ReNeuron Group — Rebranding in exosome targeted drug delivery

ReNeuron is a UK-based stem cell research company focusing on the development of exosomes, a new class of emerging drug delivery platform, which aims to address challenges associated with existing delivery systems including safety, target specificity and therapeutic payload diversity. The company has reported encouraging preclinical data, demonstrating its exosome technology as potential vehicles for targeted drug delivery to the brain and the enhanced cellular specificity and drug delivery capabilities (siRNA) of its exosome technologies over conventional HEK exosomes. Should clinical utility be demonstrated, these unique properties could offer market differentiation over existing drug delivery methods, in our view. Additionally, the application of the exosome platform in difficult to treat CNS diseases, as well as for the delivery of cell and gene therapies, may represent a potentially significant market opportunity, in our view. However, we note that preclinical results are not necessarily a reliable indicator for clinical success.

ReNeuron currently operates as a contract research and development organisation model on a fee-for-service basis, establishing partnerships in which its exosome platform can be utilised as a drug delivery vehicle for third-party therapies. The company has, so far, established seven preclinical collaborations with industrial and academic partners in progressing exosome-based assets towards the clinic. The group has longstanding expertise in stem cell development and process scale up, having progressed its hRPC programme to Phase II clinical trials and is currently undertaking the technology transfer of its CTX cell line manufacturing to Fosun Pharma. Following a strategic refocus in January 2022, the reshaped management team is prioritising development of its stem cell-derived exosome platform, CustomEx, and, additionally, it intends to identify licensing partners for its legacy cell lines (hRPC and CTX) outside of greater China where they are licensed to Fosun Pharma. The company’s new strategy is focused on establishing further developmental partners with the goal of out-licensing its exosome programmes while progressing with its own internal exosome pipeline. With extensive experience in stem cell research and multiple shots on goal with established partners, we see ReNeuron’s exosome technology as well positioned, in our view, to deliver clinical assets.

We value ReNeuron Group at £47.3m or 83p per share. Our valuation is based on an rNPV calculation for the clinical success of two of ReNeuron’s exosome programmes in CNS indications (combined rNPV £27.2m or 47p per share) and the launch of the group’s CTX programme in China through Fosun (rNPV £5.7m or 10p per share), and incorporates a gross cash and near cash of £14.5m at end-March 2022. We have assumed the two exosome programmes will target CNS indications, specifically Alzheimer’s disease (AD) and Parkinson’s disease (PD), and that a full licensing deal for the two exosome programmes is attained in mid-2025 and mid-2026. With the preclinical assets we apply a discount rate of 15.0% and a 12.5% discount rate for the out-licensed Fosun CTX programme. We note that ReNeuron’s shares are currently trading only modestly above cash value, dented previously by the halting of the hRPC programme.

At end-March 2022, the company had cash and near cash of £14.5m and no debt. R&D expenses decreased in FY22 due to the discontinuation of clinical activities associated with the Phase II hRPC trial; however, we anticipate these will increase as the company looks to ramp up its exosome developmental activities. Based on our projected burn rates (operating cash outflow FY23e: £9.5m, FY24e: £10.2m) we estimate a cash runway to end Q124 (end-June 2023), in line with management’s guidance. We anticipate that ReNeuron will need to raise c £15m in FY24, which we view as sufficient to fund operations to mid-2025, when we forecast the company will engage in a global licensing deal, receiving an upfront payment of £36m with a milestone payment of £9m in FY26 as the exosome programme progresses into the clinic. We assume an additional licensing deal will be signed in FY26 with a further upfront payment of £36m. In the absence of a licensing deal, we expect the company will need to raise c £15m in FY24 (shown as illustrative debt in our model) with an additional £20m in FY25 to fund operations into H226.

ReNeuron is subject to the regular risks associated with drug research and development. As the company currently operates as a contract research and development organisation, it will be affected by the development delays or failures, regulatory risks and competitor successes of its partners’ preclinical or clinical assets. The group itself may also be exposed to partnering setbacks and financing risks. The largest development sensitivities relate to the company’s preclinical exosome pipeline. The exosome platform is still in the early stages of development; therefore, the most prominent near-term risk lies in failure to progress partner programme assets into the clinic. Additionally, due to contractual obligations, ReNeuron is unable, currently, to disclose the details of its established exosome partnerships, making the target markets and indications challenging to predict. Management has communicated that the nature of these collaborations may become more transparent following positive data readouts; however, this may not be realised until clinical progression, the timing of which cannot be easily predicted. The exosome therapeutic market is also significantly underdeveloped, with no FDA approved exosome-based drugs, meaning there is a high degree of uncertainty around future drug pricing and market dynamics.

There have been significant changes at ReNeuron in FY22 both in terms of newly developed strategy and management structure. Previously, the company had focused on the clinical progression of its Phase IIa (NCT02464436) hRPC stem cell therapy programme to treat retinitis pigmentosa. The initial patients treated in the study demonstrated a statistically significant improvement in visual object recognition after 12 months (mean 9.9 letter improvement versus baseline in ETDRS letter score); however, the 24-month data collected showed a drop off in efficacy. Additionally, patients treated in the dose expansion arm of the trial experienced complications during the surgical procedure of administration. To further investigate these findings the company would have had to initiate a further Phase II clinical study to identify the suitable patient sub-population that would benefit more from treatment. Following a review with the group’s scientific advisory board, management made the decision to halt clinical development of the hRPC study with the intention of identifying out-licensing partners for the existing data package. While this news was disappointing, we see the decision as sensible considering the additional financing the company would have required to fund clinical development and the potentially dilutive nature of future capital raises. Furthermore, the decision has allowed ReNeuron to fully focus on the development of its exosome technology platform which, in our view, represents a significant opportunity in the drug delivery market.

Following the change in corporate strategy, ReNeuron appointed Catherine Isted as the group’s new chief executive officer (CEO), having previously held the role of chief financial officer (CFO). In her role, Isted brings with her invaluable experience gained from her time at the leading viral vector company Oxford Biomedica, where she was head of corporate development and part of the finance leadership team. During her time at Oxford Biomedica she was part of the team that helped steer the company during its significant growth period where it entered the FTSE 250. Additionally, Dr Randolph Corteling has been appointed as chief scientific officer (CSO) and will lead ReNeuron’s exosome research programmes. Dr Corteling has 24 years’ experience in medical research and drug discovery, spanning academia, biotechnology and the pharmaceutical industry. Dr Corteling was responsible for establishing the first exosome programmes at ReNeuron over a decade ago before moving to Evox Therapeutics, a privately listed exosome company, leading the Disease Biology and Exosome Payloads teams. He re-joined ReNeuron in March 2022, heading up research activities as vice president of research before being appointed CSO. Additionally, the company has appointed Simon Dew, who also joins ReNeuron as chief business officer and brings with him extensive experience in the exosomes field. Dew is a senior healthcare executive with significant experience in business development and corporate strategy and formerly worked at Evox, where he played a key role in the pencilling of preclinical licensing deals for Evox with Eli Lilly and Takeda worth up to c $2bn in value. In our opinion, these appointments provide ReNeuron with the management capabilities required to execute the company’s strategic expansion into exosome therapeutics.

ReNeuron’s exosome developmental programme currently consists of seven discovery stage collaborations with both industrial and academic partners, Exhibit 1. The programmes are investigating the use of ReNeuron’s proprietary exosome platforms as targeted delivery vehicles across a range of drug types, primarily focused on CNS diseases. The therapeutic payload diversification across its programmes represents an important differentiator for the company’s exosome technology, in our view. While the nature of these collaborations remains undisclosed, we anticipate the existing partnerships may have the potential to translate into larger licensing opportunities.

The group has a smaller internal pipeline that it is looking to obtain proof-of-concept data from and, should positive results be achieved, it will explore out-licensing opportunities prior to progression into the clinic.

Clinical investigators continue to make steps in developing the next generation of leading pharmaceutical products; however, there is a risk that the true therapeutic potential of many drugs goes unrealised. This is largely due to the inability to deliver them to their site of action in the body. This is particularly true for CNS diseases, such as PD and AD, which require drugs to target the brain. Targeted delivery to the brain is extremely challenging with c 98% of newly discovered small molecule drugs unable to cross the blood brain barrier (BBB) and we see CNS diseases as key indications in which ReNeuron may offer differentiation with its exosomes platform. Additionally, efforts to improve drug safety profiles remains paramount as it is estimated that almost one in three FDA approved drugs exhibit post market safety issues. New delivery systems must therefore not only demonstrate efficacy but also the ability to safely distribute drugs in patients. With the evolution and development of more complex therapies, such as cell and gene, there is a continued need to develop new drug delivery platforms to address these clinical challenges, in our view.

Conventional drug dosage forms such as solutions or immediate-release mechanisms often face difficulties when administered to patients such as non-specific tissue distribution and dosing control. To address these pitfalls the development of more sophisticated drug delivery platforms has made significant headway in recent years. Today, the most clinically advanced technologies can be split into two main categories, viral vectors and non-viral vectors (primarily lipid nanoparticles), Exhibit 2. In contrast, exosomes represent an emerging drug delivery platform that is beginning its transition into the clinic; however, we note that the technology is still very much in its clinical infancy.

Viral vectors use modified versions of viruses to deliver genetic material (DNA or RNA) into target cells to illicit a therapeutic response. In a clinical context, they have been utilised in the development of cell and gene therapies. To date, the FDA has approved eight viral vector-based cell and gene therapies, four of which have been approved for direct administration (in vivo) to patients. In recent years, the most notable use of the technology has been the discovery of the Oxford/AstraZeneca COVID-19 vaccine. However, concerns over patient safety have meant the vaccine is yet to receive approval by the FDA. Potential toxicity issues highlights what we see as one of the significant limitations of viral vector therapies. A number of recent clinical incidents, particularly around Adeno-associated virus vectors, have brought viral vector safety into further question. These include trial pauses for both Pfizer and Astella’s muscular gene therapy treatments and Novartis’s FDA approved Zolgensma, which is being further reviewed for potential liver toxicity. While viral vector therapies are expected to share a significant portion of the drug delivery market, particularly for cell and gene therapies, high-profile adverse patient events and increased regulatory scrutiny may hinder overall clinical uptake, in our view.

The most common class of FDA approved non-viral delivery platforms are lipid-based nanomedicines. These formulations use lipid structures to encapsulate drugs with the aim of improving their physicochemical properties. While lipid-based drugs have been in clinical development for c 30 years, earlier therapies suffer from off-target specificity and unfavourable safety profiles. Advancements in the clinic have seen a new subset of lipid technologies appear called lipid nanoparticles (LNPs). LNPs have advantages over earlier lipid formulations such as improved stability and drug bioavailability. These more sophisticated platforms have found use in the development of gene therapy treatments (DNA or RNA). The FDA approval of Patisiran (ONPATTRO) in 2018 represented a clinical breakthrough for LNPs as the first RNA therapy-delivering nanoparticle. More recently, the COVID-19 pandemic marked a further milestone for LNP technology, acting as critical delivery systems for both the Pfizer-BioNTech and Moderna mRNA vaccines. However, tissue specificity remains a drawback for LNPs and the technology struggles to deliver therapies to tissues in the body other than the liver, inhibiting its application for treating CNS diseases.

In our opinion, the limitations associated with existing technologies provide an opportunity for new delivery platforms to address these clinically significant challenges. Exosomes represent a new class of drug delivery system, which aims to overcome the drawbacks associated with viral vector and LNP platforms. We see the potential market differentiators of exosomes being:

Exosomes are small, membrane bound compartments naturally produced and released by all cells in the body, functioning as transporters of materials (nucleic acids, proteins, lipids) between cells. Once released, they can travel to local tissue cells or through the body to reach more distant sites where they can deliver their biomolecules, playing a critical role in cell-cell communication. The cells from which exosomes originate impart a specific surface marker profile on the exosome, which is recognised specifically by the recipient cells, much like a hand fitting into a glove, Exhibit 3. This natural affinity between exosomes and specific cells has led to significant clinical research investigating exosomes as potential vehicles for targeted drug delivery. Notably, exosomes can be engineered to incorporate a range of therapeutics and their targeted drug delivery capability enhanced through the modification of proteins on the exosome surface, Exhibit 4.

ReNeuron’s exosomes are derived from the group’s seven proprietary stem cell lines, four neural stem cell (NSC) lines (Cortex, Striatum, Hippocampus and Ventral Mesencephalon) and three stem cell lines from areas outside of the brain (retinal, liver and pancreatic), Exhibit 5.

Each stem cell line can produce exosomes that have a natural tissue targeting ability based on the parent cell line they are derived from, for example striatum stem cells will produce exosomes that target striatum tissue cells. Additionally, ReNeuron’s technology platform allows for stem cell lines to be engineered that can produce exosomes incorporated with therapeutic payloads. The exosomes may be further engineered through surface modifications to enhance their overall cellular targeting ability.

The most advanced exosome therapies in the clinic are currently derived from HEK293 stem cell lines, Exhibit 6. While initial data have provided clinical validation of HEK293-derived exosomes as platforms for drug delivery, the use of a single cell line to produce a single type of exosome limits the tissues which they can target. This may result in significant challenges when designing exosomes to target difficult to reach tissues such as crossing the BBB to treat CNS diseases. In our view, ReNeuron’s diversification in stem cell lines and ability to produce exosomes with enhanced natural tissue targeting affinity, particularly neural stem cell lines to target CNS indications, currently offers market differentiation against single cell line competitors.

In addition to the seven proprietary exosome producer stem cell lines, the company’s cortex derived induced pluripotent stem cells (CTX-iPSC) may also offer future upside potential. The CTX-iPSC platform provides an opportunity to generate any stem cell type and, ultimately, any type of tissue-specific exosome. While the technology could significantly enhance the group’s exosome platform into new indications and targets, we note that utilisation of the CTX-iPSC cell line to generate exosomes is still in the early stages of preclinical development. However, the group is also progressing the development of the CTX-iPSC cell line as a platform in its own right. ReNeuron has established a collaboration with the University College London, investigating the use of CTX-iPSC in the production of Schwann cells for peripheral nerve damage repair and in the generation of CAR-T and CAR-NK cells. The breadth of diverse exploratory investigations being conducted further highlights the potential utility of the CTX-iPSC platform.

A major challenge faced during exosome production is the need to produce consistent stem cell lines to generate consistent exosomes. Multiple rounds of cell manufacturing (passaging) can often result in changes to the underlying cell lines, resulting in exosomes with varying compositions. The selective tissue targeting ability of exosomes is dictated by their biological structure making it critical to maintain uniformity during production. ReNeuron’s patented conditional immortalisation c-mycER technology provides a scalable method to ensure consistent, stable producer cell lines that can generate uniform exosomes. The technology can be applied across each of the group’s exosome-producing stem cell lines, working through an on/off switch mechanism where the addition of a chemical stimulator (4-OHT) allows cells to replicate without undergoing changes in cellular composition. Of note, the CTX-cell line can be scaled under good manufacturing practice (GMP) conditions, allowing exosomes to be produced in volumes suitable for late-stage clinical studies. ReNeuron does not currently possess in-house GMP-accredited exosome production facilities for its cell lines – these typically require significant capital expenditure; however, investment or outsourcing may be options management can consider for expansion. The company’s technological know-how, reproducible exosome manufacturing capabilities and experience in scale-up manufacturing, make ReNeuron an attractive developmental partner within the therapeutic exosome market, in our view.

Management attests that ReNeuron boasts the third largest global patent portfolio in the field of exosomes (Exhibit 6) and we see the true value centring around two main patent families. The first (WO2013150303) provides the company with exclusivity around using any type of neural stem cell to generate therapeutic exosomes. The patent has been granted in the EU and a US application is currently pending. The second (WO2014125277) surrounds the group’s proprietary c-mycER conditional immortalisation technology. The protection covers both the production of stem cells through the c-mycER chemical switch mechanism and the use of a conditionally immortalised cell line to produce exosomes. The latter patent covers a range of cell types to generate therapeutic exosomes including the iPSC cell lines which, owing to their exosome diversification potential, we view as of significant importance. With extensive protection across its conditionally immortalised stem cell lines and patent lives extending beyond 2030, this provides ReNeuron with a distinct competitive advantage and the ability to leverage its intellectual property (IP) position to secure future licensing deals and create longer term value, in our opinion.

ReNeuron continues to work with its partners to progress its exosome platforms towards the clinic; however, the company has already reported encouraging preclinical proof-of-concept data demonstrating the technology’s unique targeting ability and potential clinical utility. In a preclinical mouse model, NSC-derived exosomes were loaded with a therapeutic protein on their surface called brain derived neurotrophic growth factor (BDNF). BDNF is a neurotransmitter modulator that plays an important role in neural cell survival, growth and neuronal plasticity by activating the mitogen‑activated protein kinase (MAPK) pathway. The mouse model data highlighted that those mice treated with BDNF engineered, NSC-derived exosomes experienced increased levels of gene expression associated with the MAPK pathway, Exhibit 7. The response was not observed in mice treated with BDNF or exosomes alone demonstrating the improved delivery of a functional protein to the brain when incorporated into tissue targeting exosomes.

Of note, a sustained response (up to six hours) was observed selectively in the striatum with only a transient response (up to two hours) in the hippocampus and no responses in any other areas of the brain, Exhibit 8. Neuropathological changes in striatal cells have been associated with diseases such as PD and Huntingdon’s, so this highlights the potential clinical utility of ReNeuron’s platform. Additionally, this targeted delivery was achieved by lumbar puncture (administration into spinal fluid) and did not require direct injection into the brain, providing a potentially safer and cheaper method for patient dosing.

In October 2022 ReNeuron announced positive results from a further preclinical study in which it demonstrated the enhanced cellular specificity and drug delivery capabilities of its exosome technologies over conventional HEK exosomes. ReNeuron’s exosomes displayed a minimum 10-fold increase in cellular uptake across three cell types (endothelial, neural and epithelial) versus HEK-derived exosomes, with an 18-fold increase observed in endothelial cells. Additionally, when loaded with a therapeutic payload (small interfering RNA, siRNA), a 600% improvement in delivery to the target cell was recorded versus HEK exosomes. These results therefore not only provide encouraging signs for the clinical progression of ReNeuron’s exosomes but may also provide a distinct competitive advantage against HEK competitors, in our view.

Notably, the study was able to demonstrate the effective delivery of siRNA, a new class of complex drug modality, in which targeted drug delivery is a significant challenge and overcoming first-pass liver metabolism remains a developmental issue. The RNA therapeutic pipeline is poised to deliver further drug candidates, so we view this market as a potential opportunity for ReNeuron to target. However, we recognise that results from these early-stage preclinical studies may not necessarily translate into the clinic.

While exosomes have the potential to target a range of indications, in our view, CNS indications are key markets in which ReNeuron’s exosomes could offer a competitive advantage with regards to safety and neural targeting ability. AD and PD are currently two of the most sizeable markets in the CNS space and ones in which much clinical research is concentrated. EvaluatePharma estimates that the markets for AD and PD treatment will reach $15.0bn and $7.8bn by 2028 respectively, with both markets being highly fragmented. We believe this provides opportunities for companies addressing these indications as they may be able to garner significant market share. Additionally, there are currently no approved disease modifying therapies (drugs treating the underlying cause of the disease not just symptoms) to tackle PD and only one for AD (Aduhelm). In particular, the trend for AD clinical trials is moving to treat earlier-stage symptoms of the disease and, in our view, the next generation of therapies which will begin to appear from the clinic will focus on disease modification as opposed to symptomatic treatments. Such therapies are likely to be more complex than traditional small molecules, examples include RNA therapeutics, a pipeline which is poised to deliver future drug candidates. With its encouraging siRNA preclinical data and neural targeting ability, ReNeuron’s exosomes may be uniquely positioned to incorporate such modalities to tackle large CNS indications with unmet need. However, we acknowledge that exosomes are still in the very early stages of development and may take significant time before clinical success is realised.

While therapeutic exosomes may still be in their clinical infancy there have been a handful of licensing agreements secured amongst leading exosome research companies. The most substantial of these have involved Codiak, Evox and PureTech Health, which have amassed combined deal values worth up to c $3.4bn to develop exosome-based therapeutics, Exhibit 11. Additionally, Codiak’s GMP exosome production facilities were recently acquired by Lonza in a deal that will see Codiak receive c $65m of manufacturing services in kind. Notably, these partnerships have been established during early drug development indicating the potential value and upside that can be realised through demonstrating robust preclinical proof-of-concept data. With its seven established partnerships, we view ReNeuron’s pipeline as being uniquely positioned for potential future out-licensing opportunities, should positive data be generated. Monetisation of its preclinical exosome assets is a key focus for management, deals of which would represent a significant catalyst for the share price. However, a breadth of statistically significant preclinical data will have to be generated before such deals could be realised.

ReNeuron currently operates as a contract research and development organisation, generating early-stage revenue streams through its exosome research services. However, management’s longer-term ambitions lie in becoming a key developmental partner, establishing multiple partner programmes with licensing agreements consisting of upfront milestones related to development and back-end royalties on sales. The key differentiator that ReNeuron’s business will drive growth and derive value from is its technology-enabling CustomEx platform which limits the possibility of switching to competitive technologies, something that may be possible with conventional HEK derived exosomes. Unlike CDMOs such as Oxford Biomedica, the company does not currently foresee becoming a large-scale GMP-accredited manufacturing partner. Instead, the group will focus more on smaller scale manufacturing capabilities for preclinical and potentially early-stage clinical requirements and will look to outsource larger scale production to third parties. The company has significant technology transfer experience having previously tech transferred the manufacturing of it clinical stage stem cell programmes to CMOs. We see this as a sensible strategy for ReNeuron that removes the risk of conducting large capital expenditure programmes requiring significant investment.

With ReNeuron now fully committed to the development of its exosome platforms, management intends to monetise its legacy CTX and hRPC stem cell clinical programmes by pursuing out-licensing deals. A primary focus for the company will be to continue to work with its established partner, Fosun Pharma, while identifying further out-licensing opportunities in geographies outside of China.

ReNeuron entered into a licensing agreement with Fosun Pharma in 2019 for the development, manufacture and commercialisation of both its CTX and hRPC stem cell therapy programmes in China. ReNeuron received an initial payment of £6m as part of the deal and is eligible to receive future, post-launch, operational and regulatory milestone payments estimated by management to be worth up to £80m as well as double-digit (12–14%) tiered royalties on sales. The deal terms are constituted from both the hRPC and CTX programmes; however, Fosun has prioritised the development of the CTX programme aimed at treating post stroke rehabilitation. In July 2022, the supplemental terms for an additional technology transfer and supply agreement was signed whereby ReNeuron will provide its CTX cell bank line and scale-up expertise. The deal will see the company potentially receive up to an additional c £6m in total (£1m over 24 months and £5m in the medium to long term). Additionally, Fosun is expected to complete construction of a new GMP-regulated facility to manufacture CTX, with completion aimed for Q123, underpinning Fosun’s commitment to the programme. Notably, ReNeuron has previously demonstrated the efficacy of its CTX stem cell to treat patients suffering from stroke disability as part of its Phase II (PISCES II) study. The study’s primary endpoint was for a minimum of two patients to exhibit a minimum two-point improvement in the Action Research Arm Test, three months post treatment. Three patients achieved this up to 12 months after treatment. This clinical proof of concept data will be significant in attracting interest from potential future partners outside of China, in our view.

As part of its strategic refresh, ReNeuron is seeking to capitalise on its hRPC cell therapy programme, following the results of its Phase IIa study in retinitis pigmentosa. While no serious adverse events were recorded and promising 12-month efficacy data in certain patients observed, efficacy waned after 24 months in treated patients and additional clinical studies were required to identify those patient sub-populations that would benefit most from treatment. Management is currently completing the existing data package, expected in Q422, with the intention of out-licensing it to a third party. In our view, the encouraging initial data reported from the study provides a licensing partner with a robust platform to refine future study scopes and progress development.

ReNeuron is subject to the regular sensitivities associated with drug research and development. The company’s prospects will be affected by development delays or failures, regulatory risks, competitor successes, partnering successes and financing risks. As ReNeuron’s developmental pipeline is comprised purely of preclinical assets, the most near-term risk for the company would be the failure to progress its exosomes programmes into the clinic. Additionally, the company’s undisclosed pipeline also provides significant challenges with regards to assessing the potential target markets, competitive landscape and valuation. Future clinical progression may allow additional transparency, which would further refine the overall market opportunity and investment case. While exosomes may offer advantages over existing technologies, viral vectors and LNPs are well established drug delivery platforms with approved therapies. The clinical infancy of exosomes may result in longer timescales before such therapies are launched into the market. However, we note that a number of preclinical exosome companies are looking to progress their exosome platforms into the clinic, achievement of which would provide further confidence in the clinical utility of exosomes.

We value ReNeuron Group at £47.3m or 83p per share. Our valuation is based on an rNPV calculation for the clinical success of two of ReNeuron’s exosome programmes in CNS indications (combined rNPV £27.2m or 47p per share), the launch of the group’s CTX programme in China through Fosun (rNPV £5.7m or 10p per share) and incorporates a gross cash position of £14.5m at end-March 2022. With the preclinical assets we apply a discount rate of 15.0% and a 12.5% discount rate for the out-licensed Fosun CTX programme. A breakdown of our valuation assumptions can be found in Exhibit 12. We note that ReNeuron’s shares are currently trading only modestly above cash value, dented previously by the halting of the hRPC programme; however, there is clear upside from the potential of the exosome platforms, albeit ascribed little value by the market due to their preclinical status.

For the purposes of our model, we have selected AD and PD as indications that ReNeuron’s exosomes may find clinical application for the following reasons:

ReNeuron is currently unable to disclose details of the indications being targeted in collaboration with its existing developmental partners so our valuation may be significantly altered should additional details of the target markets, mechanism of action and drug modalities be revealed.

In our model we assume that for our selected target market of AD, a conservative peak penetration of 5% is achieved by one of ReNeuron’s developmental partners, for which ReNeuron will be entitled to tiered royalties on sales. We assume approval of the AD exosome-based therapy in 2031 and estimate global peak sales of $7,631m (£6,875m) in 2037. Our estimated price of $56,000 per patient per year is based on the per patient initial price set by Biogen for Aduhelm, the first FDA-approved disease modifying AD therapy.

In our second selected exosome programme, for PD, we assume regulatory approval will be achieved in 2032 with a conservative peak penetration of 1% and global peak sales in 2038 of $682m (£614m). Our estimated price of $40,000 per patient per year is based on the cost per patient per year for Nuplazid (c $40,000, EvaluatePharma), for the treatment of hallucinations and delusions associated with PD.

Our timelines for clinical development are based on the clinical progression of Onpattro, the first RNAi LNP technology to be launched into the market, entering the clinic in 2012 before receiving FDA approval in 2018. As the exosome programmes are still in very early stages of development, we have assigned a PoS of 2%. We will revisit these assumptions upon clinical progression and on disclosure of further details of the indications.

For the Fosun CTX programme we have assumed that the total potential deal value (£80m, $105m at the time of securing in January 2019), assuming successful launch, is split equally between both the hRPC and CTX programmes for regulatory and milestone payments. We have assumed Fosun will prioritise clinical development of the CTX programme with a product launch in FY28. Our estimated price for the CTX therapy is based on the average price of two marketed drugs to treat acute ischemic stroke, Brilinta ($53k per patient per year) and Radicava ($94k per patient per year). Drug pricing in China is governed by inclusion on the Chinese NRDL, which significantly discounts drug prices by up to 60%. We therefore assume a price of $28k per patient per year in China. The CTX cell represents a clinical asset that has already demonstrated clinical proof-of-concept from the Phase II PISCES study; however, we note that Fosun’s clinical development strategy for the CTX programme is still undisclosed, so we assign a PoS of 5%.

According to our model, a combined 57% of value is derived from the two exosome programmes (47% in AD and 10% in PD), 12% from the CTX Fosun programme and 31% from the company’s gross cash position at 31 March 2022. In our valuation we assume clinical success will be achieved from two of the seven existing exosome partnerships and that licensing deals for each are found in FY25 and FY26, at which point partners will assume full development and commercialisation costs. In line with previous preclinical exosome deals (Exhibit 8) we assume the two licensing deals will be worth up to c £160m (180m) in value, with ReNeuron receiving c £36m ($40m) in upfront payments and £127m ($140m) in sales, regulatory and developmental milestones. We have also assumed that as part of any future licensing deal ReNeuron will be subject to low double-digit royalties on net sales. This is in line with a precedent transaction pencilled by Evox and Eli Lilly, utilising Evox’s exosome platform as part of a CNS drug development programme.

As part of the technology transfer and supply agreement signed with Fosun Pharma the company received an upfront payment of £0.32m in January 2022, which we anticipate will be recognised in FY23. ReNeuron is set to receive a further £0.68m over the next two years with potentially an extra £5m in the medium to long term for provision of its CTX cell bank vials. The company is subject to future milestone and royalty payments from Fosun Pharma as it develops the CTX programme; however, additional details on timelines, clinical strategy and route to market need to be communicated before these can be factored into our model.

In FY22 ReNeuron recorded revenues of c £0.4m (FY21: c £0.25m) associated with research services (c £0.3m) and royalties (c £0.1m, c 30% y-o-y growth) from one of the company’s legacy stem cell lines. The company has stated its ambitions to grow its revenue base through additional partnerships, building upon its seven existing research collaborations. Overall, we anticipate revenue to increase to £0.8m in FY23 and £0.9m in FY24 as a result of Fosun payments, contract revenue from customers and existing royalties. We anticipate a further milestone payment of £1.8m in FY25 as the technology transfer with Fosun is completed and Fosun initiates CTX stem cell production.

The group is eligible to receive R&D tax credits at 14.5%, for which the company received £1.4m in FY22. The company’s total operating expenses were £11.6m (FY21: £13.2m) consisting of £8.1m in R&D expenses (FY21: £9.5m) and £3.5m (FY21: £3.7m) in general and administrative costs, resulting in operational losses for the period of £11.2m (FY21: £12.9m). The reduction in R&D costs was primarily driven through the cessation of clinical activities for the hRPC programme. We expect R&D expenses to increase as the company produces data to grow and enhance the CustomEx exosomes platform and proprietary products and forecast R&D expenses of £8.1m in FY23 and £8.9m in FY24. Overall, we estimate operating losses for ReNeuron in FY23 and FY24 to be £11.1m and £12.0m, respectively.

At end-March 2022 the company reported a net cash and near cash of £14.5m and no debt. ReNeuron reported operating cash burn of £7.4m for FY22, which we estimate will increase to £11.4m in FY23e and £10.2m in FY24e providing a cash runway to end FY Q124 (ie to mid-June 2023). For the purpose of our model, we anticipate that ReNeuron will need to raise c £15m in FY24 which we view as sufficient to fund operations to mid-2025, when we assume in our model that the company will engage in a global licensing deal, receiving an upfront payment of £36m with a milestone payment of £9m in FY26 as the exosome programme progresses into the clinic. We assume an additional licensing deal will be signed in FY26 with a further upfront payment of £36m. In the absence of a licensing deal, we expect the company will need to raise c £15m in FY24 with an additional £20m in FY25, which will fund operations into H226. We include this in our model as illustrative debt.