6-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

Date of report: March 31, 2022

Commission File Number: 001-39387

 

 

Renalytix plc

(Translation of registrant’s name into English)

 

 

Finsgate

5-7 Cranwood Street

London EC1V 9EE

United Kingdom

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: ☒ Form 20-F ☐ Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 


 

INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K

On March 31, 2022 Renalytix plc issued a press release regarding its full year results as of and for the fiscal year ended December 31, 2021, which is furnished as Exhibit 99.1 to this Report on Form 6-K.

EXHIBIT INDEX

 

Exhibit

 

Description

 

 

99.1

 

Press release dated March 31, 2022.

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

RENALYTIX PLC

 

 

By:

 

/s/ James McCullough

 

 

James McCullough

 

 

Chief Executive Officer

Date: March 31, 2022


EX-99.1

https://cdn.kscope.io/82623d193bc852e51b87e7be6438fda4-img102423453_0.jpg 

Exhibit 99.1

Renalytix plc

(“Renalytix” or the “Company”)

 

Renalytix Reports Financial Results for Second Quarter of Fiscal Year 2022

 

LONDON and SALT LAKE CITY, March 31, 2022 – 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 quarter ended December 31, 2021.

 

Recent Highlights

Quarter over quarter growth in KidneyIntelX testing volume
Quarter over quarter growth in active physicians ordering KidneyIntelX
KidneyIntelX now on-line with the Veterans Administration health system (VHA), New York physician led payor program CDPHP, Wake Forest Baptist Health and Atrium Health system
Singing River Health System partnership to deploy KidneyIntelX informed care management to improve kidney health in individuals across the Mississippi Gulf Coast with type 2 diabetes and early-stage chronic kidney disease
Hired, trained, and deployed regional sales managers, sales representatives and medical science liaisons to support KidneyIntelX physician onboarding, education and test ordering
Launch of myIntelX national provider access portal for on-line ordering of KidneyIntelX
Renalytix is now registered as a vendor to provide KidneyIntelX testing services at 16 VHA health centers, with additional health centers expected this calendar year
Continued insurance payment expansion for KidneyIntelX testing services helping ensure patients have access to advanced risk assessment regardless of economic status
22 private insurance coverage contracts now executed, including the first regional Blue Cross Blue Shield plans, with additional coverage contracts expected this calendar year
31 state Medicaid programs now contracted with additional states expected this calendar year
Salt Lake and New York laboratories built and operate to most rigorous standards; CLIA certified, CAP accredited, ISO certified and U.S. Food and Drug Administration compliant
Joint program with American Diabetes Association® to improve overall kidney health in patients with type 2 diabetes in the United States
Launching regionally focused early state kidney disease education programs in partnership with the National Kidney Foundation
Published data in the American Journal of Nephrology demonstrating KidneyIntelX successfully monitored patient response to new drug therapy in 1,325 multinational clinical trial cohort patients
World Congress of Nephrology data showing KidneyIntelX predicts the future rate of decline in kidney function compared with current standard diagnostics in patients with early-stage chronic kidney disease and type 2 diabetes

 

Second Quarter 2022 Financial Results

During the three months ended December 31, 2021, the Company recognized $0.8 million of revenue (Q2 FY21: $0.4 million). Cost of revenue for the three months ended December 31, 2021 was $0.5 million (Q2 FY21: $0.3 million).

Operating expense for the three months ended December 31, 2021 was $14.1 million compared to $8.8 million during the prior year period.

 

 


Within operating expenses, Research and development expenses were $4.1 million for the three months ended December 31, 2021, an increase of $1.6 million, from $2.5 million for the three months ended December 31, 2020. The increase was driven by employee related expenses and professional fees associated with the utility studies at Mount Sinai, Wake Forest and University of Utah.

General and administrative expenses were $10.1 million for the three months ended December 31, 2021, increasing by $3.5 million from $6.6 million for the three months ended December 31, 2020. The increase was primarily due to a $1.7 million increase in compensation and related benefits, including share-based payments, due to increased headcount, a $1.1 million increase in consulting and professional fees including marketing expense, a $0.3 million related to employee expenses, a $0.2 million increase in computers, software and IT costs, and a $0.2 million increase in other operating expenses.

Net loss attributable to ordinary shareholders was $15.3 million for the three months ended December 31, 2021 compared to $8.9 million for the prior year period.

Cash and cash equivalents totaled $39.9 million as of December 31, 2021.

 

The Company will host a corresponding conference call and live webcast today to discuss the financial results and key topics including business strategy, partnerships and regulatory and reimbursement processes, at 8:30 a.m. (ET) / 1:30 p.m. (GMT).

Conference Call Details:
US/Canada Participant Toll-Free Dial-In Number: (833) 614-1551
US/Canada Participant International Dial-In Number: (914) 987-7290
United Kingdom International Dial-In Number: 0800 0288 438
United Kingdom Local Dial-In Number: 0203 1070 289
Conference ID: 6597955

Webcast Registration link: https://edge.media-server.com/mmc/p/hu7xau2s

For further information, please contact:

 

Renalytix plc

www.renalytix.com

James McCullough, CEO

Via Walbrook PR

 

 

Stifel (Nominated Adviser, Joint Broker)

Tel: 020 7710 7600

Alex Price / Nicholas Moore

 

 

 

Investec Bank plc (Joint Broker)

Tel: 020 7597 4000

Gary Clarence / Daniel Adams

 

 

 

Walbrook PR Limited

Tel: 020 7933 8780 or renalytix@walbrookpr.com

Paul McManus / Lianne Cawthorne

Mob: 07980 541 893 / 07584 391 303

 

 

CapComm Partners

 

Peter DeNardo

 

Tel: 415-389-6400 or investors@renalytix.com

 

About KidneyIntelX

KidneyIntelX, is a first-of-kind decision support and implementation platform that facilitates the identification and promotes the effective management of patients at risk of early-stage diabetic kidney disease, or DKD, progression by combining diverse data inputs, including validated blood-based biomarkers, inherited genetics, and personalized patient data from electronic health record, or EHR, using a proprietary algorithm to generate a unique patient risk score. This patient risk score enables prediction of progressive decline in kidney function, allowing physicians and healthcare systems to optimize the allocation of treatments and clinical resources to patients at highest risk.

 

 

 


About Renalytix

Renalytix (NASDAQ: RNLX) (LSE: RENX) is the global founder and leader in the new field of bioprognosis™ for kidney health. The company has engineered a new solution that successfully enables early-stage CKD progression risk assessment. The Company’s lead product, KidneyIntelX, has been granted Breakthrough Designation by the U.S. Food and Drug Administration and is designed to help make significant improvements in kidney disease prognosis, transplant management, clinical care, patient stratification for drug clinical trials, and drug target discovery (visit www.kidneyintelx.com). 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, our expectations regarding regulatory and reimbursement decisions and the ability of KidneyIntelX to curtail costs of chronic and end-stage kidney disease, optimize care delivery and improve patient outcomes. 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 Securities and Exchange Commission (SEC), including the “Risk Factors” section of our annual report on Form 20-F filed with the SEC on October 21, 2021, and other filings we make with the SEC from time to time. All information in this press 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 PLC

 

Operational Update and Financial Results for the three and six months ended December 31, 2021

 

Unless otherwise indicated, all references in this report, to the terms “Renalytix,” “Renalytix plc,” “the company,” “we,” “us” and “our” refer to Renalytix 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, 2021, filed with the Securities and Exchange Commission on October 21, 2021 (our “Annual Report”).

 

The statements in this discussion regarding our expectations regarding our market opportunity, regulatory approval 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

About Renalytix

At Renalytix, we are helping lead the charge to introduce simple, more accurate prognosis and effective care management for the estimated 850 million people worldwide with chronic kidney disease. In the United States alone, chronic kidney disease affects close to an estimated 40 million people and is responsible for one of the largest cost drivers in the national medical system. Early identification, prognosis and treatment beginning with primary care physicians is essential if we are to stem the growing social cost and suffering associated with kidney disease.

With our lead product, KidneyIntelX, our goal is to shift the conversation from kidney disease to kidney health through a more accurate understanding of early-stage risk. With the deployment of KidneyIntelX this year, Renalytix has become global leader in the new field of bioprognosis, a biology-driven approach to risk assessment that relies on integrating information from a simple blood draw and a patient’s health record to produce an accurate picture of kidney health. A doctor can use KidneyIntelX results to act on patients at high risk of kidney disease progression or failure at an early stage where active management and therapeutics have the best opportunity to impact outcomes and cost before it is too late.

We have crossed key data, reimbursement and regulatory hurdles during a relatively short time-period since we began operations in 2018 through a public listing on AIM, a market of the London Stock Exchange. We subsequently expanded our capital base by raising a further $17 million in July 2019 and then an additional $85 million through a listing on the Nasdaq Global Market in July 2020. The commercial roll-out of our kidney health solution, KidneyIntelX, is underscored by:

A 10-year government-wide contract with the U.S. General Services Administration at $950 per test
Hiring of sales, medical science liaison, and customer service support for national coverage
The Centers for Medicare & Medicaid Services awarding a national price of $950 per test
31 state Medicaid program authorization contracts
Launch of myIntelX national provider access portal for on-line ordering of KidneyIntelX
Partnerships announced with the Mount Sinai Health System, University of Utah, Atrium Health, Wake Forest Baptist Health, Capital District Physicians’ Health Plan (CDPHP), St. Joseph's Health and Singing River Health System
New York State Department of Health approval
A distinct Common Procedural Terminology (CPT) Code for reimbursement granted by the American Medical Association

 

 


22 private payor coverage determinations
Multi-center, peer reviewed clinical studies validating the clinical effectiveness and utility dynamics of KidneyIntelX for identifying patients at high risk for rapid kidney disease progression and/or kidney failure in the earliest stages of kidney disease

About KidneyIntelX

Our novel platform, KidneyIntelX, uses a machine-learning enabled algorithm to process predictive blood biomarkers with key features from a patient’s health record to generate an early and accurate kidney health risk score. The score identifies those patients at the most risk for kidney disease progression and/or failure and further guides ongoing clinical decisions.

KidneyIntelX is initially indicated for use with adults who have diagnosed kidney disease and diabetes – diabetic kidney disease or DKD. Future KidneyIntelX products in development intend to expand the indicated uses to include broader chronic kidney disease, health equity strategies and kidney health monitoring through treatment. Diabetes is the leading cause of chronic kidney disease, representing nearly 40%, and DKD patients are the highest contributors to emergency room dialysis. Unfortunately, many DKD patients are unaware that they either have kidney disease or that their disease has been progressing, often uncontrolled, for many years and now find themselves making difficult decisions about late-stage treatments. We believe this predicament is largely avoidable and have built the KidneyIntelX care model to ultimately provide the estimated 210,000 primary care physicians in the United States with a comprehensive suite of information and guidelines driven follow-on action.

KidneyIntelX was designed as an expandable platform which is able to add indicated uses and a monitoring capability, all within an FDA regulated framework. Expansion may include extending into additional populations of chronic kidney disease patients beyond those with diabetes, including patients of African ancestry with the APOL1 high-risk genotype. We also intend to develop solutions for use in other large chronic disease patient populations, like cardiovascular disease.

Operational Progress

Renalytix is pleased to report quarter over quarter KidneyIntelX testing volume growth under a backdrop of increasing insurance payment and new medical systems coming on-line. In our New York launch market, KidneyIntelX utilization has continued to accelerate through the end of March. We have now provided integrated advanced risk assessment services for over 2,600 patients with kidney disease and diabetes. In addition, over the past six months KidneyIntelX clinical testing has now been brought on-line within the Veterans Administration health system, our Albany New York physician led payor partner, Atrium Health and Wake Forest Baptist Health in the Southeast. We now estimate the our current serviceable, patient population with insurance payment availability for KidneyIntelX testing at greater than one million.

Our commercial focus in calendar year 2022 remains on regions where our health system partnerships provide a base for adoption of KidneyIntelX testing. As of the end of March 2022, we have four regional sales managers and 12 account executives focused on the Veterans Health Administration. We have also added a regional manager and three sales executives focused on the New York market. This sales effort is being complemented by a medical education effort led by a team of seven medical liaisons and our partnership with the National Kidney Foundation to offer chronic kidney disease education nationally. We expect additional health providers to be brought on-line in the next few months, including recently announced St. Josephs Health in central New York State and now expect to exceed 20 health centers running KidneyIntelX patient risk assessment in calendar 2022.

Reimbursement and Regulatory

Insurance payment remains the biggest factor to driving KidneyIntelX adoption and revenue growth. Over the past year, we have consistently demonstrated that we can secure payment for KidneyIntelX from a diverse set of insurance sources. To date, we have received 22 private insurance coverage contracts, and contracted with 31 state Medicaid programs. Our $950 reportable pricing structure has been established by National Medicare and a 10-year government contract covering, among others, payment for patient testing in the VA Medical system.

 

 


Under our real-world evidence study program with Mount Sinai Health System, several metrics are pointing to greater efficiencies being achieved with KidneyIntelX physician onboarding, including the fact that time to first KidneyIntelX order from education/training has dropped to three days currently from eleven days in our fiscal second quarter.

Our partnership model with Mount Sinai Health System under our real-world evidence study program is validating the engagement of population health departments and KidneyIntelX electronic health record integration to improving primary care physician access to advanced prognosis in kidney disease. The advantages of an integrated KidneyIntelX solution in a large hospital system include 1) broad physician education and care pathway support, 2) electronic test ordering and reporting, 3) advanced data analytics, 4) patient education and support.

Our laboratory testing infrastructure and personnel include the capacity to scale efficiently as distribution opportunities expand in fiscal 2022 and 2023. We have now achieved CAP Accreditation and ISO Certification for both Salt Lake City and New York City laboratories, all important parts to expand testing services and qualify for certain reimbursement.

Continuing to build a robust peer-reviewed published data pool is a compelling driver for payer and market adoption. In January, data was published in American Journal of Nephrology demonstrating the value of KidneyIntelX for monitoring patient response to new drug therapy in 1,325 multinational clinical trial cohort patients. And in February, at the World Congress of Nephrology, we provided results demonstrating KidneyIntelX provides robust prognostic information to better predict the future rate of decline in kidney function compared with current standard diagnostics in patients with early-stage chronic kidney disease and type 2 diabetes.

Current trading and outlook

We reported testing revenues of $0.7 million in Q2. This compares favorably with revenues from Q1 of $0.5 million. Volumes with Mount Sinai have continued to increase into Q3 and we anticipate test volume to strengthen further as we progress through the remainder of the fiscal year. As additional hospital systems begin to come on stream into fiscal 2023 and beyond, we anticipate corresponding increases in testing volumes.

In the fiscal second quarter, we made a number of one-time investments pertaining to the recruiting, equipping, training and deploying of our salesforce, and associated marketing and other expenses to enable them to be most successful in the field. We are happy with the sales infrastructure we now have in place to pursue the large VA and commercial hospital revenue that is available to us. Much of this is included in one-time expenses that are not repeating, and indeed our quarterly burn rate is already reduced versus fiscal Q2, and we plan to exercise continued prudent cash discipline

FINANCIAL REVIEW

Financial review of the three-month period ended December 31, 2021

Our operating loss for the three months ended December 31, 2021, was $13.8 million (December 31, 2020: $8.6 million) and the net loss attributable to ordinary shareholders for the three months ended December 31, 2021, was $15.3 million (December 31, 2020: $9.1 million).

Revenue

During the three months ended December 31, 2021, we recognized $0.7 million of revenue related to KidneyIntelX testing and $0.2 million of revenue related to services performed for AstraZeneca. There was $0.4 million of pharmaceutical services revenue for the three months ended December 31, 2020.

Cost of Revenue

During the three months ended December 31, 2021, cost of revenue consisted of $0.5 million primarily attributable to KidneyIntelX testing, including labor and materials costs directly related to revenue generating activities. There was $0.3 million of cost of revenue for the three months ended December 31, 2020.

Research and Development Costs

Research and development expenses increased by $1.6 million, from $2.5 million for the three months ended December 31, 2020 to $4.1 million for the three months ended December 31, 2021. The increased R&D expense was driven by employee related expenses and professional fees associated with the utility studies at Mount Sinai, Wake Forest and University of Utah.

 

 


General and Administrative Costs

General and administrative expenses increased by $3.5 million, from $6.6 million for the three months ended December 31, 2020 to $10.1 million for the three months ended December 31, 2021. The increase was primarily due to a $1.7 million increase in compensation and related benefits, including share-based payments, due to increased headcount, a $1.1 million increase in consulting and professional fees including marketing expense, a $0.3 million increase related to employee expenses, a $0.2 million increase in computers, software and IT costs, and a $0.2 million increase in other operating expenses.

Performance of Contract Liability to Affiliate

In May 2020, we and the Icahn School of Medicine at Mount Sinai entered into an operating agreement to form a joint venture, Kantaro Biosciences LLC, or Kantaro, for the purpose of developing and commercializing laboratory tests for the detection of antibodies against SARS-CoV-2 originally developed by Mount Sinai. During the three months ended December 31, 2021, we recognized $0.1 million of expense related to the performance of our contract liability with Kantaro compared to $0.3 million during the three months ended December 31, 2020. This represents the allocation of costs related to performing services on behalf of Kantaro.

Foreign Currency Loss

During the three months ended December 31, 2021, we recorded an unrealized foreign exchange loss of $0.2 million primarily attributable to intercompany loans and cash balances denominated in currencies other than the functional currency. We recorded a foreign currency loss of $5.5 million during the three months ended December 31, 2020.

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, 2021, we recorded a loss of $1.4 million to adjust the VericiDx investment to fair value. We recorded a gain of $5.0 million during the three months ended December 31, 2020.

Financial review of the six months ended December 31, 2021

Our operating loss for the six months ended December 31, 2021, was $25.6 million (December 31, 2020: $14.0 million) and the net loss attributable to ordinary shareholders for the six months ended December 31, 2021, was $25.4 million (December 31, 2020: $16.1 million).

Revenue

During the six months ended December 31, 2021, we recognized $1.1 million of revenue related to KidneyIntelX and $0.2 million of revenue related to services performed for AstraZeneca. There was $0.4 million of pharmaceutical services revenue for the six months ended December 31, 2020.

Cost of Revenue

During the six months ended December 31, 2021, cost of revenue consisted of $0.7 million primarily attributable to KidneyIntelX testing, including labor and materials costs directly related to revenue generating activities. There was $0.3 million of cost of revenue for the six months ended December 31, 2020.

Research and Development Costs

Research and development expenses increased by $3.9 million, from $4.2 million for the six months ended December 31, 2020 to $8.1 million for the six months ended December 31, 2021. The increased R&D expense was driven by employee related expenses and professional fees associated with the utility studies at Mount Sinai, Wake Forest and University of Utah.

 

 


General and Administrative Costs

General and administrative expenses increased by $7.5 million, from $10.7 million for the six months ended December 31, 2020 to $18.2 million for the six months ended December 31, 2021. The increase was primarily due to a $3.9 million increase in compensation and related benefits, including share-based payments, due to increased headcount, a $2.0 million increase in consulting and professional fees including marketing expense, a $0.7 million increase in computers, software and IT costs, a $0.5 million increase related to employee expenses, a $0.1 million increase in insurance expense, and a $0.3 million increase in other operating expenses.

Performance of Contract Liability to Affiliate

In May 2020, we and the Icahn School of Medicine at Mount Sinai entered into an operating agreement to form a joint venture, Kantaro Biosciences LLC, or Kantaro, for the purpose of developing and commercializing laboratory tests for the detection of antibodies against SARS-CoV-2 originally developed by Mount Sinai. During the six months ended December 31, 2021, we recognized $0.1 million of expense related to the performance of our contract liability with Kantaro compared to $0.8 million during the six months ended December 31, 2020. This represents the allocation of costs related to performing services on behalf of Kantaro.

Foreign Currency Gain (Loss)

During the six months ended December 31, 2021, we recorded an unrealized foreign exchange gain of $2.1 million primarily attributable to intercompany loans and cash balances denominated in currencies other than the functional currency. We recorded a foreign currency loss of $7.7 million during the six months ended December 31, 2020.

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 six months ended December 31, 2021, we recorded a loss of $2.0 million to adjust the VericiDx investment to fair value. We recorded a gain of $5.0 million during the six months ended December 31, 2020.

Cash Flows

Net cash used in operating activities

During the six months ended December 31, 2021, net cash used in operating activities was $24.7 million and was primarily attributable to our $25.4 million net loss including $2.3 million in noncash charges and a $1.6 million net change in our operating assets and liabilities. The change in our operating assets and liabilities was primarily attributable to a $2.5 million increase in prepaid expenses and other current assets offset by a $1.4 million decrease in accounts payable and accrued expenses. Noncash charges were primarily related to $1.9 million in share-based compensation and the $2.0 million fair value adjustment of our Verici securities, offset by a $1.9 million unrealized foreign exchange gain.

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 share-based compensation and the fair value adjustment of our Verici securities. 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, partially offset by an increase in accrued expenses and other current liabilities of $1.3 million.

Net cash used in investing activities

During the six months ended December 31, 2021, net cash used in investing activities was $0.4 million, primarily attributable to $0.3 million for purchases of lab and office equipment and $0.1 million in software development costs.

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.

 

 


Net cash used in financing activities

During the six months ended December 31, 2021, net cash provided by financing activities was $0.3 million and was primarily attributable to $0.1 million in proceeds from the issuance of ordinary shares under our employee stock purchase program as well as $0.2 million in proceeds from the exercise of stock options.

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.

Cash and Cash Equivalents

We had cash and, cash equivalents of $39.9 million as of December 31, 2021, decreased from $65.2 million as of June 30, 2021 due to normal operations as we continue to commercialize KidneyIntelX and grow our business.

 

 


Renalytix plc

Condensed Consolidated balance sheets (Unaudited)

(in thousands, except share and per share data)

 

December 31, 2021

 

 

June 30, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

39,928

 

 

$

65,128

 

Accounts receivable

 

 

823

 

 

 

594

 

Prepaid expenses and other current assets

 

 

3,546

 

 

 

993

 

Note receivable from Kantaro

 

 

75

 

 

 

75

 

Receivable from affiliates

 

 

35

 

 

 

1

 

Total current assets

 

 

44,407

 

 

 

66,791

 

Property and equipment, net

 

 

2,880

 

 

 

2,490

 

Investment in VericiDx

 

 

7,033

 

 

 

9,295

 

Investment in Kantaro

 

 

37

 

 

 

Total assets

 

$

54,357

 

 

$

78,576

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,379

 

 

$

1,403

 

Accounts payable – related party

 

 

1,007

 

 

 

361

 

Accrued expenses and other current liabilities

 

 

4,533

 

 

 

4,602

 

Accrued expenses – related party

 

 

1,337

 

 

 

224

 

Deferred revenue

 

 

67

 

 

 

122

 

Payable to affiliate - current

 

 

219

 

 

 

350

 

Total current liabilities

 

 

8,542

 

 

 

7,062

 

Other liabilities

 

 

15

 

 

 

53

 

Total liabilities

 

 

8,557

 

 

 

7,115

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Ordinary shares, £0.0025 par value per share: 76,681,831 shares
   authorized; 72,308,930 and 72,197,286 shares issued and
   outstanding at December 31, 2021 and June 30, 2021, respectively

 

 

220

 

 

 

220

 

Additional paid-in capital

 

 

152,662

 

 

 

150,407

 

Accumulated other comprehensive income

 

 

5,788

 

 

 

8,276

 

Accumulated deficit

 

 

(112,870

)

 

 

(87,442

)

Total shareholders’ equity

 

 

45,800

 

 

 

71,461

 

Total liabilities and shareholders’ equity

 

$

54,357

 

 

$

78,576

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 


Renalytix plc

Condensed Consolidated statements of operations and comprehensive loss (Unaudited)

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

Six Months Ended

 

(in thousands, except share data)

 

December 31, 2021

 

 

December 31, 2020

 

 

December 31, 2021

 

 

December 31, 2020

 

Revenue

 

$

845

 

 

$

400

 

 

$

1,327

 

 

$

400

 

Cost of revenue

 

 

492

 

 

 

257

 

 

 

719

 

 

 

257

 

Gross profit

 

 

353

 

 

 

143

 

 

 

608

 

 

 

143

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,134

 

 

 

2,462

 

 

 

8,132

 

 

 

4,207

 

General and administrative

 

 

10,071

 

 

 

6,595

 

 

 

18,203

 

 

 

10,711

 

Performance of contract liability to affiliate

 

 

(70

)

 

 

(301

)

 

 

(131

)

 

 

(759

)

Total operating expenses

 

 

14,135

 

 

 

8,756

 

 

 

26,204

 

 

 

14,159

 

Loss from operations

 

 

(13,782

)

 

 

(8,613

)

 

 

(25,596

)

 

 

(14,016

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in net earnings (losses) of affiliate

 

 

37

 

 

 

(105

)

 

 

37

 

 

 

(221

)

Foreign currency gain (loss)

 

 

(163

)

 

 

(5,541

)

 

 

2,140

 

 

 

(7,688

)

Fair value adjustment to VericiDx investment

 

 

(1,414

)

 

 

5,018

 

 

 

(2,021

)

 

 

5,018

 

Other income, net

 

 

 

 

 

115

 

 

 

12

 

 

 

167

 

Net loss

 

 

(15,322

)

 

 

(9,126

)

 

 

(25,428

)

 

 

(16,740

)

Net loss attributable to noncontrolling interest

 

 

 

 

 

(218

)

 

 

 

 

 

(611

)

Net loss attributable to ordinary shareholders

 

 

(15,322

)

 

 

(8,908

)

 

 

(25,428

)

 

 

(16,129

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

97

 

 

 

6,086

 

 

 

(2,488

)

 

 

8,341

 

Comprehensive loss

 

 

(15,225

)

 

 

(3,040

)

 

 

(27,916

)

 

 

(8,399

)

Comprehensive loss attributable to noncontrolling
   interest

 

 

 

 

 

(5

)

 

 

 

 

 

(72

)

Comprehensive loss attributable to Renalytix

 

$

(15,225

)

 

$

(3,035

)

 

$

(27,916

)

 

$

(8,327

)

Net loss per ordinary share—basic and diluted

 

$

(0.21

)

 

$

(0.12

)

 

$

(0.35

)

 

$

(0.23

)

Weighted average ordinary shares—basic and
   diluted

 

 

72,285,941

 

 

 

72,029,634

 

 

 

72,258,372

 

 

 

70,932,808

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 


Renalytix plc

Condensed Consolidated statements of shareholders’ equity (Unaudited)

 

 

 

Ordinary shares

 

 

Additional
paid-in

 

 

Accumulated
other
comprehensive

 

 

Accumulated

 

 

Total
shareholders’
(deficit) equity
attributable to

 

 

Noncontrolling

 

 

Total
shareholders’

 

(in thousands, except share and per share data)

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

RenalytixAI

 

 

interests

 

 

equity

 

Balance at July 1, 2021

 

 

72,197,286

 

 

$

220

 

 

$

150,407

 

 

$

8,276

 

 

$

(87,442

)

 

$

71,461

 

 

$

 

 

$

71,461

 

Shares issued under the employee share
   purchase plan

 

 

10,920

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

120

 

Exercise of stock options

 

 

32,500

 

 

 

 

 

 

86

 

 

 

 

 

 

 

 

 

86

 

 

 

 

 

 

86

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

997

 

 

 

 

 

 

 

 

 

997

 

 

 

 

 

 

997

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(2,585

)

 

 

 

 

 

(2,585

)

 

 

 

 

 

(2,585

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,106

)

 

 

(10,106

)

 

 

 

 

 

(10,106

)

Balance at September 30, 2021

 

 

72,240,706

 

 

$

220

 

 

$

151,610

 

 

$

5,691

 

 

$

(97,548

)

 

$

59,973

 

 

$

 

 

$

59,973

 

Exercise of stock options

 

 

68,224

 

 

 

 

 

 

111

 

 

 

 

 

 

 

 

 

111

 

 

 

 

 

 

111

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

941

 

 

 

 

 

 

 

 

 

941

 

 

 

 

 

 

941

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

97

 

 

 

 

 

 

97

 

 

 

 

 

 

97

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,322

)

 

 

(15,322

)

 

 

 

 

 

(15,322

)

Balance at December 31, 2021

 

 

72,308,930

 

 

$

220

 

 

$

152,662

 

 

$

5,788

 

 

$

(112,870

)

 

$

45,800

 

 

$

 

 

$

45,800

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 


Renalytix plc

Condensed Consolidated statements of shareholders’ equity (Unaudited)

 

 

 

Ordinary shares

 

 

Additional
paid-in

 

 

Accumulated
other
comprehensive

 

 

Accumulated

 

 

Total
shareholders’
(deficit) equity
attributable to

 

 

Noncontrolling

 

 

Total
shareholders’

 

(in thousands, except share and per share data)

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

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

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 


Renalytix plc

Condensed Consolidated statements of cash flows (Unaudited)

(in thousands)

 

Six Months Ended
December 31, 2021

 

 

Six Months Ended
December 31, 2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(25,428

)

 

$

(16,740

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

Gain on Verici deconsolidation

 

 

 

 

 

(46

)

Depreciation and amortization

 

 

226

 

 

 

105

 

Share-based compensation

 

 

1,938

 

 

 

1,026

 

Realized gain on short-term investments

 

 

 

 

 

(18

)

Equity in (net earnings) losses in affiliate

 

 

(37

)

 

 

221

 

Fair value adjustment to VericiDx investment

 

 

2,021

 

 

 

(5,018

)

Unrealized foreign exchange loss (gain)

 

 

(1,864

)

 

 

4,627

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(229

)

 

 

(400

)

Prepaid expenses and other current assets

 

 

(2,543

)

 

 

(3,189

)

Related party receivable

 

 

(34

)

 

 

(140

)

Accounts payable

 

 

(15

)

 

 

79

 

Accounts payable – related party

 

 

646

 

 

 

 

Accrued expenses and other current liabilities

 

 

(304

)

 

 

1,342

 

Accrued expenses – related party

 

 

1,113

 

 

 

282

 

Deferred revenue

 

 

(55

)

 

 

 

Payable to affiliate

 

 

(131

)

 

 

(760

)

Other liabilities

 

 

(38

)

 

 

53

 

Net cash used in operating activities

 

 

(24,734

)

 

 

(18,576

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(290

)

 

 

(728

)

Software development costs

 

 

(98

)

 

 

(536

)

Proceeds from short-term investments

 

 

 

 

 

1,000

 

Note receivable – related party

 

 

 

 

 

(84

)

Decrease in cash (VericiDx deconsolidation)

 

 

 

 

 

(62

)

Net cash used in investing activities

 

 

(388

)

 

 

(410

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Gross proceeds from the issuance of ordinary shares, net of underwriting fees

 

 

 

 

 

79,182

 

Payment of offering costs

 

 

 

 

 

(2,305

)

Proceeds from the issuance of ordinary shares under employee share
   purchase plan

 

 

120

 

 

 

 

Proceeds from exercise of stock options

 

 

197

 

 

 

 

Net cash provided by financing activities

 

 

317

 

 

 

76,877

 

Effect of exchange rate changes on cash

 

 

(395

)

 

 

3,348

 

Net (decrease) increase in cash and cash equivalents

 

 

(25,200

)

 

 

61,239

 

Cash and cash equivalents, beginning of period

 

 

65,128

 

 

 

13,293

 

Cash and cash equivalents, end of period

 

$

39,928

 

 

$

74,532

 

Supplemental noncash investing and financing activities:

 

 

 

 

 

 

Deemed distribution of VericiDx ordinary shares

 

 

 

 

 

75

 

Conversion of distribution of VericiDx note receivable into VericiDx
   ordinary shares

 

 

 

 

 

2,556

 

Software development costs in accounts payable and accrued expenses

 

 

 

 

 

77

 

Purchase of property and equipment in accounts payable and accrued
   expenses

 

$

254

 

 

$

126

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 


Renalytix plc

Notes to unaudited interim COndensed consolidated financial statements

1. Business and risks

Renalytix and its wholly-owned subsidiaries, Renalytix AI, Inc. and Renalytix AI Limited (collectively, “Renalytix”, 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.

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 generated de minimis 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. Liquidity and Going Concern

The Company has incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $113.0 million as of December 31, 2021. 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 $39.9 million as of December 31, 2021, 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 prospects.

 

 


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, 2021 and its results of operations for the three and six months ended December 31, 2021 and 2020, and cash flows for the six months ended December 31, 2021 and 2020. Operating results for the three and six months ended December 31, 2021, are not necessarily indicative of the results that may be expected for the year ending June 30, 2022. 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, 2021.

Principles of consolidation

The unaudited interim condensed consolidated financial statements include the accounts of Renalytix 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.

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 consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. The functional currency of Renalytix 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 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. 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 in the consolidated statements of operations and comprehensive loss.

 

 


Concentrations of credit risk and major customers

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 accounts receivable are derived from revenue earned from customers located in the U.S. All of the Company’s revenue has been generated from two customers for the six months ended December 31, 2021, and one customer for the six months ended 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, 2021 and June 30, 2021, 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 5).

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, 2021, the Company had a cash balance of $39.9 million. As of June 30, 2021, the Company had a cash balance of $65.2 million.

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, 2021 or June 30, 2021.

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.

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, 2021, the Company recognized $0.1 million and $0.1 million, respectively, related to the performance of the contract liability with Kantaro. 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, 2021 and June 30, 2021.

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 $7.0 million at December 31, 2021 and $9.3 million at June 30, 2021. During the three and six months ended December 31, 2021, the Company recorded a fair value adjustment of $1.4 and $2.0 million, respectively, in the condensed consolidated statements of operations and comprehensive loss. 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 6.9% of the ordinary shares of VericiDx at December 31, 2021 and June 30, 2021.

Impairment assessment

The Company evaluates its investments that are in unrealized loss positions, if any, and equity method investments for other-than-temporary impairment on a quarterly basis (see Note 5). Such evaluation involves a variety of considerations, including assessments of the risks and uncertainties associated with general economic conditions and distinct conditions affecting specific issuers or investees. Factors considered by the Company include (i) the length of time and the extent to which an investment’s fair value has been below its cost; (ii) the financial condition, credit worthiness, and near-term prospects of the issuer; (iii) the length of time to maturity; (iv) future economic conditions and market forecasts; (v) the Company’s intent and ability to retain its investment for a period of time sufficient to allow for recovery of market value; (vi) an assessment of whether it is more likely than not that the Company will be required to sell its investment before recovery of market value; and (vii) whether events or changes in circumstances indicate that the investment’s carrying amount might not be recoverable.

 

 


Software development costs

The Company follows the provisions of ASC 985, Software, which requires software development costs for software to be 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. Technological feasibility is established upon the completion of a working model that has been validated.

Revenue recognition

The Company accounts for revenue under ASC 606 – Revenue from Contracts with Customers (“ASC 606”). 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. Certain contracts have options for the customer to acquire additional services. The Company evaluates these options to determine if a material right exists. If, after that evaluation, it determines a material right does exist, it assigns value to the material right based upon the renewal option approach. 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. The Company uses present right to payment and customer acceptance as indicators to determine the transfer of control to the customer occurs at a point in time. Sales tax and other similar taxes are excluded from revenues.

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, 2021 and 2020 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, 2021 and 2020, there were 4,372,901 and 3,408,858 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, 2021 and 2020, 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. Revenue

Testing services revenue

Testing services revenue is generated from the KidneyIntelX platform, which provides analytical services to customers. Each individual test is a performance obligation that is satisfied at a point in time upon completion of the testing process (when results are reported) which is when control passes to the customer and revenue is recognized. During the three and six months ended December 31, 2021, the Company recognized $0.7 and $1.1 million, respectively of testing services revenue. Sales tax and other similar taxes are excluded from revenues. The Company did not recognize any testing services revenue during the three and six months ended December 31, 2020.

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. 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, 2021, the Company recognized $0.2 million and $0.2 million, respectively, of pharmaceutical services revenue where performance obligations are satisfied at a point in time. 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. revenue.

Professional services revenue

Professional services revenue consists of services related to the creation of a branded care navigation portal/pathway for use with KidneyIntelX. 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 did not recognize any professional services revenue during the three or six months ended December 31, 2021 or 2020.

Deferred revenue

Deferred revenue represents the allocated transaction price to the material right which will be recognized as revenue when the renewal options are exercised which is expected to occur over the next 24 months.

 

 


The following table summarizes the changes in deferred revenue:

 

 

 

December 31, 2021

 

 

June 30, 2021

 

Balance, beginning of period

 

$

122

 

 

$

 

Deferral of revenue

 

 

67

 

 

 

250

 

Revenue recognized

 

 

(122

)

 

 

(128

)

Balance, end of period

 

$

67

 

 

$

122

 

 

5. 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

 

(in thousands)

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

December 31, 2021: