RenalytixAI Reports Financial Results for Second Quarter of Fiscal Year 2021

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NEW YORK, March 02, 2021 (GLOBE NEWSWIRE) -- Renalytix AI plc (LSE: RENX) (NASDAQ: RNLX) (“RenalytixAI” or the “Company”), an artificial intelligence-enabled in vitro diagnostics company, focused on optimizing clinical management of kidney disease to drive improved patient outcomes and advance value-based care, today reported financial results for the quarter and six months ended December 31, 2020.

“Our path to establishing advanced precision prognostics to guide and inform population-wide kidney health continues to become clearer,” said James McCullough CEO. “The January finalization of the Medicare Coverage of Innovative Technology rule provides the foundation to achieve broad insurance coverage for KidneyIntelX. With our newly announced partnerships with University of Utah and DaVita, we are on track to exceed our goal of implementing KidneyIntelX across at least three major healthcare networks before our fiscal year ends in June. We expect to announce additional partnerships in 2021 that will further set the foundation for direct access to KidneyIntelX in advance of Medicare coverage by large groups of primary care and specialist clinicians treating early-stage diabetic kidney disease patients.”

Recent Highlights

  • Accelerated pathway for reimbursement coverage of KidneyIntelX with the finalization of the Medicare Coverage of Innovation Technology (MCIT) rule; national Medicare coverage upon FDA clearance of KidneyIntelX, which we anticipate in calendar 2021
  • Issued the first KidneyIntelX test reports to primary care and specialist physicians in the Mount Sinai network, completing the first instance of fully integrated electronic health record (EHR) ordering and score reporting; physician practice participation increasing with revenue recognition from Mount Sinai expected to begin in the fiscal third quarter of 2021
  • Confirmed plans to expand the indicated use of KidneyIntelX for individuals with general chronic kidney disease, including the underserved African ancestry and Hispanic population groups. New indicated use, if approved, expected to increase U.S. total addressable market for KidneyIntelX to an estimated 37 million patients
  • Announced partnership with DaVita enabling first-of-its-kind program combining early risk assessment and comprehensive care management to improve early to late stage patient outcomes and provide meaningful cost reductions for health care providers
  • Announced partnership with the University of Utah to implement KidneyIntelX and advanced clinical management system-wide at University of Utah Health enabling integrated EHR for 1,700 clinicians across six states
  • Continued building KidneyIntelX study data with key findings to be presented at World Congress of Nephrology, American Diabetes Association and Healthcare Information and Management Systems Society in 2021.  Findings include further validation in large international trial cohort, monitoring therapeutic response and impact in clinical decision making/therapy management

Second Quarter 2021 Financial Results
During the three months ended December 31, 2020 the Company recognized $0.4 million of pharmaceutical services revenue. Cost of revenue for the three months ended December 31, 2020 was $0.3 million.

Operating expense for the three months ended December 31, 2020 was $8.8 million compared to $2.7 million during the three months ended December 31, 2019.

Research and development expenses were $2.5 million, increasing by $1.4 million from $1.1 million for the three months ended December 31, 2019. Research and development expenses for the three months ended December 31, 2020 include $0.2 million related to VericiDx which was not formed until April 2020. The increase in R&D was primarily due to increased headcount as well as expense related to two product development studies focused on long-term effects of COVID-19 on kidney health.

General and administrative expenses increased by $5.0 million from $1.6 million for the three months ended December 31, 2019 to $6.6 million for the three months ended December 31, 2020. The increase was primarily due to increased expenses related to public listing compliance, headcount and consulting and professional fees.

Net loss attributable to ordinary shareholders was $8.9 million for the three months ended December 31, 2020, compared to $4.7 million for the three months ended December 31, 2019.

Cash, cash equivalents and short-term investments were $74.5 million as of December 31, 2020, compared to $14.3 million as of June 30, 2020.

For further information, please contact:

UK Investor Contact: 
Walbrook PR LimitedTel: 020 7933 8780 or renalytix@walbrookpr.com
Paul McManus / Lianne CawthorneMob: 07980 541 893 / 07584 391 303
  
US Investor Contact: 
Gilmartin Groupinvestors@renalytixai.com
Carrie Mendivil / Mary Kate McDonough415-937-5405

About Kidney Disease
Kidney disease is now recognized as a public health epidemic affecting over 850 million people globally. The Centers for Disease Control and Prevention (CDC) estimates that 15% of US adults, or 37 million people, currently have chronic kidney disease (CKD). Further, the CDC reports that 9 out of 10 adults with CKD do not know they have it and 1 out of 2 people with very low kidney function who are not on dialysis do not know they have CKD*. Kidney disease is referred to as a "silent killer" because it often has no symptoms and can go undetected until a very advanced stage. Each year kidney disease kills more people than breast and prostate cancer. Every day, 13 patients in the United States die while waiting for a kidney transplant.
* https://www.cdc.gov/kidneydisease/publications-resources/2019-national-facts.html

About RenalytixAI
RenalytixAI is a developer of artificial intelligence-enabled clinical in vitro diagnostic solutions for kidney disease, one of the most common and costly chronic medical conditions globally. RenalytixAI's products are being designed to make significant improvements in kidney disease diagnosis, transplant management, clinical care, patient stratification for drug clinical trials, and drug target discovery. For more information, visit www.renalytixai.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, that are based on management’s beliefs and assumptions and on information currently available to management. All statements contained in this release other than statements of historical fact are forward-looking statements, including statements regarding our ability to develop, commercialize and achieve market acceptance of our current and planned products and services and indicated uses, our research and development efforts, our partnership and collaboration efforts, and other matters regarding our business strategies, use of capital, results of operations and financial position, and plans and objectives for future operations.

In some cases, you can identify forward-looking statements by the words “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. These risks, uncertainties and other factors are described under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in the documents we file with the Securities and Exchange Commission from time to time. We caution you that forward-looking statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. As a result, the forward-looking statements may not prove to be accurate. The forward-looking statements in this press release represent our views as of the date hereof. We undertake no obligation to update any forward-looking statements for any reason, except as required by law.

RENALYTIX AI PLC

Operational Update and Financial Results for the Three and Six Months Ended December 31, 2020

Unless otherwise indicated, all references in this report to the terms “Renalytix,” “RenalytixAI,” “Renalytix AI plc,” “the Company,” “we,” “us” and “our” refer to Renalytix AI plc together with its subsidiaries. We recommend that you read the discussion below together with our audited financial statements and the notes thereto, which appear in our Annual Report on Form 20-F for the year ended June 30, 2020, filed with the Securities and Exchange Commission on October 28, 2020 (our “Annual Report”).

The statements in this discussion regarding our expectations regarding our market opportunity and future performance, as well as all other non-historical statements are forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks and uncertainties set forth in the “Risk Factors” section of our Annual Report and any subsequent reports that we file with the SEC. See also the section titled “Forward-Looking Statements” above.

OPERATIONAL REVIEW

Company Overview

We are an artificial intelligence-enabled in vitro diagnostics company, focused on optimizing clinical management of kidney disease to drive improved patient outcomes and lower healthcare costs. KidneyIntelX, our first-in-class diagnostic platform, employs a proprietary artificial intelligence-enabled algorithm that combines diverse data inputs, including validated blood-based biomarkers, inherited genetics and personalized patient data from electronic health record (“EHR”) systems, to generate a unique patient risk score. This patient risk score enables prediction of progressive kidney function decline in chronic kidney disease (“CKD”) allowing physicians and healthcare systems to optimize the allocation of treatments and clinical resources to patients at highest risk. CKD affects approximately 37 million individuals in the United States, significantly impacting their quality of life and, according to the United States Renal Data System’s 2019 Annual Data Report, resulting in Medicare spending of over $120 billion per year. In response to this substantial kidney disease burden, a U.S. Presidential Executive Order on Advancing American Kidney Health was issued in July 2019 to support change in kidney disease care. We believe we are well-positioned to help meet this urgent medical need with KidneyIntelX, a laboratory developed test, initially indicated for adult patients with type 2 diabetes and existing CKD, which is referred to as diabetic kidney disease (“DKD”). KidneyIntelX has already been granted a common procedural terminology (“CPT code”), national Medicare pricing and a positive coverage determination from a regional, private physician-led health insurance payor. Further, it has been granted breakthrough device designation from the U.S. Food and Drug Administration (the “FDA”). Building on these significant reimbursement and regulatory milestones, we believe our population health-based business model, which includes partnerships with healthcare systems, such as Mount Sinai Health System, will help facilitate commercial adoption of KidneyIntelX in the United States.

Kidney disease is a worldwide public health crisis, resulting in more deaths per year than breast or prostate cancer. The National Kidney Foundation estimates that one-third of adults in the United States are at risk of developing kidney disease. Advanced kidney disease is generally not reversible and, once the disease progresses to kidney failure, the only available treatments are long-term dialysis and kidney transplant. In 2016, more than 726,000 patients had end-stage kidney disease (“ESKD”), with more than 500,000 requiring dialysis at least three times a week. More than 100,000 patients begin dialysis each year to treat ESKD. Once on dialysis, patients typically experience a five-year mortality rate of up to 65%, about the equivalent rate for brain cancer. As of July 2019, nearly 100,000 Americans were on the waiting list to receive a kidney transplant and 13 patients die in the United States while waiting for a kidney transplant every day. Moreover, the kidney disease crisis is continuing to grow along with the increased prevalence of contributing risk factors, such as obesity and diabetes.

Managing a CKD population of this scale and associated healthcare costs presents a unique social challenge. The ability to predict which patients will experience progressive kidney function decline, kidney failure, initiation of long-term dialysis or kidney transplant, is critical to changing patient outcomes and health economics. In our clinical validation studies in patients with DKD, we observed that the Kidney Disease: Improving Global Outcomes (“KDIGO”) classification system, which is the standard clinical assessment to predict risk for progression of CKD, including DKD, only identified approximately 20% of patients that experienced an adverse kidney outcome as very high-risk patients with the recommendation of referral to a nephrologist, while KidneyIntelX identified nearly half of such patients.

We believe that the utilization of KidneyIntelX across large patient populations will have a significant impact on overall healthcare costs. Health economic benefits are projected to be derived from three key areas: (1) slowing progression to the next stage of CKD, (2) delaying or preventing progression to ESKD and the need for dialysis or kidney transplant and (3) avoiding dialysis crashes. We have partnered with Boston Healthcare Associates (“BHA”), to develop a health economic model analyzing the cost and care pathway for patients with DKD at all stages of the disease and the potential cost savings of implementing and utilizing KidneyIntelX. According to the BHA study, based on the Medicare price of $950 per reportable test, KidneyIntelX testing would generate a positive return for health insurers in under 24 months and deliver a cost savings of up to $1.3 billion over five years per 100,000 patients with DKD.  

Several federal policy and economic events, including the U.S. Presidential Executive Order on Advancing American Kidney Health issued in July 2019 and recent changes in U.S. reimbursement law, are helping disrupt the kidney disease clinical and commercial environment, highlighting the pressing need for solutions such as KidneyIntelX. We believe these favorable policy trends, which began during the Obama administration, will continue to build under a Biden administration and will support broader commercial adoption of KidneyIntelX and other derivative products contemplated in our diagnostics development planning. In addition, on January 12, 2021, the U.S. Centers for Medicare & Medicaid Services (“CMS”), an agency within the U.S. Department of Health and Human Services, finalized the Medicare Coverage of Innovative Technology (“MCIT”) rule. We believe that this new CMS rule could have a material positive impact on addressable market population with insurance coverage for KidneyIntelX if we obtain FDA clearance for KidneyIntelX.

MCIT represents the culmination of a sequence of policy steps over the past decade, including finalization of the Protecting Access to Medicare Act in 2018, that have materially altered the pathway for translating innovative diagnostic technology. For emerging growth diagnostic companies such as Renalytix, MCIT can have a substantial effect in achieving comprehensive reimbursement coverage on an accelerated timeline. We believe MCIT represents one of the more significant events in the past several decades to help drive innovation in precision medicine diagnostics/prognostics.

Additionally, we have successfully completed the first stage of our statement of work with AstraZeneca Pharmaceuticals LP (“AstraZeneca”) to conduct a feasibility study to determine the impact of the use of our KidneyIntelX platform to optimize utilization of various CKD agents. Further, in December 2020 we entered into a master service agreement with AstraZeneca for future services of this nature. We believe this agreement will define how we can leverage KidneyIntelX to improve the care and outcomes for patients affected by chronic diseases such as kidney disease, diabetes, and cardiovascular disease. Building on our initial success with AstraZeneca, we plan to pursue further collaborations with pharmaceutical companies and make ‘Pharmaceutical Services Revenue’ a core part of our business going forward with the goal of improving guideline-based standard-of-care for optimal utilization of existing and novel therapeutics using the KidneyIntelX testing platform and proprietary care management software.

Business Highlights

Reimbursement and Regulatory Pathway

With the recent finalization of the MCIT rule on January 12, 2021, we now have a clear path to a national Medicare coverage determination for KidneyIntelX testing in the United States. In summary, MCIT provides for an opt-in national Medicare coverage determination for medical devices and diagnostics approved or cleared out of the FDA Breakthrough Device designation program. KidneyIntelX was granted breakthrough device designation in May 2019 and is currently under review by the agency as part of this process.

As Medicare beneficiaries make up the majority of individuals with kidney disease in the United States, we believe this represents a critical component in the pursuit of our national commercial strategy.

Pricing for the unique CPT code for KidneyIntelX was finalized by CMS effective January 2020 at $950 per reportable result, which will be the pricing if KidneyIntelX receives FDA clearance and a positive national Medicare coverage determination. In addition, both coverage and the established pricing for the Medicare patient population in the cleared KidneyIntelX indicated use would apply to the approximately 3,550 Medicare Advantage plans administered by private payors in the United States. Medicare Advantage programs currently cover an estimated 24 million Americans, or 36% of all Medicare beneficiaries.

We are pursuing a comprehensive Medicaid contracting program and, to date, have secured Medicaid contracts in Arizona, Georgia, Michigan, Montana, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Utah, Vermont, Wisconsin, and Wyoming with additional state contracts expected throughout the course of fiscal 2021 and 2022. We are also targeting an increase in other private and public insurance and purchasing contracts during the same period.

As reported in August 2020, we submitted the final KidneyIntelX package for FDA consideration under breakthrough device designation. Due to the large influx of COVID-19 related emergency use authorization (“EUA”) requests, the FDA has experienced delays in submission processing timing across the diagnostic industry. In February 2021, the FDA sent written notification to us stating that it expected the final review process would return to normal no later than April 15, 2021 and did not expect any further delays in process due to the sustained volume of EUA requests in response to the pandemic.   While we will continue to decline forecasting specific timing for potential FDA clearance of KidneyIntelX, we view this notification as a positive step in the right direction.

We are continuing to build our regulatory expertise through both direct hires and retention of key contracted experts. In January 2021, we retained the services of Dr. Alberto Gutierrez, recently retired Director of the FDA’s Office of In Vitro Diagnostics and Radiologic Health, and Dr. Doug Jeffery, recently retired Branch Chief and Acting Deputy Division Director in the FDA’s Center for Devices and Radiological Health to support the KidneyIntelX ongoing regulatory strategy and process.

Addressable Market and Business Strategy

One of our top priorities is to build a broad distribution network and increase physician access for KidneyIntelX over the course of 2021 to serve the U.S. diabetic kidney disease population once KidneyIntelX receives FDA clearance and national Medicare coverage.

We are increasingly optimistic about achieving distribution capability under our model of partnering with health care networks such as Mount Sinai. In addition to our announced partnership with DaVita Inc. (“DaVita”) and University of Utah, we expect to announce additional partnerships during the current fiscal year ending June 30, 2021. We believe these additional partnerships could materially increase patient and physician access to KidneyIntelX throughout the course of calendar 2021 in advance of broader insurance coverage.

We are also evaluating more aggressive growth strategies to increase distribution, sales and marketing capacities in the United States and global territories. Strategic options may include the hiring of a specialized direct sales force to complement our hospital network partnered implementation model.

MCIT may also confer other material advantages including the ability for concurrent deployment of KidneyIntelX over a broader geographic footprint. Given the range of insurance payors that provide coverage in each market, the process of achieving majority population coverage can be laborious, incremental and require considerable time. With a majority of the KidneyIntelX initial indicated use population insured through a national Medicare coverage determination, risk associated with reimbursement in a given major high-concentration geography would be considerably reduced. KidneyIntelX deployment will focus on a region-by-region basis taking into consideration a number of demographic and economic factors in an effort to maximize return on capital and human resource efficiencies.

Product Development

We are continuing development work on expanding the indicated use population for KidneyIntelX risk assessment to the broader CKD population which includes the important, underserved population of kidney disease patients of African and Hispanic ancestry. These populations have been disproportionate sufferers of end stage kidney disease and we intend to provide access to advanced technology embedded in the KidneyIntelX platform to level the playing field in relation to access, knowledge and clinical care through kidney disease prognosis and treatment. We expect to broaden the indicated use of KidneyIntelX to the larger CKD population as early as calendar 2022.

Due to the large and incremental population groups that would potentially be served by expanding indicated uses, we estimate the total addressable market for KidneyIntelX could increase to an estimated 37 million individuals in the United States.

The KidneyIntelX product line is classified as an in vitro prognostic and is anchored by a real-time patient blood draw and biomarker assessment. The biomarker assessment is combined with selected information from a patient’s EHR, all processed by a machine-learning enabled algorithm. We believe that to achieve early and accurate disease prognosis, real-time biology accessible through a current blood or urine biomarker assessment is required.

Real-world Testing Experience

During the quarter ended December 31, 2020, we began our clinical testing experience with KidneyIntelX within the Mount Sinai Health System. Despite COVID-19 restrictions, this real-world experience has met or exceeded targeted quality metrics and physician and patient satisfaction measures. To date, KidneyIntelX has been ordered by and test reports have been delivered to over 25 primary care and specialist physicians in the Mount Sinai network. Concurrently, we performed services for Mount Sinai to support establishing a care navigation function based on early stage DKD risk assessment, including physician and practice education, physician and patient materials, electronic order integration and care navigation deployment. We expect to start recognizing revenue from our work with Mount Sinai in the quarter ending March 31, 2021.   We also anticipate expanding clinical testing deployment to additional physician practices in the Mount Sinai Health System through the remainder of fiscal 2021.

The KidneyIntelX software platform has been designed with a number of significant features to ensure efficient clinical testing implementation and, we believe, provides an outstanding platform for future feature development. KidneyIntelX cloud computing architecture couples data control and encryption protocols and has been verified to high standards. These standards ensure secure and timely access to the order information and data necessary to execute the test in accordance with all applicable regulatory requirements. Working collaboratively with an extended team of information technology professionals, we have developed a robust data pipeline that can provide access to KidneyIntelX for all clinicians across the Mount Sinai Health System and allows the creation of a rich database (using de-identified data) for ongoing product development and shared value generation through advanced data analytics. Key features of the platform such as the patient test report incorporating health system specific care pathways are uniquely developed to be translatable to other health systems and EHR platforms.

We have continued building KidneyIntelX study data with key findings to be presented at World Congress of Nephrology, American Diabetes Association and Healthcare Information and Management Systems Society in 2021. Findings include further validation in large international trial cohort, monitoring therapeutic response and impact in clinical decision making/therapy management.   

COVID-19 Effects

COVID-19 has provided a challenge to our business, particularly during the high-intensity first deployment of KidneyIntelX in the Mount Sinai Health System. During our fiscal second quarter both New York State and Mount Sinai reinstated COVID-19 surge protocols which set specific guidelines for prioritization of resources and introducing restrictions to combat infection spread. We have also seen potential KidneyIntelX patients hesitate to visit treating clinicians and blood collection stations necessary to conduct testing.

Fortunately with vaccinations now underway, we anticipate that these restrictions will be temporary with impact on business operations declining over the next several months.

We have approximately doubled the size of our employee headcount since our listing on Nasdaq in July 2020. Many key personnel have been hired using only Zoom conference with no in-person interviews. These personnel have continued to work remotely through the course of the first KidneyIntelX implementation and expanding deployment. While we believe our team has performed admirably and maintained a high level of productivity, the ultimate effects of virtual operation remain unknown. We have elected to participate in the social security deferral program offered under the Coronavirus Aid, Relief, and Economic Security Act, whereby we can defer payment of the employer portion of all social security taxes that would otherwise be payable from April 15, 2020 through December 31, 2020. Payment of the deferred amount is due 50% on December 31, 2021 and 50% on December 31, 2022.

We anticipate COVID-19 will have substantially less impact on our ability to scale KidneyIntelX implementation and testing in fiscal 2022 as compared to fiscal 2021.

Additional Business

The Renalytix/Mount Sinai joint venture, Kantaro Biosciences LLC (“Kantaro”), has made material business progress with its quantitative COVID-19 serologic antibody testing program. Kantaro has achieved key milestones including 1) FDA Emergency Use Authorization, 2) obtaining a CE Mark, which is a mandatory conformance mark that certifies the product has met EU consumer, health and environmental requirements, 3) entering into a scaled production and distribution agreement with Bio Techne Corporation, and 4) a UK/European sales and marketing agreement with EKF Diagnostics Holdings plc. Kantaro has started to generate revenue and our share of the equity method investment in Kantaro is reflected within the financial statement line item Equity Losses in Affiliate. We are exploring the possibility of broadening the product technology and intellectual property portfolio of Kantaro.

In July 2020, we spun out Verici Dx Limited (“VericiDx”), which was subsequently admitted for trading on the AIM market of the London Stock Exchange in November 2020. The successful listing and associated financing of VericiDx have now provided VericiDx with capital to drive its portfolio of kidney transplant products to validation and subsequent commercialization beginning as early as calendar year 2022. We believe VericiDx’s unique technology and published data represent a step-change forward in kidney transplant that can drive improvements in patient quality of life, standard of treatment, cost savings and long-term viability of transplanted organs. Renalytix holds a 6.94% equity stake in VericiDx.

Current Outlook

We view fiscal 2021 as our business launch year and one with the following objectives: 1) increasing visibility to distribution to primary care and specialist clinicians through partnered deployment with at least three health care providers and payors; 2) continuing to generate validating health economics, real-world evidence utility and performance data for submission to peer-reviewed publication; 3) increasing insurance coverage; and 4) establishing sequential quarter revenue growth for the December, March and June reporting periods.

For the six months ending December 31, 2020, we are reporting revenue of $0.4 million and net loss attributable to ordinary shareholders of $16.1 million. Our balance sheet remains strong for planned growth activities with a cash balance of $74.5 million as of December 31, 2020.

We continue to expand our business to accommodate multiple revenue pathways from KidneyIntelX testing sales, pharma driven development programs and other strategic partnership initiatives including our recently announced partnership with DaVita (NASDAQ: DVA). However, given the early stage nature of our commercial business and the challenges operating in a COVID-19 restricted environment, we do not expect any material revenue for the 12 months ended June 30, 2021 as we continues to focus on ensuring that all necessary regulatory and commercial building blocks are in place to enable us to scale rapidly.

For fiscal 2022, we expect a material inflection point for revenue growth to occur if KidneyIntelX receives FDA clearance and concurrent opt-in for national Medicare coverage, and an easing of COVID restrictions due to broad population vaccination uptake. We are targeting a blended gross margin across all lines of KidneyIntelX testing of greater than 70% as our commercial program scales in fiscal 2022. We look forward to the future with confidence.

We view fiscal 2022 as a year in which we plan to validate our ability to grow significant market share and revenue from KidneyIntelX testing, and pharmaceutical and other strategic partnerships. In addition, we expect our total addressable market will increase materially with the introduction of subsequent KidneyIntelX versions and potentially expanded indications.

FINANCIAL REVIEW

Financial review of the three-months ended December 31, 2020

The operating loss for the three months ended December 31, 2020 and 2019 was $8.6 million and $2.7 million, respectively, and the net loss attributable to ordinary shareholders for the three months ended December 31, 2020 and 2019 was $8.9 million and $4.7 million, respectively.

Revenue

During the three months ended December 31, 2020, we recognized $0.4 million of pharmaceutical services revenue related to the statement of work with AstraZeneca. There was no pharmaceutical services revenue for the three months ended December 31, 2019.

Cost of revenue

During the three months ended December 31, 2020, cost of revenue consisted of $0.3 million directly attributable to services rendered to AstraZeneca, including labor costs directly related to revenue generating activities. There was no cost of revenue for the three months ended December 31, 2019.

Research and Development Costs

Research and development expenses increased by $1.4 million, from $1.1 million for the three months ended December 31, 2019 to $2.5 million for the three months ended December 31, 2020. The increase was primarily due to increased headcount and the associated compensation and benefits, including share-based payments, as we continue to develop our technology, prepare for expanded clinical operations with Mount Sinai and other health systems, and initiate two product development studies focused on examining the long-term effects of COVID-19 on kidney health. Research and development expenses for the three months ended December 31, 2020 included $0.2 million related to VericiDx which was formed in April 2020.

General and Administrative Costs

General and administrative expenses increased by $5.0 million, from $1.6 million for the three months ended December 31, 2019 to $6.6 million for the three months ended December 31, 2020. The increase was due to a $2.2 million increase in compensation and related benefits, including share-based payments, a $1.2 million increase in insurance costs, a $0.9 million increase in legal and accounting fees due to Securities and Exchange Commission (“SEC”) filings and U.S. public listing compliance, due to increased headcount, a $0.4 million increase in consulting and professional fees, and a $0.3 million increase in recruiting expense.

Performance of contract liability to affiliate

In May 2020, we entered into an operating agreement (“Kantaro Operating Agreement”) with the Icahn School of Medicine at Mount Sinai (“Mount Sinai”) to form a joint venture, Kantaro Biosciences LLC, for the purpose of developing and commercializing laboratory tests for the detection of antibodies against SARS-CoV-2 originally developed by Mount Sinai. During the three months ended December 31, 2020, we recognized $0.3 million of expenses related to the performance of our contract liability with Kantaro. This represents the allocation of costs related to performing services on behalf of Kantaro.

Equity Losses in Affiliate

We account for our investment in Kantaro using the equity method of accounting. During the three months ended December 31, 2020, we recognized $0.1 million in losses which represents our proportionate share of losses in Kantaro.

Foreign Currency Loss

During the three months ended December 31, 2020, we recognized foreign currency losses of $5.5 million due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency. During the three months ended December 31, 2019, we recognized foreign currency losses of $2.0 million.

Fair Value Adjustments to VericiDx Investment

We account for our investment in VericiDx using the equity method of accounting and have elected to use the fair value option to value the investment. During the three months ended December 31, 2020, we recorded a gain of $5.0 million to adjust the VericiDx investment to fair value. There was no fair value adjustment for the three months ended December 31, 2019 as we did not have an investment in VericiDx at that time.

Other Income, net

During the three months ended December 31, 2020, we recognized other income of $0.12 million which included $0.07 million of interest income and a $0.05 million gain on the deconsolidation of VericiDx. During the three months ended December 31, 2019, we recognized interest income of $0.08 million.

Financial review of the six months ended December 31, 2020

The operating loss for the six months ended December 31, 2020 and 2019 was $14.0 million and $4.7 million, respectively, and the net loss attributable to ordinary shareholders for the six months ended December 31, 2020 and 2019 was $16.1 million and $6.1 million, respectively.

Revenue

During the six months ended December 31, 2020, we recognized $0.4 million of pharmaceutical services revenue related to the statement of work with AstraZeneca. There was no pharmaceutical services revenue for the six months ended December 31, 2019.

Cost of revenue

During the six months ended December 31, 2020, cost of revenue consisted of $0.3 million directly attributable to services rendered to AstraZeneca, including labor costs directly related to revenue generating activities. There was no cost of revenue for the six months ended December 31, 2019.

Research and Development Costs

Research and development expenses increased by $1.9 million, from $2.3 million for the six months ended December 31, 2019 to $4.2 million for the six months ended December 31, 2020. The increase was primarily due to increased headcount and the associated compensation and benefits, including share-based payments, as we continue to develop our technology, prepare for expanded clinical operations with Mount Sinai and other health systems, and initiate two product development studies focused on examining the long-term effects of COVID-19 on kidney health. Research and development expenses for the six months ended December 31, 2020 included $0.4 million related to VericiDx which was formed in April 2020.

General and Administrative Costs

General and administrative expenses increased by $8.2 million, from $2.5 million for the six months ended December 31, 2019 to $10.7 million for the six months ended December 31, 2020. The increase was due to a $2.8 million increase in compensation and related benefits, including share-based payments, due to increased headcount, a $2.2 million increase in insurance costs, a $1.7 million increase in legal and accounting fees due to Securities and Exchange Commission (“SEC”) filings and U.S. public listing compliance, a $0.8 million increase in consulting and professional fees, a $0.6 million increase in recruiting expense, and an increase of $0.1 million in marketing, facility and other operating expenses.

Performance of contract liability to affiliate

During the six months ended December 31, 2020, we recognized $0.8 million related to the performance of our contract liability with Kantaro. This represents the allocation of costs related to performing services on behalf of Kantaro.

Equity Losses in Affiliate

During the six months ended December 31, 2020, we recognized $0.2 million in losses which represents our proportionate share of losses in Kantaro.

Foreign Currency Loss

During the six months ended December 31, 2020, we recognized foreign currency losses of $7.7 million due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency. During the six months ended December 31, 2019, we recognized foreign currency losses of $1.6 million.

Fair Value Adjustments to VericiDx Investment

During the six months ended December 31, 2020, we recorded a gain of $5.0 million to adjust the VericiDx investment to fair value. There was no fair value adjustment for the six months ended December 31, 2019 as we did not have an investment in VericiDx at that time.

Other Income, net

During the six months ended December 31, 2020, we recognized $0.12 million of interest income and a gain of $0.05 million on the deconsolidation of VericiDx. During the six months ended December 31, 2019, we received $0.1 million of other income in relation to the sale of excess supplies and $0.07 million of interest income as a result of interest earned on cash deposits.

Cash Flows

Net cash used in operating activities

During the six months ended December 31, 2020, we used $18.6 million of cash in operating activities primarily attributable to our net loss of $16.7 million. This use of cash was partially offset by $0.9 million in noncash items such as depreciation and amortization, share-based compensation, equity losses in Kantaro, change in fair value of our VericiDx investment and foreign exchange remeasurement losses. The net cash outflow of $2.7 million from changes in our operating assets and liabilities was primarily attributable to a $3.2 million increase in our prepaid expenses primarily due to a $4.6 million prepaid directors and officers (D&O) insurance policy signed in July 2020 and a $0.8 million decrease in the Kantaro liability for services provided. These outflows were partially offset by an increase in accrued expenses and other current liabilities of $1.3 million primarily due to employee-related expenses such as accrued bonuses of $0.8 million and accrued vacation of $0.4 million.

During the six months ended December 31, 2019, we used $4.4 million of cash in operating activities primarily attributable to our $6.1 million net loss. This use of cash was partially offset by $2.1 million of noncash items such as depreciation and amortization, share-based compensation and foreign exchange remeasurement losses. The net cash outflow of $0.4 million from changes in our operating assets and liabilities was primarily attributable to an increase in our prepaid expenses of $0.4 million due to the purchase of lab consumables.

Net cash used in investing activities

During the six months ended December 31, 2020, net cash used in investing activities was $0.4 million and primarily attributable to $1.0 million in proceeds from short-term investments. This was offset by $0.7 million for the purchase of lab and office equipment, $0.5 million of software development costs and an increase of $0.08 million related to our note receivable from a related party. In addition, cash decreased by $0.06 million due to the deconsolidation of VericiDx.

During the six months ended December 31, 2019, net cash used in investing activities was $7.4 million and primarily attributable to $16.3 million in purchases of short-term investments partially offset by net proceeds of $9.4 million related to our short-term investments. In addition, we purchased $0.5 million of lab and office equipment.

Net cash used in financing activities

During the six months ended December 31, 2020, net cash provided by financing activities was $76.9 million and was primarily attributable to $79.2 million of proceeds from our IPO on the Nasdaq Global Market which was partially offset by offering costs of $2.3 million associated with the IPO that were paid in the period.

During the six months ended December 31, 2019, net cash provided by financing activities was $16.4 million and was primarily attributable to $17.3 million of proceeds from our secondary public offering on the AIM which was partially offset by offering costs of $0.9 million associated with the public offering.

Cash, cash equivalents and short-term investments

Net cash, cash equivalents and short-term investments increased to $74.5 million as of December 31, 2020 from $14.3 million as of June 30, 2020 primarily due to the net proceeds of our IPO on the Nasdaq Global Market partially offset by utilization of cash in ordinary operating activities.

FORWARD-LOOKING STATEMENTS

Statements contained in this release regarding matters that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Examples of these forward-looking statements include statements concerning: the ability of KidneyIntelX to lower healthcare costs, improve patient quality of life and set a long-term standard of care, trends in our market and potential benefits of government policy change, potential addressable market and expanded indicated uses for KidneyIntelX, the impact of COVID-19 on our business, our expectations for product development, strategic partnerships and collaborations, reimbursement decisions, clinical studies and regulatory submissions, and our business strategies and future growth, including with respect to future sales trends for KidneyIntelX. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “seeks,” and similar expressions are intended to identify forward-looking statements. We may not actually achieve the plans and objectives disclosed in the forward-looking statements, and you should not place undue reliance on our forward-looking statements. Any forward-looking statements are based on management's current views and assumptions and involve risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. These risks and uncertainties include, among others: that KidneyIntelX is based on novel artificial intelligence technologies that are rapidly evolving and potential acceptance, utility and clinical practice remains uncertain; we have only recently commercially launched KidneyIntelX; and risks relating to the impact on our business of the COVID-19 pandemic or similar public health crises. These and other risks are described more fully in our filings with the SEC, including the “Risk Factors” section of our Annual Report. All information in this release is as of the date of the release, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

 
RENALYTIX AI PLC
 
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
(in thousands, except share and per share data)December 31,
2020
June 30,
2020
   
Assets  
Current assets:  
Cash and cash equivalents$74,532 $13,293 
Short-term investments   982 
Accounts receivable 400   
Prepaid expenses and other current assets 3,587  551 
Note receivable from Kantaro - current 167   
Receivable from affiliates 158  18 
Total current assets 78,844  14,844 
Property and equipment, net 2,603  1,655 
Investment in VericiDx 7,852   
Investment in Kantaro 1,716  1,937 
Note receivable from Kantaro - noncurrent   83 
Deferred offering costs   2,364 
Total assets$91,015 $20,833 
  
   
Liabilities and Shareholders’ Equity  
Current liabilities:  
Accounts payable$864 $2,218 
Accrued expenses and other current liabilities 1,608  683 
Accrued expenses – related party 283   
Note payable – current 141  120 
Payable to affiliate - current 824  271 
Total current liabilities 3,720  3,292 
Payable to affiliate - noncurrent 231  1,544 
Note payable - noncurrent 114  135 
Other liabilities 53   
Total liabilities$4,118 $4,971 
  
   
Commitments and contingencies (Note 9)  
   
Shareholders’ equity:  
Ordinary shares, £0.0025 par value per share: 75,438,492 and 62,444,992 shares authorized at December 31, 2020
  and June 30, 2020, respectively; 72,029,634 and 59,416,134 shares issued and outstanding at December 31, 2020
  and June 30, 2020, respectively
 219  179 
Additional paid-in capital 148,408  69,650 
Accumulated other comprehensive income (loss) 7,116  (1,200)
Accumulated deficit (68,846) (52,717)
Total shareholders’ equity 86,897  15,912 
Total liabilities and shareholders’ equity$91,015 $20,833 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
RENALYTIX AI PLC
    
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
    
(in thousands, except share data)
Three Months
Ended

December 31,
2020

 Three Months
Ended

December 31,
2019

 Six Months
Ended

December 31,
2020

 Six Months
Ended

December 31,
2019

     
Pharmaceutical services revenue$400  $  $400  $ 
Cost of revenue 257      257    
Gross profit 143View source version on GlobeNewswire.com