RenalytixAI's diagnostic products could change the lives of millions who suffer from kidney disease. Joining AIM has been central to the strategy of this emerging growth company.

Confronting a killer disease with precision medicine

KidneyIntelX, the company’s lead diagnostic product, addresses diabetic kidney disease - one of the world’s most common and costly chronic medical conditions. Globally, an estimated 850m people have kidney disease, which kills more people annually than breast or prostate cancer.1

From a standard blood draw and analysis of electronic health record data points, the AI-enabled KidneyIntelX allows the accurate calculation of a patient’s risk of experiencing rapid kidney function decline and kidney failure. To date, it has been difficult to identify which patients are at most risk; close to half of the patients put on costly dialysis have never seen a specialist doctor.

"Currently available diagnostics do a relatively poor job of discriminating early on who has kidney disease that should be aggressively treated," says James McCullough, CEO of RenalytixAI and a veteran of the medical diagnostics market.

"Kidney disease is a silent killer," says Dr. Steven Coca, a senior nephrologist at the Mount Sinai Health System in New York and a co-founder of RenalytixAI. "Most people don’t show up with symptoms until kidney function is very low and it is too late to apply treatments to change the trajectory of their kidney disease."

A venture incubated out of UK diagnostics firm EKF Diagnostics (AIM: EKF), RenalytixAI is building KidneyIntelX as a platform integrated with healthcare systems such as Mount Sinai that can be expanded to continuously analyse further information from electronic health records, predictive blood-based biomarkers and other genomic data. "The power of machine learning allows us to continuously improve performance and begin to look at the subtleties of the disease through the course of treatment and changes in patient behaviour," says McCullough.

"Kidney disease is a silent killer, most people don’t show up with symptoms until kidney function is very low and it is too late to apply treatments to change the trajectory of their kidney disease."

Steve Coca

Senior Nephrologist, Mount Sinai Health System

AIM: supporting an emerging company

From its inception, the strategy was to develop RenalytixAI as an independent company and take it to the public markets. The business model focuses initially on commercialisation with large US health care systems with corner-stoned financing by EKF and UK institutional investors. The Renalytix IPO took place in November 2018 on AIM raising $29m.

McCullough says that AIM was "very attractive" for a number of reasons. "It provided us with a distributed institutional shareholder base, the ability to raise enough capital to drive a world-class product development effort, and put public market governance and reporting discipline in place – all with a clean, flat-capital structure of common stock."

There were other factors in AIM’s favour, such as the lower costs of admission when compared to the US markets and the different legal liability framework. "In the US, litigation can be a significant consideration for management teams and investors," he says, as can be the requirements for quarterly reporting. "On AIM we report six-monthly which helps us focus on longer-term business objectives. AIM is structured to support an emerging growth company such as ours. But you have to be confident that you are going to deliver on time."

"AIM provided us with a distributed institutional shareholder base, the ability to raise enough capital to drive a world-class product development effort, and put public market governance and reporting discipline in place – all with a clean, flat-capital structure of common stock."

The rewards for delivering on time

With FDA and reimbursement milestones crossed ahead of plan, RenalytixAI was able to return to the market to raise a further $17m in July 2019. "The favourable policy environment in the United States and general rise in awareness of kidney disease allowed us to achieve key regulatory and payment milestones sooner than we thought possible," says McCullough. The market had rewarded RenalytixAI with a doubling of its stock price and the company seized the opportunity to build up its balance sheet.

"To be able to raise additional funds so close to IPO and bring in other significant institutional investors was too good to pass up. These funds give us plenty of runway to execute without having to be concerned about external political or market factors. So far, things have played out better than I could have imagined, but we need to stay focused on execution."

All this, he adds, has been achieved without the "increasingly complex" capital structure of venture capital finance. "As an entrepreneur, it can be difficult to understand the true value of your own and early investors’ ownership in the company once you’ve taken on the preference structures in a venture capital round. With the public markets we are able to see a printed price to share value and market capitalisation that reflects a broader shareholder consensus. Hopefully this consensus represents the true value of operational milestones and future earnings growth."

$17m

Follow On Offering 8 Months After IPO

Cutting the time to reimbursement

From the outset, McCullough says he has worried about three things - reimbursement, reimbursement and reimbursement. "If you can’t get someone to pay for your diagnostic product, then you don’t have a business. In today’s world, investors need to see a clear path not only to revenue, but also earnings." So the company strategy has been built around the pathways to payment for KidneyIntelX and upcoming transplant diagnostics products in development.

In the US market, securing reimbursement has been a fiendishly difficult process. Fortunately, recent major US policy shifts which went into full effect in 2018 are helping RenalytixAI to make faster progress.

One critical step is securing a distinct Current Procedural Terminology or CPT code. Created, trademarked, and issued by the American Medical Association (AMA), CPT codes are the standard for doctors, coders, patients, and insurance companies to label and identify medical services and procedures. RenalytixAI gained a distinct code for KidneyIntelX in 2019. "That’s been a big achievement and pointed again to the fact that the policy environment for diagnostics has really changed," says McCullough.

"I was warned that it would be difficult to communicate the subtleties of US reimbursement and regulatory issues to the UK market but my experience was quite the opposite. Our UK investors have developed a sophisticated understanding of diagnostic reimbursement, ironically better than many US investors."

A second critical reimbursement item is achieving a price to be applied to the CPT code. This can be a make or break event in diagnostics. In December, Medicare issued its final US national pricing determination for KidneyintelX at $950. “Historically, coverage and pricing have lagged innovative test launches by three to five years,” says Tom Mclain, President and Chief Commercial Officer of RenalytixAI. “We believe this accelerated timeframe for KidneyIntelX™ pricing reflects the benefit of improved patient outcomes by delaying or preventing the onset of end-stage renal disease and kidney failure, as well as the expected cost reductions that can be delivered to healthcare systems.”

Achieving coverage determinations, or getting insurance companies to agree to pay for testing across their patient populations, is the third critical item. Each private healthcare player has their own policies for determining coverage for a diagnostic test. RenalytixAI has already achieved one such coverage determination from an insurance company in upstate New York.

For Medicare, which provides insurance coverage for roughly half of all patients with diabetic kidney disease, RenalytixAI is running a distinct process to secure a coverage determination based on the just issued final price as soon as practical.

"If you can’t get someone to pay for your diagnostic product, then you don’t have a business. In today’s world, investors need to see a clear path not only to revenue, but also earnings."

James McCullough

CEO, RenalytixAI

A complex story, well received by UK institutions

It’s a complex story to tell investors but McCullough has been pleased and impressed by the response from UK institutions. "I was warned that it would be difficult to communicate the subtleties of US reimbursement and regulatory issues to the UK market," he says, "but my experience was quite the opposite. Our UK investors have developed a sophisticated understanding of diagnostic reimbursement, ironically better than many US investors."
1 https://www.niddk.nih.gov/health-information/health-statistics/kidney-disease

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