ReNeuron Group — H124 results reaffirm focus on CustomEX

ReNeuron Group (AIM: RENE)

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Research: Healthcare

ReNeuron Group — H124 results reaffirm focus on CustomEX

ReNeuron has announced its H124 results (to end-September 2023), reaffirming its commitment to advance CustomEX(TM), its proprietary stem cell-derived exosome delivery platform. The key operational update from the period included in vivo data, marking a crucial step towards validating CustomEX(TM) and distinguishing it from peers in the exosome delivery space due to its cellular and tissue-targeting capabilities. As of 30 September 2023, ReNeuron had a cash balance of £5.1m, which we estimate should fund operations into Q1 FY25 (Q2 CY24), consistent with management’s expected cash runway to April 2024. As we roll our model forward and adjust our forecasts for FY24 and FY25, we amend our valuation of ReNeuron to £30.0m or 52p per share (versus £29.3m or 51p per share previously).

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

ReNeuron-Group_resized

Healthcare

ReNeuron Group

H124 results reaffirm focus on CustomEXTM

H124 results

Pharma and biotech

27 November 2023

Price

4.13p

Market cap

£2m

US$1.25/£

Net cash (£m) 30 September 2023

5.1

Shares in issue

57.2m

Free float

99.7%

Code

RENE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(25.0)

(57.7)

(83.2)

Rel (local)

(26.8)

(58.6)

(83.1)

52-week high/low

34.00p

5.75p

Business description

ReNeuron Group is a UK biotech focused on the development of its stem cell-derived exosome drug delivery platform (CustomEXTM). The company operates as a contract research and development organisation and has established partners that are progressing the preclinical development of exosome-based therapeutics, utilising ReNeuron’s CustomEXTM technology.

Next events

Expansion of exosome partnerships

FY24

Fosun CTX manufacturing initiated

FY24

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Arron Aatkar

+44 (0)20 3077 5700

Jyoti Prakash, CFA

+44 (0)20 3077 5700

ReNeuron Group is a research client of Edison Investment Research Limited

ReNeuron has announced its H124 results (to end-September 2023), reaffirming its commitment to advance CustomEXTM, its proprietary stem cell-derived exosome delivery platform. The key operational update from the period included in vivo data, marking a crucial step towards validating CustomEXTM and distinguishing it from peers in the exosome delivery space due to its cellular and tissue-targeting capabilities. As of 30 September 2023, ReNeuron had a cash balance of £5.1m, which we estimate should fund operations into Q1 FY25 (Q2 CY24), consistent with management’s expected cash runway to April 2024. As we roll our model forward and adjust our forecasts for FY24 and FY25, we amend our valuation of ReNeuron to £30.0m or 52p per share (versus £29.3m or 51p per share previously).

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(£)

P/E
(x)

Yield
(%)

03/22

0.4

(11.1)

(17.0)

0.0

N/A

N/A

03/23

0.5

(6.7)

(9.5)

0.0

N/A

N/A

03/24e

0.7

(6.2)

(9.1)

0.0

N/A

N/A

03/25e

12.1

4.8

7.2

0.0

0.6

N/A

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

Positive progression with in vivo data in hand

During the Cell 2023 Conference, ReNeuron highlighted the cellular and tissue-targeting capabilities of CustomEXTM, covering in vivo exosome targeting and confirming the dependence of the targeting on the cell source. Consequently, opting for a specific exosome population is expected to enhance the delivery of therapeutic payloads, a notable contrast to the HEK293 exosome approach employed by competitors in the field, according to ReNeuron’s data. This targeting was exemplified with specific CustomEXTM exosomes, which demonstrated the ability to preferentially target lymph nodes (immune system), selectively target tubules within the kidney and deliver a payload to the lung after systemic administration.

Recent cost control extends runway to April 2024

Stringent cost control after the January 2023 restructuring was successful, with opex falling 27% y-o-y and operating loss improving by c 23% y-o-y to £3.3m in H124 (£4.3m in H123). With a net cash balance of £5.1m at the end of H124, we believe ReNeuron is funded into Q1 FY25 (Q2 CY24) based on our cash burn projections. This is consistent with management guidance of a cash runway to April 2024. We now estimate that ReNeuron needs to raise c £5m (versus £15m previously) to fund operations into mid-FY25, at which point our model assumes that the company will secure a global licensing deal. We add the caveat that the timing of such a deal can be variable and may require subsequent revisions of our estimates.

Valuation: £30.0m or 52p per share

We value ReNeuron at £30.0m or 52p per share (versus £29.3m or 51p per share previously). The slight change is due to rolling our model forward and a minor adjustment to our forecasts.

Leveraging the CustomEXTM platform

In its H124 update, ReNeuron restated the commitment to advancing its proprietary CustomEXTM stem cell-derived exosome platform. It currently operates as a research and development organisation with early-stage revenue from exosome research services, but management’s longer-term ambition is to establish partner programmes with licensing agreements, consisting of development milestones and sales-based royalties. With respect to manufacturing, the company focus is on smaller-scale preclinical needs, and to outsource larger-scale production to Good Manufacturing Practice accredited partners. We see this as a sensible strategy for ReNeuron, as it reduces the risks associated with conducting large capital expenditure programmes that require significant investment.

Exosome delivery platform differentiated from competition

CustomEXTM is a stem cell-derived exosome platform with a unique delivery mechanism for a variety of therapeutic payloads, including small molecules, nucleic acids, proteins and gene-editing technologies. ReNeuron’s exosome populations are derived from a catalogue of seven proprietary stem cell lines: four neural stem cell lines and three stem cell lines from areas outside of the brain. While the most advanced competitor programmes use exosomes derived from HEK293cells (immortalised human embryonic kidney cells), we believe that CustomEXTM could differentiate via its diversification in stem cell lines.

ReNeuron's CustomEXTM platform offers several distinct potential advantages compared to competitors, which utilise a single cell line approach, such as HEK-derived exosomes. The CustomEXTM platform uses a diverse portfolio of stem cell-derived exosomes and, as each exosome inherits unique properties derived from its parent stem cell line, it allows for tailored and precise targeting capabilities (Exhibit 1). We note that the platform also uses conditionally immortalised exosome producer lines, allowing for the consistent production of exosomes at a clinically relevant scale (Exhibit 2).

Exhibit 1: CustomEXTM platform uses a diverse portfolio of stem-cell derived exosomes

Exhibit 2: Conditional immortalisation

Source: ReNeuron Cell 2023 Conference presentation

Source: ReNeuron Cell 2023 Conference presentation

Exhibit 1: CustomEXTM platform uses a diverse portfolio of stem-cell derived exosomes

Source: ReNeuron Cell 2023 Conference presentation

Exhibit 2: Conditional immortalisation

Source: ReNeuron Cell 2023 Conference presentation

In vivo data support CustomEXTM’s capabilities

While ReNeuron has a track record of demonstrating that exosome targeting is dependent on the cell source, this work was initially focused on the generation of in vitro data (ie outside of a biological context, typical for early-stage preclinical research). However, more recently, the company has focused on demonstrating the distinct organ- and cellular-targeting capabilities of its proprietary stem-cell derived exosomes in vivo (ie within a biological context, an important next step for this kind of research). In September 2023, ReNeuron announced that it had taken this step, and at the Cell 2023 Conference in London (7–8 November), it presented the in vivo data. We view the successful generation of the preclinical data as positive and believe it marks encouraging progress towards validating the capabilities of its CustomEXTM drug delivery platform. In particular, the in vivo data confirmed that exosome targeting is dependent on the cell source. For example, a specific CustomEXTM exosome has been developed to target lymph nodes based on the cell source (details below). Furthermore, in the latest update it was found that selection of the appropriate exosome population leads to improved delivery of therapeutic payloads compared to the conventional HEK293 exosome approach, according to ReNeuron’s research.

Immune system targeting: Starting small, finishing big

To exemplify the targeting capabilities of its CustomEXTM exosomes, ReNeuron conducted three biodistribution studies (Exhibit 3).

First, with the intention of utilising a small animal model, ReNeuron conducted a rat biodistribution study whereby its proprietary exosomes was labelled with Zr89 (a radioactive isotope commonly used for labelling studies) and uptake in the cervical lymph nodes was measured over time after intrathecal administration. As shown by the data presented in red in the figure on the left in Exhibit 3, exosome EV3b (referred to as CustomEXTM #3) had an excess of 90% of initial dose per gram of tissue (%ID/g), notably higher than the other exosomes tested shown in green and blue. This demonstrates an approximately fivefold improvement in targeting the lymph nodes with this specific exosome, indicating evidence of ReNeuron’s selective delivery capabilities.

Second, using another small animal model, a mouse distribution study was conducted using Zr89 labelling of CustomEXTM #3 but, in this case, with an intraperitoneal injection. The middle figure in Exhibit 3 shows similar lymph node targeting, providing additional support for the company’s targeting capabilities.

Third, ReNeuron subsequently wanted to test the same hypothesis in a bigger animal and therefore used a pig model as a suitable surrogate for humans because of its similarities in size, physiology and genetics. In this case, rather than a radioactive approach, CustomEXTM #3 was fluorescently labelled. It was found that following spleen perfusion, the exosome accumulated in the white pulp (germinal centre) of the spleen, shown in red in the right figure in Exhibit 3 below.

Exhibit 3: Immune targeting capabilities of CustomEXTM #3 with three in vivo studies

Source: ReNeuron Cell 2023 Conference presentation

Targeting of kidney tubules, demonstrated with pig model

ReNeuron subsequently investigated the targeting of kidneys using the same ex vivo pig perfusion model as previously mentioned. The kidneys serve as the body’s filtration system, and it is understood that the glomerular filtration apparatus has an approximate size cut-off of 10nm. Small molecules are therefore filtered out, while larger biomolecules get stuck or captured at the glomerular filter. The company compared typical HEK-derived exosomes to its proprietary CustomEXTM #4 exosomes (Exhibit 4). It was found that while exosomes were capable of crossing this biological barrier within the kidneys, for HEK-derived exosomes there was a more even distribution across the glomeruli and tubules of the kidney, whereas CustomEXTM #4 showed targeted delivery to the tubules. These data demonstrate that CustomEXTM exosomes may be used to target specific cells within a tissue type.

Exhibit 4: Kidney tubule targeting capabilities of CustomEXTM #4

Source: ReNeuron Cell 2023 Conference presentation

Delivering a therapeutic payload to the lung

Using a rodent model, ReNeuron went on to compare several proprietary CustomEXTM exosomes to HEK-derived exosomes following systemic administration. It was determined that CustomEXTM #3 was the only one capable of targeting the lung (Exhibit 5). Next, to demonstrate that the cargo could carry a payload, the targeted delivery of a small molecule therapeutic was assessed. Using a fluorescently labelled small molecule combined with CustomEXTM #3, it was found that the small molecule could successfully be delivered to the rodent’s lung, following systemic administration. Importantly, when the fluorescently labelled small molecule was administered alone (ie without the delivery service of CustomEXTM #3), there was no fluorescence observed in the lungs, indicating that this specific tissue targeting was dependent on the CustomEXTM exosome (Exhibit 6).

Effective lung targeting could have implications for a number of conditions including cystic fibrosis, characterised by the build-up of thick, sticky mucus in the body’s tubes and passageways, particularly the lungs and digestive system. Treatment options for cystic fibrosis are currently limited to controlling the symptoms and preventing complications. For example, antibiotics are used to treat chest infections, but there is currently no known cure for this genetic condition. However, while we acknowledge that ReNeuron is not pursuing any specific indications at this stage, as an example we envision that its CustomEXTM delivery capabilities could potentially play a role in the delivery of an appropriate therapeutic, should a potential partner be interested in this condition.

Exhibit 5: Capabilities of CustomEXTM #3 for systemic targeting of the lung

Exhibit 6: Targeted delivery of a fluorescently labelled small molecule therapeutic payload

Source: ReNeuron Cell 2023 Conference presentation

Source: ReNeuron Cell 2023 Conference presentation

Exhibit 5: Capabilities of CustomEXTM #3 for systemic targeting of the lung

Source: ReNeuron Cell 2023 Conference presentation

Exhibit 6: Targeted delivery of a fluorescently labelled small molecule therapeutic payload

Source: ReNeuron Cell 2023 Conference presentation

Not just effective, but also safe

Finally, we wish to highlight that another key potential advantage of ReNeuron’s approach to drug delivery is safety. Referring to the research conducted on the kidneys, the company’s latest update showed that exosome-treated kidneys showed no evidence of inflammatory acute kidney injury or damage. While we acknowledge that this is very early-stage research, we believe it represents a desirable safety profile, particularly when compared to alternative delivery systems such as lipid nanoparticles (LNPs and viral vectors). However, further data will be required to confirm the potential safety benefits of the exosome approach. We note that while LNPs now represent a well-established approach to drug delivery, earlier-stage research in this area was hindered by the non-specific tissue distribution of drugs. For a detailed comparison of exosomes with LNPs, we direct readers to our thematic report on drug delivery platforms.

Potential for additional partnerships

ReNeuron has previously established a number of discovery stage collaborations with industrial and academic partners. The company's mission, in collaboration with such partners, both new and existing, is to develop novel exosome therapeutics for diseases with significant unmet needs. CustomEXTM provides a unique delivery mechanism that offers diversification via a variety of delivery targets and payloads. The platform should enable the potential to generate both new and larger collaborative licensing opportunities.

Financials

ReNeuron reported total revenue of £0.2m in H124, down from £0.4m in H123, mainly related to income from partner-funded development activities and royalties from one of its legacy stem cell lines. Total operating expenses declined significantly to £3.5m in H124 from £4.7m in H123 driven by the restructuring and operational realignment that ReNeuron announced in January 2023. R&D expenses decreased by 27% y-o-y to £2.2m (H123: £3.0m) because of a reduction in clinical trial-related costs. General and administrative expenses were down 25.8% y-o-y to £1.3m, reflecting the impact of lower employee headcount and other cost savings. The decline in operating expenses resulted in an improved operational loss of £3.3m in H124 from £4.3m in H123.

The company recorded a net loss of £2.8m in H124 compared to £3.2m in H123. Net cash outflow from operating activities was reported at £2.1m (H123: £4.3m), which was supported by the reduction in operating costs and receipt of the £1.2m R&D tax credit in H124 compared with none in H123 (a £1.5m R&D tax credit was received in H223).

Based on the H124 run rate and current operational visibility, we have reduced our FY24 and FY25 revenue estimates to £0.7m and £12.1m, respectively (from £0.9m and £12.3m previously) and have lowered our FY24 and FY25 operating expense estimates further to £6.9m and £7.3m, respectively (from £8.0m and £8.4m previously). This results in a forecast operating loss of £6.3m (£7.1m previously) in FY24 and operating profit of £4.8m in FY25 (£3.9m previously). Note that our model assumes that ReNeuron signs a licensing deal in FY25, with an upfront payment of $12m. However, this figure is subject to a high degree of variability and we need to adjust our estimates when more information becomes available.

At end-September 2023, ReNeuron reported a net cash position of £5.1m. Based on the current H124 operating cash burn of £2.1m and our FY24 forecast of £5.9m in operating cash outflow, we estimate that the company is funded into Q1 FY25 (Q2 CY24). This is in line with management’s estimate of a cash runway to April 2024. However, we believe ReNeuron will need to raise an additional c £5m (previously £15m) in the coming months to fund operations into mid-FY25, at which point we have assumed in our model that it will secure a global licensing deal. However, we note that this assumption is subject to variability and is contingent on ReNeuron advancing its technology and CustomEXTM platform at a rapid pace.

Valuation

We adjust our valuation of ReNeuron to £30.0m or 52p per share (from £29.3m or 51p per share), as we roll forward our model and update for the H124 results. Our valuation is positively affected by the above-mentioned changes to our forecasts (particularly lowering operating expenses) and rolling forward our model. This is partly offset by a lower net cash figure, which has reduced to £5.1m at end-September (from £7.2m at end-March). Our long-term assumptions for the company are unchanged for now.

As stated earlier, we assume that ReNeuron will raise c £5m in Q1 FY25 (Q2 CY24), shown as illustrative debt in our model. If these funds are raised through an equity issue, the company would need to issue an additional 121m shares (at the current share price of 4.125p), which would dilute our per-share valuation to 17p from 52p currently. Our rNPV breakdown is shown in Exhibit 7.

Exhibit 7: ReNeuron’s valuation

Product

Indication

Launch

Peak

Peak sales
(£m)

Value
(£m)

Probability

rNPV
(£m)

rNPV/ share (p)

Exosome programme 1

Alzheimer’s

2032

2037

6,204.6

654.4

2%

16.8

29

Exosome programme 2

Parkinsons

2033

2038

554.5

58.9

2%

2.3

4

Fosun Pharma

Stroke

2028

2033

340.2

102.4

5%

5.8

10

Net cash on 30 September 2023

 

 

 

5.1

100%

5.1

9

Valuation

 

 

 

820.8

30.0

52

Source: Edison Investment Research

Exhibit 8: Financial summary

Accounts: IFRS; year end: 31 March; £000s

 

 

2022

2023

2024e

2025e

PROFIT & LOSS

 

 

 

 

 

 

Total revenues

 

 

403

530

654

12,107

Cost of sales

 

 

0

0

0

0

Gross profit

 

 

403

530

654

12,107

Total operating expenses

 

 

(11,631)

(7,645)

(6,919)

(7,265)

Research and development expenses

 

 

(8,068)

(4,463)

(4,374)

(4,592)

SG&A

 

 

(3,563)

(3,182)

(2,546)

(2,673)

Operating income (reported)

 

 

(11,228)

(7,115)

(6,265)

4,842

Finance income/(expense)

 

 

170

458

103

1

Exceptionals and adjustments

 

 

0

0

0

0

Profit before tax (reported)

 

 

(11,058)

(6,657)

(6,162)

4,843

Profit before tax (normalised)

 

 

(11,058)

(6,657)

(6,162)

4,843

Income tax expense (includes exceptionals)

 

 

1,369

1,249

936

(736)

Net income (reported)

 

 

(9,689)

(5,408)

(5,226)

4,107

Net income (normalised)

 

 

(9,689)

(5,408)

(5,226)

4,107

Basic average number of shares, m

 

 

57.0

57.1

57.2

57.2

Basic EPS (pence)

 

 

(17.0)

(9.5)

(9.1)

7.2

Adjusted EPS (pence)

 

 

(17.0)

(9.5)

(9.1)

7.2

Dividend per share (£)

 

 

0.00

0.00

0.00

0.00

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

Tangible assets

 

 

288

338

256

552

Intangible assets

 

 

186

186

186

186

Right-of-use assets

 

 

373

283

192

104

Other non-current assets

 

 

0

0

0

0

Total non-current assets

 

 

847

807

635

842

Cash and equivalents

 

 

14,548

7,153

1,128

10,782

Current tax receivables

 

 

1,392

1,185

936

0

Trade and other receivables

 

 

536

500

525

551

Other current assets

 

 

0

0

0

0

Total current assets

 

 

16,476

8,838

2,590

11,333

Non-current loans and borrowings

 

 

0

0

0

0

Non-current lease liabilities

 

 

416

268

115

115

Long term debt

 

 

0

0

0

5,000

Total non-current liabilities

 

 

416

268

115

5,115

Accounts payable

 

 

6,873

4,167

3,125

2,969

Current lease obligations

 

 

146

153

153

153

Other current liabilities

 

 

0

0

0

0

Total current liabilities

 

 

7,019

4,320

3,278

3,122

Equity attributable to company

 

 

9,888

5,057

(169)

3,938

 

 

 

 

 

 

 

CASH FLOW STATEMENT

 

 

 

 

 

 

Operating income

 

 

(11,228)

(7,115)

(6,265)

4,842

Depreciation and amortisation

 

 

324

267

272

293

Share based payments

 

 

649

576

0

0

Other adjustments

 

 

1,788

1,436

1,157

190

Movements in working capital

 

 

1,056

(2,648)

(1,067)

(183)

Cash from operations (CFO)

 

 

(7,411)

(7,484)

(5,903)

5,143

Capex

 

 

(302)

(220)

(100)

(500)

Acquisitions & disposals net

 

 

0

0

0

0

Bank deposits

 

 

2,500

5,000

0

0

Other investing activities

 

 

26

131

131

11

Cash used in investing activities (CFIA)

 

 

2,224

4,911

31

(489)

Capital changes

 

 

23

1

0

0

Debt Changes

 

 

(157)

(148)

(153)

0

Other financing activities

 

 

0

0

0

0

Illustrative Debt

 

 

0

0

0

5,000

Cash from financing activities (CFF)

 

 

(134)

(147)

(153)

5,000

Cash and equivalents at beginning of period

 

 

14,703

9,548

7,153

1,128

Increase/(decrease) in cash and equivalents

 

 

(5,321)

(2,720)

(6,025)

9,654

Effect of FX on cash and equivalents

 

 

166

326

0

0

Cash and equivalents at end of period

 

 

9,548

7,153

1,128

10,782

Net cash (debt)

 

 

9,548

7,153

1,128

5,782

Source: Company reports, Edison Investment Research


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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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

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United States

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20 Red Lion Street

London, WC1R 4PS

United Kingdom

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