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Research: Healthcare
After a second half punctuated by outstanding interim clinical results and partnering, which together contributed to a c 430% year-to-date share price increase, the FY19 financial results now return to focus. The FY19 net loss decreased to £14.3m (£17.6m in FY18), driven by R&D spend of £16.3m and an R&D tax credit of £2.9m. We expect the year-end FY19 cash balance of £26.4m to last into FY21.
Written by
ReNeuron Group |
FY19 prelims after a momentous second half |
FY19 results |
Pharma & biotech |
17 July 2019 |
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After a second half punctuated by outstanding interim clinical results and partnering, which together contributed to a c 430% year-to-date share price increase, the FY19 financial results now return to focus. The FY19 net loss decreased to £14.3m (£17.6m in FY18), driven by R&D spend of £16.3m and an R&D tax credit of £2.9m. We expect the year-end FY19 cash balance of £26.4m to last into FY21.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/18 |
0.9 |
(21.0) |
(55.66) |
0.0 |
N/A |
N/A |
03/19 |
2.7 |
(17.2) |
(45.16) |
0.0 |
N/A |
N/A |
03/20e |
0.0 |
(24.1) |
(63.67) |
0.0 |
N/A |
N/A |
03/21e |
0.0 |
(27.9) |
(73.74) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Preliminary FY19 results
ReNeuron’s R&D expense decreased slightly to £16.3m (from £16.7m in FY18) due to the delayed start of the PISCES III Phase IIb study of its CTX neural stem cell therapy product in chronic stroke patients. R&D accounted for 77% of operating expense. The reduced operating loss of £18.3m (vs £20.4m in FY18) also included the costs of running the ongoing Phase I/IIa study of the human retinal progenitor cell (hRPC) cellular therapy product in retinitis pigmentosa (RP). The FY19 net loss was £14.3m (vs £17.6m in FY18), thanks to a £2.9m R&D tax credit (£3.4m in FY18) and foreign currency gains. Year-end FY19 cash was £26.4m, which we expect to provide a runway into 2021.
Clinical trial data continues to determine prospects
With the CTX product in an ongoing placebo-controlled Phase IIb study in the US and the most recent positive interim data on ReNeuron’s hRPC product for RP in the Phase I/IIa study, the focus for investors has been on the company’s product pipeline rather than its financials. Clinical trial results from the pipeline have clearly helped the out-licensing of both the CTX and hRPC products to Fosun for China with associated milestone cash inflows. ReNeuron now has the luxury to await later-stage transactions, outside those for smaller territories like Japan and on the exosome delivery platform, until Phase IIb data. We have included a £16m cash inflow as illustrative debt as a placeholder for either a licensing transaction or stock offering in 2021.
Valuation: Minor changes await the next transaction
We have updated our model for the FY19 preliminary results and made a number of other changes. We have increased our R&D spend in FY20 and FY21 to reflect the deferred spend from the delayed start to the PISCES III study. The £16m illustrative debt represents either a licensing transaction or a fund-raising in FY21. These two changes reduced our valuation by c 3% but are more than offset by updating our model to reflect the Fosun milestones, R&D tax credits and US dollar strength. Our valuation moves to £198m or 625p per share, from £193m or 610p per share previously. Our probabilities of success remain unchanged for now.
Exhibit 1: Financial summary
£000s |
2017 |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
900 |
897 |
2,671 |
49 |
49 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
900 |
897 |
2,671 |
49 |
49 |
||
R&D expenses |
(16,648) |
(16,657) |
(16,255) |
(24,656) |
(27,889) |
||
SG&A expenses |
(4,139) |
(4,616) |
(4,747) |
(5,078) |
(5,586) |
||
EBITDA |
|
|
(19,814) |
(20,222) |
(18,000) |
(24,110) |
(27,914) |
Operating Profit (before amort. and except.) |
|
(19,887) |
(20,376) |
(18,282) |
(24,236) |
(27,977) |
|
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(19,887) |
(20,376) |
(18,282) |
(24,236) |
(29,277) |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Net Interest |
1,722 |
(591) |
1,103 |
132 |
36 |
||
Profit Before Tax (norm) |
|
|
(18,165) |
(20,967) |
(17,179) |
(24,104) |
(27,941) |
Profit Before Tax (FRS 3) |
|
|
(18,165) |
(20,967) |
(17,179) |
(24,104) |
(27,941) |
Tax |
2,592 |
3,352 |
2,887 |
3,956 |
4,606 |
||
Profit After Tax (norm) |
(15,573) |
(17,615) |
(14,292) |
(20,148) |
(23,335) |
||
Profit After Tax (FRS 3) |
(15,573) |
(17,615) |
(14,292) |
(20,148) |
(23,335) |
||
Average Number of Shares Outstanding (m) |
31.6 |
31.6 |
31.6 |
31.6 |
31.6 |
||
EPS - normalised (p) |
|
|
(0.49) |
(55.66) |
(45.16) |
(63.67) |
(73.74) |
EPS - FRS 3 (p) |
|
|
(0.49) |
(55.66) |
(45.16) |
(63.67) |
(73.74) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
724 |
912 |
818 |
917 |
1,126 |
Intangible Assets |
0 |
186 |
186 |
186 |
186 |
||
Tangible Assets |
724 |
726 |
632 |
731 |
940 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
58,136 |
41,706 |
30,029 |
10,842 |
4,381 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
1,060 |
1,285 |
875 |
875 |
875 |
||
Cash and deposits |
53,061 |
37,411 |
26,386 |
7,199 |
738 |
||
Other |
4,015 |
3,010 |
2,768 |
2,768 |
2,768 |
||
Current Liabilities |
|
|
(5,703) |
(5,949) |
(7,430) |
(7,430) |
(7,430) |
Creditors |
(5,703) |
(5,949) |
(7,430) |
(7,430) |
(7,430) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Short term leases |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
(16,000) |
Long term borrowings |
0 |
0 |
0 |
0 |
(16,000) |
||
Long term leases |
0 |
0 |
0 |
0 |
0 |
||
Other long-term liabilities |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
53,157 |
36,669 |
23,417 |
4,330 |
(17,923) |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(12,626) |
(14,887) |
(11,992) |
(19,093) |
(22,227) |
Net Interest |
520 |
383 |
342 |
132 |
36 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(532) |
(235) |
(188) |
(226) |
(271) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
0 |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(12,648) |
(14,739) |
(11,838) |
(19,187) |
(22,462) |
||
Opening net debt/(cash) |
|
|
(65,708) |
(53,061) |
(37,411) |
(26,386) |
(7,199) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
(0) |
(911) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(53,061) |
(37,411) |
(26,386) |
(7,199) |
15,262 |
Source: ReNeuron accounts, Edison Investment Research
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Research: Industrials
Diversification both inside and outside the agriculture sector means that Carr’s Group continues to trade in line with management expectations for FY19 despite the unusually mild UK winter and spring. We leave our estimates and indicative valuation of 184p per share unchanged.