ReNeuron Group — H124 results reaffirm focus on CustomEX

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.

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).

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.

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

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.

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.

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.

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.

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.

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.