The rise of the exosome

ReNeuron Group 22 May 2018 Update
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ReNeuron Group

The rise of the exosome

Capital markets day

Pharma & biotech

22 May 2018

Price

69.00p

Market cap

£22m

Estimated cash (£m) at end March 2018

32.3

Shares in issue

31.6m

Free float

31.6%

Code

RENE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.8)

(25.4)

(65.9)

Rel (local)

(12.2)

(30.7)

(67.7)

52-week high/low

215.0p

60.0p

Business description

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

Next events

Full-year results

Q218

Initiation of the first US late-stage controlled stroke study

Q218

Phase I/II readout for hRPC in retinitis pigmentosa (RP)

Q218

Start Phase IIb hRPC in RP

Q218

Analysts

Andy Smith

+44 (0)20 3077 5700

Alice Nettleton

+44 (0)20 3077 5700

ReNeuron Group is a research client of Edison Investment Research Limited

ReNeuron introduced its exosome nanomedicine programme at its recent capital markets day. While being a preclinical programme, it has three significant advantages. First, it gives ReNeuron the potential to expand into new therapeutic indications. Second, it opens up the potential for collaborations in diagnostics and drug delivery. Third, it builds on its wealth of experience and IP and on its CTX cell line on which ReNeuron’s existing products and the exosome platform are built.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

0.0

(12.8)

(0.44)

0.0

N/A

N/A

03/17

0.0

(18.2)

(0.49)

0.0

N/A

N/A

03/18e

0.0

(21.4)

(63.45)**

0.0

N/A

N/A

03/19e

0.0

(24.7)

(73.38)**

0.0

N/A

N/A

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

A new (existing) platform emerges

ReNeuron’s capital markets day showcased its exosome nanomedicine platform. ReNeuron’s scientists, clinicians and its collaborators described the origin and functions of these naturally occurring sub-cellular vesicles. ReNeuron has been working on exosomes for many years since discovering them as a by-product of its genetically modified human neural stem cell line (CTX). The expert panel also described the potential use and applications of exosomes.

From oncology therapeutics to drug delivery

Through the development of ReNeuron’s CTX cell line products for chronic stroke and retinitis pigmentosa (which continue to advance in clinical studies), applications for the exosome nanomedicine platform have become apparent. Native exosomes migrate to the liver if injected intravenously in healthy animals and to the lymph nodes if injected intraperitoneally. Exosomes also migrate to tumours, opening up the possibility of a targeted cancer therapy because exosomes can be loaded with chemotherapeutic agents, and also oncology diagnostics. New drugs such as mRNAs need a delivery mechanism to protect them from degradation. The loading of exosomes with drugs can both stabilise a labile drug and target its delivery. Thus, the exosome platform could at the very least provide ReNeuron with a source of licensing revenue and at most, a new therapeutic oncology product.

Valuation: Minor changes ahead of FY results

In recent publications of Edison Healthcare Insight, we increased our estimated FY19 R&D expenses to account for the conduct of two Phase II studies. Since then, we have made one change to our model incorporating our estimate of the FY18 cash. Our risk-adjusted NPV valuation of ReNeuron is £276m, or 8.74p per share (previously £290m). Reneuron’s market capitalisation is c £22m – below cash and ascribing no technology value for a company in two Phase II studies or the recently disclosed exosome platform. This may make our assumption of an injection of funding prior to the end FY19 of increasing significance.

Exhibit 1: Financial summary

£'000s

2016

2017

2018e

2019e

2020e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

29

46

46

46

46

Cost of Sales

0

0

0

0

0

Gross Profit

29

46

46

46

46

R&D expenses

(10,272)

(16,648)

(18,313)

(20,986)

(23,084)

SG&A expenses

(4,015)

(4,139)

(4,346)

(4,781)

(5,259)

EBITDA

 

 

(13,632)

(19,814)

(21,614)

(24,218)

(26,286)

Operating Profit (before amort. and except.)

 

(13,724)

(19,887)

(21,759)

(24,866)

(27,443)

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Operating Profit

(13,724)

(19,887)

(21,759)

(24,866)

(27,443)

Other

0

0

0

0

0

Net Interest

878

1,722

398

161

87

Profit Before Tax (norm)

 

 

(12,846)

(18,165)

(21,361)

(24,705)

(27,356)

Profit Before Tax (FRS 3)

 

 

(12,846)

(18,165)

(21,361)

(24,705)

(27,356)

Tax

1,492

2,592

1,282

1,482

3,283

Profit After Tax (norm)

(11,354)

(15,573)

(20,079)

(23,223)

(24,073)

Profit After Tax (FRS 3)

(11,354)

(15,573)

(20,079)

(23,223)

(24,073)

Average Number of Shares Outstanding (m)

2,609.3

3,164.6

31.6

31.6

31.6

EPS - normalised (p)

 

 

(0.44)

(0.49)

(63.45)

(73.38)

(76.07)

EPS - FRS 3 (p)

 

 

(0.44)

(0.49)

(63.45)

(73.38)

(76.07)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

6,963

724

3,239

5,783

8,457

Intangible Assets

1,591

0

0

0

0

Tangible Assets

361

724

3,239

5,783

8,457

Other

5,011

0

0

0

0

Current Assets

 

 

64,894

58,136

34,635

19,944

(5,626)

Stocks

0

0

0

0

0

Debtors

1,421

1,060

1,060

1,060

1,060

Cash

60,709

53,061

32,293

17,402

(9,969)

Other

2,764

4,015

1,282

1,482

3,283

Current Liabilities

 

 

(4,199)

(5,702)

(3,702)

(13,702)

(13,702)

Creditors

(3,700)

(5,701)

(3,701)

(3,701)

(3,701)

Short term borrowings

0

0

0

(10,000)

(10,000)

Short term leases

(1)

(1)

(1)

(1)

(1)

Other

(498)

0

0

0

0

Long Term Liabilities

 

 

0

(1)

(1)

(1)

(1)

Long term borrowings

0

0

0

0

0

Long term leases

0

(1)

(1)

(1)

(1)

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

67,658

53,157

34,171

12,025

(10,872)

CASH FLOW

Operating Cash Flow

 

 

(11,920)

(13,976)

(22,521)

(23,103)

(25,149)

Net Interest

0

0

0

0

0

Tax

0

1,340

4,015

1,282

1,482

Capex

(293)

(532)

(2,660)

(3,192)

(3,830)

Acquisitions/disposals

0

0

0

0

0

Financing

65,195

0

0

0

0

Dividends

0

0

0

0

0

Other

345

520

398

122

87

Net Cash Flow

53,327

(12,648)

(20,768)

(24,891)

(27,410)

Opening net debt/(cash)

 

 

(12,380)

(65,708)

(53,059)

(32,291)

(7,400)

HP finance leases initiated

1

(1)

0

0

0

Other

(0)

(0)

(0)

(0)

0

Closing net debt/(cash)

 

 

(65,708)

(53,059)

(32,291)

(7,400)

20,009

Source: ReNeuron accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by ReNeuron Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by ReNeuron Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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