ReNeuron — Update 24 March 2016

Healthcare

ReNeuron

First patient treated in first US clinical study

RP Phase I/II trial initiated

Pharma & biotech

24 March 2016

Price	3.38p
Market cap	£107m

Net cash (£m) at 30 September 2015		72.3

Shares in issue	3,164.6m
Free float	60.5%
Code	RENE

Primary exchange	AIM
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	22.7	17.4	0.0
Rel (local)	18.0	18.7	11.5

52-week high/low

6.38p

2.50p

Business description

ReNeuron is a UK biotech company developing allogeneic cell therapies. CTX neural stem cells are in development for ischaemic stroke disability (Phase II) and critical limb ischaemia (Phase I) and hRPC (human retinal progenitor cells) are being studied for retinitis pigmentosa (Phase I/II).

Next events

FY16 results	July 2016
CTX: Phase II stroke data	Mid-2016
CTX: start Phase II CLI study	H216

Analysts

Dr Linda Pomeroy	+44 (0)20 3077 5738
Christian Glennie	+44 (0)20 3077 5727

healthcare@edisongroup.com

Edison profile page

ReNeuron is a research client of Edison Investment Research Limited

ReNeuron has treated the first patient in its US Phase I/II clinical trial with its cell therapy candidate for the blindness-causing disease retinitis pigmentosa (RP). This is a significant step given we estimate peak sales of $445m for the programme, which could move straight into a pivotal Phase II/III study in H217, pending positive data in the Phase I/II by end-2016/early 2017. The next major valuation inflection point is now the Phase II stroke disability study data (with its CTX neural stem cells), due in mid-2016.

Year end	Revenue (£m)	PBT* (£m)	EPS* (p)	DPS (p)	P/E (x)	Yield (%)
03/14	0.0	(7.8)	(0.50)	0.0	N/A	N/A
03/15	0.0	(10.3)	(0.50)	0.0	N/A	N/A
03/16e	0.0	(15.2)	(0.50)	0.0	N/A	N/A
03/17e	0.0	(27.3)	(0.76)	0.0	N/A	N/A

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

First RP patient treated

ReNeuron has announced the first patient treated in its US Phase I/II clinical trial with its stem cell product line human retinal progenitor cells (hRPC) for the treatment of RP. The study will be conducted at the Massachusetts Eye and Ear Infirmary (Boston). The trial design is an open-label, dose-escalation study to evaluate the safety, tolerability and preliminary efficacy of the hRPC stem cell therapy (administered as a single, subretinal injection) in up to 15 patients with advanced RP. The primary endpoint of the study is safety, with patients being followed up for 12 months post treatment, while changes in visual acuity will also be measured. Initial safety readouts are expected by end-2016, with efficacy data in early 2017, which if positive could lead to a pivotal Phase II/III trial starting in H217. With the potential for data readout in 2018/19, we project a launch in 2020.

A year of potential across its portfolio

ReNeuron also has a number of potential newsflow items in 2016 across its pipeline portfolio, in particular, results from the Phase II stroke study in mid-2016, with ≥2 responders in a 21-patient cohort required to pass the futility hurdle. Positive data could enable a Phase II/III trial to commence by end-2016, with potential data in H218. We also expect updates from the exosome programme, which recently received a UK grant of £2.1m and could enter the clinic in H117.

Valuation: Slight increase to £233m or 7.38p/share

Our valuation has increased, following formal initiation of the Phase I/II trial in the US in RP (probability of success increased from 15% to 20%), to £233m (from £230m) or 7.38p per share (vs 7.30p/share). ReNeuron is well-positioned, with an estimated cash balance of £63m at FY16 (31 March 2016), to execute its clinical strategy over the next 24-36 months. This could offer a number of inflection points such as data readouts from the Phase II stroke study and the Phase I/II hRPC study, and further trial initiations for CTX neural stem cells in stroke and critical limb ischaemia (CLI).

Phase I/II hRPC study underway

This is a first-in-human, open-label, dose-escalation study to evaluate the safety, tolerability and preliminary efficacy of the hRPC stem cell therapy. It will include 15 patients with advance retinitis pigmentosa (RP). Each patient, in one study eye, will undergo vitrectomy surgery and will receive a single subretinal implantation of one of three doses of hRPCs (three patients at 250,000 cells, three at 500,000 cells and nine at 1,000,000 cells). Once treated, the patients will be monitored through ophthalmic examinations and imaging for any ocular or systemic adverse events for 12 months post treatment. The primary outcome measure of safety and tolerability will be reported after six months, with the secondary outcome measure of efficacy at the end of 12 months.

This study is similar in design to an Advanced Cell Technology (Ocata Therapeutics) trial1 of subretinal injection of stem cells for retinal degeneration disorders. This study included a dose range (50,000, 100,000 and 150,000 cells) and was combined with vitrectomy surgery. Vitrectomy is not a standard procedure to restore or slow decline in vision in RP patients (it is usually indicated for patients that have media opacities or macular pathology) and therefore should not provide a significant benefit alone. Furthermore, patients with media opacities or macular pathology are excluded from the study, along with those that have already previously received vitrectomies. As such, any observation of a treatment benefit (eg improvement in visual acuity) should be directly attributable to administration of the hRPCs.

Prof Steven D Schwartz, et al (2015). Human embryonic stem cell-derived retinal pigment epithelium in patients with age-related macular degeneration and Stargardt's macular dystrophy: follow-up of two open-label phase 1/2 studies. The Lancet, Volume 385, No. 9967, p509–516, 7 February 2015.

Valuation

Our rNPV valuation has increased slightly, following the initiation of the Phase I/II trial in the US in RP, to £233m (vs £230m) or 7.38p per share (vs 7.30p/share), primarily after increasing the probability of success for the hRPC programme to 20% (vs 15% previously) and updating the $/£ exchange rate to 1.50 (vs 1.55 previously). Offsetting this is our lower estimated net cash of £63m as of 31 March 2016 (vs £71m estimated at H116 or 30 September 2015). ReNeuron’s strong cash position should allow the company to execute on an expanding clinical trial programme, resulting in a number of potential key inflection points over the next 24-36 months, including:

■

Phase II stroke data (mid-2016);

■

initiation of a pivotal Phase II/III study for CTX in stroke (H216);

■

initiation of Phase II clinical trial for CTX in CLI (H216);

■

Phase I/II hRPC data (end-2016/2017); and

■

preclinical data from the exosome nanomedicine programme, such as efficacy and toxicity.

We note our peak sales estimate for the hRPC programme of $445m, based on 20% penetration of patients with advanced to severe vision loss and a per-eye treatment cost of $50k is conservative. A transformational disease modifying treatment could be priced significantly higher.

Exhibit 1: ReNeuron valuation model and key assumptions

Product	Setting	Status	Launch	NPV (£m)	Peak sales ($m)	Probability of success	Royalty rate	rNPV (£m)	rNPV/ (p)	Key assumptions
CTX	Stroke disability	Phase II	2019	699	1,600	20%	30%	125	3.95	1.76m strokes/yr (US 800k + EU 800k + Japan 155k); 85% ischaemic; 85% survival; 50% disability; 10% peak penetration; treatment cost $50,000 (US/Japan) or $40,000 (EU).
CTX	CLI	Phase I	2022	127	670	20%	20%	20	0.64	CLI prevalence 0.25%-0.30% in 40+ yrs; 35% ineligible for revascularisation surgery; 85% survival; peak penetration 10% (US) or 5% (EU/Japan); treatment cost $20,000 (US/Japan) or $15,000 (EU).
hRPC	RP	Phase I/II-ready	2020	173	445	20%	30%	25	0.80	RP prevalence 1 in 4,000; 10% advance to severe vision loss per year; peak penetration 20% (US/Japan) or 15% (EU); per-eye treatment cost $50,000 (US/Japan) or $40,000 (EU).
Portfolio total				999				171	5.39
Cash (FY 2016e)								63	1.99	Cash estimated at 31 March 2016
Overall valuation								233	7.38	3,164m shares outstanding

Source: Edison Investment Research

Financials

ReNeuron has a strong cash position following its net £65.1m fund-raise in July 2015. As outlined in our previous note, we expect R&D expenditure to ramp up due to an increase in clinical trial activity for the stroke, CLI and hRPC programmes. We estimate an increase in R&D costs in FY16 to £11.6m and another ramp-up in FY17 to £23.2m, with two Phase II/III studies potentially underway for the CTX and hRPC programmes. Alongside the increase in R&D expenditure, there is also an increase in G&A expenses due to the recent relocation and establishment of a new research and manufacturing facility in South Wales. We estimate G&A expenses of £4.4m in FY16 and £5.1m in FY17. We expect current cash to be sufficient to last until FY19, enabling ReNeuron to deliver on a range of clinical milestones which, as outlined above, would offer multiple catalysts for the company’s value.

Exhibit 2: Financial summary

	£'000s	2013	2014	2015	2016e	2017e	2018e
Year end 31 March		IFRS	IFRS	IFRS	IFRS	IFRS	IFRS
PROFIT & LOSS
Revenue		17	22	30	26	26	26
Cost of Sales		0	0	0	0	0	0
Gross Profit		17	22	30	26	26	26
R&D expenses		(4,786)	(5,829)	(7,250)	(11,591)	(23,182)	(20,864)
G&A expenses		(2,319)	(2,824)	(3,693)	(4,433)	(5,098)	(5,608)
EBITDA		(6,966)	(7,857)	(10,269)	(15,484)	(27,627)	(25,658)
Operating Profit (before GW and except)		(7,088)	(7,969)	(10,394)	(15,554)	(27,810)	(26,002)
Intangible Amortisation		0	0	0	0	0	0
Exceptionals		0	0	0	0	0	0
Operating Profit		(7,088)	(7,969)	(10,394)	(15,554)	(27,810)	(26,002)
Other		0	0	0	0	0	0
Net Interest		29	149	91	330	472	278
Profit Before Tax (norm)		(7,059)	(7,820)	(10,303)	(15,224)	(27,338)	(25,723)
Profit Before Tax (FRS 3)		(7,059)	(7,820)	(10,303)	(15,224)	(27,338)	(25,723)
Tax		714	754	1,397	1,955	3,281	3,087
Profit After Tax (norm)		(6,345)	(7,066)	(8,906)	(13,269)	(24,058)	(22,637)
Profit After Tax (FRS 3)		(6,345)	(7,066)	(8,906)	(13,269)	(24,058)	(22,637)

Average Number of Shares Outstanding (m)		748.7	1,425.0	1,788.8	2,676.2	3,164.6	3,164.6
EPS - normalised (p)		(0.85)	(0.50)	(0.50)	(0.50)	(0.76)	(0.72)
EPS - FRS 3 (p)		(0.85)	(0.50)	(0.50)	(0.50)	(0.76)	(0.72)
Dividend per share (p)		0.0	0.0	0.0	0.0	0.0	0.0

BALANCE SHEET
Fixed Assets		1,620	1,772	2,033	2,786	3,592	4,434
Intangible Assets		1,272	1,272	1,591	1,591	1,591	1,591
Tangible Assets		213	225	161	914	1,720	2,562
Other		135	275	281	281	281	281
Current Assets		4,602	22,347	14,054	65,687	41,200	18,104
Stocks		0	0	0	0	0	0
Debtors		341	676	400	832	832	832
Cash		3,547	20,917	12,382	62,901	37,087	14,186
Other		714	754	1,272	1,955	3,281	3,087
Current Liabilities		(1,164)	(2,036)	(2,345)	(2,517)	(2,517)	(2,517)
Creditors		(539)	(1,234)	(1,150)	(1,322)	(1,322)	(1,322)
Short term borrowings		0	0	0	0	0	0
Short term leases		(1)	(1)	(1)	(1)	(1)	(1)
Other		(624)	(801)	(1,194)	(1,194)	(1,194)	(1,194)
Long Term Liabilities		(150)	(366)	(606)	(606)	(606)	(606)
Long term borrowings		0	0	0	0	0	0
Long term leases		0	(2)	(1)	(1)	(1)	(1)
Other long term liabilities		(150)	(364)	(605)	(605)	(605)	(605)
Net Assets		4,908	21,717	13,136	65,351	41,669	19,415

CASH FLOW
Operating Cash Flow		(6,637)	(6,718)	(9,124)	(15,501)	(27,252)	(25,275)
Net Interest		(1)	0	0	0	0	0
Tax		616	714	879	1,397	1,955	3,281
Capex		(37)	(121)	(380)	(824)	(988)	(1,186)
Acquisitions/disposals		0	0	0	0	0	0
Financing		5,601	23,435	0	65,116	0	0
Dividends		0	0	0	0	0	0
Other		30	61	91	330	472	278
Net Cash Flow		(428)	17,371	(8,534)	50,519	(25,813)	(22,902)
Opening net debt/(cash)		(3,974)	(3,546)	(20,914)	(12,380)	(62,899)	(37,085)
HP finance leases initiated		0	(3)	0	0	0	0
Other		0	0	0	0	(0)	(0)
Closing net debt/(cash)		(3,546)	(20,914)	(12,380)	(62,899)	(37,085)	(14,184)

ESource: ReNeuron accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by ReNeuron and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Equities

Equities by Sector

Sectors

Thematics

Latest

ConsumerWatch – Don’t look down

A net zero perspective – Investing in sustainability, technology & innovation

Banco Angolano de Investimentos (BAI) – Money-centre bank with lending optionality

Audiovisual

Latest

UIL in 60 seconds

JPMorgan European Discovery Trust in 60 seconds

Baillie Gifford US Growth Trust in 60 seconds

About Edison

About Edison

Careers

ReNeuron Group (AIM: RENE)

ReNeuron — Update 24 March 2016

Healthcare

Healthcare

Latest

Electro Optic Systems — Growth from defence

Smiths News — FY24 trading good, special dividend proposed

IRLAB Therapeutics — Progress across the pipeline in Q324

Sylvania Platinum — Healthy production recovery

Braemar — Robust trading, but UK budget adds to costs

More on ReNeuron Group

ReNeuron Group — H124 results reaffirm focus on CustomEX

ReNeuron Group — A step forward on the Exosome delivery platform

ReNeuron Group — Full steam ahead with CustomEx

ReNeuron Group — Encouraging data for iPSCs opens potential

Latest from the Healthcare sector

IRLAB Therapeutics — Progress across the pipeline in Q324

AFT Pharmaceuticals — H125 profitability weighed down by one-offs

Oryzon Genomics — Q3 results recap key upcoming inflection points

Cereno Scientific — CMD highlights a ‘rare’ portfolio refocus

Findel — Update 24 March 2016

Subscribe to Edison