ReNeuron Group — Clinical pipeline progressing as planned

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 about to start a pivotal Phase III study for ischaemic stroke disability and is currently in a Phase I dose-escalation study for CLI. The company was established in 1998, listed on AIM in 2005 and has 55 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 36%, 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.

We have rolled our model forward to 2017 and therefore increased our valuation to £291m (vs £278m) or 9.2p per share. 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 in 2018. ReNeuron is well-funded (into FY19 on current forecasts), 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: initiation of a pivotal Phase III study for CTX in stroke (H117); initiation of a 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).

On our forecasts, ReNeuron is funded into FY19, which should enable significant advancement of the two pivotal clinical studies (stroke Phase III and RP Phase II/III), advancement of the CLI Phase II study and Phase I exosome study in glioblastoma multiforme. With £60m in cash at the end of September 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.

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 that will determine 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.

ReNeuron recently presented positive Phase II trial data for its CTX cells in chronic stroke patients. The Phase II trial evaluated standardised CTX neural stem cells, injected into the putamen of the brain on the affected side, in a 21-patient Phase II trial for reducing disability following an ischaemic stroke. It specifically looked at improving patient outcomes (or not) during the rehabilitation phase. The PISCES-II study has been described as a futility study, designed to provide a clear and definitive signal of efficacy with CTX cells. Alongside this, it also builds on the body of safety data from the Phase I trial. For an overview of the PISCES I study, our update report following the publication of results in The Lancet can be found here. The Phase II trial design is outlined below.

Within the study, 21 patients were treated with a median time from stroke to treatment of seven months (2-13). These patients have been treated across 10 UK sites with eight UK sites having treated at least one patient. Baseline demographics include:

The primary outcome measure was a minimum 2-point improvement in the ARAT #2. The choice of the ARAT response as an outcome is to provide a robust (and non-subjective) indication of what the benefit would be in the ‘real world’, rather than simply reporting the statistical significance of a defined clinical parameter. The issue is that ischaemic stroke exhibits a great deal of heterogeneity, with the site and size of the infarct, as well as the natural rate of recovery affecting the responses seen. The ARAT scale is well documented as being sensitive, reproducible and an accurate measure of recovery in upper-extremity motor function. It was chosen as a positive outcome would help demonstrate the degree of independence gained – for instance, the ability to feed oneself – and so help drive the reimbursement debate positively.

Meanwhile, assessments according to the standard stroke scales (mRS, BI) were also included as secondary end points, and positive outcomes on these measures are also important when considering further development options and commercial potential. Any pivotal study would likely include these stroke scales, and they may well become the primary end points used, given regulatory confidence and familiarity with them. Please note NIHSS scale was not reported on as an outcome measure as patients who are able to enter a stroke clinical trial all have very ‘good’ NIHSS scores (necessary for informed consent for example). The scale is not sensitive enough to be used in rehabilitation and therefore used in this study as a baseline score and inclusion criteria but not focused on as an outcome. An overview of the stroke assessment measures are shown in Exhibit 2.

The ARAT #2 was the primary end point for the study. The test involves lifting a wooden block from a desk up on to a 30cm shelf and is graded on the following scale:

All patients entering the study started with a test score of 0 or 1, ie they could either complete no part of this test – for example, they couldn’t lift their hand up on to the desk (score 0) – or showed some effort but could not grasp (score 1). Three patients showed a two-point improvement in the ARAT (defined as clinically significant see exhibit 2): one at three months, one at six months and one at 12 months (see Exhibit 3). It should be noted that the primary end point was for two patients to reach the two-point improvement within three months, which wasn’t achieved; however, according to the company, the improvements seen have been sustained to date. In the total ARAT score (used to assess finer motor function, ie smaller objects), there were four responders with a six-point or more increase (defined as clinically significant see exhibit 2). Exhibit 3 also details the total ARAT scores.

The BI measures a patient’s performance on activities of daily living; for example, eating, moving from bed to chair, dressing, etc. 8/21 patients had a greater than nine-point change from baseline (clinically significant as defined in exhibit 2). Interestingly, 6/21 patients were deemed to demonstrate a BI score of 90+ at baseline and therefore unable to reach ‘responder’ status. This means that 8/15 responded (53%).

Fugl-Meyer data were introduced part-way through the study (to capture leg motor activity and to assess its suitability as a future study endpoint) and so data are only currently available on eight patients. Among those eight patients, three responded on the combined upper and lower limb motor function tests, all at three months post-treatment. For details of the test, click here.

The mRS is often used in acute stroke studies. Within this study, to date, seven out of 21 patients demonstrated a clinically significant mRS improvement (for definition see exhibit 2). Seven patients improved by at least one category, with one patient improving by two categories.

Exhibit 7 outlines the results of starting mRS, last measured mRS and when the improvement was first measured. Exhibit 8 shows the shift in mRS scores from the baseline, with the majority of patients only measured through the three-month period at this time. It is clear that the proportion of patients in categories 1 and 2 are growing, which is encouraging.

This study has built on the safety data obtained from PISCES Phase I. From Phase II the company reported:

ReNeuron has indicated that the rate of patient improvement as measured in the Phase II study (motor scales, global impairment and ADL independence) exceeded what it expected would be due to natural recovery alone. As a result, ReNeuron is planning to progress clinical development of its CTX cell therapy candidate in patients with disability due to ischaemic stroke, in a pivotal, controlled, randomised study. We expect this to take place predominantly in the US with possibly a few sites in Europe, and while it is too early to state what the primary end points may be, we do expect it to utilise the scales already outlined here in Phase II, albeit potentially with a different emphasis. In particular, we expect a focus on measures of disability and daily living such as BI and mRS, as these are particularly favoured by regulators. ReNeuron now plans to meet with the US and EU regulators to discuss the details of its pivotal trial, which it aims to commence in mid-2017, with a potential read-out in 2019. In addition to this, ReNeuron is continuing to advance its CTX cell therapy candidate in Japan, where we expect it to find a partner.

ReNeuron is also conducting an observational study called OSIS, which ran alongside the PISCES-II trial. The intention was to facilitate recruitment into the Phase II study (by pre-screening patients), while also potentially providing a comparable patient population dataset, although it is not a controlled placebo group. Data have not been presented from this yet; however, we expect them to provide important insight into the natural time course of disease progression in stroke patients, and this in turn should feed into the pivotal trial design.

Stroke is the fifth-leading cause of death in the US and is 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.

Tissue plasminogen activators (t-PAs), like alteplase (Genentech), have regulatory approvals but must be administered within three to four hours of a stroke, which ultimately restricts the use of t-PAs to just 5-8% of patients. Alteplase gained FDA approval in 1996 and subsequent attempts by multiple large pharma and biotech companies to develop new treatments for stroke, both for acute and chronic stages, have been unsuccessful. As such, stroke is widely regarded as a high-risk area of development.

ReNeuron has a broad clinical pipeline with multiple data readouts anticipated in the next couple of years. In addition to the stroke programme, it also has a Phase I trial in CLI and a Phase I/II trial in RP. For a full company overview, click here. An overview of ReNeuron’s upcoming potential newsflow is outlined below.

hRPC is currently being investigated in a 15-pt Phase I/II study, which is progressing to plan. The trial has three dose cohorts with three patients in each and currently two of the three safety dose cohorts have completed. 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. A more detailed overview of RP and an outline of the trial design can be found here.

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 (six additional patients at the highest safe dose) 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.

A second clinical programme that uses ReNeuron’s standardised CTX neural stem cells focuses on CLI. The CTX cell therapy candidate for CLI is in a six-patient Phase I ascending dose safety trial in the UK. Data from this study are now expected in H117. For a more detailed overview of this study, please click here.

ReNeuron announced in 2016 that it had been awarded a £2.1m grant from Innovate UK for this programme. It is using the funds to develop its manufacturing capabilities alongside further preclinical work. If the outcome of the preclinical work is positive, the company intends to start a Phase I clinical trial in H118 (previously H217). We expect this could be granted orphan indication status if successful, 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. To view published data click here and for a more detailed overview of the programme click here.

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 early commercialisation.

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 (for details, please click here to view previous notes) 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 III stroke trial that will establish 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.

We have rolled our model forward to 2017 and therefore increased our rNPV-based valuation to £291m, or 9.2p per share. We do not currently 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 H118. Our key model assumptions are summarised in Exhibit 10.

ReNeuron is well-funded (into FY19 on current forecasts), 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:

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, ReNeuron’s development focus is on therapeutic areas where the cost burden is high and current treatments are inadequate, hence providing a strong cost benefit rationale for reimbursement.

We note that our peak sales estimates and treatment costs for the hRPC programme and stroke programmes could be conservative as transformational disease-modifying treatments could be priced significantly higher. Given the relatively early stage of development of ReNeuron’s stem cell technology, and the higher than-average risk involved in the lead indications, particularly stroke, we have been cautious in terms of the probability of success (raised to 25% following the Phase II data). We do, however, assume a relatively high treatment price ($50,000) for stroke at this stage. This is driven by the assumption that a one-off treatment with CTX cells has the potential to provide a significant improvement in the quality of life of disabled patients, which is one of the key criteria behind reimbursement decisions (eg QALY).

In Exhibit 11, we show the indicative valuations that may result from further positive clinical data, which would justify a higher probability of success, but potentially also in the treatment price that could be secured, which would be dependent on the extent of the impact on daily living for these patients.

Following the £68.4m (net raise of £65.2m) capital raise in July 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 have reviewed our current forecasts and adjusted them slightly as the company is in preparation for its Phase III study as a result we expect capex and R&D costs to ramp up in FY18. We continue to expect an increase in R&D spend due to the Phase 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. We now forecast R&D in FY17 of £16.4m (vs £19.5m) and £27.9m (vs £24.0m) in FY18. As a result of this we have also reduced our forecasted tax credit to £1.2m (vs £2.8m) in 2017 and £1.6m (vs £3.4m) in 2018. We have also reduced slightly our SG&A costs to £4.1m (vs $4.6m) in 2017 and £4.3m (vs £5.1m) in 2018. Finally, we expect capex to increase in FY18 alongside the increase in expenses resulting from the Phase III Stroke trial. We now forecast £1.8m (vs £0.4m) in FY18.

ReNeuron is well-funded (H117 cash of £60m) and therefore well-positioned to deliver on a range of clinical and operational milestones that could be transformative. We forecast a cash runway into FY19, which should enable significant advancement of the two pivotal clinical studies (stroke Phase III study and RP Phase II/III study) and Phase I exosome study in GBM. At that point, ReNeuron will either raise further funding and/or partner some of its programmes