Renalytix plc

("Renalytix" or the "Company")

Half Year Report

LONDON and SALT LAKE CITY, February 15, 2024 - Renalytix plc (NASDAQ: RNLX) (LSE: RENX), 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 six months ended December 31, 2023. The Company plans to issue another announcement following today's report of financial results regarding the date and time of its conference call and webcast to discuss second quarter financial results and other key events.

The Company made significant progress during the quarter in revenue generation, reimbursement coverage, the publication of real-world evidence and operating cost management, setting the stage for potential future growth.  Highlights include:

·    During the three months ended December 31, 2023, we recognized $0.7 million of revenue related to sales of KidneyIntelX, compared to the previous quarter reported revenue of $0.5 million.

·    KidneyintelX.dkd, the first U.S. Food and Drug Administration ("FDA"), authorized in vitro prognostic test that uses an artificial intelligence-enabled algorithm to aid in assessment of the risk of progressive decline in kidney function, officially included in the lab fee schedule by Centers for Medicare & Medicaid Services (CMS) at $950 per test.

·    KidneyIntelX™ and kidneyintelX.dkd included in the proposed Local Coverage Determination (LCD) published by National Government Services (NGS) on February 8, 2024, and on the agenda for the LCD open public meeting on February 29, 2024.

·    NGS has resumed consistent payment for tests under individual claims review (ICR), allowing revenue recognition of 318 tests billed to Medicare (including prior period tests).  Total billable volume of 734 tests during the second quarter (representing 69% of all tests in the period, including non-billable study tests).

·    Real-world evidence continues to demonstrate the benefits of KidneyIntelX early risk assessment as published in the Journal of Primary Care and Community Health, in which 12 months of care following KidneyIntelX prognostic testing was associated with clinical actions that led to significant improvement in care and outcomes including a 61% increase in kidney protective drug prescriptions among patients in the high-risk group.

·    Operating cost reductions commenced during the fiscal second quarter continued with a fiscal third quarter cash burn target approximately 33% less than in the prior quarter and approximately 50% less than in the first quarter of fiscal 2024. 

Second Quarter 2024 Financial Results

During the six months ended December 31, 2023, we recognized $1.2 million of revenue related to sales of KidneyIntelX. During the six months ended December 31, 2022, we recognized $2.0 million revenue related to sales of KidneyIntelX and $0.2 million of revenue of pharmaceutical services revenue related to services performed for AstraZeneca. The $0.8 million decrease in revenue was primarily driven by a $1.0 million decrease in KidneyIntelX billable testing volumes due to the transition to a commercial billing structure under our arrangement with Mount Sinai and a decrease of $0.2 million of pharmaceutical services revenue.

Administrative expenses for the six months ended December 31, 2023 were $18.4 million, compared to $22.4 million for the six months ended December 31, 2022. We have taken significant actions to lower annual expenditures with a targeted annualized cash burn rate of under $23 million within our fiscal third quarter of 2024 (down from $37 million in the 2023 fiscal year), while preserving revenue generating activity.

The major items of expenditure were general and administrative costs of which included $7.2 million in employee- related costs (HY23: $11.5 million), $3.8 million in subcontractors, legal, accounting, and other professional fees (HY23: $4.6 million), $3.7 million in external R&D Services, lab supplies and lab services (HY23: $1.8 million), $1.1 million in depreciation and amortisation (HY23: $1.0 million), $0.7 million in insurance (HY23: $1.3 million), $0.6 million in IT related costs (HY23: $0.7 million), $0.5 million in marketing and public relations (HY23: $0.6 million), $0.3 million in impairment loss on property and equipment (HY23: nil), $0.2 million in office related expenses including rent (HY23: $0.1 million), and $0.3 million in other expenses (HY23: $0.8 million).

Net loss was $19.3 million for the six months ended December 31, 2023, compared to a net loss of $22.6 million for the six months ended December 31, 2022.

Cash and cash equivalents totaled $5.6 million as of December 31, 2023.

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About Renalytix

Renalytix (NASDAQ: RNLX) (LSE: RENX) is an in-vitro diagnostics and laboratory services company that is the global founder and leader in the new field of bioprognosis™ for kidney health. The leadership team, with a combined 200+ years of healthcare and in-vitro diagnostic experience, has designed its KidneyIntelX laboratory developed test to enable risk assessment for rapid progressive decline in kidney function in adult patients with T2D and early CKD (stages 1-3). We believe that by understanding how disease will progress, patients and providers can take action early to improve outcomes and reduce overall health system costs. For more information, visit www.renalytix.com.

Forward-Looking Statements

Statements contained in this press 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 commercial prospects of KidneyIntelX, including whether KidneyIntelX will be successfully adopted by physicians and distributed and marketed, the rate of testing with KidneyIntelX in health care systems, expectations and timing of announcement of real-world testing evidence, the potential for KidneyIntelX to be approved for additional indications, the Company's expectations regarding the timing and outcome of regulatory and reimbursement decisions, the ability of KidneyIntelX to curtail costs of chronic and end-stage kidney disease, optimize care delivery and improve patient outcomes, the Company's expectations and guidance related to partnerships, testing volumes and revenue for future periods, the Company's expectations regarding the Company's ability to obtain and maintain intellectual property protection for its diagnostic products and the Company's ability to operate it business without infringing on the intellectual property rights of others, and the forecast of the Company's cash runway and the implementation and potential for additional financing activities and cost-saving initiatives. Words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "seeks," and similar expressions are intended to identify forward-looking statements. The Company may not actually achieve the plans and objectives disclosed in the forward-looking statements, and you should not place undue reliance on the Company's 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; the Company has only recently commercially launched KidneyIntelX; and risks relating to the impact on the Company's business of the COVID-19 pandemic or similar public health crises. These and other risks are described more fully in the Company's filings with the Securities and Exchange Commission (SEC), including the "Risk Factors" section of its annual report on Form 10-K filed with the SEC on September 28, 2023, the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 filed with the SEC on November 14, 2023 and other filings the Company makes with the SEC from time to time. All information in this press release is as of the date of the release, and the Company undertakes 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.

Chairman & CEO's Joint Statement

TO THE MEMBERS OF RENALYTIX PLC

This has been a productive period for Renalytix and our lead artificial intelligence enabled prognostic test despite the challenging capital markets environment.  When we formed Renalytix, our goals were clear for what we called the three legs of the stool: comprehensive insurance reimbursement, regulatory approval and clear outcomes and benefits data; all of which we have achieved.  For the coming quarters, we are now focused on testing volume growth under a significantly streamlined cost structure. 

Regarding our three-legged stool, KidneyIntelX is now being paid for by Medicare and several major United States insurance payors including multiple state Blue Cross Blue Shield organizations.  Out of the estimated 14 million patients with diabetic kidney disease in the United States, we have now secured insurance coverage for the majority at $950 per prognostic test. On February 8, 2024, Medicare contractor National Government Services (NGS) published a proposed Local Coverage Determination (LCD) for KidneyIntelX™ and kidneyintelX.dkd (the latter being our FDA-approved version).

In 2023, we also successfully completed a four year Food and Drug Administration (FDA) process with a successful De Novo Marketing Authorization that broke important regulatory ground for prognosing a large population chronic disease. 

And equally as important, two groundbreaking peer-review study publications presented long-term utility and outcomes data showing the important effects of KidneyIntelX in helping to improve both kidney and diabetes health in adults.

In a further upside milestone, KidneyIntelX was included in the draft kidney clinical guidelines, KDIGO, which are expected to be finalized by the end of March 2024.  It is rare to see all of these key elements come together in a short period of time and we believe they are significant for broader adoption and clinical acceptance of KidneyIntelX across adults with diabetes and early-stage kidney disease in the United States and abroad.  

Post FDA authorization, we have reviewed our operating costs with a view to meaningfully reduce quarterly cash burn rate.   This reduction in cash burn should become apparent in the remainder of our 2024 fiscal year and is being undertaken without compromising our sales and marketing efforts to grow testing volume and revenue.  These reductions are on top of our recent year-over-year operating expense reduction of $11 million.    We will also evaluate potential international licensing opportunities and strategic partnerships, both of which could provide sources of non-dilutive capital and expanded revenue opportunities for Renalytix. 

Raising funds to fuel these clear commercial opportunities is essential, particularly now that we have reduced some of the core risks associated with a successful service product launch and adoption.  In addition to traditional financing efforts, we will continue to explore less dilutive and non-dilutive capital funding sources, particularly now that we have a unique product proposition post-FDA authorization. 

KidneyIntelX prognostic technology provides a powerful tool to front-line physicians and patients to prevent the unnecessary suffering and unsustainable costs associated with kidney decline and dialysis. Innovations like KidneyIntelX are hard won and, if supported properly, can have an enormous impact for the health of millions of people globally with chronic disease.  We intend to make sure this happens.

On behalf of everyone at Renalytix, we would like to thank you for your continued support.

Warmest regards,

Christopher Mills                                                  James R. McCullough

Chairman                                                                                      Chief Executive Officer

​Financial Review

The results presented cover the six months ended 31 December 2023 ("HY24"). The presentational currency for Renalytix plc and its subsidiaries (together, the "Group") is the United States Dollar.

INCOME STATEMENT

Revenue

The Group recognized a total of $1.2 million in revenue in HY24 related to commercial testing, compared to revenue of $2.2 million in the six months ended 31 December 2022 ("HY23") related to commercial testing and pharmaceutical services performed.

Cost of Sales

The cost of sales associated with the commercial testing revenue was $1.0 million for HY24, compared to $1.4 million of cost of sales associated with the commercial testing and services revenue in HY23.

Administrative Costs

During HY24, administrative expenses totaled $18.4 million (HY23): $22.4 million). The major items of expenditure were general and administrative costs of which included $7.2 million in employee- related costs (HY23: $11.5 million), $3.8 million in subcontractors, legal, accounting, and other professional fees (HY23: $4.6 million), $3.7 million in external R&D Services, lab supplies and lab services (HY23: $1.8 million), $1.1 million in depreciation and amortisation (HY23: $1.0 million), $0.7 million in insurance (HY23: $1.3 million), $0.6 million in IT related costs (HY23: $0.7 million), $0.5 million in marketing and public relations (HY23: $0.6 million), $0.3 million in impairment loss on property and equipment (HY23: nil), $0.2 million in office related expenses including rent (HY23: $0.1 million), and $0.2 million in other miscellaneous expenses (HY23: $0.7 million).

Gain (Loss) On Financial Assets At Fair Value Through Profit Or Loss

The Company accounts for the investment in VericiDx equity securities at fair value, with changes in fair value recognized in the income statement. During HY24, we recorded a loss of $0.2 million to adjust the VericiDx investment to fair value. During HY23, we recorded a loss of $1.2 million to adjust the VericiDx investment to fair value.

Fair Value Adjustment Of Convertible Debt

We elected to account for the convertible notes at fair value with qualifying changes in fair value recognized through the income statement until the notes are settled. This excludes fair value adjustments related to instrument-specific credit risk, which are recognized in OCI. During HY24, we recorded a loss of $1.3 million to adjust the convertible notes to fair value.  During HY23, we recorded a loss of $0.8 million to adjust the convertible notes to fair value.

Finance Income (Expense)

During HY24, we recognized a gain of $0.5 million, which was comprised of $0.2 million interest income earned on our cash deposits, $0.2 million of foreign exchange gains and $0.1 million of grant income. During HY23, we recognized finance income of $0.9 million mostly related to foreign exchange gains.

BALANCE SHEET

Inventory

Inventory consists of consumable materials used by the labs to carry out KidneyIntelX tests. Inventory on hand at 31 December 2023 totaled $0.5 million (FY23: $0.7 million). During FY23, inventory levels decreased due to usage in KidneyIntelX testing.

Fixed Assets

Property, plant, and equipment consists of laboratory equipment being used to support testing and product development activities. At 31 December 2023, the company held $0.6 million in net property, plant, and equipment (FY23: $1.0 million).

Intangible Assets

The Group held $11.6 million net book value of intangible assets at 31 December 2023 (FY23: $12.5 million) which includes payments made primarily to Mount Sinai for license and patent costs for the intellectual property underlying KidneyIntelX, as well as amounts capitalized as development costs. Intangible assets also include the value of the biomarker business purchased (in exchange for ordinary shares in the Company) from EKF. Intangible assets decreased period over period due to amortisation and the impact of foreign exchange translation at period end.

Investment in Verici

At the end of HY24, the group held 9,831,681 shares in Verici Dx, the fair value of the investment in Verici Dx was $1.2 million at 31 December 2023 (FY23: $1.5 million).

Convertible Note

In April 2022, the Company issued amortising senior convertible bonds with a principal amount of $21.2 million due in April 2027 (the "Bonds"). The Bonds were issued at 85% par value with total net proceeds of $18.0 million. The Company elected to account for the Bonds at fair value. At 31 December 2023, the Bonds had a fair value of $8.4 million (FY23: $11.9 million).

Cash

The Group had cash on hand of $5.6 million (FY23: $24.7 million). Cash and equivalents are held in several deposit accounts in the US ($2.5 million), UK ($2.4 million) and IRE ($0.7 million).