Renalytix AI plc (LSE: RENX) (NASDAQ: RNLX), 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 ended September 30, 2020.
Recent Highlights
- Launched
KidneyIntelX within the Mount Sinai Health System
- Submitted final
package to FDA seeking clearance of KidneyIntelX
- Announced
collaboration with AstraZeneca to develop and launch precision
medicine strategies for cardiovascular, renal and metabolic
diseases
- Completed
spin-out of Verici Dx (previously FractalDx)
- Achieved dual
listing on Nasdaq Global Market
First Quarter 2021 Financial
ResultsOperating expense for the three months ended
September 30, 2020 was $5.4 million compared to $2.0 million
during the prior year period.
Research and development expenses were 1.7
million for the three months ended September 30, 2020, increasing
$0.5 million from $1.2 million for the three months ended September
30, 2019. The increase R&D expense was due to increased
headcount and the associated compensation and related benefits,
including share-based payments.
General and administrative expenses were
$4.1 million for the three months ended September 30,
2020, increasing $3.3 million from $0.8 million for the
three months ended September 30, 2019. The increase was due to
an increase in insurance costs, compensation and related benefits,
including share-based payments, due to increased headcount, and in
fees associated with the listing on Nasdaq.
Net loss attributable to ordinary
shareholders was $7.2 million for the three months ended September
30, 2020 compared to $1.5 million in the prior year period.
Cash, cash equivalents and short-term
investments of $82.3 million as of September 30, 2020. This
includes $76.1 million from the Company’s initial public offering
on the Nasdaq Global Market after commissions, fees and offering
expenses.
For further information, please contact:
Renalytix AI plc |
www.renalytixai.com |
James McCullough, CEO |
Via Walbrook
PR |
|
|
Stifel (Nominated Adviser, Joint
Broker) |
Tel: 020 7710 7600 |
Alex Price / Nicholas Moore |
|
|
|
Investec Bank plc (Joint Broker) |
Tel: 020 7597 4000 |
Gary Clarence / Daniel Adams |
|
|
|
Walbrook PR Limited |
Tel: 020 7933 8780
or renalytix@walbrookpr.com |
Paul McManus / Lianne Cawthorne |
Mob: 07980 541 893 / 07584 391 303 |
|
|
About Kidney DiseaseKidney
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 RenalytixAIRenalytixAI 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
StatementsStatements 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, 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. 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.
Investor Contactinvestors@renalytixai.com
RENALYTIX
AI PLC
Operational Update and Financial Results
for the Three Months Ended September 30, 2020
Unless otherwise indicated, all references in
this report, to the terms “Renalytix,” “Renalytix AI,” “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
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 (“LDT”), 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, or 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 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, in August 2020, the U.S. Centers for Medicare &
Medicaid Services (“CMS”), an agency within the U.S. Department of
Health and Human Services, submitted for public comment a rule
(“Medicare Coverage of Innovative Technology”) which, if finalized,
would provide an automatic National Medicare Coverage Determination
for diagnostic devices that have received breakthrough device
designation upon the effective date of the promotional approval by
the FDA. The automatic coverage period shall continue for a period
of four years, during which manufacturers of breakthrough devices
may develop additional evidence regarding the applicability of
their products to the Medicare population, so they might continue
Medicare coverage beyond the initial four years. We believe that
this new proposed CMS rule making, if adopted in its current form,
could have a material positive impact on addressable market
population with insurance coverage for KidneyIntelX if we obtain
FDA clearance for KidneyIntelX.Business Highlights
Launch of
KidneyIntelX at Mount Sinai
In September 2020, we announced the initiation
of KidneyIntelX clinical test reporting within the Mount Sinai
Health System (“Mount Sinai”) in New York City. In addition to
patient testing and risk assessment, a central component of this
operational milestone was the physician education and support
program developed in close collaboration with leadership of the
Mount Sinai Departments of Medicine and Population Health Science
and Policy, with input from patient advocacy groups and the broader
clinical community. This expert experience is reflected in the
design of the KidneyIntelX test report and the newly launched
product website, www.kidneyintelx.com. We believe this education
and support program will be an important resource to help improve
care for early stage DKD patients at Mount Sinai and support future
deployments of KidneyIntelX.
Submission to FDA seeking clearance
of KidneyIntelX
In August 2020, we filed a submission seeking
clearance of KidneyIntelX with the FDA. This FDA filing builds on
our regulatory and commercialization program, which includes our
June 2020 announcement that the New York State Department of Health
has issued a clinical laboratory permit for commercial clinical
testing of KidneyIntelX. In May 2019, we announced that
KidneyIntelX was granted breakthrough device designation by FDA,
the first such designation for an artificial
intelligence-enabled in vitro diagnostic for kidney
disease publicly announced by any company. We are now seeking FDA
clearance for the intended use of KidneyIntelX, in conjunction with
clinical evaluation, as an aid to further assess the risk of
progressive decline in kidney function within a period of up to
five years in patients over the age of 21 with type 2 diabetes and
existing CKD. Patients with CKD and type 2 diabetes account for
approximately 25-30% of the estimated 37 million
U.S. patients with CKD. Performance data we provided in our FDA
510(k) submission was based on a multi-center validation study of
more than 1,100 patients that demonstrated that KidneyIntelX
accurately identifies patients with type 2 diabetes in CKD stages
1, 2 and 3 who are at highest risk of progressive decline in kidney
function and/or kidney failure.
COVID-19 studies
The current COVID-19 pandemic has had
a devastating impact around the world. Many reports indicate that
acute kidney injury occurs in approximately 20% to 40% of patients
hospitalized with COVID-19, is often severe (including
need for acute dialysis), and data from Mount Sinai during the
initial U.S. surge indicated that 70% of patients that develop
acute kidney injury in the setting of COVID-19 either die
in the hospital or do not recover kidney function by discharge. We
plan to investigate the use of KidneyIntelX for patients
with COVID-19 in two clinical studies. The first study,
entitled “Pred-MAKER” (Prediction of Major Adverse Kidney Events
and Recovery) involves acutely ill patients
with COVID-19 admitted to Mount Sinai. The second study,
“MASKeD-COVID” (Multi-center Assessment of Survivors
for Kidney Disease after COVID-19) is designed
to understand the long-term kidney epidemiology of CKD in survivors
of COVID-19 and validate KidneyIntelX for prediction of
long-term kidney outcomes post-COVID hospitalization that will
inform further prevention, treatment and clinical care.
AstraZeneca collaboration
In August 2020, we announced a collaboration
with AstraZeneca (LSE/STO/NASDAQ: AZN) to develop and launch
precision medicine strategies for cardiovascular, renal, and
metabolic diseases. The first stage in the collaboration is
examining the uptake of, and patient adherence to, treatments for
diabetes as well as common complications of CKD, including
hyperkalemia and anemia. The study will provide key insights into
the impact of the KidneyIntelX platform to optimize utilization of
therapeutics in CKD under current standard of care protocols. Based
on the insights gained from the first stage, a multi-center,
randomized controlled trial will be initiated to evaluate the
impact of KidneyIntelX testing and care navigation software on
uptake and adherence to new potassium-binding agents in patients
with CKD and hyperkalemia. We believe that this approach will
accomplish the following: (1) help improve physician uptake and
patient adherence to existing potassium-binding therapeutics and
other approved products in CKD through early identification of
previously hidden high-risk patient groups; (2) accelerate patient
identification and recruitment for clinical trials; and (3)
complement commercialization efforts with outcomes from
KidneyIntelX results. Importantly, this collaboration extends the
potential impact of KidneyIntelX to populations beyond the first
indicated use, DKD, that is approved with New York State and under
breakthrough review with the FDA. Hyperkalemia affects
approximately 10-20% of patients with CKD or chronic
heart failure. Anemia affects 15% of patients with CKD, and nearly
50% of individuals with advanced CKD.
FractalDx (Verici
Dx) spin-off
In April 2020, the Company created a
wholly-owned subsidiary, Verici Dx Limited (“Verici Dx”), to hold
technology in-licensed from the Icahn School of Medicine at Mount
Sinai in late 2018. In May 2020, the Company transferred the
in-licensed FractalDx technology and associated assets to Verici Dx
in exchange for $2.0 million, which was satisfied by the issuance
of convertible loan notes of Verici Dx to the Company.
We announced on July 8, 2020 that the share
capital of Verici Dx had been re-designated into 59,416,134 A
Shares of £0.001 each and one golden share of £0.001 (the “Golden
Share”) and that Renalytix would retain the Golden Share and its
associated controlling voting rights. Subsequent to that
announcement, the Company entered into a declaration of trust
whereby Renalytix AI plc has declared that it holds the Golden
Share as nominee and on trust for certain Directors of RenalytixAI
and accordingly, the Company itself has no ongoing beneficial
interest in Verici Dx shares. This triggered a reconsideration
event for ongoing consolidation of Verici Dx and since the Company
was still the primary funding source for Verici Dx, the Company
continued to hold a controlling financial interest in Verici Dx and
continued to consolidate Verici Dx. Consequently, the Company
recognized noncontrolling interest of $1.6 million to reflect
Verici Dx’s distribution of A shares and the Golden Share.
On November 3, 2020, Verici Dx completed its
initial public offering (the “Verici IPO”) on AIM thus triggering
another reconsideration event for ongoing consolidation of Verici
Dx. The Verici IPO resulted in the Company no longer having a
controlling financial interest and no longer having a majority
equity interest in Verici Dx.
Nasdaq dual listing
In July 2020, we completed a dual listing on the
Nasdaq Global Market through the issuance of American Depository
Shares under ticker symbol “RNLX,” expanding our institutional
investor base and raising net capital of approximately
$76.1 million after commissions, fees and offering expenses.
We maintain our listing on the AIM market of London Stock Exchange
plc under the symbol “RENX.”
Impact of COVID-19
The extent of the impact of the COVID-19
pandemic on our business, operations and regulatory and
commercialization timelines will depend on certain developments,
including the duration and spread of the outbreak and its impact on
our partners, laboratory sites, and other third parties with whom
we do business, as well as its impact on regulatory authorities and
our key scientific and management personnel. For example, to the
extent possible, we are conducting business as usual, with
necessary or advisable modifications to employee travel and
employee work locations. We will continue to actively monitor the
rapidly evolving situation related to COVID-19 and may take further
actions that alter our business operations, including those that
may be required by federal, state or local authorities, or that we
determine are in the best interests of our employees, partners and
shareholders. At this point, the extent to which the COVID-19
pandemic may impact our business, operations and regulatory and
commercialization timelines remains uncertain.
FINANCIAL REVIEW
Financial review of the three-month
period ended September 30, 2020
The operating loss for the three months ended
September 30, 2020, was $5.4 million (September 30, 2019:
$2.0 million) and the net loss attributable to ordinary
shareholders for the three months ended September 30, 2020,
was $7.2 million (September 30, 2019: loss of $1.5
million).
Research and Development
Costs
Research and development expenses increased by
$0.5 million, from $1.2 million for the three months ended
September 30, 2019 to $1.7 million for the three months ended
September 30, 2020. The increase R&D expense was due to
increased headcount and the associated compensation and related
benefits, including share-based payments.
General and Administrative
Costs
General and administrative expenses increased by
$3.3 million, from $0.8 million for the three months
ended September 30, 2019 to $4.1 million for the three
months ended September 30, 2020. The increase was due to a
$1.0 million increase in insurance costs, $0.8 million increase in
legal and accounting fees as a result of listing on Nasdaq, $0.6
million in compensation and related benefits, including share-based
payments, due to increased headcount, $0.4 million increase in
consulting and professional fees, $0.3 million increase in
recruiting expense, and an increase of $0.2 million in
marketing, facility and other operating expenses.
Performance of contract liability to
affiliate
In May 2020, the Company and the Icahn School of
Medicine at Mount Sinai entered into an operating agreement
(“Kantaro Operating Agreement”) to form a joint venture, Kantaro
Biosciences LLC (“Kantaro”), 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 September 30, 2020, we recognized $0.5 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
As the Company can exert significant influence
over, but does not control, the investee’s operations through
voting rights or representation on Kantaro’s board of directors,
the Company accounts for the investment using the equity method of
accounting. During the three months ended September 30, 2020, we
recognized $0.1 million in losses which represents our
proportionate share of losses in Kantaro.
Other
Income
(Expense), net
During the three months ended September 30,
2020, we recognized a realized foreign exchange gain of $0.06
million which was offset by an unrealized foreign exchange loss of
$2.2 million. During the three months ended September 30, 2019, we
received $0.08 million of other income in relation to a
collaboration with the University Medical Center Groningen,
Netherlands as well as $0.01 million of interest income as a result
of interest earned on cash deposits. We recognized a realized
foreign exchange gain of $0.02 million during the three months
ended September 30, 2019 and had an unrealized foreign exchange
gain of $0.43 million.
Cash Flows
Net cash used in operating activities
During the three months ended September 30,
2020, net cash used in operating activities was $10.4 million and
was primarily attributable to our $7.6 million net loss and $3.6
million in the net change in our operating assets and liabilities
that was offset by $0.8 million in noncash charges. The change in
our operating assets and liabilities was primarily attributable to
$3.8 million decrease in our prepaid expenses and other current
assets. Noncash charges were primarily related to share-based
compensation expense of $0.5 million.
During the three months ended September 30,
2019, net cash used in operating activities was $1.7 million and
was primarily attributable to our $1.5 million net loss and $0.2
million in noncash charges.
Net cash used in investing activities
During the three months ended September 30,
2020, net cash provided by investing activities was $0.4 million
and primarily attributable to $1.0 million in proceeds in short
term investments offset by $0.5 million for the purchase of lab and
office equipment and $0.1 million of software development
costs.
During the three months ended September 30,
2019, net cash used in investing activities was $13.3 million and
primarily attributable to $14.3 million in purchases of short-term
investments offset by net proceeds of $1.0 million related to our
short-term investments.
Net cash used in financing activities
During the three months ended September 30,
2020, net cash provided by financing activities was $76.9 million
and was primarily attributable to $79.2 million of proceeds from
our initial public offering on the Nasdaq Global Market which was
offset by offering costs of $2.3 million associated with the IPO
that were paid in the period.
During the three months ended September 30,
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 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 of $82.3 million as of September 30, 2020
increased from $13.3 million as of June 30, 2020 primarily due
to the net proceeds of our initial public offering on the Nasdaq
Global Market.
Post-period end
On November 3, 2020, Verici Dx completed its IPO
on AIM and raised gross proceeds of £14.5 million. Verici Dx
previously issued the Company $2.5 million in convertible loan
notes which reflects the consideration for the FractalDx assets and
the funding the Company provided Verici Dx through October 28,
2020. Prior to the Verici IPO, on November 3, 2020, the Company
gave notice to convert the existing $2.5 million convertible loan
notes into 9,831,681 ordinary shares of Verici Dx.
RENALYTIX AI PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share
data) |
September30, 2020 |
June 30,2020 |
|
|
|
Assets |
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ |
82,253 |
|
$ |
13,293 |
|
Short-term investments |
|
— |
|
|
982 |
|
Prepaid expenses and other current assets |
|
4,378 |
|
|
551 |
|
Receivable from affiliate |
|
18 |
|
|
18 |
|
Total current assets |
|
86,649 |
|
|
14,844 |
|
Property and equipment, net |
|
2,644 |
|
|
1,655 |
|
Deferred offering costs |
|
— |
|
|
2,364 |
|
Investment in affiliate |
|
1,821 |
|
|
1,937 |
|
Note receivable from
affiliate |
|
83 |
|
|
83 |
|
Total assets |
$ |
91,197 |
|
$ |
20,833 |
|
|
|
|
|
|
|
|
Liabilities and
Shareholders’ Equity |
|
|
Current liabilities: |
|
|
Accounts payable |
$ |
1,829 |
|
$ |
2,218 |
|
Accrued expenses and other current liabilities |
|
636 |
|
|
683 |
|
Note payable – current |
|
161 |
|
|
120 |
|
Payable to affiliate - current |
|
1,183 |
|
|
271 |
|
Total current liabilities |
|
3,809 |
|
|
3,292 |
|
Payable to affiliate -
noncurrent |
|
173 |
|
|
1,544 |
|
Note payable - noncurrent |
|
94 |
|
|
135 |
|
Total liabilities |
|
4,076 |
|
|
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 September 30, 2020 and
June 30, 2020, respectively; 72,029,634 and 59,416,134
shares issued and outstanding at September 30, 2020 and
June 30, 2020, respectively |
|
219 |
|
|
179 |
|
Additional paid-in capital |
|
147,883 |
|
|
69,650 |
|
Accumulated other comprehensive income (loss) |
|
1,030 |
|
|
(1,200 |
) |
Accumulated deficit |
|
(59,938 |
) |
|
(52,717 |
) |
Total shareholders’ equity attributable to Renalytix AI |
|
89,194 |
|
|
15,912 |
|
Noncontrolling interest |
|
(2,073 |
) |
|
— |
|
Total shareholders’ equity |
|
87,121 |
|
|
15,912 |
|
Total liabilities and shareholders’ equity |
$ |
91,197 |
|
$ |
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 MonthsEnded September
30,2020 |
Three MonthsEnded September
30,2019 |
|
|
|
Operating expenses: |
|
|
Research and development |
$ |
1,745 |
|
$ |
1,180 |
|
General and administrative |
|
4,116 |
|
|
837 |
|
Performance of contract liability to affiliate |
|
(458 |
) |
|
— |
|
Total operating expenses and loss from operations |
|
(5,403 |
) |
|
(2,017 |
) |
|
|
|
Equity in losses of
affiliate |
|
(116 |
) |
|
— |
|
Other (expense) income, net |
|
(2,095 |
) |
|
546 |
|
Net loss |
|
(7,614 |
) |
|
(1,471 |
) |
Net loss attributable to
noncontrolling interest |
|
(393 |
) |
|
— |
|
Net loss attributable to ordinary
shareholders |
|
(7,221 |
) |
|
(1,471 |
) |
Other comprehensive income
(loss): |
|
|
Foreign exchange translation adjustment |
|
2,255 |
|
|
(622 |
) |
Comprehensive loss |
|
(5,359 |
) |
|
(2,093 |
) |
Comprehensive loss attributable
to noncontrolling interest |
|
(67 |
) |
|
— |
|
Comprehensive loss attributable
to Renalytix AI |
$ |
(5,292 |
) |
$ |
(2,093 |
) |
|
|
|
Net loss per ordinary share—basic
and diluted |
$ |
(0.10 |
) |
$ |
(0.03 |
) |
Weighted average ordinary
shares—basic and diluted |
|
69,835,982 |
|
|
58,077,004 |
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
RENALYTIX AI PLC
CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY (UNAUDITED)
|
Ordinary shares |
Additionalpaid-incapital |
Accumulated other comprehensive income (loss) |
Accumulated deficit |
Totalshareholders’
(deficit) equity attributable to
Renalytix AI |
Noncontrolling interests |
Totalshareholders’
(deficit) equity |
(in thousands, except shareand per share
data) |
Shares |
Amount |
Balance at June 30, 2020 |
59,416,134 |
$ |
179 |
$ |
69,650 |
$ |
(1,200 |
) |
$ |
(52,717 |
) |
15,912 |
|
— |
|
$ |
15,912 |
|
Sale of ordinary shares in initial public offering
on Nasdaq, net of offering costs and
underwriting fees of $9,007 |
12,613,500 |
|
40 |
|
76,094 |
|
— |
|
|
— |
|
76,134 |
|
— |
|
|
76,134 |
|
Verici distribution in specie |
|
|
|
1,638 |
|
(25 |
) |
|
— |
|
1,613 |
|
(1,613 |
) |
|
— |
|
Share-based compensation expense |
— |
|
— |
|
501 |
|
— |
|
|
— |
|
501 |
|
— |
|
|
501 |
|
Currency translation adjustments |
— |
|
— |
|
— |
|
2,255 |
|
|
— |
|
2,255 |
|
(67 |
) |
|
2,188 |
|
Net loss |
— |
|
— |
|
— |
|
— |
|
|
(7,221 |
) |
(7,221 |
) |
(393 |
) |
|
(7,614 |
) |
Balance at September 30, 2020 |
72,029,634 |
$ |
219 |
$ |
147,883 |
$ |
1,030 |
|
$ |
(59,938 |
) |
89,194 |
|
(2,073 |
) |
$ |
87,121 |
|
|
Ordinary shares |
Additionalpaid-incapital |
Accumulated other comprehensive income (loss) |
Accumulated deficit |
Totalshareholders’
(deficit) equity attributable to
Renalytix AI |
Noncontrolling interests |
Totalshareholders’
(deficit) equity |
(in thousands, except shareand per share
data) |
Shares |
Amount |
Balance at June 30, 2019 |
53,816,134 |
$ |
162 |
$ |
52,084 |
$ |
(822 |
) |
$ |
(42,873 |
) |
8,551 |
|
— |
$ |
8,551 |
|
Sale of ordinary shares in secondary offering, net
of offering costs of $842 |
5,600,000 |
|
17 |
|
16,407 |
|
— |
|
|
— |
|
16,424 |
|
— |
|
16,424 |
|
Share-based compensation expense |
— |
|
— |
|
247 |
|
— |
|
|
— |
|
247 |
|
— |
|
247 |
|
Currency translation adjustments |
— |
|
— |
|
— |
|
(622 |
) |
|
— |
|
(622 |
) |
— |
|
(622 |
) |
Net loss |
— |
|
— |
|
— |
|
— |
|
|
(1,471 |
) |
(1,471 |
) |
— |
|
(1,471 |
) |
Balance at September 30, 2019 |
59,416,134 |
$ |
179 |
$ |
68,738 |
$ |
(1,444 |
) |
$ |
(44,344 |
) |
23,129 |
|
— |
$ |
23,129 |
|
RENALYTIX AI PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED)
(in thousands) |
Three MonthsEndedSeptember
30,2020 |
Three MonthsEndedSeptember
30,2019 |
|
|
|
Cash flows from operating
activities: |
|
|
Net loss |
$ |
(7,614 |
) |
$ |
(1,471 |
) |
Adjustments to reconcile net loss
to net cash used in operating activities |
|
|
Depreciation |
|
27 |
|
|
9 |
|
Share-based compensation |
|
501 |
|
|
247 |
|
Realized gain on short-term
investments |
|
(18 |
) |
|
(6 |
) |
Equity losses in affiliate |
|
116 |
|
|
— |
|
Unrealized foreign exchange loss
(gain) |
|
178 |
|
|
(415 |
) |
Changes in operating assets and
liabilities: |
|
|
Prepaid expenses and other
current assets |
|
(3,845 |
) |
|
80 |
|
Accounts payable |
|
810 |
|
|
83 |
|
Accrued expenses and other
current liabilities |
|
(111 |
) |
|
(207 |
) |
Payable to affiliate |
|
(459 |
) |
|
— |
|
Net cash used in operating
activities |
|
(10,415 |
) |
|
(1,680 |
) |
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
Purchases of property and
equipment |
|
(441 |
) |
|
(31 |
) |
Software development costs |
|
(122 |
) |
|
— |
|
Purchase of short-term
investments |
|
— |
|
|
(14,290 |
) |
Proceeds from short-term
investments |
|
1,000 |
|
|
1,000 |
|
Net cash provided by (used in)
investing activities |
|
437 |
|
|
(13,321 |
) |
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
Gross proceeds from the issuance
of ordinary shares, net of underwriting fees |
|
79,182 |
|
|
— |
|
Gross proceeds from the issuance
of ordinary shares |
|
— |
|
|
17,276 |
|
Payment of offering costs |
|
(2,304 |
) |
|
(851 |
) |
Net cash provided by financing
activities |
|
76,878 |
|
|
16,425 |
|
Effect of exchange rate changes
on cash |
|
2,060 |
|
|
(233 |
) |
Net increase in cash and cash
equivalents |
|
68,960 |
|
|
1,191 |
|
Cash and cash equivalents,
beginning of period |
|
13,293 |
|
|
8,201 |
|
Cash and cash equivalents, end of
period |
$ |
82,253 |
|
$ |
9,392 |
|
|
|
|
Supplemental noncash financing
activities: |
|
|
Financing costs in accounts
payable and accrued expenses |
$ |
1 |
|
$ |
— |
|
Software development costs in
accounts payable and accrued expenses |
$ |
311 |
|
$ |
427 |
|
Purchase of property and equipment in accounts payable and accrued
expenses |
$ |
177 |
|
$ |
— |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
RENALYTIX AI PLC
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Business and risks
Renalytix AI plc and its wholly-owned subsidiary, Renalytix AI,
Inc., (collectively, Renalytix AI, or the Company) is an artificial
intelligence-enabled in vitro diagnostics company, focused on
optimizing clinical management of kidney disease to drive improved
patient outcomes and significantly lower healthcare costs.
KidneyIntelX, the Company’s 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
EHR systems, to generate a unique patient risk score.
Since inception in March 2018, the Company has focused primarily
on organizing and staffing the Company, raising capital, developing
the KidneyIntelX platform, conducting clinical validation studies
for KidneyIntelX, establishing and protecting its intellectual
property portfolio and commercial laboratory operations, pursuing
regulatory clearance and developing a reimbursement strategy. To
date, the Company has not generated any revenue from the sales of
KidneyIntelX tests. The Company has funded its operations primarily
through equity financings.
In April 2020, the Company created a wholly-owned subsidiary,
Verici Dx Limited (“Verici Dx”), to hold technology in-licensed
from the Icahn School of Medicine at Mount Sinai (ISMMS or Mount
Sinai) in late 2018. In May 2020, the Company transferred the
in-licensed FractalDx technology and associated assets to Verici Dx
in exchange for $2.0 million, which was satisfied by the issuance
of convertible loan notes of Verici Dx to the Company. The
reduction of capital necessary to implement this transaction was
approved by the Company’s shareholders at a general meeting held on
May 15, 2020 and confirmed by the High Court in England and Wales
on June 9, 2020. The Company’s board of directors declared the
distribution of shares of Verici Dx to the then shareholders of the
Company, to effect the FractalDx spin-off, on July 7, 2020, and the
distribution occurred on July 10, 2020.
The Company announced on July 8, 2020 that the share capital of
Verici Dx had been re-designated into 59,416,134 A Shares of £0.001
each and one golden share of £0.001 (the “Golden Share”) and that
Renalytix would retain the Golden Share and its associated
controlling voting rights. Subsequent to that announcement, the
Company entered into a declaration of trust whereby Renalytix AI
plc has declared that it holds the Golden Share as nominee and on
trust for certain Directors of Renalytix AI and accordingly, the
Company itself has no ongoing beneficial interest in Verici Dx
shares. This triggered a reconsideration event for ongoing
consolidation of Verici Dx and since the Company was still the
primary funding source for Verici Dx, the Company continued to hold
a controlling financial interest in Verici Dx and continued to
consolidate Verici Dx. Consequently, the Company recognized
noncontrolling interest of $1.6 million to reflect Verici Dx’s
distribution of A shares and the Golden Share.
As discussed in Note 14, on October 28, 2020, the Company gave
notice to convert the outstanding $2.5 million convertible loan
notes, which reflects the consideration for the FractalDx assets
and the funding the Company provided Verici Dx through October 28,
2020, into 9,831,681 ordinary shares of Verici Dx. On November 3,
2020, Verici Dx completed an initial public offering (“Verici IPO”)
on AIM thus triggering another reconsideration event for ongoing
consolidation of Verici Dx. The Verici IPO resulted in the Company
no longer having a controlling financial interest and no longer
having a majority equity interest in Verici Dx.
The Company is subject to risks and uncertainties common to
early-stage companies in the diagnostics industry, including, but
not limited to, ability to secure additional capital to fund
operations, compliance with governmental regulations, development
by competitors of new technological innovations, dependence on key
personnel and protection of proprietary technology. To achieve
widespread usage, KidneyIntelX and additional diagnostic products
currently under development will require extensive clinical testing
and validation prior to regulatory approval and commercialization.
These efforts require significant amounts of additional capital,
adequate personnel, and infrastructure and extensive
compliance-reporting capabilities.
2. Going Concern
On November 6, 2018, the Company sold 18.4 million ordinary
shares in its initial public offering, or IPO, at $1.57 per share
resulting in net proceeds of approximately $27.4 million and its
ordinary shares were admitted to trading on the AIM.
In July 2019, the Company sold 5.6 million of its ordinary
shares to several new and existing investors in exchange for $16.4
million of net cash proceeds.
In July 2020, the Company closed an IPO on Nasdaq Global Market
in which the Company issued and sold 12.6 million ordinary shares,
which converted into 6.3 million American depository shares, at a
public offering price of $13.50 per share. In addition, the Company
completed a concurrent private placement in Europe and other
countries outside of the United States of 30,000 ordinary shares at
a price of £5.37 per ordinary share (at an exchange rate of GBP:USD
1:1.2563). The Company received net proceeds of approximately $76.1
million as a result of the offering.
The Company has incurred recurring losses and negative cash
flows from operations since inception and had an accumulated
deficit of $59.9 million as of September 30, 2020. The Company
anticipates incurring additional losses until such time, if ever,
that it can generate significant sales of KidneyIntelX or any
future products currently in development. Management believes its
cash and cash equivalents of $82.3 million as of September 30,
2020, are sufficient to fund the projected operations for at least
the next twelve months from the issuance date of these financial
statements. Substantial additional capital will be needed by the
Company to fund its operations, expand its commercial activities
and develop other potential diagnostic related products.
The Company plans to seek additional funding through public or
private equity offerings, debt financings, other collaborations,
strategic alliances and licensing arrangements. The Company may not
be able to obtain financing on acceptable terms, or at all, and the
Company may not be able to enter into strategic alliances or other
arrangements on favorable terms, or at all. The terms of any
financing may adversely affect the holdings or the rights of the
Company’s shareholders. If the Company is unable to obtain funding,
the Company could be required to delay, curtail or discontinue
research and development programs, product portfolio expansion or
future commercialization efforts, which could adversely affect its
business prospect.
3. Basis of presentation and summary of
significant accounting policies
The accompanying unaudited interim condensed consolidated
financial statements have been prepared in conformity with
generally accepted accounting principles in the United States
(“U.S. GAAP”). Any reference in these notes to applicable guidance
is meant to refer to U.S. GAAP as found in the Accounting Standards
Codification (“ASC”) and Accounting Standards Updates (“ASU”) of
the Financial Accounting Standards Board (“FASB”).
In the opinion of management, the accompanying unaudited interim
condensed consolidated financial statements include all normal and
recurring adjustments (which consist primarily of accruals and
estimates that impact the financial statements) considered
necessary to present fairly the Company’s financial position as of
September 30, 2020 and its results of operations and cash flows for
the three months ended September 30, 2020 and 2019. Operating
results for the three months ended September 30, 2020 are not
necessarily indicative of the results that may be expected for the
year ending June 30, 2021. The unaudited interim financial
statements, presented herein, do not contain the required
disclosures under U.S. GAAP for annual financial statements. The
accompanying unaudited interim condensed consolidated financial
statements should be read in conjunction with the annual audited
consolidated financial statements and related notes as of and for
the year ended June 30, 2020.
Principles of consolidation
The unaudited interim condensed consolidated financial
statements include the accounts of Renalytix AI plc, its
wholly-owned subsidiary, Renalytix AI, Inc., and Verici Dx Limited
in which the Company holds a controlling financial interest as of
the financial statement date. As the Company has been the primary
funding source for Verici Dx since its distribution to the
Company’s stockholders, the operations and financial position of
Verici Dx are included in the condensed consolidated financial
statements of the Company. Participation of the stockholders in the
net assets and losses of Verici Dx are reflected in the line items
“Noncontrolling interests” in the Company’s condensed consolidated
balance sheets and “Net loss attributable to the noncontrolling
interests” in the Company’s condensed consolidated statements of
operations and comprehensive loss. Noncontrolling interests adjusts
the Company’s condensed consolidated results of operations and
comprehensive loss to exclude all of the losses of Verici Dx as
Renalytix AI has no direct equity ownership in Verici Dx. Changes
in the underlying net book value of Verici Dx due to equity
issuances are reflected as equity transaction in the Company’s
condensed consolidated statements of stockholders’ equity. All
inter-company balances and transactions have been eliminated in
consolidation.
Use of estimates
The preparation of the condensed consolidated financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the condensed consolidated financial
statements and reported amounts of expenses during the reporting
period. Actual results could differ from those estimates. Due to
the uncertainty of factors surrounding the estimates or judgments
used in the preparation of the condensed consolidated financial
statements, actual results may materially vary from these
estimates.
Estimates and assumptions are periodically reviewed and the
effects of revisions are reflected in the condensed consolidated
financial statements in the period they are determined to be
necessary. Significant areas that require management’s estimate
include the assumptions used in determining the fair value of
share-based awards, the value of consideration for the acquired
in-process research and development and in recording the
prepaid/accrual, and associated expense, for research and
development activities performed for the Company by third
parties.
Segment information
The Company manages its operations as a single operating segment
for the purposes of assessing performance and making operating
decisions. The Company’s singular focus is to make significant
improvements in kidney disease diagnosis and prognosis, clinical
care, patient stratification for drug clinical trials, and drug
target discovery.
Foreign currency
The Company’s condensed consolidated financial statements are
presented in U.S. dollars, the reporting currency of the
Company. The functional currency of Renalytix AI plc and
Verici Dx Limited is GB Pounds. The functional currency of
Renalytix AI, Inc. and Verici Dx Inc. is the U.S. dollar. Assets
and liabilities of Renalytix AI plc and Verici Dx Limited are
translated at the rate of exchange at year-end, while the
statements of operations are translated at the weighted average
exchange rates in effect during the reporting period. The net
effect of these translation adjustments is shown as a component of
accumulated other comprehensive income (loss). Transaction gains
and losses resulting from exchange rate changes on transactions
denominated in currencies other than the functional currency are
included in income in the period in which the change occurs and
reported within other (expenses) income in the condensed
consolidated statements of operations and comprehensive loss. For
the three months ended September 30, 2020 transaction losses were
$2.2 million. For the three months ended September 30, 2019
transaction gains were $0.4 million.
Concentrations of credit
risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash.
Periodically, the Company maintains deposits in accredited
financial institutions in excess of federally insured limits. The
Company deposits its cash in financial institutions that it
believes have high credit quality and are not exposed to any
unusual credit risk beyond the normal credit risk associated with
commercial banking relationships, and has not experienced any
losses on such accounts. At September 30, 2020 and June 30,
2020, all of the Company’s cash was held at two accredited
financial institutions.
Fair value of financial
instruments
At September 30, 2020 and June 30, 2020, the Company’s
financial instruments included prepaid expenses and other current
assets, accounts payable and other current liabilities. The
carrying amounts of these assets and liabilities approximates fair
value due to their short-term nature.
Cash and cash equivalents
The Company considers all highly liquid investments purchased
with an original maturity of 90 days or less to be cash
equivalents. As of September 30, 2020, the Company had a cash
balance of $82.3 million. As of June 30, 2020, the Company had
a cash balance of $12.8 million and cash equivalents consisting of
$0.5 million held in a money market account.
Short-term investments
Short-term investments consist of debt securities with a
maturity date greater than three months when acquired. The Company
classifies its short-term investments at the time of purchase as
available-for-sale securities. Available-for-sale securities are
carried at fair value. Unrealized gains or losses on
available-for-sale securities are reported in accumulated other
comprehensive income (loss), a component of the shareholders’
equity, until realized. Short-term investments at June 30, 2020
consisted of U.S. Treasury Bills with a fair value of $1.0 million.
Unrealized gains (losses) at June 30, 2020 were de minimis as their
maturity date was 91 days from original purchase. The Company had
no short-term investments at September 30, 2020.
Property and equipment
Property and equipment are recorded at cost. Depreciation is
determined using the straight-line method over the estimated useful
lives ranging from three to ten years. Expenditures for maintenance
and repairs are expensed as incurred while renewals and betterments
are capitalized. When property and equipment are sold or otherwise
disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and any resulting gain or loss is
reflected in operations.
Deferred offering costs
The Company capitalizes certain legal, professional, accounting
and other third-party fees that are directly associated with
in-process common equity financings as deferred offering costs
until such financings are consummated. After consummation of the
equity financing, these costs are recorded as a reduction of
additional paid-in capital generated as a result of such offering.
Should an in-process equity financing be abandoned, the deferred
offering costs will be expensed immediately as a charge to
operating expenses in the condensed consolidated statements of
operations and comprehensive loss. As of June 30, 2020, the Company
had deferred offering costs of $2.4 million related to the IPO on
the Nasdaq Global Market which was completed in July 2020. Upon
completion of the IPO, the deferred offering costs were
reclassified into additional paid-in capital.
Performance of contract liability to
affiliate
In May 2020, the Company and the Icahn School of Medicine at
Mount Sinai entered into an operating agreement (“Kantaro Operating
Agreement”) to form a joint venture, Kantaro Biosciences LLC
(“Kantaro”), for the purpose of developing and commercializing
laboratory tests for the detection of antibodies against SARS-CoV-2
originally developed by Mount Sinai. Kantaro has partnered with
Bio-Techne Corporation to develop and launch the new test which are
designed for use in any authorized clinical testing laboratory
without the need for proprietary equipment. During the three months
ended September 30, 2020, the Company recognized $0.5 million
related to the performance of the contract liability with Kantaro.
This represents the allocation of costs for performing services on
behalf of Kantaro.
Equity method investment
As the Company can exert significant influence over, but does
not control, Kantaro’s operations through voting rights or
representation on Kantaro’s board of directors, the Company
accounts for the investment using the equity method of accounting.
The Company records its share in Kantaro’s earnings and losses in
the condensed consolidated statement of operations. The Company
assesses its investment for other-than-temporary impairment when
events or changes in circumstances indicate that the carrying
amount of the investment might not be recoverable and recognize an
impairment loss to adjust the investment to its then-current fair
value.
Impairment of long-lived
assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be
generated. Impairment charges are recognized at the amount by which
the carrying amount of an asset exceeds the fair value of the
asset. The Company has not recognized any impairment of long-lived
assets during the three months ended September 30, 2020 and
2019.
Software development costs
The Company follows the provisions of ASC 985, Software, which
requires software development costs for software to marketed
externally to be expensed as incurred until the establishment of
technological feasibility, at which time those costs are
capitalized until the software is available for general release and
amortized over its estimated useful life. Technological feasibility
is established upon the completion of a working model that has been
validated.
Research and development
expenses
Research and development costs consist primarily of costs
incurred in connection with the development of KidneyIntelX and
other studies for KidneyIntelX to determine clinical value and
performance in different chronic kidney disease populations.
Research and development costs are expensed as incurred.
Share-based compensation
The Company measures equity classified share-based awards
granted to employees and nonemployees based on the estimated fair
value on the date of grant and recognizes compensation expense of
those awards over the requisite service period, which is the
vesting period of the respective award. The Company accounts for
forfeitures as they occur. For share-based awards with
service-based vesting conditions, the Company recognizes
compensation expense on a straight-line basis over the service
period. The fair value of each stock option grant is estimated on
the date of grant using the Black-Scholes option-pricing model,
which requires inputs based on certain subjective assumptions,
including the expected stock price volatility, the expected term of
the option, the risk-free interest rate for a period that
approximates the expected term of the option, and the Company’s
expected dividend yield. The Company was a privately-held
organization prior to November 2018 and has been a publicly-traded
company for a limited period of time and therefore lacks
company-specific historical and implied volatility information for
its shares. Therefore, it estimates its expected share price
volatility based on the historical volatility of publicly-traded
peer companies and expects to continue to do so until such time as
it has adequate historical data regarding the volatility of its own
traded share price. The expected term of the Company’s stock
options has been determined utilizing the “simplified” method for
awards that qualify as “plain-vanilla” options. The risk-free
interest rate is determined by reference to the U.S. Treasury yield
curve in effect at the time of grant of the award for time periods
approximately equal to the expected term of the award. Expected
dividend yield is none based on the fact that the Company has never
paid cash dividends on ordinary shares and does not expect to pay
any cash dividends in the foreseeable future.
The Company classifies share-based compensation expense in its
condensed consolidated statement of operations and comprehensive
loss in the same manner in which the award recipient’s payroll
costs are classified or in which the award recipient’s service
payments are classified.
Comprehensive loss
Comprehensive loss includes net loss as well as other changes in
shareholders’ equity that result from transactions and economic
events other than those with shareholders. For the periods
presented the only other changes in shareholders’ equity is from
foreign currency translation.
Net loss per ordinary
share
Basic net loss per ordinary share is computed by dividing net
loss by the weighted average number of ordinary shares outstanding
during each period. Diluted net loss per ordinary share includes
the effect, if any, from the potential exercise or conversion of
securities, such as options which would result in the issuance of
incremental ordinary shares. Potentially dilutive securities
outstanding as of September 30, 2020 and 2019 have been excluded
from the computation of diluted weighted average shares outstanding
as they would be anti-dilutive. Therefore, the weighted average
number of shares used to calculate both basic and diluted net loss
per share are the same.
As of September 30, 2020, and 2019, there were 3,408,858 and
2,833,858 shares issuable upon exercise of outstanding options that
were anti-dilutive and excluded from diluted loss per share for the
three months ended September 30, 2020 and 2019, respectively.
Emerging growth company
The Company is an emerging growth company as defined in the
Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS
Act”). Under the JOBS Act, companies have extended transition
periods available for complying with new or revised accounting
standards. The Company has elected to avail itself of this
exemption and, therefore, while the Company is an emerging growth
company it will not be subject to new or revised accounting
standards at the same time that they become applicable to other
public emerging growth companies that have not elected to avail
themselves of this exemption.
Recently issued accounting
pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases
(Topic 842), in order to increase transparency and
comparability among organizations by, among other provisions,
recognizing lease assets and lease liabilities on the balance sheet
for those leases classified as operating leases under previous U.S.
GAAP. For public companies, ASU 2016-02 is effective for fiscal
years beginning after December 15, 2018 (including interim
periods within those periods) using a modified retrospective
approach and early adoption is permitted. In transition, entities
may also elect a package of practical expedients that must be
applied in its entirety to all leases commencing before the
adoption date, unless the lease is modified, and permits entities
to not reassess (a) the existence of a lease, (b) the
lease classification or (c) the determination of initial
direct costs, as of the adoption date, which effectively allows
entities to carryforward accounting conclusions under previous U.S.
GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic
842): Targeted Improvements, which provides entities an optional
transition method to apply the guidance under Topic 842 as of the
adoption date, rather than as of the earliest period presented. In
June 2020, the FASB issued ASU No 2020-05 that further delayed the
effective date of Topic 842 to fiscal years beginning July 1, 2022,
and interim periods within those years. The Company is currently
evaluating the impact of adopting this guidance to its consolidated
financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments
- Credit Losses: Measurement of Credit Losses on Financial
Instruments, which requires measurement and recognition of expected
credit losses for financial assets held at the reporting date based
on historical experience, current conditions, and reasonable and
supportable forecasts. This is different from the current guidance
as this will require immediate recognition of estimated credit
losses expected to occur over the remaining life of many financial
assets. The new guidance will be effective for the Company on July
1, 2023. The Company is currently evaluating the impact of adopting
this guidance to its consolidated financial statements.
In January 2020, FASB issued ASU 2020-01,
Investments-Equity Securities (Topic 321), Investments-Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging
(Topic 815), which, generally, provides guidance for investments in
entities accounted for under the equity method of
accounting. ASU 2020-01 is effective for all
entities with fiscal years beginning after December 15, 2021,
including interim periods therein. The Company is currently
evaluating the impact of adopting this guidance to its consolidated
financial statements.
4. Fair value
Assets and liabilities recorded at fair value on a recurring
basis in the condensed consolidated balance sheets are categorized
based upon the level of judgment associated with the inputs used to
measure their fair values. Fair value is defined as the exchange
price that would be received for an asset or an exit price that
would be paid to transfer a liability in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the
use of observable inputs and minimize the use of unobservable
inputs. The authoritative guidance on fair value measurements
establishes a three-tier fair value hierarchy for disclosure of
fair value measurements as follows:
- Level 1 - Quoted prices (unadjusted in active markets for
identical assets or liabilities)
- Level 2 - Inputs other than quoted prices in active markets
that are observable either directly or indirectly
- Level 3 - Unobservable inputs in which there is little or no
market data, which require the Company to develop its own
assumptions
This hierarchy requires the use of observable market data when
available and to minimize the use of unobservable inputs when
determining fair value. The Company has classified cash equivalents
and short-term investments at June 30, 2020, which were comprised
of amounts held in a money market account and invested in U.S.
Treasury Bills, respectively, and measured at fair value on a
recurring basis, as Level 1.
5. Prepaid
expenses and other current assets
Prepaid expenses and other current assets consisted of (in
thousands):
|
September 30,2020 |
June
30,2020 |
Insurance |
$ |
3,652 |
|
$ |
40 |
Other |
|
726 |
|
|
511 |
|
$ |
4,378 |
|
$ |
551 |
6. Property and
equipment
Property and equipment consists of (in thousands):
|
September30, 2020 |
|
June
30,2020 |
|
Lab equipment |
$ |
890 |
|
$ |
862 |
|
Software |
|
1,254 |
|
|
744 |
|
Office equipment |
|
57 |
|
|
31 |
|
Office furniture |
|
10 |
|
|
10 |
|
Construction in process |
|
568 |
|
|
113 |
|
Total |
|
2,779 |
|
|
1,760 |
|
Less accumulated
depreciation |
|
(135 |
) |
|
(105 |
) |
|
$ |
2,644 |
|
$ |
1,655 |
|
Depreciation expense was $30,000 and $9,000 for the three months
ended September 30, 2020 and 2019, respectively.
As of September 30, 2020, and June 30, 2020, there was $1.0 and
$0.6 million of capitalized software development costs,
respectively. Amortization expense related to capitalized software
development costs was immaterial for the three months ended
September 30, 2020. There was no amortization expense related to
capitalized software development costs for the three months ended
September 30, 2019.
7. Accrued
expenses and other current liabilities
Accrued expenses and other current liabilities consisted of (in
thousands):
|
September 30,2020 |
June
30,2020 |
Consulting and professional fees |
$ |
545 |
|
$ |
567 |
Research and development |
|
— |
|
|
80 |
Payroll and related benefits |
|
52 |
|
|
24 |
Other |
|
39 |
|
|
12 |
|
$ |
636 |
|
$ |
683 |
8.
Debt
Paycheck Protection Program
On April 29, 2020, the Company entered into an original loan
agreement with Fortis Private Bank as the lender (“Lender”) for a
loan in an aggregate principal amount of $255,000 (the “Loan”)
pursuant to the Paycheck Protection Program (the “PPP”) under the
Coronavirus Aid, Relief, and Economic Security (CARES) Act and
implemented by the U.S. Small Business Administration. The Loan
matures in two years and bears interest at a rate of 1% per year,
with all payments deferred through the six-month anniversary of the
date of the Loan. Principal and interest are payable monthly
commencing on October 29, 2020 and may be prepaid by the Company at
any time prior to maturity without penalty. The Company may apply
for forgiveness of amounts due under the Loan, with the amount of
potential loan forgiveness to be calculated in accordance with the
requirements of the PPP based on payroll costs, any mortgage
interest payments, any covered rent payments and any covered
utilities payments during the 8-24 week period after the
origination date of the Loan. The Company utilized the proceeds of
the Loan for payroll and other qualifying expenses, but there can
be no assurances that any portion of the Loan will be forgiven.
At September 30, 2020, the outstanding principal balance of the
Loan is $255,000, of which $120,000 is payable in fiscal year 2021
and $135,000 is payable in fiscal year 2022. The fair value of the
Loan as of September 30, 2020 is $245,000, which is determined
based on a discounted cash flow model using an estimated market
rate of interest of 4.75%, which is classified as a Level 3 fair
value measurement.
9. Commitments
and contingencies
Leases
In June 2018, the Company entered into an office lease and, in
February 2019, the Company entered into a lease for laboratory
testing facilities and offices. Each lease is located in New York
City and are month-to-month leasing arrangements. Additionally, in
February 2019, the Company entered into a lease for an apartment
used by executives for traveling requirements. The apartment was
located in New York and expired in October 2019. On
October 31, 2019, the Company entered into a lease agreement
that established a commercial laboratory operation in Salt Lake
City, Utah. The lease has a term of five years and is the first
long-term lease entered into by the Company. Rent expense for all
leases was $0.2 million and $0.1 million for the three
months ended September 30, 2020 and 2019, respectively.
The future minimum payments are as follows (in thousands):
2021 |
$ |
184 |
2022 |
|
83 |
2023 |
|
83 |
2024 |
|
83 |
2025 |
|
28 |
|
$ |
461 |
Employment agreements
The Company has entered into employment agreements with certain
key executives providing for compensation and severance in certain
circumstances, as set forth in the agreements.
Retirement plans
The Company maintains a defined contribution 401(k) retirement
plan which covers all U.S. employees. Employees are eligible after
three months of service. Under the 401(k) plan, participating
employees may make contributions in an amount up to the limit set
by the Internal Revenue Service on an annual basis. The Company has
a safe harbor plan and makes contributions to employee accounts of
5% of compensation (as defined by the plan).
Legal proceedings
The Company is not a party to any litigation and does not have
contingency reserves established for any litigation liabilities. At
each reporting date, the Company evaluates whether or not a
potential loss amount or a potential range of loss is probable and
reasonably estimable under the provisions of the authoritative
guidance that addresses accounting for contingencies.
10. License
agreements
Mount Sinai license and sponsored research
agreements
On May 30, 2018, the Company entered into an exclusive license
agreement (the ISMMS License Agreement) and, on March 7, 2019, a
sponsored research agreement (the ISMMS SRA) with Mount Sinai.
Under the terms of the ISMMS License Agreement, ISMMS granted the
Company (i) an exclusive, sublicensable license to use certain
patent rights covering specific inventions concerning the
utilization of biomarkers guided artificial intelligence techniques
for detecting kidney functional decline (the ISMMS Technology),
(ii) a non-exclusive license under unregistered licensed copyrights
and licensed know-how and (iii) an exclusive option to obtain
licensed technology conceived after May 30, 2018. The Company is
obligated to pay Mount Sinai $1.5 million and $7.5 million in
commercial milestone payments upon achieving worldwide net sales of
KidneyIntelX of $50.0 million and $300.0 million, respectively. The
Company is also obligated to pay Mount Sinai a 4% to 5% royalty on
net sales of KidneyIntelX, subject to customary reductions.
Royalties are payable on a product-by-product basis from first
commercial sale of such product until the later of (1) expiration
of the last valid claim of a licensed patent covering such product
or (2) on a country-by-country basis, 12 years from first
commercial sale of such product in such country. Moreover, the
Company is obligated to pay Mount Sinai between 15% and 25% of any
consideration received from a sublicensee. Furthermore, we agreed
to carry out and fund a clinical utility study for KidneyIntelX at
a cost to be determined upon approval of the study protocol by the
IRB.
As part of the ISMMS SRA, the Company has agreed to fund several
research projects to further develop the ISMMS Technology. The
Company incurred approximately $0.1 million in research and
development expenses under the ISMMS SRA for the three months ended
September 30, 2019. The Company did not incur any expenses related
to the ISMMS SRA for the three months ended September 30, 2020.
Mount Sinai license agreement
for
FractalDx
On December 21, 2018, the Company entered into an exclusive
license agreement (the ISMMS FractalDx License Agreement) with
ISMMS. Under the terms of the ISMMS FractalDx License Agreement,
ISMMS granted the Company (i) an exclusive license, with
sub-license rights, to use certain patent rights covering specific
inventions concerning the utilization of biomarkers guided
artificial intelligence techniques for detecting kidney functional
decline (the ISMMS Technology), (ii) a non-exclusive license under
unregistered licensed copyrights and licensed know-how and (iii) an
exclusive option to obtain licensed technology conceived after May
30, 2018. The Company is obligated to pay Mount Sinai $0.3 million
upon receipt of certain regulatory clearance and approval, $0.3
million upon receipt of U.S. CMS reimbursement code or PAMA
reimbursement approval. In addition, the Company is obligated to
pay Mount Sinai $1.0 million and $4.0 million in commercial
milestone payments upon achieving worldwide net sales of FractalDx
of $50.0 million and $250.0 million, respectively. The Company is
also obligated to pay Mount Sinai a 6% to 8% royalty on net sales
of FractalDx, subject to customary reductions. Moreover, the
Company is obligated to pay Mount Sinai between 15% and 70% of any
consideration received from a sublicensee.
Royalties are payable on a product-by-product basis from first
commercial sale of such product until the later of (1) expiration
of the last valid claim of a licensed patent covering such product
or (2) on a country-by-country basis, 12 years from first
commercial sale of such product in such country. The Company is
also subject to an annual license maintenance fee of $25,000 in
calendar year 2020 and 2021, $50,000 in calendar year 2022 and
2023, $0.1 million in calendar years 2024 through 2027, and $0.2
million for calendar year 2028 and beyond.
As discussed in Note 1, in May 2020 the Company transferred the
in-licensed FractalDx technology and associated assets to Verici
Dx.
Joslin diabetes center
agreement
In October 2018, the Company purchased a worldwide exclusive
license agreement (the “Joslin Agreement”) with the Joslin Diabetes
Center, Inc. (“Joslin”) that was previously entered into with EKF
Diagnostics Holding Plc (“EKF”), a related party, in July 2017. The
license agreement provides the Company with the right to develop
and commercialize licensed products covering a novel methodology of
diagnosing and predicting kidney disease using certain biomarkers
(the “Joslin Diabetes Technology”).
Under the terms of the Joslin Agreement, the Company is
obligated to pay Joslin aggregate commercial milestone payments of
$0.3 million and $1.0 million in commercial milestone payments upon
achieving worldwide net sales of licensed products and processes of
$2.0 million and $10.0 million, respectively. The Company is also
obligated to pay Joslin a 5% royalty on net sales of any licensed
products or licensed processes, subject to customary reductions.
Moreover, the Company is obligated to pay Joslin 25% of any
consideration received from a sublicensee.
The Joslin Agreement initially expires on July 31, 2025 and is
subject to an automatic five-year extension unless either party
notifies the other party of its intent not to extend the agreement
at least 180 days prior to initial expiration. Either party may
terminate the Joslin Agreement earlier upon an uncured material
breach of the agreement by the other party, the insolvency of the
other party, or in the event the other party is unable to perform
its obligations under the agreement for a specified period.
Additionally, Joslin may terminate the agreement in the event that
the Company ceases developing or commercializing licensed products
or processes, if the Company fails to maintain certain required
insurance policies, and if the Company fails to pay patent expenses
related to the licensed patents.
AstraZeneca statement of
work
In July 2020, we entered into a statement of work (the “AZ SOW”)
with AstraZeneca Pharmaceuticals LP (“AZ”) in advance of entering
into a more comprehensive master services agreement. Pursuant to
the AZ SOW, the Company will conduct a feasibility study to
determine the impact of the use of the KidneyIntelX platform to
optimize utilization of various CKD agents and a randomized trial
of the KidneyIntelX platform and the Company’s care management
software versus routine clinical care to improve uptake and
adherence of certain CKD agent. Additionally, AZ has agreed to pay
the Company up to $1.0 million if certain milestones are achieved.
The agreement will terminate upon completion of the activities
under the AZ SOW.
11.
Shareholders’ equity
Ordinary shares
As of September 30, 2020, the Company had 75,438,492
ordinary shares authorized on a fully diluted basis. Each share
entitles the holder to one vote on all matters submitted to a vote
of the Company’s shareholders. Ordinary shareholders are entitled
to receive dividends as may be declared by the board of directors.
From inception through September 30, 2020, no cash dividends
have been declared or paid.
12.
Share-based compensation
Equity Incentive Plan
In November 2018, Company established the Renalytix AI plc Share
Option Plan (the Plan) and a U.S. Sub-Plan and Non-Employee
Sub-Plan. The Plan provides for the Company to grant options,
restricted share awards and other share-based awards to employees,
directors and consultants of the Company. As of September 30, 2020,
there were 3,794,105 shares available for future issuance under the
Plan.
The Plan is administered by the board of directors. The exercise
prices, vesting and other restrictions are determined at their
discretion, except that all options granted have exercise prices
equal to the fair value of the underlying ordinary shares on the
date of the grant and the term of stock option may not be greater
than ten years from the grant date.
The options granted as of September 30, 2020 vest equally over
twelve quarters following the grant date, with the exception of
80,724 options which vested immediately when granted and 145,000
options which vest 25% on the one year anniversary and equally over
twelve quarters following the one year anniversary. If options
remain unexercised after the date one day before the tenth
anniversary of grant, the options expire. On termination of
employment, any options that remain unexercised are either
forfeited immediately or after a delayed expiration period,
depending on the circumstances of termination. Upon the exercise of
awards, new ordinary shares are issued by the Company.
The Company recorded share-based compensation expense in the
following expense categories in the condensed consolidated
statements of operations for the three months ended
September 30, 2020 and 2019 (in thousands):
|
Three Months
EndedSeptember
30, |
|
|
2020 |
|
2019 |
Research and development |
$ |
195 |
$ |
134 |
General and administrative |
|
296 |
|
113 |
|
$ |
491 |
$ |
247 |
The fair value of options is estimated using the Black-Scholes
option pricing model, which takes into account inputs such as the
exercise price, the value of the underlying ordinary shares at the
grant date, expected term, expected volatility, risk-free interest
rate and dividend yield. The fair value of each grant of options
during the three months ended September 30, 2020 and 2019 were
determined using the methods and assumptions discussed below.
- The expected term of employee
options is determined using the “simplified” method, as prescribed
in SEC’s Staff Accounting Bulletin No. 107, whereby the
expected life equals the arithmetic average of the vesting term and
the original contractual term of the option due to the Company’s
lack of sufficient historical data.
- The expected volatility is based on
historical volatility of the publicly-traded common stock of a peer
group of companies.
- The risk-free interest rate is based
on the interest rate payable on U.S. Treasury securities in effect
at the time of grant for a period that is commensurate with the
assumed expected term.
- The expected dividend yield is none
because the Company has not historically paid and does not expect
for the foreseeable future to pay a dividend on its ordinary
shares.
For the three months ended September 30, 2020 and 2019, the
grant date fair value of all option grants was estimated at the
time of grant using the Black-Scholes option-pricing model using
the following weighted average assumptions:
|
Three Months EndedSeptember
30, |
|
2020 |
2019 |
Expected term (in years) |
5.7 |
5.7 |
Expected volatility |
67.3% |
63.6% |
Risk-free rate |
0.3% |
1.9% |
Dividend yield |
—% |
—% |
The weighted average fair value of the options granted during
the three months ended September 30, 2020 and 2019 was $4.31
and $2.05 per share, respectively.
The following table summarizes the stock option granted to
employees and nonemployees for the three months ended September 30,
2020:
|
Number ofshares underoption plan |
Weighted-averageexercise priceper option |
Weighted-averageremainingcontractuallife (in years) |
Outstanding at June 30, 2020 |
3,028,858 |
$ |
1.95 |
8.6 |
Granted |
380,000 |
$ |
7.46 |
|
Outstanding at September 30,
2020 |
3,408,858 |
$ |
2.56 |
8.5 |
Exercisable at September 30,
2020 |
1,649,525 |
$ |
1.94 |
8.3 |
Vested and expected to vest at September 30, 2020 |
3,408,858 |
$ |
2.56 |
8.5 |
As of September 30, 2020, there was $3.3 million in
unrecognized compensation cost related to unvested options that
will be recognized as expense over a weighted average period of
1.56 years. The aggregate intrinsic value of options outstanding
and options exercisable at September 30, 2020 was
$7.0 million and $4.0 million, respectively.
Employee Stock Purchase Plan
The Company’s 2020 Employee Share Purchase Plan (the ESPP)
became effective on August 17, 2020. The ESPP authorizes the
issuance of up to 850,000 shares of the Company’s common stock. The
number of shares of the Company’s common stock that may be issued
pursuant to rights granted under the ESPP shall automatically
increase on January 1st of each year, commencing on January 1, 2021
and continuing for ten years, in an amount equal to the lesser of
one percent of the total number of shares of the Company’s common
stock outstanding on December 31st of the preceding calendar year,
and 2,000,000 ordinary shares, subject to the discretion of the
board of directors or renumeration committee to determine a lesser
number of shares shall be added for such year.
Under the ESPP, eligible employees can purchase the Company’s
common stock through accumulated payroll deductions at such times
as are established by the board of directors or renumeration
committee. Eligible employees may purchase the Company’s common
stock at 85% of the lower of the fair market value of the Company’s
common stock on the first day of the offering period or on the
purchase date. Eligible employees may contribute up to 15% of their
eligible compensation. Under the ESPP, a participant may not
purchase more than $25,000 worth of the Company’s common stock for
each calendar year in which such rights is outstanding.
Effective August 28, 2020, employees who elected to participate
in the ESPP commenced payroll withholdings that accumulate through
February 27, 2021. In accordance with the guidance in ASC 718-50 –
Compensation – Stock Compensation, the ability to purchase shares
of the Company’s common stock at 85% of the lower of the price on
the first day of the offering period or the last day of the
offering period (i.e. the purchase date) represents an option and,
therefore, the ESPP is a compensatory plan under this guidance.
Accordingly, share-based compensation expense is determined based
on the option’s grant-date fair value as estimated by applying the
Black Scholes option-pricing model and is recognized over the
withholding period. The Company recognized share-based compensation
expense of $10,000 during the three months ended September 30, 2020
related to the ESPP.
13.
Related-party transactions
EKF Diagnostic Holdings
During the three months ended September 30, 2020 and 2019, the
Company paid fees to employees of EKF who provided services to
Renalytix.
Icahn School of Medicine at Mount Sinai
In May 2018, the Company secured its cornerstone license
agreement with ISMMS for research and clinical study work and
intended commercialization by the Company (see Note 10). As part of
the collaboration, ISMMS became a shareholder in the Company and
has subsequently made equity investments both in the Company’s IPO
on AIM in November 2018, the subsequent sale of ordinary shares in
July 2019 and the Company’s IPO on Nasdaq in July 2020.
Kantaro Biosciences LLC
In connection with the formation of Kantaro, the Company entered
into a five-year Advisory Services Agreement (“Advisory Agreement”)
pursuant to which the Company has agreed to provide certain
advisory services to Kantaro. Pursuant to the Kantaro Operating
Agreement, Kantaro issued 750 Class A Units to Mount Sinai in
exchange for Mount Sinai granting licenses to Kantaro under certain
intellectual property rights of Mount Sinai and 250 Class A Units
to the Company as the sole consideration for the services to be
rendered by the Company under the Advisory Agreement. A portion of
the Company’s units are subject to forfeiture if, prior to December
31, 2020, Kantaro terminates the Advisory Agreement as a result of
an uncured material breach of the Advisory Agreement or in the
event the Company is acquired by a hospital or health system that
serves all or any portion of the service areas served by Mount
Sinai. The Company determined the fair value of the services to be
provided under the Advisory Agreement was $2.0 million and the fair
value of the Class A units received from Kantaro was $2.0 million.
Fair value was determined using discounted cash flows which is a
Level 3 measurement in the fair value hierarchy. The method
requires several judgments and assumptions which include discount
rates and future cash flows, among others. As of September 30,
2020, the total liability associated with the services was $1.4
million, of which $1.2 million is classified as a current liability
and $0.2 million is classified as a non-current liability. For the
three months ended September 30, 2020, the Company recognized $0.5
million in the statement of operations related to services
performed under the Advisory Agreement. For the three months ended
September 30, 2020, $0.2 million and $0.1 million of costs incurred
related to the performance of the Advisory Agreement services were
included within research and development and general and
administrative expense, respectively.
In addition to the equity granted at formation, the
Company and Mount Sinai each committed to making a loan to Kantaro.
Mount Sinai committed to lend an initial amount of $0.3 million and
an additional $0.5 million thereafter. The Company committed to
lend an initial amount of $83,333 and an additional $166,667
thereafter. Each loan bears interest at a per year rate equal to
0.25%, compounded monthly, until repaid, and is repayable from the
first amounts that would otherwise constitute cash available for
distribution to the members of Kantaro (provided that each loan
repayment will be made, 75% to Mount Sinai and 25% to the Company
based on each investor’s proportionate ownership). The Company
loaned Kantaro $83,333 and had a note receivable for this amount at
September 30, 2020. In addition, the Company recognized losses of
$0.1 million on their investment in Kantaro during the three months
ended September 30, 2020.
14.
Subsequent events
The Company has evaluated subsequent events from the balance
sheet date through the date at which the condensed consolidated
financial statements were available to be issued, and determined
there are no other items requiring disclosure beyond those
disclosed below.
Verici Dx
On November 3, 2020, Verici Dx completed an initial public
offering on AIM and raised gross proceeds of £14.5 million (“Verici
IPO”) triggering a reconsideration event for ongoing consolidation
of Verici Dx. The IPO of Verici Dx resulted in the Company no
longer having a controlling financial interest and no longer having
a majority equity interest. Verici Dx previously issued the Company
$2.5 million in convertible loan notes which reflects the
consideration for the FractalDx assets and the funding the Company
provided Verici Dx through October 28, 2020. Prior to the Verici
IPO, on October 28, 2020, the Company gave notice to convert the
existing $2.5 million convertible loan notes into 9,831,681
ordinary shares of Verici Dx.
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