TIDMRENX
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Renalytix AI PLC
02 March 2021
RenalytixAI Reports Financial Results for Second Quarter of
Fiscal Year 2021
NEW YORK, March 2, 2021 - Renalytix AI plc (LSE : RENX) (NASDAQ:
RNLX) ("RenalytixAI" or the "Company"), an artificial
intelligence-enabled in vitro diagnostics company, focused on
optimizing clinical management of kidney disease to drive improved
patient outcomes and advance value-based care , today reported
financial results for the quarter and six months ended December 31,
2020.
"Our path to establishing advanced precision prognostics to
guide and inform population-wide kidney health continues to become
clearer," said James McCullough CEO. "The January finalization of
the Medicare Coverage of Innovative Technology rule provides the
foundation to achieve broad insurance coverage for KidneyIntelX.
With our newly announced partnerships with University of Utah and
DaVita, we are on track to exceed our goal of implementing
KidneyIntelX across at least three major healthcare networks before
our fiscal year ends in June. We expect to announce additional
partnerships in 2021 that will further set the foundation for
direct access to KidneyIntelX in advance of Medicare coverage by
large groups of primary care and specialist clinicians treating
early stage diabetic kidney disease patients."
Recent Highlights
-- Accelerated pathway for reimbursement coverage of
KidneyIntelX with the finalization of the Medicare Coverage of
Innovation Technology (MCIT) rule; national Medicare coverage upon
FDA clearance of KidneyIntelX, which we anticipate in calendar
2021
-- Issued the first KidneyIntelX test reports to primary care
and specialist physicians in the Mount Sinai network, completing
the first instance of fully integrated electronic health record
(EHR) ordering and score reporting; physician practice
participation increasing with revenue recognition from Mount Sinai
expected to begin in the fiscal third quarter of 2021
-- Confirmed plans to expand the indicated use of KidneyIntelX
for individuals with general chronic kidney disease, including the
underserved African ancestry and Hispanic population groups. New
indicated use, if approved, could increase the U.S. total
addressable market for KidneyIntelX to an estimated 37 million
patients
-- Announced partnership with DaVita enabling first-of-its-kind
program combining early risk assessment and comprehensive care
management to improve early to late stage patient outcomes and
provide meaningful cost reductions for health care providers
-- Announced partnership with the University of Utah to
implement KidneyIntelX and advanced clinical management system-wide
at University of Utah Health enabling integrated EHR for 1,700
clinicians across six states
-- C ontinued building KidneyIntelX study data with key findings
submitted for presentation at World Congress of Nephrology,
American Diabetes Association and Healthcare Information and
Management Systems Society in 2021. Findings include further
validation in large international trial cohort, monitoring
therapeutic response and impact in clinical decision making/therapy
management
Second Quarter 2021 Financial Results
During the three months ended December 31, 2020 the Company
recognized $0.4 million of pharmaceutical services revenue. Cost of
revenue for the three months ended December 31, 2020 was $0.3
million.
Operating expense for the three months ended December 31, 2020
was $8.8 million compared to $2.7 million during the three months
ended December 31, 2019.
Research and development expenses were $2.5 million, increasing
by $1.4 million from $1.1 million for the three months ended
December 31, 2019. Research and development expenses for the three
months ended December 31, 2020 include $0.2 million related to
VericiDx which was not formed until April 2020. The increase in
R&D was primarily due to increased headcount as well as expense
related to two product development studies focused on long-term
effects of COVID-19 on kidney health.
General and administrative expenses increased by $5.0 million
from $1.6 million for the three months ended December 31, 2019 to
$6.6 million for the three months ended December 31, 2020. The
increase was primarily due to increased expenses related to public
listing compliance, headcount and consulting and professional
fees.
Net loss attributable to ordinary shareholders was $8.9 million
for the three months ended December 31, 2020, compared to $4.7
million for the three months ended December 31, 2019.
Cash, cash equivalents and short-term investments were $74.5
million as of December 31, 2020, compared to $14.3 million as of
June 30, 2020.
For further information, please contact:
UK Investor Contact:
Walbrook PR Limited Tel: 020 7933 8780 or renalytix@walbrookpr.com
Paul McManus / Lianne Cawthorne Mob: 07980 541 893 / 07584
391 303
US Investor Contact:
Gilmartin Group i nvestors@renalytixai.com
Carrie Mendivil / Mary Kate McDonough 415-937-5405
About Kidney Disease
Kidney disease is now recognized as a public health epidemic
affecting over 850 million people globally. The Centers for Disease
Control and Prevention (CDC) estimates that 15% of US adults, or 37
million people, currently have chronic kidney disease (CKD).
Further, the CDC reports that 9 out of 10 adults with CKD do not
know they have it and 1 out of 2 people with very low kidney
function who are not on dialysis do not know they have CKD*. Kidney
disease is referred to as a "silent killer" because it often has no
symptoms and can go undetected until a very advanced stage. Each
year kidney disease kills more people than breast and prostate
cancer. Every day, 13 patients in the United States die while
waiting for a kidney transplant.
*
https://www.cdc.gov/kidneydisease/publications-resources/2019-national-facts.html
About RenalytixAI
RenalytixAI is a developer of artificial intelligence-enabled
clinical in vitro diagnostic solutions for kidney disease, one of
the most common and costly chronic medical conditions globally.
RenalytixAI's products are being designed to make significant
improvements in kidney disease diagnosis, transplant management,
clinical care, patient stratification for drug clinical trials, and
drug target discovery. For more information, visit
www.renalytixai.com .
Forward Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, as amended, that are based on management's beliefs and
assumptions and on information currently available to management.
All statements contained in this release other than statements of
historical fact are forward-looking statements, including
statements regarding our ability to develop, commercialize and
achieve market acceptance of our current and planned products and
services and indicated uses, our research and development efforts,
our partnership and collaboration efforts, and other matters
regarding our business strategies, use of capital, results of
operations and financial position, and plans and objectives for
future operations.
In some cases, you can identify forward-looking statements by
the words "may," "will," "could," "would," "should, " "expect,"
"intend," "plan," "anticipate," "believe," "estimate," "predict,"
"project," "potential," "continue, " "ongoing" or the negative of
these terms or other comparable terminology, although not all
forward-looking statements contain these words. These statements
involve risks, uncertainties and other factors that may cause
actual results, levels of activity, performance, or achievements to
be materially different from the information expressed or implied
by these forward-looking statements. These risks, uncertainties and
other factors are described under "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in the documents we file with the
Securities and Exchange Commission from time to time. We caution
you that forward-looking statements are based on a combination of
facts and factors currently known by us and our projections of the
future, about which we cannot be certain. As a result, the
forward-looking statements may not prove to be accurate. The
forward-looking statements in this press release represent our
views as of the date hereof. We undertake no obligation to update
any forward-looking statements for any reason, except as required
by law.
RENALYTIX AI PLC
Operational Update and Financial Results for the Three and Six
Months Ended December 31, 2020
Unless otherwise indicated, all references in this report to the
terms "Renalytix," "RenalytixAI," "Renalytix AI plc," "the
Company," "we," "us" and "our" refer to Renalytix AI plc together
with its subsidiaries. We recommend that you read the discussion
below together with our audited financial statements and the notes
thereto, which appear in our Annual Report on Form 20-F for the
year ended June 30, 2020, filed with the Securities and Exchange
Commission on October 28, 2020 (our "Annual Report").
The statements in this discussion regarding our expectations
regarding our market opportunity and future performance, as well as
all other non-historical statements are forward-looking statements.
Forward-looking statements involve known and unknown risks and
uncertainties that may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking statements. These risks and uncertainties include,
but are not limited to, the risks and uncertainties set forth in
the "Risk Factors" section of our Annual Report and any subsequent
reports that we file with the SEC. See also the section titled
"Forward-Looking Statements" above.
OPERATIONAL REVIEW
Company Overview
We are an artificial intelligence-enabled in vitro diagnostics
company, focused on optimizing clinical management of kidney
disease to drive improved patient outcomes and lower healthcare
costs. KidneyIntelX, our first-in-class diagnostic platform,
employs a proprietary artificial intelligence-enabled algorithm
that combines diverse data inputs, including validated blood-based
biomarkers, inherited genetics and personalized patient data from
electronic health record ("EHR") systems, to generate a unique
patient risk score. This patient risk score enables prediction of
progressive kidney function decline in chronic kidney disease
("CKD") allowing physicians and healthcare systems to optimize the
allocation of treatments and clinical resources to patients at
highest risk. CKD affects approximately 37 million individuals in
the United States, significantly impacting their quality of life
and, according to the United States Renal Data System's 2019 Annual
Data Report, resulting in Medicare spending of over $120 billion
per year. In response to this substantial kidney disease burden, a
U.S. Presidential Executive Order on Advancing American Kidney
Health was issued in July 2019 to support change in kidney disease
care. We believe we are well-positioned to help meet this urgent
medical need with KidneyIntelX, a laboratory developed test,
initially indicated for adult patients with type 2 diabetes and
existing CKD, which is referred to as diabetic kidney disease
("DKD"). KidneyIntelX has already been granted a common procedural
terminology ("CPT code"), national Medicare pricing and a positive
coverage determination from a regional, private physician-led
health insurance payor. Further, it has been granted breakthrough
device designation from the U.S. Food and Drug Administration (the
"FDA"). Building on these significant reimbursement and regulatory
milestones, we believe our population health-based business model,
which includes partnerships with healthcare systems, such as Mount
Sinai Health System, will help facilitate commercial adoption of
KidneyIntelX in the United States.
Kidney disease is a worldwide public health crisis, resulting in
more deaths per year than breast or prostate cancer. The National
Kidney Foundation estimates that one-third of adults in the United
States are at risk of developing kidney disease. Advanced kidney
disease is generally not reversible and, once the disease
progresses to kidney failure, the only available treatments are
long-term dialysis and kidney transplant. In 2016, more than
726,000 patients had end-stage kidney disease ("ESKD"), with more
than 500,000 requiring dialysis at least three times a week. More
than 100,000 patients begin dialysis each year to treat ESKD. Once
on dialysis, patients typically experience a five-year mortality
rate of up to 65%, about the equivalent rate for brain cancer. As
of July 2019, nearly 100,000 Americans were on the waiting list to
receive a kidney transplant and 13 patients die in the United
States while waiting for a kidney transplant every day. Moreover,
the kidney disease crisis is continuing to grow along with the
increased prevalence of contributing risk factors, such as obesity
and diabetes.
Managing a CKD population of this scale and associated
healthcare costs presents a unique social challenge. The ability to
predict which patients will experience progressive kidney function
decline, kidney failure, initiation of long-term dialysis or kidney
transplant, is critical to changing patient outcomes and health
economics. In our clinical validation studies in patients with DKD,
we observed that the Kidney Disease: Improving Global Outcomes
("KDIGO") classification system, which is the standard clinical
assessment to predict risk for progression of CKD, including DKD,
only identified approximately 20% of patients that experienced an
adverse kidney outcome as very high-risk patients with the
recommendation of referral to a nephrologist, while KidneyIntelX
identified nearly half of such patients.
We believe that the utilization of KidneyIntelX across large
patient populations will have a significant impact on overall
healthcare costs. Health economic benefits are projected to be
derived from three key areas: (1) slowing progression to the next
stage of CKD, (2) delaying or preventing progression to ESKD and
the need for dialysis or kidney transplant and (3) avoiding
dialysis crashes. We have partnered with Boston Healthcare
Associates ("BHA"), to develop a health economic model analyzing
the cost and care pathway for patients with DKD at all stages of
the disease and the potential cost savings of implementing and
utilizing KidneyIntelX. According to the BHA study, based on the
Medicare price of $950 per reportable test, KidneyIntelX testing
would generate a positive return for health insurers in under 24
months and deliver a cost savings of up to $1.3 billion over five
years per 100,000 patients with DKD.
Several federal policy and economic events, including the U.S.
Presidential Executive Order on Advancing American Kidney Health
issued in July 2019 and recent changes in U.S. reimbursement law,
are helping disrupt the kidney disease clinical and commercial
environment, highlighting the pressing need for solutions such as
KidneyIntelX. We believe these favorable policy trends, which began
during the Obama administration, will continue to build under a
Biden administration and will support broader commercial adoption
of KidneyIntelX and other derivative products contemplated in our
diagnostics development planning. In addition, on January 12, 2021,
the U.S. Centers for Medicare & Medicaid Services ("CMS"), an
agency within the U.S. Department of Health and Human Services,
finalized the Medicare Coverage of Innovative Technology ("MCIT")
rule. We believe that this new CMS rule could have a material
positive impact on addressable market population with insurance
coverage for KidneyIntelX if we obtain FDA clearance for
KidneyIntelX.
MCIT represents the culmination of a sequence of policy steps
over the past decade, including finalization of the Protecting
Access to Medicare Act in 2018, that have materially altered the
pathway for translating innovative diagnostic technology. For
emerging growth diagnostic companies such as Renalytix, MCIT can
have a substantial effect in achieving comprehensive reimbursement
coverage on an accelerated timeline. We believe MCIT represents one
of the more significant events in the past several decades to help
drive innovation in precision medicine diagnostics/prognostics.
Additionally, we have successfully completed the first stage of
our statement of work with AstraZeneca Pharmaceuticals LP
("AstraZeneca") to conduct a feasibility study to determine the
impact of the use of our KidneyIntelX platform to optimize
utilization of various CKD agents. Further, in December 2020 we
entered into a master service agreement with AstraZeneca for future
services of this nature. We believe this agreement will define how
we can leverage KidneyIntelX to improve the care and outcomes for
patients affected by chronic diseases such as kidney disease,
diabetes, and cardiovascular disease. Building on our initial
success with AstraZeneca, we plan to pursue further collaborations
with pharmaceutical companies and make 'Pharmaceutical Services
Revenue' a core part of our business going forward with the goal of
improving guideline-based standard-of-care for optimal utilization
of existing and novel therapeutics using the KidneyIntelX testing
platform and proprietary care management software.
Business Highlights
Reimbursement and Regulatory Pathway
With the recent finalization of the MCIT rule on January 12,
2021, we now have a clear path to a national Medicare coverage
determination for KidneyIntelX testing in the United States. In
summary, MCIT provides for an opt-in national Medicare coverage
determination for medical devices and diagnostics approved or
cleared out of the FDA Breakthrough Device designation program.
KidneyIntelX was granted breakthrough device designation in May
2019 and is currently under review by the agency as part of this
process.
As Medicare beneficiaries make up the majority of individuals
with kidney disease in the United States, we believe this
represents a critical component in the pursuit of our national
commercial strategy.
Pricing for the unique CPT code for KidneyIntelX was finalized
by CMS effective January 2020 at $950 per reportable result, which
will be the pricing if KidneyIntelX receives FDA clearance and a
positive national Medicare coverage determination. In addition,
both coverage and the established pricing for the Medicare patient
population in the cleared KidneyIntelX indicated use would apply to
the approximately 3,550 Medicare Advantage plans administered by
private payors in the United States. Medicare Advantage programs
currently cover an estimated 24 million Americans, or 36% of all
Medicare beneficiaries.
We are pursuing a comprehensive Medicaid contracting program
and, to date, have secured Medicaid contracts in Arizona, Georgia,
Michigan, Montana, North Carolina, Ohio, Oregon, Rhode Island,
South Carolina, Utah, Vermont, Wisconsin, and Wyoming with
additional state contracts expected throughout the course of fiscal
2021 and 2022. We are also targeting an increase in other private
and public insurance and purchasing contracts during the same
period.
As reported in August 2020, we submitted the final KidneyIntelX
package for FDA consideration under breakthrough device
designation. Due to the large influx of COVID-19 related emergency
use authorization ("EUA") requests, the FDA has experienced delays
in submission processing timing across the diagnostic industry. In
February 2021, the FDA sent written notification to us stating that
it expected the final review process would return to normal no
later than April 15, 2021 and did not expect any further delays in
process due to the sustained volume of EUA requests in response to
the pandemic. While we will continue to decline forecasting
specific timing for potential FDA clearance of KidneyIntelX, we
view this notification as a positive step in the right
direction.
We are continuing to build our regulatory expertise through both
direct hires and retention of key contracted experts. In January
2021, we retained the services of Dr. Alberto Gutierrez, recently
retired Director of the FDA's Office of In Vitro Diagnostics and
Radiologic Health, and Dr. Doug Jeffery, recently retired Branch
Chief and Acting Deputy Division Director in the FDA's Center for
Devices and Radiological Health to support the KidneyIntelX ongoing
regulatory strategy and process.
Addressable Market and Business Strategy
One of our top priorities is to build a broad distribution
network and increase physician access for KidneyIntelX over the
course of 2021 to serve the U.S. diabetic kidney disease population
once KidneyIntelX receives FDA clearance and national Medicare
coverage.
We are increasingly optimistic about achieving distribution
capability under our model of partnering with health care networks
such as Mount Sinai. In addition to our announced partnership with
DaVita Inc. ("DaVita") and University of Utah, we expect to
announce additional partnerships during the current fiscal year
ending June 30, 2021. We expect to announce five to seven
partnerships before the end of calendar 2021. We believe these
additional partnerships could materially increase patient and
physician access to KidneyIntelX throughout the course of calendar
2021 in advance of broader insurance coverage.
We are also evaluating more aggressive growth strategies to
increase distribution, sales and marketing capacities in the United
States and global territories. Strategic options may include the
hiring of a specialized direct sales force to complement our
hospital network partnered implementation model.
MCIT may also confer other material advantages including the
ability for concurrent deployment of KidneyIntelX over a broader
geographic footprint. Given the range of insurance payors that
provide coverage in each market, the process of achieving majority
population coverage can be laborious, incremental and require
considerable time. With a majority of the KidneyIntelX initial
indicated use population insured through a national Medicare
coverage determination, risk associated with reimbursement in a
given major high-concentration geography would be considerably
reduced. KidneyIntelX deployment will focus on a region-by-region
basis taking into consideration a number of demographic and
economic factors in an effort to maximize return on capital and
human resource efficiencies.
Product Development
We are continuing development work on expanding the indicated
use population for KidneyIntelX risk assessment to the broader CKD
population which includes the important, underserved population of
kidney disease patients of African and Hispanic ancestry. These
populations have been disproportionate sufferers of end stage
kidney disease and we intend to provide access to advanced
technology embedded in the KidneyIntelX platform to level the
playing field in relation to access, knowledge and clinical care
through kidney disease prognosis and treatment.
We expect to broaden the indicated use of KidneyIntelX to the
larger CKD population as early as calendar 2022.
Due to the large and incremental population groups that would
potentially be served by expanding indicated uses, we estimate the
total addressable market for KidneyIntelX could increase to an
estimated 37 million individuals in the United States.
The KidneyIntelX product line is classified as an in vitro
prognostic and is anchored by a real-time patient blood draw and
biomarker assessment. The biomarker assessment is combined with
selected information from a patient's EHR, all processed by a
machine-learning enabled algorithm. We believe that to achieve
early and accurate disease prognosis, real-time biology accessible
through a current blood or urine biomarker assessment is
required.
Real-world Testing Experience
During the quarter ended December 31, 2020, we began our
clinical testing experience with KidneyIntelX within the Mount
Sinai Health System . Despite COVID-19 restrictions, this
real-world experience has met or exceeded targeted quality metrics
and physician and patient satisfaction measures. To date,
KidneyIntelX has been ordered by and test reports have been
delivered to over 25 primary care and specialist physicians in the
Mount Sinai network. Concurrently, we performed services for Mount
Sinai to support establishing a care navigation function based on
early stage DKD risk assessment, including physician and practice
education, physician and patient materials, electronic order
integration and care navigation deployment. We expect to start
recognizing revenue from our work with Mount Sinai in the quarter
ending March 31, 2021. We also anticipate expanding clinical
testing deployment to additional physician practices in the Mount
Sinai Health System through the remainder of fiscal 2021.
The KidneyIntelX software platform has been designed with a
number of significant features to ensure efficient clinical testing
implementation and, we believe, provides an outstanding platform
for future feature development. KidneyIntelX cloud computing
architecture couples data control and encryption protocols and has
been verified to high standards. These standards ensure secure and
timely access to the order information and data necessary to
execute the test in accordance with all applicable regulatory
requirements. Working collaboratively with an extended team of
information technology professionals, we have developed a robust
data pipeline that can provide access to KidneyIntelX for all
clinicians across the Mount Sinai Health System and allows the
creation of a rich database (using de-identified data) for ongoing
product development and shared value generation through advanced
data analytics. Key features of the platform such as the patient
test report incorporating health system specific care pathways are
uniquely developed to be translatable to other health systems and
EHR platforms.
We have continued building KidneyIntelX study data with key
findings submitted for presentation at World Congress of
Nephrology, American Diabetes Association and Healthcare
Information and Management Systems Society in 2021. Findings
include further validation in large international trial cohort,
monitoring therapeutic response and impact in clinical decision
making/therapy management.
COVID-19 Effects
COVID-19 has provided a challenge to our business, particularly
during the high-intensity first deployment of KidneyIntelX in the
Mount Sinai Health System. During our fiscal second quarter both
New York State and Mount Sinai reinstated COVID-19 surge protocols
which set specific guidelines for prioritization of resources and
introducing restrictions to combat infection spread. We have also
seen potential KidneyIntelX patients hesitate to visit treating
clinicians and blood collection stations necessary to conduct
testing.
Fortunately with vaccinations now underway, we anticipate that
these restrictions will be temporary with impact on business
operations declining over the next several months.
We have approximately doubled the size of our employee headcount
since our listing on Nasdaq in July 2020. Many key personnel have
been hired using only Zoom conference with no in-person interviews.
These personnel have continued to work remotely through the course
of the first KidneyIntelX implementation and expanding deployment.
While we believe our team has performed admirably and maintained a
high level of productivity, the ultimate effects of virtual
operation remain unknown. We have elected to participate in the
social security deferral program offered under the Coronavirus Aid,
Relief, and Economic Security Act, whereby we can defer payment of
the employer portion of all social security taxes that would
otherwise be payable from April 15, 2020 through December 31, 2020.
Payment of the deferred amount is due 50% on December 31, 2021 and
50% on December 31, 2022.
We anticipate COVID-19 will have substantially less impact on
our ability to scale KidneyIntelX implementation and testing in
fiscal 2022 as compared to fiscal 2021.
Additional Business
The Renalytix/Mount Sinai joint venture, Kantaro Biosciences LLC
("Kantaro"), has made material business progress with its
quantitative COVID-19 serologic antibody testing program. Kantaro
has achieved key milestones including 1) FDA Emergency Use
Authorization, 2) obtaining a CE Mark, which is a mandatory
conformance mark that certifies the product has met EU consumer,
health and environmental requirements , 3) entering into a scaled
production and distribution agreement with Bio Techne Corporation
(NASDAQ: TECH), and 4) a UK/European sales and marketing agreement
with EKF Diagnostics Holdings plc (LSE: EKF). Kantaro has started
to generate revenue and our share of the equity method investment
in Kantaro is reflected within the financial statement line item
Equity Losses in Affiliate. We are exploring the possibility of
broadening the product technology and intellectual property
portfolio of Kantaro.
In July 2020, we spun out Verici Dx Limited ("VericiDx"), which
was subsequently admitted for trading on the AIM market of the
London Stock Exchange in November 2020. The successful listing and
associated financing of VericiDx have now provided VericiDx with
capital to drive its portfolio of kidney transplant products to
validation and subsequent commercialization beginning as early as
calendar year 2022. We believe VericiDx's unique technology and
published data represent a step-change forward in kidney transplant
that can drive improvements in patient quality of life, standard of
treatment, cost savings and long-term viability of transplanted
organs. Renalytix holds a 6.94% equity stake in VericiDx.
Current Outlook
We view fiscal 2021 as our business launch year and one with the
following objectives: 1) increasing visibility to distribution to
primary care and specialist clinicians through partnered deployment
with at least three health care providers and payors; 2) continuing
to generate validating health economics, real-world evidence
utility and performance data for submission to peer-reviewed
publication; 3) increasing insurance coverage; and 4) establishing
sequential quarter revenue growth for the December, March and June
reporting periods.
For the six months ending December 31, 2020, we are reporting
revenue of $0.4 million and net loss attributable to ordinary
shareholders of $16.1 million. Our balance sheet remains strong for
planned growth activities with a cash balance of $74.5 million as
of December 31, 2020.
We continue to expand our business to accommodate multiple
revenue pathways from KidneyIntelX testing sales, pharma driven
development programs and other strategic partnership initiatives
including our recently announced partnership with DaVita (NASDAQ:
DVA). However, given the early stage nature of our commercial
business and the challenges operating in a COVID-19 restricted
environment, we do not expect any material revenue for the 12
months ended June 30, 2021 as we continue to focus on ensuring that
all necessary regulatory and commercial building blocks are in
place to enable us to scale rapidly.
For fiscal 2022, we expect a material inflection point for
revenue growth to occur if KidneyIntelX receives FDA clearance and
concurrent opt-in for national Medicare coverage, and an easing of
COVID restrictions due to broad population vaccination uptake. We
are targeting a blended gross margin across all lines of
KidneyIntelX testing of greater than 70% as our commercial program
scales in fiscal 2022. We look forward to the future with
confidence.
We view fiscal 2022 as a year in which we plan to validate our
ability to grow significant market share and revenue from
KidneyIntelX testing, and pharmaceutical and other strategic
partnerships. In addition, we expect our total addressable market
will increase materially with the introduction of subsequent
KidneyIntelX versions and potentially expanded indications.
FINANCIAL REVIEW
Financial review of the three-months ended December 31, 2020
The operating loss for the three months ended December 31, 2020
and 2019 was $8.6 million and $2 .7 million, respectively, and the
net loss attributable to ordinary shareholders for the three months
ended December 31,
2020 and 2019 was $8.9 million and $4.7 million, respectively.
Revenue
During the three months ended December 31, 2020, we recognized
$0.4 million of pharmaceutical services revenue related to the
statement of work with AstraZeneca. There was no pharmaceutical
services revenue for the three months ended December 31, 2019.
Cost of revenue
During the three months ended December 31, 2020, cost of revenue
consisted of $0.3 million directly attributable to services
rendered to AstraZeneca, including labor costs directly related to
revenue generating activities. There was no cost of revenue for the
three months ended December 31, 2019.
Research and Development Costs
Research and development expenses increased by $1.4 million,
from $1.1 million for the three months ended December 31, 2019 to
$2.5 million for the three months ended December 31, 2020. The
increase was primarily due to increased headcount and the
associated compensation and benefits, including share-based
payments, as we continue to develop our technology, prepare for
expanded clinical operations with Mount Sinai and other health
systems, and initiate two product development studies focused on
examining the long-term effects of COVID-19 on kidney health.
Research and development expenses for the three months ended
December 31, 2020 included $0.2 million related to VericiDx which
was formed in April 2020.
General and Administrative Costs
General and administrative expenses increased by $5.0 million,
from $1.6 million for the three months ended December 31, 2019 to
$6.6 million for the three months ended December 31, 2020. The
increase was due to a $2.2 million increase in compensation and
related benefits, including share-based payments, a $1.2 million
increase in insurance costs, a $0.9 million increase in legal and
accounting fees due to Securities and Exchange Commission ("SEC")
filings and U.S. public listing compliance, due to increased
headcount, a $0.4 million increase in consulting and professional
fees, and a $0.3 million increase in recruiting expense.
Performance of contract liability to affiliate
In May 2020, we entered into an operating agreement ("Kantaro
Operating Agreement") with the Icahn School of Medicine at Mount
Sinai ("Mount Sinai") to form a joint venture, Kantaro Biosciences
LLC, for the purpose of developing and commercializing laboratory
tests for the detection of antibodies against SARS-CoV-2 originally
developed by Mount Sinai. During the three months ended December
31, 2020, we recognized $0.3 million of expenses related to the
performance of our contract liability with Kantaro. This represents
the allocation of costs related to performing services on behalf of
Kantaro.
Equity Losses in Affiliate
We account for our investment in Kantaro using the equity method
of accounting. During the three months ended December 31, 2020, we
recognized $0.1 million in losses which represents our
proportionate share of losses in Kantaro.
Foreign Currency Loss
During the three months ended December 31, 2020, we recognized
foreign currency losses of $5.5 million due to exchange rate
fluctuations on transactions denominated in a currency other than
our functional currency. During the three months ended December 31,
2019, we recognized foreign currency losses of $2.0 million.
Fair Value Adjustments to VericiDx Investment
We account for our investment in VericiDx using the equity
method of accounting and have elected to use the fair value option
to value the investment. During the three months ended December 31,
2020, we recorded a gain of $5.0 million to adjust the VericiDx
investment to fair value. There was no fair value adjustment for
the three months ended December 31, 2019 as we did not have an
investment in VericiDx at that time.
Other Income, net
During the three months ended December 31, 2020, we recognized
other income of $0.12 million which included $0.07 million of
interest income and a $0.05 million gain on the deconsolidation of
VericiDx. During the three months ended December 31, 2019, we
recognized interest income of $0.08 million.
Financial review of the six months ended December 31, 2020
The operating loss for the six months ended December 31, 2020
and 2019 was $14.0 million and $4 .7 million, respectively, and the
net loss attributable to ordinary shareholders for the six months
ended December 31, 2020
and 2019 was $16.1 million and $6.1 million, respectively.
Revenue
During the six months ended December 31, 2020, we recognized
$0.4 million of pharmaceutical services revenue related to the
statement of work with AstraZeneca. There was no pharmaceutical
services revenue for the six months ended December 31, 2019.
Cost of revenue
During the six months ended December 31, 2020, cost of revenue
consisted of $0.3 million directly attributable to services
rendered to AstraZeneca, including labor costs directly related to
revenue generating activities. There was no cost of revenue for the
six months ended December 31, 2019.
Research and Development Costs
Research and development expenses increased by $1.9 million,
from $2.3 million for the six months ended December 31, 2019 to
$4.2 million for the six months ended December 31, 2020. The
increase was primarily due to increased headcount and the
associated compensation and benefits, including share-based
payments, as we continue to develop our technology, prepare for
expanded clinical operations with Mount Sinai and other health
systems, and initiate two product development studies focused on
examining the long-term effects of COVID-19 on kidney health.
Research and development expenses for the six months ended December
31, 2020 included $0.4 million related to VericiDx which was formed
in April 2020.
General and Administrative Costs
General and administrative expenses increased by $8.2 million,
from $2.5 million for the six months ended December 31, 2019 to
$10.7 million for the six months ended December 31, 2020. The
increase was due to a $2.8 million increase in compensation and
related benefits, including share-based payments, due to increased
headcount, a $2.2 million increase in insurance costs, a $1.7
million increase in legal and accounting fees due to Securities and
Exchange Commission ("SEC") filings and U.S. public listing
compliance, a $0.8 million increase in consulting and professional
fees, a $0.6 million increase in recruiting expense, and an
increase of $0.1 million in marketing, facility and other operating
expenses.
Performance of contract liability to affiliate
During the six months ended December 31, 2020, we recognized
$0.8 million related to the performance of our contract liability
with Kantaro. This represents the allocation of costs related to
performing services on behalf of Kantaro.
Equity Losses in Affiliate
During the six months ended December 31, 2020, we recognized
$0.2 million in losses which represents our proportionate share of
losses in Kantaro.
Foreign Currency Loss
During the six months ended December 31, 2020, we recognized
foreign currency losses of $7.7 million due to exchange rate
fluctuations on transactions denominated in a currency other than
our functional currency. During the six months ended December 31,
2019, we recognized foreign currency losses of $1.6 million.
Fair Value Adjustments to VericiDx Investment
During the six months ended December 31, 2020, we recorded a
gain of $5.0 million to adjust the VericiDx investment to fair
value. There was no fair value adjustment for the six months ended
December 31, 2019 as we did not have an investment in VericiDx at
that time.
Other Income, net
During the six months ended December 31, 2020, we recognized
$0.12 million of interest income and a gain of $0.05 million on the
deconsolidation of VericiDx. During the six months ended December
31, 2019, we received $0.1 million of other income in relation to
the sale of excess supplies and $0.07 million of interest income as
a result of interest earned on cash deposits.
Cash Flows
Net cash used in operating activities
During the six months ended December 31, 2020, we used $18.6
million of cash in operating activities primarily attributable to
our net loss of $16.7 million. This use of cash was partially
offset by $0.9 million in noncash items such as depreciation and
amortization, share-based compensation, equity losses in Kantaro,
change in fair value of our VericiDx investment and foreign
exchange remeasurement losses. The net cash outflow of $2.7 million
from changes in our operating assets and liabilities was primarily
attributable to a $3.2 million increase in our prepaid expenses
primarily due to a $4.6 million prepaid directors and officers
(D&O) insurance policy signed in July 2020 and a $0.8 million
decrease in the Kantaro liability for services provided. These
outflows were partially offset by an increase in accrued expenses
and other current liabilities of $1.3 million primarily due to
employee-related expenses such as accrued bonuses of $0.8 million
and accrued vacation of $0.4 million.
During the six months ended December 31, 2019, we used $4.4
million of cash in operating activities primarily attributable to
our $6.1 million net loss. This use of cash was partially offset by
$2.1 million of noncash items such as depreciation and
amortization, share-based compensation and foreign exchange
remeasurement losses. The net cash outflow of $0.4 million from
changes in our operating assets and liabilities was primarily
attributable to an increase in our prepaid expenses of $0.4 million
due to the purchase of lab consumables.
Net cash used in investing activities
During the six months ended December 31, 2020, net cash used in
investing activities was $0.4 million and primarily attributable to
$1.0 million in proceeds from short-term investments. This was
offset by $0.7 million for the purchase of lab and office
equipment, $0.5 million of software development costs and an
increase of $0.08 million related to our note receivable from a
related party. In addition, cash decreased by $0.06 million due to
the deconsolidation of VericiDx.
During the six months ended December 31, 2019, net cash used in
investing activities was $7.4 million and primarily attributable to
$16.3 million in purchases of short-term investments partially
offset by net proceeds of $9.4 million related to our short-term
investments. In addition, we purchased $0.5 million of lab and
office equipment.
Net cash used in financing activities
During the six months ended December 31, 2020, net cash provided
by financing activities was $76.9 million and was primarily
attributable to $79.2 million of proceeds from our IPO on the
Nasdaq Global Market which was partially offset by offering costs
of $2.3 million associated with the IPO that were paid in the
period.
During the six months ended December 31, 2019, net cash provided
by financing activities was $16.4 million and was primarily
attributable to $17.3 million of proceeds from our secondary public
offering on the AIM which was partially offset by offering costs of
$0.9 million associated with the public offering.
Cash, cash equivalents and short-term investments
Net cash, cash equivalents and short-term investments increased
to $74.5 million as of December 31, 2020 from $14.3 million as of
June 30, 2020 primarily due to the net proceeds of our IPO on the
Nasdaq Global Market partially offset by utilization of cash in
ordinary operating activities.
Forward-Looking Statements
Statements contained in this release regarding matters that are
not historical facts are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Examples of these forward-looking statements include
statements concerning: the ability of KidneyIntelX to lower
healthcare costs, improve patient quality of life and set a
long-term standard of care, trends in our market and potential
benefits of government policy change, potential addressable market
and expanded indicated uses for KidneyIntelX, the impact of
COVID-19 on our business, our expectations for product development,
strategic partnerships and collaborations, reimbursement decisions,
clinical studies and regulatory submissions, and our business
strategies and future growth, including with respect to future
sales trends for KidneyIntelX. Words such as "anticipates,"
"believes," "estimates," "expects," "intends," "plans," "seeks,"
and similar expressions are intended to identify forward-looking
statements. We may not actually achieve the plans and objectives
disclosed in the forward-looking statements, and you should not
place undue reliance on our forward-looking statements. Any
forward-looking statements are based on management's current views
and assumptions and involve risks and uncertainties that could
cause actual results, performance or events to differ materially
from those expressed or implied in such statements. These risks and
uncertainties include, among others: that KidneyIntelX is based on
novel artificial intelligence technologies that are rapidly
evolving and potential acceptance, utility and clinical practice
remains uncertain; we have only recently commercially launched
KidneyIntelX; and risks relating to the impact on our business of
the COVID-19 pandemic or similar public health crises. These and
other risks are described more fully in our filings with the SEC,
including the "Risk Factors" section of our Annual Report. All
information in this release is as of the date of the release, and
we undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events,
or otherwise, except as required by law.
Renalytix AI plc
Condensed Consolidated balance sheets (Unaudited)
December June 30,
(in thousands, except share and per share data) 31, 2020 2020
-------------------------------------------------------------------------------------- -------------- --------------
Assets
Current assets:
Cash and cash
equivalents......................................................................
........................................... $ 74,532 $ 13,293
Short-term
investments......................................................................
.................................................. - 982
Accounts
receivable........................................................................
..................................................... 400 -
Prepaid expenses and other current
assets...........................................................................
............ 3,587 551
Note receivable from Kantaro -
current...........................................................................
................. 167 -
Receivable from
affiliates.......................................................................
............................................ 158 18
Total current
assets.......................................................................
.................................................. 78,844 14,844
Property and equipment,
net..................................................................................
.................................. 2,603 1,655
Investment in
VericiDx..............................................................................
............................................... 7,852 -
Investment in
Kantaro..............................................................................
................................................ 1,716 1,937
Note receivable from Kantaro -
noncurrent...........................................................................
............... - 83
Deferred offering
costs................................................................................
.............................................. - 2,364
Total
assets.......................................................................
................................................................ $ 91,015 $ 20,833
Liabilities and Shareholders' Equity
Current liabilities:
Accounts
payable..........................................................................
....................................................... $ 864 $ 2,218
Accrued expenses and other current
liabilities......................................................................
........... 1,608 683
Accrued expenses - related
party.............................................................................
......................... 283 -
Note payable -
current..........................................................................
.............................................. 141 120
Payable to affiliate -
current..........................................................................
..................................... 824 271
Total current
liabilities.................................................................
.................................................... 3,720 3,292
Payable to affiliate -
noncurrent...........................................................................
.................................. 231 1,544
Note payable -
noncurrent...........................................................................
............................................. 114 135
Other
liabilities...........................................................................
................................................................. 53 -
Total
liabilities..................................................................
................................................................ $ 4,118 $ 4,971
Commitments and contingencies (Note 9)
Shareholders' equity:
Ordinary shares, GBP0.0025 par value per share: 75,438,492
and 62,444,992 shares authorized at December 31, 2020
and June 30, 2020, respectively; 72,029,634 and 59,416,134
shares issued and outstanding at December 31, 2020
and June 30, 2020,
respectively.....................................................................
.................................................................. 219 179
Additional paid-in
capital..........................................................................
.......................................... 148,408 69,650
Accumulated other comprehensive income
(loss).......................................................................... 7,116 (1,200)
Accumulated
deficit..........................................................................
................................................... (68,846) (52,717)
Total shareholders'
equity........................................................................
...................................... 86,897 15,912
Total liabilities and shareholders'
equity.......................................................................
.............. $ 91,015 $ 20,833
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Renalytix AI plc
Condensed Consolidated statements of operations and
comprehensive loss (Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December December December December
(in thousands, except share data) 31, 2020 31, 2019 31, 2020 31, 2019
------------------------------------- --------------------- ------------- ------------------ -----------------
Pharmaceutical services
revenue.............................
........................... $ 400 $ - $ 400 $ -
Cost of
revenue.............................
....................................
..................... 257 - 257 -
--------------------- ------------- ------------------ -----------------
Gross
profit..............................
....................................
........................... 143 - 143 -
Operating expenses:
Research and
development.....................
................................
....... 2,462 1,118 4,207 2,298
General and
administrative..................
................................
.......... 6,595 1,613 10,711 2,450
Performance of contract liability
to
affiliate.......................
....... (301) - (759) -
Total operating
expenses........................
................................
........ 8,756 2,731 14,159 4,748
--------------------- ------------- ------------------ -----------------
Loss from
operations..........................
....................................
.............. (8,613) (2,731) (14,016) (4,748)
Equity in losses of
affiliate...........................
....................................
... (105) - (221) -
Foreign currency
loss................................
....................................
......... (5,541) (2,013) (7,688) (1,563)
Fair value adjustment to VericiDx
investment..........................
...... 5,018 - 5,018 -
Other income,
net.................................
....................................
............. 115 79 167 175
Net
loss................................
....................................
................................ (9,126) (4,665) (16,740) (6,136)
Net loss attributable to
noncontrolling
interest............................
..... (218) - (611) -
Net loss attributable to ordinary
shareholders........................
.......... (8,908) (4,665) (16,129) (6,136)
--------------------- ------------- ------------------ -----------------
Other comprehensive income (loss):
Foreign exchange translation
adjustment......................
............. 6,086 2,300 8,341 1,678
Comprehensive
loss................................
....................................
.......... (3,040) (2,365) (8,399) (4,458)
Comprehensive loss attributable
to noncontrolling
interest........... (5) - (72) -
--------------------- ------------- ------------------ -----------------
Comprehensive loss attributable
to Renalytix
AI........................... $ (3,035) $ (2,365) $ (8,327) $ (4,458)
Net loss per ordinary share-basic
and
diluted.............................
... $ (0.12) $ (0.08) $ (0.23) $ (0.10)
Weighted average ordinary
shares-basic
and diluted.................. 72,029,634 59,416,134 70,932,808 58,746,569
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
----------- -------------------- --------------- ----------------- ------------------ -----------------
Total
shareholders'
(deficit) Total
(in thousands, Additional Accumulated equity shareholders'
except share and paid-in other comprehensive Accumulated attributable Noncontrolling (deficit)
per share data) Shares Amount capital income (loss) deficit to RenalytixAI interests equity
-------------------- ----------- ------- ----------- -------------------- --------------- ----------------- ------------------ -----------------
Balance at July
1, 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
VericiDx
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
VericiDx
noncontrolling
interest upon
deconsolidation - - - - - - 2,296 2,296
Share-based
compensation
expense - - 525 - - 525 - 525
Currency
translation
adjustments - - - 6,086 - 6,086 (5) 6,081
Net loss - - - - (8,908) (8,908) (218) (9,126)
- - -
Balance at December
31, 2020 72,029,634 $ 219 $ 148,408 $ 7,116 $ (68,846) $ 86,897 $ - $ 86,897
-------------------- ----------- ------- ----------- -------------------- --------------- ----------------- ------------------ -----------------
Renalytix AI plc
Condensed Consolidated statements of shareholders' equity
(Unaudited)
Ordinary shares
----------- -------------------- --------------- ---------------------- -------------- -----------------
(in thousands,
except Total
share and per Additional Accumulated shareholders' Total
share paid-in other comprehensive Accumulated equity attributable Noncontrolling shareholders'
data) Shares Amount capital income (loss) deficit to RenalytixAI interests equity
----------------- ----------- ------- ----------- -------------------- --------------- ---------------------- -------------- -----------------
Balance at July
1, 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
Share-based
compensation
expense - - 296 - - 296 - 296
Currency
translation
adjustments - - - 2,300 - 2,300 - 2,300
Net loss - - - - (4,665) (4,665) - (4,665)
----------- ------- ----------- -------------------- --------------- ---------------------- -------------- -----------------
Balance at
December
31, 2019 59,416,134 $ 179 $ 69,034 $ 856 $ (49,009) $ 21,060 $ - $ 21,060
Renalytix AI plc
Condensed Consolidated statements of cash flows (Unaudited)
Six Months Six Months
Ended December Ended December
(in thousands) 31, 2020 31, 2019
--------------------------------------------------------------------------- ----------------------- ----------------
Cash flows from operating activities:
Net loss $ (16,740) $ (6,136)
Adjustments to reconcile net loss to net cash
used in operating activities
Gain on deconsolidation of
VericiDx.............................................................. (46) -
Depreciation and
amortization.............................................................
........... 105 30
Share-based
compensation.............................................................
.................. 1,026 543
Realized gain on short-term
investments....................................................... (18) (49)
Equity losses in
affiliate.................................................................
.................... 221 -
Fair value adjustment to VericiDx
investment.............................................. (5,018) -
Unrealized foreign exchange
loss..................................................................... 4,627 1,563
Changes in operating assets and liabilities: -
Accounts
receivable................................................................
........................... (400) -
Prepaid expenses and other current
assets..................................................... (3,189) (445)
Related party
receivable................................................................
.................... (140) -
Accounts
payable..................................................................
............................. 79 799
Accrued expenses and other current
liabilities............................................... 1,342 (715)
Accrued expenses - related
party.................................................................... 282 -
Payable to
affiliate.................................................................
............................ (760) -
Other
liabilities...............................................................
...................................... 53 -
Net cash used in operating
activities................................................................
. (18,576) (4,410)
Cash flows from investing activities:
Note receivable - related
party......................................................................
.... (84) -
Purchases of property and
equipment.............................................................. (728) (549)
Software development
costs......................................................................
......... (536) -
Purchase of short-term
investments...............................................................
... - (16,274)
Proceeds from short-term
investments............................................................. 1,000 9,400
Decrease in cash (VericiDx
deconsolidation)................................................... (62) -
Net cash used in investing
activities................................................................
.. (410) (7,423)
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.....................................................................
.............. (2,305) (851)
Net cash provided by financing
activities........................................................ 76,877 16,425
Effect of exchange rate changes on
cash........................................................ 3,348 115
Net increase in cash and cash
equivalents....................................................... 61,239 4,707
Cash and cash equivalents, beginning of
period............................................. 13,293 8,201
Cash and cash equivalents, end of
period....................................................... $ 74,532 $ 12,908
Supplemental noncash investing and financing
activities:
Software development costs in accounts payable
and accrued expenses. $ 77 $ -
Purchase of property and equipment in accounts
payable and accrued
expenses..................................................................
............................................... $ 126 $ -
Deemed distribution of VericiDx ordinary
shares........................................... $ 75 $ -
Conversion of VericiDx note receivable into
VericiDx ordinary shares...... $ 2,556 $ -
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 subsidiaries, Renalytix
AI, Inc. and Renalytix AI Limited, (collectively, "RenalytixAI", 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. Additionally, the Company has successfully
completed the first stage of a statement of work with AstraZeneca
Pharmaceuticals LP ("AstraZeneca") to conduct a feasibility study
to determine the impact of the use of the Company's KidneyIntelX
platform to optimize utilization of various CKD agents. Further, in
December 2020 the Company entered into a master service agreement
with AstraZeneca for future services of this nature. As a result of
the initial success with AstraZeneca the Company plans to pursue
further collaborations with pharmaceutical companies and make
'Pharmaceutical Services Revenue' a core part of the business going
forward with the goal of improving guideline-based standard-of-care
for optimal utilization of existing and novel therapeutics using
the KidneyIntelX testing platform and proprietary care management
software.
In August 2020, the Company created a wholly-owned subsidiary of
Renalytix AI plc, Renalytix AI Limited ("Limited") to facilitate
operations in Ireland.
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.
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 market of the
London Stock Exchange.
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 completed an IPO on the Nasdaq Global
Market in which the Company issued and sold 12.6 million ordinary
shares, represented by 6.3 million American depository shares
("ADSs"), at a public offering price of $13.50 per ADS. 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 GBP5.37 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 $68.8 million as of December 31, 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 $74.5 million as of December 31, 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
December 31, 2020 and its results of operations for the three and
six months ended December 31, 2020 and 2019, and cash flows for the
six months ended December 31, 2010 and 2019. Operating results for
the three and six months ended December 31, 2020 are not
necessarily indicative of the results that may be expected for the
year ending June 30, 2021. The unaudited interim condensed
consolidated 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.
The Company reclassified certain prior year comparative figures
in the condensed consolidated balance sheet and statement of cash
flows to conform to the current year's presentation. This change in
presentation did not have an impact on the Company's financial
condition or operating results.
Principles of consolidation
The unaudited interim condensed consolidated financial
statements include the accounts of Renalytix AI plc, and its
wholly-owned subsidiaries, Renalytix AI, Inc. and Renalytix AI
Limited. All inter-company balances and transactions have been
eliminated in consolidation. The Company accounts for investments
in which it has significant influence but not a controlling
financial interest using the equity method of accounting.
Deconsolidation
Upon the occurrence of certain events and on a regular basis,
the Company evaluates whether it no longer has a controlling
interest in its subsidiaries, including consolidated variable
interest entities. If the Company determines it no longer has a
controlling interest, the subsidiary is deconsolidated. The Company
records a gain or loss on deconsolidation based on the difference
on the deconsolidation date between (i) the aggregate of (a) the
fair value of any consideration received, (b) the fair value of any
retained noncontrolling investment in the former subsidiary and (c)
the carrying amount of any noncontrolling interest in the
subsidiary being deconsolidated, less (ii) the carrying amount of
the former subsidiary's assets and liabilities.
The Company assesses whether a deconsolidation is required to be
presented as discontinued operations in its consolidated financial
statements on the deconsolidation date. This assessment is based on
whether or not the deconsolidation represents a strategic shift
that has or will have a major effect on the Company's operations or
financial results. If the Company determines that a deconsolidation
requires presentation as a discontinued operation on the
deconsolidation date, or at any point during the one year period
following such date, it will present the former subsidiary as a
discontinued operation in current and comparative period financial
statements.
Verici Dx Limited
In April 2020, the Company created a wholly-owned subsidiary,
Verici Dx Limited ("VericiDx"), 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 VericiDx
in exchange for $2.0 million, which was satisfied by the issuance
of convertible loan notes of VericiDx 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 VericiDx 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
VericiDx had been re-designated into 59,416,134 A Shares of
GBP0.001 each and one golden share of GBP0.001 (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 had declared that it held the Golden Share as nominee and on
trust for certain Directors of Renalytix AI and accordingly, the
Company itself had no ongoing beneficial interest in VericiDx
shares. This triggered a reconsideration event for ongoing
consolidation of VericiDx and since the Company was still the
primary funding source for VericiDx, the Company continued to hold
a controlling financial interest in VericiDx and continued to
consolidate VericiDx. Consequently, the Company recognized
noncontrolling interest of $1.6 million to reflect VericiDx's
distribution of A Shares and the Golden Share.
As the Company had been the primary funding source for VericiDx
since its distribution to the Company's stockholders, the
operations and financial position of VericiDx were included in the
condensed consolidated financial statements of the Company.
Participation of the stockholders in the net assets and losses of
VericiDx were 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 VericiDx as Renalytix AI had no
direct equity ownership in VericiDx from the date of the
distribution through October 28, 2020. Changes in the underlying
net book value of VericiDx due to equity issuances are reflected as
equity transaction in the Company's condensed consolidated
statements of stockholders' equity.
On November 3, 2020, VericiDx completed an initial public
offering on AIM and raised gross proceeds of GBP14.5 million
("VericiDx IPO") triggering a reconsideration event for ongoing
consolidation of VericiDx. The VericiDx IPO resulted in the Company
no longer having a controlling financial interest in VericiDx as
the Company was no longer VericiDx's primary funding source.
VericiDx previously issued the Company an aggregate of $2.5 million
in convertible loan notes which reflected the $2.0 million
consideration for the FractalDx assets and $0.5 million of
additional funding the Company provided VericiDx through October
28, 2020. Prior to the VericiDx IPO, on October 28, 2020, the
Company gave notice to convert the aggregate outstanding $2.5
million convertible loan notes into 9,831,681 ordinary shares of
VericiDx. As a result of the VericiDx IPO, the Company
deconsolidated VericiDx from the condensed consolidated financial
statements of the Company as of that date and recognized a gain of
$46,000 within other (expense) income in the condensed consolidated
statements of operations and comprehensive loss for the three and
six months ended December 31, 2020.
As the Company can exert significant influence over, but does
not control, VericiDx's operations through representation on
VericiDx's board of directors, the Company accounts for the
investment as an equity method investment and has also elected the
fair value option. In connection with the deconsolidation of
VericiDx, the Company evaluated whether the results of VericiDx
should be presented as discontinued operations for the period ended
December 31, 2020. The Company concluded that the deconsolidation
of VericiDx, as a result of the VericiDx IPO, is not a development
that significantly impacts the Company's overall operations and
financial results. Research and development expenses incurred
related to this program accounted for a minor portion of the
Company's overall annual research and development expenses and the
Company remains focused on developing the KidneyIntelX platform.
Therefore, the Company has not presented the results related to
VericiDx as discontinued operations in its condensed consolidated
statements of operations and comprehensive loss for the period
ended December 31, 2020.
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, recording the prepaid/accrual and associated
expense for research and development activities performed for the
Company by third parties, determining useful lives of property and
equipment and capitalized software, the assessment of
noncontrolling interest and equity method investments, fair value
measurements (including those related to VericiDx), and the
consolidation and deconsolidation of variable interest
entities.
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 Renalytix AI
Limited is GB Pounds. The functional currency of Renalytix AI, Inc.
is the U.S. dollar. Assets and liabilities of Renalytix AI plc and
Renalytix AI Limited are translated at the rate of exchange at
period-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 (expense) income in the condensed
consolidated statements of operations and comprehensive loss. For
the three and six months ended December 31, 2020, transaction
losses were $5.5 million and $7.7 million, respectively. For the
three and six months ended December 31, 2019, transaction losses
were $2.0 million and $1.6 million, respectively.
Concentrations of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable balances. 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. The Company's
revenue and accounts receivable was derived from one customer at
December 31, 2020. The Company performs initial and ongoing credit
reviews on customers, which involve consideration of the customers'
financial information, their location, and other factors to assess
the customers' ability to pay.
Fair value of financial instruments
At December 31, 2020 and June 30, 2020, the Company's financial
instruments included accounts receivable, prepaid expenses and
other current assets, accounts payable and accrued expenses and
other current liabilities. The carrying amounts of these assets and
liabilities approximates fair value due to their short-term
nature.
Fair value option
Under the Fair Value Option Subsections of ASC subtopic 825-10,
Financial Instruments - Overall, the Company has the irrevocable
option to report most financial assets and financial liabilities at
fair value on an instrument-by-instrument basis, with changes in
fair value reported in earnings (see Note 4).
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 December 31, 2020, the Company had a cash
balance of $74.5 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 December 31, 2020.
Accounts receivable
Accounts receivable are recorded at the invoice amount and are
non-interest bearing. The Company considers receivables past due
based on the contractual payment terms. The Company reserves
specific receivables if collectability is no longer reasonably
assured. Estimates for allowances for doubtful accounts are
determined based on existing contractual obligations, historical
payment patterns, and individual customer circumstances. No
reserves have been recorded as of December 31, 2020 or June 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 and
six months ended December 31, 2020, the Company recognized $0.3
million and $0.8 million, respectively, 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 investments
The Company accounts for equity investments where it owns a
non-controlling interest, but has the ability to exercise
significant influence, under the equity method of accounting. Under
the equity method of accounting, the original cost of the
investment is adjusted for the Company's share of equity in the
earnings of the equity investee and reduced by dividends and
distributions of capital received, unless the fair value option is
elected, in which case the investment balance is marked to fair
value each reporting period and the impact of changes in fair value
of the equity investment are reported in earnings.
Kantaro Biosciences LLC
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 this 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. The Company owned 25% of the membership equity units in
Kantaro at December 31, 2020.
VericiDx Limited
As the Company can exert significant influence over, but does
not control, VericiDx's operations through representation on
VericiDx's board of directors, the Company accounts for this
investment as an equity method investment and has elected the fair
value option because VericiDx's stock price is readily observable
via the London Stock Exchange. Under the fair value option , the
investment in VericiDx is recorded at fair value at each reporting
period with subsequent changes in fair value reported in the
condensed consolidated statements of operations and comprehensive
loss. Based on closing stock price of VericiDx , the fair value of
the investment in VericiDx was $7.9 million at December 31, 2020.
During each of the three and six months ended December 31, 2020,
the Company recorded a fair value adjustment of $5.0 million in the
condensed consolidated statements of operations and comprehensive
loss. The Company owned 6.94% of the ordinary shares of VericiDx at
December 31, 2020.
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 did not recognize any impairment of long-lived
assets during the six months ended December 31, 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 of ten years. For the
three and six months ended December 31, 2019, the Company expensed
$0.3 million and $0.6 million, respectively, of research and
development expenses related to capitalized software. There was no
research and development expense related capitalized software for
the three and six months December 31, 2020. Technological
feasibility is established upon the completion of a working model
that has been validated.
Revenue recognition
The Company adopted ASC 606 - Revenue from Contracts with
Customers ("ASC 606") on July 1, 2018. The adoption of ASC 606 did
not have a material impact on the condensed consolidated financial
statements.
Pursuant to ASC 606, the Company recognizes revenue when a
customer obtains control of promised goods or services. The Company
records the amount of revenue that reflects the consideration that
it expects to receive in exchange for those goods or services. The
Company applies the following five-step model in order to determine
this amount: (i) identification of the promised goods or services
in the contract; (ii) determination of whether the promised goods
or services are performance obligations, including whether they are
distinct in the context of the contract; (iii) measurement of the
transaction price, including the constraint on variable
consideration; (iv) allocation of the transaction price to the
performance obligations; and (v) recognition of revenue when (or
as) the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when
it is probable that it will collect the consideration to which it
is entitled in exchange for the goods or services that it transfers
to the customer. Once a contract is determined to be within the
scope of ASC 606 at contract inception, the Company reviews the
contract to determine which performance obligations it must deliver
and which of these performance obligations are distinct. The
Company recognizes as revenue the amount of the transaction price
that is allocated to each performance obligation when that
performance obligation is satisfied or as it is satisfied.
Pharmaceutical services revenue
Pharmaceutical services revenue is generated from the provision
of analytical services to customers. Contracts with customers
generally include an initial upfront payment and additional
payments upon achieving performance milestones. Revenue is
recognized when control of the promised services is transferred to
customers and the performance obligation is fulfilled in an amount
that reflects the consideration that the Company expects to be
entitled in exchange for those services. The Company uses present
right to payment and customer acceptance as indicators to determine
the transfer of control to the customer which may occur at a point
in time or over time depending on the individual contract terms.
Sales tax and other similar taxes are excluded from revenues.
During the three and six months ended December 31, 2020, the
Company recognized $0.4 million and $0.4 million, respectively, of
pharmaceutical services revenue where performance obligations are
satisfied at a point in time.
Cost of revenue
Cost of revenue consists of costs directly attributable to the
services rendered, including labor costs directly related to
revenue generating activities.
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 CKD 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 December 31, 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 December 31, 2020 and 2019, there were 3,408,858 and
2,883,858 shares, respectively, issuable upon exercise of
outstanding options that were anti-dilutive and excluded from
diluted loss per share for the three and six months ended December
31, 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 measurements and the fair value option
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 following fair value hierarchy table
presents information about the Company's assets measured at fair
value on a recurring basis:
Fair value measurement at
reporting date using
---------------------------------------------
Quoted prices
in active Significant
markets for other Significant
identical observable unobservable
assets inputs inputs
(in thousands) (Level 1) (Level 2) (Level 3)
------------------------------------------- --------------- ------------- -------------
December 31, 2020:
Assets:
Equity investment in VericiDx $ 7,852 $ - $ -
June 30, 2020:
Assets:
Cash equivalents (Money Market Fund) $ 500 $ - $ -
U.S. Treasury Bills 982 - -
----------- ---- ------- ------------
Total $ 1,482 $ - $ -
5. Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of (in
thousands):
December June
31, 2020 30, 2020
-------------------------------------------------------------------------------------------- ---------- ----------
Insurance..................................................................................
............................................................... $ 2,586 $ 40
Other......................................................................................
................................................................... 1,001 511
$ 3,587 $ 551
6. Property and equipment
Property and equipment consists of (in thousands):
December June 30,
31, 2020 2020
--------------------------------------------------------------------------------------------- ---------- ---------
Lab
equipment...................................................................................
..................................................... $ 570 $ 862
Software....................................................................................
............................................................... 1,521 744
Office
equipment...................................................................................
................................................. 81 31
Office furniture 35 10
Construction in
process.....................................................................................
.................................... 539 113
---------- ---------
Total.....................................................................................
................. 2,746 1,760
Less accumulated
depreciation................................................................................
........................... (143) (105)
$ 2,603 $ 1,655
Depreciation expense was $52,000 and $82,000 for the three and
six months ended December 31, 2020, respectively. Depreciation
expense was $21,000 and $30,000 for the three and six months ended
December 31, 2019, respectively.
As of December 31, 2020 and June 30, 2020, there was $1.2
million and $0.6 million, respectively, of unamortized capitalized
software development costs. Amortization expense related to
capitalized software development costs was $23,000 and $23,000 for
the three and six months ended December 31, 2020, respectively, and
expensed within cost of revenue in the condensed consolidated
statement of operations. There was no amortization expense related
to capitalized software development costs for the three and six
months ended December 31, 2019.
As of December 31, 2020, the expected amortization expense for
the next five years and thereafter is as follows:
2021 (remaining six months)........................................................................................................................ $ 61
2022................................................................................................................................................................... 122
2023................................................................................................................................................................... 122
2024................................................................................................................................................................... 122
2025................................................................................................................................................................... 122
$ 549
7. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of (in
thousands):
December June
31, 2020 30, 2020
-------------------------------------------------------------------------------------------- ---------- ----------
Consulting and professional
fees.......................................................................................
.................. $ 133 $ 567
Research and
development................................................................................
.................................. - 80
Payroll and related
benefits...................................................................................
............................... 1,362 24
Other......................................................................................
................................................................... 113 12
$ 1,608 $ 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. In June
2020, the Paycheck Protection Program Flexibility Act was enacted,
which among other things, extended the deferral period for loan
payments to either (1) the date that SBA remits the borrower's loan
forgiveness amount to the lender or (2) if the borrower does not
apply for loan forgiveness, ten months after the end of the
borrower's loan forgiveness covered period. The Loan matures in two
years and bears interest at a rate of 1% per year, with all
payments deferred through August 15, 2021. Principal and interest
are payable monthly commencing on August 15, 2021 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 December 31, 2020, the outstanding principal balance of the
Loan was $255,000, of which $255,000 is payable in fiscal 2022. The
fair value of the Loan as of December 31, 2020 was $243,000, which
was 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. Both leases are 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 is
located in New York and the lease 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. In December 2020, the Company
entered into a month-to-month lease arrangement for office space in
Ireland. The Company recognized rent expense of $0.1 million and
$0.1 million during the three months ended December 31, 2020 and
2019, respectively, and $0.2 million and $0.3 million during the
six months ended December 31, 2020 and 2019, respectively, related
to all leases.
The future minimum payments for each fiscal year are as follows
(in thousands):
2021 (remaining six months)........................................................................................................................ $ 163
2022................................................................................................................................................................... 83
2023................................................................................................................................................................... 83
2024................................................................................................................................................................... 83
2025................................................................................................................................................................... 28
$ 440
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, the Company
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 Institutional Review Board.
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 $0.3 million and $0.1 million in
research and development expenses under the ISMMS SRA for the three
months ended December 31, 2020 and 2019, respectively. The Company
incurred $0.3 million and $0.2 million related to the ISMMS SRA for
the six months ended December 31, 2020 and 2019, respectively.
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
VericiDx.
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.
11. Shareholders' equity
Ordinary shares
As of December 31, 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 December 31, 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 December 31, 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 December 31, 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 and six months ended
December 31, 2020 and 2019 (in thousands):
Three Months Ended December 31, Six Months Ended December 31,
------------------------------------- -----------------------------------
(in thousands) 2020 2019 2020 2019
--------------------------- ------------------ ----------------- ----------------- ----------------
Research and development $ 199 $ 140 $ 394 $ 274
General and administrative 303 156 599 269
---- ------------ --- ------------ --- ------------ --- -----------
$ 502 $ 296 $ 993 $ 543
==== ============ === ============ === ============ === ===========
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 six months ended December 31, 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 six months ended December 31, 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:
Six Months Ended
December 31,
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 six months ended December 31, 2020 and 2019 was $4.31 and $2.03
per share, respectively.
The following table summarizes the stock option granted to
employees and non-employees for the six months ended December 31,
2020:
Weighted-
Weighted- average
average remaining
Number of exercise contractual
shares under price life (in
option plan per option years)
------------------------------------------------------------- ----------------- ------------ ----------------------
Outstanding at June 30,
2020................................................ 3,028,858 $ 1.95 8.6
Granted.................................................
................................ 380,000 $ 7.46
Outstanding at December 31,
2020...................................... 3,408,858 $ 2.56 8.2
Exercisable at December 31,
2020....................................... 1,914,787 $ 2.02 8.0
-----------------
Vested and expected to vest at
December 31, 2020......... 3,408,858 $ 2.56 8.2
As of December 31, 2020, there was $3.0 million in unrecognized
compensation cost related to unvested options that will be
recognized as expense over a weighted average period of 1.48 years.
The aggregate intrinsic value of options outstanding and options
exercisable at December 31, 2020 was $14.3 million and $8.9
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 ordinary shares.
The number of shares of the Company's ordinary shares 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 ordinary shares 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
ordinary shares 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 ordinary
shares at 85% of the lower of the fair market value of the
Company's ordinary shares 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 ordinary
shares 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 ordinary shares 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 $23,000 and $33,000 during the three and six months
ended December 31, 2020, respectively, related to the ESPP.
13. Related-party transactions
EKF Diagnostic Holdings
During the three and six months ended December 31, 2020, the
Company incurred expenses of $46,000 and $0.1 million,
respectively, related to employees of EKF who provided services to
Renalytix and is included in general and administrative expenses in
the condensed consolidated statement of operations. During the
three and six months ended December 31, 2019, the Company incurred
expenses of $0.1 million and $0.1 million, respectively, related to
employees of EKF who provided services to Renalytix and is included
in general and administrative expenses in the condensed
consolidated statement of operations.
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. As of
December 31, 2020, amounts due to ISMMS totaled $0.3 million.
During the three and six months ended December 31, 2020 the Company
incurred expenses of $0.3 million and $0.3 million, respectively,
which are included in research and development expenses in the
condensed consolidated statement of operations. During the three
and six months ended December 31, 2019, the Company incurred
expenses of $0.1 million and $0.1 million, respectively, which are
included in research and development expenses in the condensed
consolidated statement of operations.
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 December 31, 2020,
the total liability associated with the services was $1.0 million,
of which $0.8 million is classified as a current liability and $0.2
million is classified as a non-current liability. For the three and
six months ended months ended December 31, 2020, the Company
recognized $0.3 million and $0.8 million, respectively, in the
statement of operations related to services performed under the
Advisory Agreement. For the three and six months ended December 31,
2020, $0.1 million and $0.3 million, respectively, of costs
incurred related to the performance of the Advisory Agreement
services were included within research and development and $0.1
million and $0.1 million, respectively, were included within
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 $166,667 and had a note receivable for this amount
at December 31, 2020. In addition, the Company recognized losses of
$0.1 million and $0.2 million, respectively, on their investment in
Kantaro during the three and six months ended December 31,
2020.
VericiDx
During the three and six months ended December 31, 2020, the
Company paid the salary of an executive of VericiDx and VericiDx
has agreed to reimburse the Company for those amounts. As of
December 31, 2020, amounts due from VericiDx totaled $0.2
million.
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.
DaVita Inc .
In January 2021, the Company entered into a Master Care
Coordination Services Agreement with DaVita Inc. ("DaVita") whereby
DaVita agreed to provide certain care coordination services to
covered patients as requested by the Company with those covered
patients identified by the Company's KidneyIntelX diagnostic and
subject to insurance coverage. Those covered patients may also be
included in connection with various clinical research studies or
quality improvement initiatives (each a "Study"). Both parties
agreed to establish a joint steering committee to oversee the care
coordination services and exchange and evaluate results of each
Study. The Company will pay DaVita a monthly fixed fee based on the
number of covered patients. The initial term of the agreement is
three years with successive one-year renewals upon written mutual
agreement of both parties. The cost of this program cannot be
estimated at this time.
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