start date

Completion dates

Overview

First-in-human Phase I/IIa, Open-Label, Prospective Study of the Safety and Tolerability of Subretinally Transplanted Human Retinal Progenitor Cells (hRPC) in Patients With Retinitis Pigmentosa (RP).

Dose-escalation study in adult patients with established RP.

Total: 15 pts, Phase I: three dose groups of three subjects each, Phase II: six additional patients at highest safe dose.

Safety.

Efficacy: measured by visual acuity, visual field, retinal sensitivity and retinal structure.

December 2015.

March 2017, Safety data expected H117, efficacy data H217.

Source: Edison Investment Research, clinicaltrials.gov.

hRPC has received both fast track designation (accelerated approval and priority review) and orphan drug status for RP in the US and orphan drug status in Europe, thus ensuring seven and 10 years of market exclusivity, respectively, following any approval. Initial safety readouts are expected in H117, with efficacy data in H217. If positive, it could lead to a pivotal Phase II/III trial starting in 2018, possibly treating 120 patients and with readout potentially in late 2019.

Exosome nanomedicine platform

Exosomes are cell-derived nanoparticles (30-100nm) that contain key proteins and microRNAs. They have been known about for over 30 years, but their function was thought to be largely waste management for their specific cells and so they were largely overlooked. However, it is becoming increasingly clear that they have specialised functions and play a key role in inter-cellular messaging, where their cargo of proteins, lipids and nucleic acids can influence vital systems such as adaptive immunity, cell regeneration and tissue repair. The ubiquity of exosomes means their effects can be both beneficial and harmful; for instance, tumour cells can secrete exosomes that promote angiogenesis and metastatic cell migration. There is a growing interest in the clinical applications of exosomes, both as diagnostic tools (for prognosis, therapy and biomarkers for health and disease) and therapeutic agents.

Exhibit 9: Overview of exosomes function

Source: Company presentation

ReNeuron has found that its CTX cell lines release large amounts of exosomes into their surrounding media as they are cultured. ReNeuron is planning to exploit the therapeutic potential of exosomes derived from its proprietary stem cell lines. It has reported that it has identified a unique mechanism by which exosomes expressed from its CTX cells inhibit the growth and migration of glioblastoma cells in preclinical models of the disease. To view published data click here. As a result, it is has chosen GBM, the most aggressive type of brain cancer, as its first clinical target (ExoPr0). GBM accounts for 16% of all diagnosed brain cancers. It has a five-year survival rate of between 4% and 6% and is poorly served by current treatments.

ReNeuron announced recently that it has been awarded a £2.1m grant from Innovate UK for this programme. It plans to use the funds to develop manufacturing capabilities at a commercial scale and preclinical testing. If the outcome of the preclinical work is positive, the company intends to start a Phase I clinical trial in H217, with data readout expected in 2017 and potentially a Phase II start in 2019 (data dependent). It should be noted that, if successful, we expect this to be granted orphan indication status, which has the benefit of market exclusivity post-launch. There is also the potential for ReNeuron partnering with this programme, as exosomes could be a target vehicle for drug delivery.

Sensitivities

ReNeuron is subject to the risks typically associated with drug development, including the unpredictable outcomes of clinical trials, the risks of development or regulatory delays (for instance, the FDA requiring additional clinical data), unexpected changes in clinical practice (eg as a result of competitor breakthrough products being developed), an altered reimbursement environment (such as in countries with social healthcare systems) and success of competitors and commercial decisions by partners or potential partners. ReNeuron is well-financed and has reasonable visibility on the regulatory and clinical pathways, following discussions with the regulators, compared to a few years ago. Specifically, it will be the outcome of the CTX Phase II (PISCES-II) stroke trial that will determine next development steps and the product’s eventual commercial potential. ReNeuron has a high reliance on the continued, timely and visible progress of its key clinical programmes which, if positive, would lead to the need for further finance and/or the need to establish worthwhile partnerships with a larger player to further develop and commercialise any eventual product.

Valuation

Our rNPV-based valuation has increased to £249m (vs £233m), primarily due to a change in the $:£ rate used (1.32 vs 1.5), which has given a 12% increase in sterling sales (no change to sales in US$). We have also rolled the model forward to H216 (CY), used FY16 reported cash of £65.7m and pushed the potential launch date of CTX in the treatment of stroke out to 2020 (vs 2019) due to more clarity on the timelines for data readouts and the Phase II/III study. Note that currently we do not include a contribution for the earlier-stage exosome nanomedicine platform as it is preclinical. We expect to revisit this when its first target is taken into the clinic in H217. Our key model assumptions are summarised in Exhibit 10.

Exhibit 10: ReNeuron valuation model and key assumptions

Product

Setting

Status

Launch

NPV (£m)

Peak sales ($m)

Probability of success

Royalty rate

rNPV (£m)

rNPV per share (p)

Key assumptions

CTX

Stroke disability

Phase II

2020

698

1,633

20%

30%

125

3.96

1.76m strokes/yr (US 800k + EU 800k + Japan 155k); 85% ischaemic; 85% survival; 50% disability; 10% peak penetration; treatment cost $50,000 (US/Japan) or $40,000 (EU).

CTX

CLI

Phase I

2022

151

670

20%

20%

26

0.82

CLI prevalence 0.25-0.30% in 40+ yrs; 35% ineligible for revascularisation surgery; 85% survival; peak penetration 10% (US) or 5% (EU/Japan); treatment cost $20,000 (US/Japan) or $15,000 (EU).

hRPC

RP

Phase I/II-ready

2020

207

443

20%

30%

33

1.03

RP prevalence 1 in 4,000; 10% advance to severe vision loss per year; peak penetration 20% (US/Japan) or 15% (EU); per-eye treatment cost $50,000 (US/Japan) or $40,000 (EU).

Portfolio total

1,057

184

5.81

Cash (FY16)

66

2.08

Cash estimated at 31 March 2016

Overall valuation

249

7.88

3,164m shares outstanding

Source: Edison Investment Research

ReNeuron is well-funded, which should enable it to execute on an expanding clinical trial programme, resulting in a number of potential key inflection points over the next 24 months, including:

Phase II stroke data (Q416);

Initiation of a pivotal Phase II/III study for CTX in stroke (H117);

Initiation of Phase II clinical trial for CTX in CLI in 2017;

Phase I/II hRPC data in 2017; and

Further preclinical data from the exosome nanomedicine platform (efficacy and toxicity).

We note that our peak sales estimates and treatment costs for the hRPC programme and stroke could be conservative as transformational disease-modifying treatments could be priced significantly higher.

Financials

FY16 results were in line with expectations. Following the £68.4m (net raise of £65.2m) capital raise in 2015, ReNeuron has been accelerating its investment in operating activities, particularly in R&D, given the proposed clinical programmes for CTX, hRPC and the exosome nanomedicine platform. We forecast a cash runway to the end of 2018, which should enable significant advancement of the two pivotal clinical studies (stroke Phase II/III study and RP Phase II/III study) and advancement of the CLI Phase II study and Phase I exosome study in GBM. At that point, ReNeuron will either raise further funding and/or partner some of its programmes. R&D expenses in FY16 (period ending March 2016) rose 42% to £10.3m. We expect the R&D spend to rise significantly over the next couple of years with a Phase II/III study in stroke, Phase II study in CLI, RP Phase I/II study and subsequent start of Phase II/III, and the exosome nanomedicine platform reaching the clinic. As a result, we forecast R&D in FY17 to rise to £23.1m (vs £10.3m in FY16) and to increase to £28.4m in FY18 (vs £20.9m previously). We also expect G&A costs to continue at a similar level to FY16 (raising slightly), £4.6m in FY17 and £5.1m in FY18, as the ramp-up in costs is already reflected with its scale-up of operations to support the expanded clinical programme and following the completion of the relocation to a new research and manufacturing facility in South Wales. ReNeuron receives R&D tax credits (FY16 £1.4m). We expect this to rise in line with the increase in R&D expenditure. Finally, there was an uptick in ‘other’ cash flow from £91k to £345k. This is predominantly interest received and has increased following the fund-raising and increased amount invested.

ReNeuron is well-funded, with end-FY16 cash of £65.7m, which leaves the company well-positioned to deliver on a range of clinical and operational milestones that could be transformative. The focus is on executing the clinical strategy which, if it delivers, could transition ReNeuron to a commercial organisation.

Exhibit 11: Financial summary

£'000s

2013

2014

2015

2016

2017e

2018e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

17

22

30

29

29

29

Cost of Sales

0

0

0

0

0

0

Gross Profit

17

22

30

29

29

29

R&D expenses

(4,786)

(5,829)

(7,250)

(10,272)

(23,112)

(28,428)

SG&A expenses

(2,319)

(2,824)

(3,693)

(4,015)

(4,617)

(5,079)

EBITDA

 

 

(6,966)

(7,857)

(10,269)

(13,632)

(27,094)

(32,816)

Operating Profit (before GW and except)

 

(7,088)

(7,969)

(10,394)

(13,724)

(27,166)

(32,944)

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

Operating Profit

(7,088)

(7,969)

(10,394)

(13,724)

(27,166)

(32,944)

Other

0

0

0

0

0

0

Net Interest

29

149

91

878

493

317

Profit Before Tax (norm)

 

 

(7,059)

(7,820)

(10,303)

(12,846)

(26,673)

(32,627)

Profit Before Tax (FRS 3)

 

 

(7,059)

(7,820)

(10,303)

(12,846)

(26,673)

(32,627)

Tax

714

754

1,397

1,492

3,201

3,915

Profit After Tax (norm)

(6,345)

(7,066)

(8,906)

(11,354)

(23,473)

(28,712)

Profit After Tax (FRS 3)

(6,345)

(7,066)

(8,906)

(11,354)

(23,473)

(28,712)

Average Number of Shares Outstanding (m)

748.7

1,425.0

1,788.8

2,609.3

3,164.6

3,164.6

EPS - normalised (p)

 

 

(0.85)

(0.50)

(0.50)

(0.44)

(0.74)

(0.91)

EPS - FRS 3 (p)

 

 

(0.85)

(0.50)

(0.50)

(0.44)

(0.74)

(0.91)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

1,620

1,772

2,033

6,963

7,242

7,536

Intangible Assets

1,272

1,272

1,591

1,591

1,591

1,591

Tangible Assets

213

225

161

361

640

934

Other

135

275

281

5,011

5,011

5,011

Current Assets

 

 

4,602

22,347

14,054

64,894

41,837

13,539

Stocks

0

0

0

0

0

0

Debtors

341

676

400

1,421

1,421

1,421

Cash

3,547

20,917

12,382

60,709

37,215

8,203

Other

714

754

1,272

2,764

3,201

3,915

Current Liabilities

 

 

(1,164)

(2,036)

(2,345)

(4,199)

(4,199)

(4,199)

Creditors

(539)

(1,234)

(1,150)

(3,700)

(3,700)

(3,700)

Short term borrowings

0

0

0

0

0

0

Short term leases

(1)

(1)

(1)

(1)

(1)

(1)

Other

(624)

(801)

(1,194)

(498)

(498)

(498)

Long Term Liabilities

 

 

(150)

(366)

(606)

0

0

0

Long term borrowings

0

0

0

0

0

0

Long term leases

0

(2)

(1)

0

0

0

Other long term liabilities

(150)

(364)

(605)

0

0

0

Net Assets

 

 

4,908

21,717

13,136

67,658

44,880

16,877

CASH FLOW

Operating Cash Flow

 

 

(6,637)

(6,718)

(9,124)

(11,920)

(26,399)

(32,107)

Net Interest

(1)

0

0

0

0

0

Tax

616

714

879

0

2,764

3,201

Capex

(37)

(121)

(380)

(293)

(352)

(422)

Acquisitions/disposals

0

0

0

0

0

0

Financing

5,601

23,435

0

65,195

0

0

Dividends

0

0

0

0

0

0

Other

30

61

91

345

493

317

Net Cash Flow

(428)

17,371

(8,534)

53,327

(23,494)

(29,012)

Opening net debt/(cash)

 

 

(3,974)

(3,546)

(20,914)

(12,380)

(60,708)

(37,214)

HP finance leases initiated

0

(3)

0

1

0

0

Other

0

0

0

(0)

(0)

0

Closing net debt/(cash)

 

 

(3,546)

(20,914)

(12,380)

(65,708)

(37,214)

(8,202)

Source: Edison Investment Research and Company accounts

Contact details

Revenue by geography

ReNeuron Group
Pencoed Business Park,
Pencoed,
Bridgend CF35 5HY
+44 (0) 203 819 8400
www.reneuron.com

N/A

Contact details

ReNeuron Group
Pencoed Business Park,
Pencoed,
Bridgend CF35 5HY
+44 (0) 203 819 8400
www.reneuron.com

Revenue by geography

N/A

Management team

Chairman: John Berriman

CEO: Olav Hellebø

John Berriman was appointed to the board in July 2011 and became chairman in March 2015. He is the chairman of Autifony Therapeutics and past chairman of Heptares Therapeutics (sold to Sosei in February 2015) and Algeta (sold to Bayer in 2014 and previously listed on the Oslo stock exchange). He is also a non-executive director of Cytos (listed on the SIX Swiss exchange). Previously he was a director of Micromet (until its sale to Amgen in 2012) and Abingworth Management, an international healthcare venture capital firm. Previously, he spent 14 years with Celltech Group and was a member of its board when it listed on the London Stock Exchange in 1994.

Appointed CEO in September 2014. Previously CEO of Clavis Pharma, a Norwegian oncology company, from February 2010 to June 2013. Before that he was senior VP, UCB Pharma (2004 to 2010), COO of Novartis UK (from 2003 to 2004) and for 10 years prior to that held a series of senior roles at Schering Plough, the last as head of the company's oncology biotech division in the US. He graduated summa cum laude in international business studies from Hofstra University, New York, and has an MBA from IESE, Barcelona.

CFO: Michael Hunt

CSO: Dr John Sinden

Joined ReNeuron in 2001 as CFO, was appointed COO in 2003 and CEO in 2005. Skilfully guided the company through the difficult period to 2014 and has since returned to the CFO role. Previously spent six years at Biocompatibles International (sold to BTG) where he held a number of senior financial and general management roles. His early industrial career was spent at Bunzl. He studied economics at University College.

Scientific co-founder and a director of ReNeuron since October 1998. Previously Reader in Neurobiology of Behaviour at the Institute of Psychiatry at Kings College London. He graduated in psychology from the University of Sydney, with a PhD in neuroscience from the University of Paris at the College de France. He held post-doctoral appointments at Oxford University and the Institute of Psychiatry before joining the permanent staff of the Institute in 1987.

Management team

Chairman: John Berriman

John Berriman was appointed to the board in July 2011 and became chairman in March 2015. He is the chairman of Autifony Therapeutics and past chairman of Heptares Therapeutics (sold to Sosei in February 2015) and Algeta (sold to Bayer in 2014 and previously listed on the Oslo stock exchange). He is also a non-executive director of Cytos (listed on the SIX Swiss exchange). Previously he was a director of Micromet (until its sale to Amgen in 2012) and Abingworth Management, an international healthcare venture capital firm. Previously, he spent 14 years with Celltech Group and was a member of its board when it listed on the London Stock Exchange in 1994.

CEO: Olav Hellebø

Appointed CEO in September 2014. Previously CEO of Clavis Pharma, a Norwegian oncology company, from February 2010 to June 2013. Before that he was senior VP, UCB Pharma (2004 to 2010), COO of Novartis UK (from 2003 to 2004) and for 10 years prior to that held a series of senior roles at Schering Plough, the last as head of the company's oncology biotech division in the US. He graduated summa cum laude in international business studies from Hofstra University, New York, and has an MBA from IESE, Barcelona.

CFO: Michael Hunt

Joined ReNeuron in 2001 as CFO, was appointed COO in 2003 and CEO in 2005. Skilfully guided the company through the difficult period to 2014 and has since returned to the CFO role. Previously spent six years at Biocompatibles International (sold to BTG) where he held a number of senior financial and general management roles. His early industrial career was spent at Bunzl. He studied economics at University College.

CSO: Dr John Sinden

Scientific co-founder and a director of ReNeuron since October 1998. Previously Reader in Neurobiology of Behaviour at the Institute of Psychiatry at Kings College London. He graduated in psychology from the University of Sydney, with a PhD in neuroscience from the University of Paris at the College de France. He held post-doctoral appointments at Oxford University and the Institute of Psychiatry before joining the permanent staff of the Institute in 1987.

Principal shareholders

(%)

Woodford Investment Management LLP

35.48%

Wales Life Sciences Investment Fund LLP

9.50%

Invesco

9.25%

Aviva & its subsidiaries

6.34%

Companies named in this report

Athersys (ATHX); Mesoblast (MSB); Neuralstem (CUR); StemCells (STEM)

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Germany

London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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