26 August 2020 ReNeuron has refocussed onto its human retinal progenitor cell (hRPC) as

shown in the last business update and in the FY20 results. hRPC, now the

lead project, show a consistent and robust sustained averaged response

at the one million cell dose. The next dose level, two million cells in nine

patients, could start this autumn. A pivotal study could be initiated in 2022.

ReNeuron is starting to create multiple partnering opportunities from its

core technologies. We have revised our valuation to £170m from £107m.

Year end Revenue

(£m) PBT* (£m)

EPS* (p)

DPS (p)

P/E (x)

Yield (%)

03/19 2.7 (17.2) (45.3) 0.0 N/A N/A

03/20 6.2 (13.9) (35.9) 0.0 N/A N/A

03/21e 1.1 (13.1) (36.0) 0.0 N/A N/A

03/22e 1.1 (13.6) (37.0) 0.0 N/A N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

hRPC in a strong competitive position

ReNeuron’s portfolio is now refocused on the hRPC therapy for retinitis pigmentosa

(RP), an inherited, degenerative eye disease caused by one of over 100 different

gene mutations. What is impressive, in our view, is that hRPC, on average, appears

to give a clear benefit quickly then appears stable. hRPC therapy could potentially

treat any RP patient, giving a big potential commercial advantage; competing gene

therapies only treat a small number of specific X-linked mutations. There is only one

cell-based competitor at a similar development stage targeting the wider market. As

data from the hRPC extension study, due to start in autumn 2020, accumulates,

ReNeuron should be in a good position to start a pivotal study in 2022 and to look at

possible partnering. The Chinese partner, Fosun, continues to develop the stroke

and RP indications.

Preclinical portfolio creates partnering opportunities

With the CTX stroke project on hold and awaiting partnering, ReNeuron has freed

up resources to progress a portfolio of promising preclinical exosome projects. In

our view, these should generate a number of partnering deals once solid preclinical

data are available, probably as a series of releases, later in 2020. There are also

earlier stem cell projects (in immunotherapy and diabetes) which could generate

preclinical data in 2020 and offer further deal potential from 2021-22.

Valuation: Revised to £170m

Our former indicative value of £107m was based on a prior model of the potential

hRPC market. We have used updated information to reassess the project and build

a more complex market model. With other adjustments, this takes the indicative

value to £170m. We note current high deal values in the gene and cell retinal

therapy area, with one totalling $250m plus royalties in June. Exosome evaluation

projects to deliver RNA drugs are promising but are preclinical. Many deals in this

area have been at high values. Cash on 31 March 2020 was £12.6m. We envisage

a further funding need in FY21 of £20m.

ReNeuron Group Strategic update

Exploiting the potential of cell therapy

Price 102.5p

Market cap £33m

$1.32/£

Gross cash (£m) at 31 March 2020 12.6

Shares in issue 31.85m

Free float 99.7%

Code RENE

Primary exchange LSE

Secondary exchange N/A

Share price performance

% 1m 3m 12m

Abs (15.6) (32.1) (51.4)

Rel (local) (15.0) (33.5) (43.8)

52-week high/low 270.0p 75.5p

Business description

ReNeuron Group is a UK biotech company

developing allogeneic cell therapies. Human retinal

progenitor cells are the lead Phase I/IIa project for

retinitis pigmentosa. There is a strong preclinical

technology base in exosomes.

Next events

Further hRPC Phase I/IIa data Ongoing

hRPC pivotal study start H122

Analyst

Dr John Savin +44 (0)20 3077 2500

healthcare@edisongroup.com

Edison profile page

Pharma & biotech

ReNeuron Group is a research

client of Edison Investment

Research Limited

ReNeuron Group | 26 August 2020 2

ReNeuron portfolio

The main project uses human Retinal Progenitor Cells (hRPC) (see Exhibit 1) to treat the

degenerative eye condition retinitis pigmentosa (RP). The CTX project in stroke disability is on hold

and will not restart (following the COVID-19 attributed suspension) until one or more partners are

found.

The exosome set of projects are for the delivery of high-value pharmaceuticals, probably genetic

therapies like siRNA, to the brain, but also have considerable potential as vaccine vectors. These

applications all require licensing and some early discussions and scientific collaborations have

been disclosed.

There are some very early-stage projects in progenitor cells that are note briefly. These could

mature into really interesting and valuable projects from 2021 onwards.

ReNeuron is incorporated in the UK with offices in the UK and the US and the main laboratory in

Bridgend, South Wales. The shares (31.85m in issue) are traded on the London AIM market under

the symbol RENE.L. After restructuring, the company now has around 35 employees.

Exhibit 1: ReNeuron portfolio (July 2020)

Source: ReNeuron

hRPC: A strong lead project

The human Retinal Progenitor Cell (hRPC) project is the critical lead project for ReNeuron. It is one

of two cell therapy companies tackling RP, which is a catch-all diagnosis for a very diverse group of

degenerative genetic eye diseases where photoreceptor cells progressively die. RP manifests

through progressive night blindness (low light vision) with loss of peripheral vision as the rods, used

for low light, non-colour detection, die in the retinal periphery (Exhibit 2). Eventually cone cells,

used for high-resolution acuity and colour vision perception, and concentrated in the macular

central region of the eye often also succumb. RP is therefore a form of rod-cone dystrophy.1.

1 Sahel et al (2015) and Jin et al (2019) give good recent overviews of RP and the science behind retinal cell therapies. There is another type of degenerative retinal disease, cone-rod dystrophy, where the colour cone photoreceptor cells die first. This is a possible further indication for hRPC, but it is not currently being developed

ReNeuron Group | 26 August 2020 3

There are multiple potential gene defects that can cause RP and those that are known are not

always well understood.2 Gene therapy can be used for recessive or X-linked defects where

insertion of a new gene can lead to photoreceptor viability if it is stably expressed at adequate

levels – this is hard to achieve. Gene therapy is very specific to the defective gene concerned.

Exhibit 2: Summary of RP characteristics

Source: ReNeuron

hRPC scientific and clinical rationale

ReNeuron’s approach is very different to gene therapy as it uses genetically healthy hRPC. The

cells are allogeneic based on an immortalised cell line. This means they can be produced in

standardised batches and stored and shipped frozen. This avoids the complex, very expensive,

customised manufacturing needed for autologous cell therapies, such as current CAR T-cell cancer

products. Trials to date show that the immortalising gene technology is safe and it has been

approved for clinical trials in both stroke and RP patients.

The mechanism of action is not known definitively as the detailed scientific data comes from animal

models. It is known that hRP cells can persist in the retina and infiltrate into the retinal layers (Luo

et al (2014)) producing brain-derived neurotrophic factor (BDNF) and fibroblast growth factor 2

(FGF2). Although there were some indications that embryonic stem cells can differentiate and

produce some photoreceptor markers (Lamba et al (2006)), as seen in rods, it is not thought that

hRPC directly form new photoreceptors. Rather, Semo et al (2016) concluded that ‘hRPC-mediated

preservation of vision…is mediated by trophic support, which either preserves photoreceptor

structure or increases visual acuity (VA) somehow from existing retinal circuitry.’

ReNeuron’s hRPC therapy should, in theory, be able to treat all forms of disease irrespective of the

genetic defect. In theory, hRPC could also be used in conjunction with a gene therapy treatment.

The retina is a complex stratified structure. Light entering the eye, thought the lens and iris first

penetrates the top surface of the retina which comprises blood vessels that snake over the surface.

The next layer is a fine mesh of nerve fibres which pass signals from photoreceptors to the brain.

The photoreceptors (rods and cones) come next in two layers: the inner neural layer contains the

photoreceptor cell bodies (containing the nucleus) and the synapses to link to the nerves. The outer

neural layer – deepest into the retina – is formed by the photoreceptor cell segments that actually

detect light. The bases of the photoreceptors are very closely coupled to the next layer of retinal

pigmented epithelium cells that feed the photoreceptors and absorb stray light. The retina sits on

Bruch's membrane on top of the choroid lining of the eyeball.

2 ‘Of the total number of nonsyndromic, nonsystemic cases, 19% are autosomal dominant, 65% are autosomal recessive or simplex cases, and 8% are X linked’ (Bunker et al (1984)).

ReNeuron Group | 26 August 2020 4

ReNeuron’s hRPC need to be injected close to the site required, usually the centre of the eye, the

macula, crucial for detailed sight, where most photoreceptors are situated.3 This involves depositing

a small drop (a bleb) with one million hRPC as a subretinal injection. The hRPC can then pass into

the outer and inner layers of photoreceptor cells. The subretinal injection is a precise operation and

temporarily distorts the retinal structure. In the first stage of the current Phase I/II study (10

patients) this caused sight loss in two cases; one of the two has recovered baseline sight.

hRPC data to date

Here we summarise the discussion published on 6 July 2020 from the US Phase I/IIa US trial

(NCT02464436) based on data from the eight patients who had successful cell implantations.4

Exhibit 3 shows the patients at each time point, Exhibit 4 shows the data per time point.

Exhibit 3: Patient data at various timepoints

Source: ReNeuron data, Edison Investment Research

Exhibit 4: Mean letters gained in successfully treated patients over time

Source: ReNeuron, Edison Investment Research

By late 2020, the longer-term data will be more numerically robust. The trial has a two-year final

endpoint. What is impressive, in our view, is that the therapy appears to give a clear benefit quickly

and then appears stable on average.

Note that the extension phase of this study, discussed below, will use a higher dose and slightly

different administration procedure and add further secondary endpoints. This will add useful

3 At the centre of the macula about 5.5mm diameter) is the fovea, or small pit, about 1.5mm diameter. In the centre of this is a tiny area only 0.15mm in diameter with no overlying blood vessels or nerve cells, hence this has the highest optical resolution. As there are no rods, it functions for longest in RP.

4 This excludes two subjects who experienced sight loss due to complications arising from the surgical procedure. One of these subjects has recovered back to at least baseline at one-year post treatment.

0

1

2

3

4

5

6

7

8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Pat

ient

s

Months

Feb Data new June Data

0

2

4

6

8

10

12

14

16

18

0 2 4 6 8 10 12 14 16 18 20Lette

rs g

aine

d

MonthsTreated Control Treated Untreated

ReNeuron Group | 26 August 2020 5

insights and be a better base for Phase III – but means that the data in Exhibit 2 will not be an

accurate good guide, other than potentially for duration of action, to the next data set.

US and UK extension of hRPC Phase II

The FDA-approved amended protocol plus the UK regulatory go-ahead has enabled the dose to be

raised to two million cells for a further nine patients in an extension of the current trial. These new

patients will add to the 10 Phase IIa patients already treated. A wider range of pre-treatment

baseline VA in patients will be eligible and the trial endpoints will be expanded to include VA (as

before), micro-perimetry, visual field, retinal sensitivity and retinal structure. The primary endpoint

remains safety.

In the extension study, two blebs (two million cells in total) will be used on either side of the area

being treated. As the retinal area being treated (we assume the macula with the highest

concentration of photoreceptors (and providing the most precise level of acuity)) is not disturbed, it

is hoped that surgical complications will be reduced. The concept is that the hRP cells will migrate

into the target area and support existing photoreceptors to prevent or limit further deterioration and

potentially facilitate some regeneration.

The other company developing an RP cell therapy, jCyte, uses an intravitreal injection – into the

vitreous jelly that fills the inner eye; the jCyte product (jCell) with the latest clinical data are

discussed below.

Locations

The trial is already in progress at two US centres. The UK regulatory agency (MHRA) has approved

a UK trial site at the Oxford Eye Hospital where Professor Robert MacLaren, a recognised leader in

the treatment of retinal diseases, will be the principal investigator. Professor MacLaren was a key

author on the Nightstar Phase I/II trial publication (Cehajic-Kapetanovic et al (2020)). Two more

centres (one in Europe, one in the US) might be added. Although the hRPC studies were delayed

due to COVID-19, ReNeuron indicates that recruitment might start from late September.

Pivotal progression in 2022

According to management, an application to start the planned pivotal study is now planned for late

H221, enabling a possible Phase III start in Q122. We have therefore moved the timeline for

potential launch to calendar year 2025, so FY26. The Chinese timeline with Fosun still assumes a

2024 approval in China.

Background on VA endpoints

VA is critically important to patients as it provides the ability to resolve details and perform day-to-

day tasks – but it is a variable parameter. VA is measured using the ETDRS5 chart whose lines are

based on visual resolution angle with five letters of identical size per line. If a patient reads correctly

three extra lines, their VA has doubled. If they lose three lines, it has halved. This has been the FDA

benchmark.6 There is patient variability between readings so a one-line ETDRS chart difference is

not regarded as clinically significant whereas a two-line difference is seen as significant Rosser et

al (2003). The term used is often best corrected visual acuity (BCVA) – meaning that the patients

wear spectacles or contact lenses for the readings. Mainstream eyecare products like Eylea and

5 Early Treatment Diabetic Retinopathy Study. This measures logMAR (the log of the Minimum Angle of Resolution) to convert a geometric increase in letter size into a linear scale where 0.1logMAR = 5 letters. Three lines is therefore 0.3 logMAR which on a log scale is a doubling in visual acuity. However, lines gained might be measured but is deemed to be an insensitive binary cut off.

6 David Elliott (2015) reviewed the systems used and noted that comparison between trials could be difficult.

ReNeuron Group | 26 August 2020 6

Lucentis were evaluated by the FDA for their ability to prevent a three-line loss (15 letters) in BCVA.

In fact (for age-related macular degeneration), in one of the registration trials leading to approval,

patients treated with Lucentis had a 6.6 letter improvement from baseline at two years, compared to

a 14.9 letter loss in the sham group. Eylea showed a mean change in BCVA of at least 8.4 letters

after 12 months which was statistically comparable to Lucentis in the head the head study.

However, Beck et al (2007) commented that doubling VA is an arbitrary binary cut-off and argued

that an average of an extra five letters identified in a sample could still be significant. The letter gain

is the extra number of correct letters identified, not the number of correct lines. Most studies,

including ReNeuron’s, report letters on EDTRS gained.

In ReNeuron’s Phase II trial to date, the typical gain has been 9–10 letters; patients had to have a

BCVA of 35 letters or less on enrolment (with a score of 100 being perfect vision). A gain of 10

letters therefore represents a strong relative improvement.

As a specific RP endpoint example, the Luxterna (gene therapy, Novartis) pivotal study (Pack

insert) used a novel primary endpoint of the ability to navigate obstacles in low light. The VA gain

measured by ETDRS lines as a secondary endpoint was 0.3 logMAR (or three lines, 15 letters).

The FDA therefore seems willing to look at novel endpoints if they are validated. This leads to a

search for alternatives. However, we note that if novel endpoints are not regarded as clinically

relevant, payors may refuse reimbursement even if a therapy is approved.

We also note that ACGT (see Competition) is discussing visual sensitivity endpoints.

Potential competitors

There is one direct cell therapy competitor and four indirect gene therapy competitors (Exhibit 5).

There is also an interesting cell regeneration project in London but not in RP.

Exhibit 5: Companies involved in RP therapies

Source: ReNeuron

Cell therapy: jCell

US company jCyte has reported data from an 84-patient Phase IIb RP cell therapy trial

(NCT0307373). jCyte is a private academic spin-out company from the California Institute for

Regenerative Medicine based at the University of California, Irvine.

ReNeuron Group | 26 August 2020 7

The randomised, single-administration study tested two doses (of three million and six million) of

retinal cells (termed jCell) against a sham comparator arm. The preliminary data7 in 74 patients

showed a net mean 7.43 letter gain at the higher cell dose of six million (n=23) but little effect at the

three million cell dose (+2.96 letters, n=25). In later analysis in a subgroup of 11 patients,8 the gain

was 16.27 letters versus a control group of 13 patients (+1.85). jCyte plans to start a pivotal study in

2021. We would not make any direct comparison with the latest hRPC data at this early stage of

data given limited disclosure and small numbers. However, the possible finding that patients with

earlier disease, we assume, did better is interesting and perhaps relevant to ReNeuron.

jCyte’s management believe that jCells help existing photoreceptors to restore functionality but that

they do not integrate or differentiate into photoreceptors. A pivotal study is planned to start in 2021.

jCell has FDA Regenerative Medicine Advanced Therapy designation.

Japanese eye specialist company Santen licensed the rights to jCell in Europe, Asia and Japan in

early June. The deal value was $50m in cash, $12m in a convertible note offering and up to an

additional $190m in milestones based on approval and initial sales plus a sales royalty.

Gene therapies

Gene therapy companies are targeting X-linked RP mutations as inserting one new gene copy per

cell using a viral vector could restore functionality. X-linked conditions are often detected soon after

birth or in early childhood. About 8% of RP cases are X-linked and RP GTPase Regulator (RPGR)9

is the cause in about 80% of X-linked cases. Cell therapies are not being considered for X-linked

conditions, but they might have a future role in therapy. These projects are not directly relevant but

show that a variety of endpoints are being considered.

Spark (Roche) has the one approved (2018) product, Luxturna. It sells for £613,410 per treatment

(ex-tax) in the UK and treats both eyes in patients with recessive RPE65-associated Leber

congenital amaurosis mutations. As both parents need to pass on this mutation, it is rare, about 2%

of RP cases. A specially designed mobility endpoint was devised for Phase III and supported for

regulatory submission with VA data. Spark sold $21.2m of Luxturna (net of rebates) in H119 before

its acquisition by Roche for $4.3bn. The high deal value was due to the potential of Spark’s

technology in conditions such as haemophilia.

Nightstar was acquired for $800m in 2019 by Biogen. It is developing BIIB112 to treat RPGR

defects in X-linked RP. Data published in early 2020 from the initial, safety and dose escalation

study reported sight improvements in six of 18 patients with good tolerability.

ACGT10 also has a RPGR gene therapy project in Phase I/II. It announced in July that it was

expanding a Phase I/II study to 20 patients in Q420 to explore a mobility endpoint. ACGT also

states the FDA will consider a pivotal primary endpoint of changes to visual sensitivity11

supplemented with mobility tests. A Phase III trial might start in Q121.

7 Data presented at the American Society of Retina Specialists (ASRS) 2020 Virtual Annual Meeting on Saturday, 25 July 2020 (jCell PR). A total of 84 patients were randomized of which 74 met criteria for the per protocol analysis. There were three arms: sham, 3m and 6m.

8 These had: 1) study eye with reliable fixation (≥12° central diameter and/or steady central fixation) and 2) study eye did not have significantly worse BCVA than the fellow eye (≤15 letters). We cannot see why this would be a sensible label and it might be a random data fluctuation given small, patient numbers.

9 RPGR is a protein that is not involved in light sensing but is critical for the health of the photoreceptor cells.

10 We note the clever acronym as A, G, T and C are the bases of DNA forming the genetic code.

11 Specifically, that a change in visual sensitivity of 7 decibels or greater in at least 5 loci would be clinically meaningful. AGCT notes that patches of photoreceptors retain function rather than being a steady deterioration from the periphery in towards the macula.

ReNeuron Group | 26 August 2020 8

MeiraGTx has programmes against the X-linked RPGR gene defects and an RPE65 project. It

reported early RPGR data in July 2020, finding statistically significant improvements using a variety

of visual field tests such as mean retinal sensitivity and central visual field progression rate.

The London Project

This project is led by Professor Coffey at the Institute of Ophthalmology and supported by Pfizer. It

uses a fully differentiated, human embryonic stem cell-derived retinal pigment epithelium cell

monolayer on a coated, synthetic basement membrane. The patch is inserted under the retina and

is used to treat neovascular AMD. We mention it as, if successful, it might have more extended

uses and is an example of a structured cell product. There are good initial clinical data (da Cruz et

al (2018)) albeit in just two patients.

Market and updated hRPC modelling

The prevalence12 of RP is commonly stated as one in 4,000 people but this seems ultimately to

derive from a non-systematic questionnaire survey of affected families so might overestimate the

prevalence (Boughman et al (1980)); we have also seen global estimates of one in 3,000 or two

million individuals.

More systematically, in a careful medical population study in Maine, US, Bunker et al (1984) found

an RP prevalence of one in 5,106 (excluding some related, systematic genetic conditions). This

gives a potential prevalence in the US of 64,000. In a 1978 study in Birmingham, UK, of 121 cases,

an overall prevalence of one in 4,859 was found (Bundey and Crewes (1984)). This study noted

that the prevalence in the 45–64 age cohort was one in 3,195 because diagnosis rates increased

over age 30 (70%) to age 50 (86%). This might be the ‘true’ level of the condition (bearing in mind

the small sample size and sampling error). Other studies have found a much lower prevalence, for

example one in 7,000 in Switzerland.

To receive expensive cell therapy treatment in the US, patients will need excellent insurance

coverage or Medicare (assuming the procedure is fully reimbursed). In Europe, a therapy needs to

show economic value for adoption in the wealthier Northern European states and may not be used

much in the Eastern and some Southern EU states with less well-funded healthcare systems.

The incidence of RP is hard to ascertain. A Korean study (Rim et al (2016) of over 6,000 people

found new cases at 1.6/100,000 person years. Haim (2002) in a careful study using the detailed

Danish registry estimated an incidence of 0.8/100,000 of new cases: about 40 per year in Denmark.

In the US, this implies about 2,500 new diagnoses per year. Bunker et al (1984) estimated about

one RP case per 3,500 births. With about 3.8 million births per year in the US, the number of new

cases would be about 1,100.

For valuation purposes, we assume one in 4,500 prevalence which equates to about 64,000 cases

rather than the one in 4,000 previously used. The next issue is the treatable group. We assume that

more severe cases are diagnosed early, teenage or before, with patients over 40 years old

12 Prevalence is the number of people in a population who have the disease. Not all of them are necessarily diagnosed or need treatment. Prevalence figures are based on samples so getting an unbiased sample and confirming suspected cases properly is very important. Prevalence often varies between countries or between males and females.

Incidence is the number of new cases per year. This can often be obtained from treatment figures. For genetic diseases, it is the number born per year with the condition, but these conditions may not be recognised for some years as with RP. Prevalence should be incidence times life expectancy with the condition – so for RP at least 80 years. However, these numbers often seem to misalign so market estimates can vary a lot.

ReNeuron Group | 26 August 2020 9

diagnosed with conditions that have developed gradually – but these often accelerate in later life.

The sample above indicate that most patients are in the 30–40-year-old category on diagnosis.13

Our previous assumption for the target treatment population was that only the most severe patients

would be eligible for cell therapy as a type of rescue. However, ReNeuron and jCyte have indicated

that patients with more surviving photoreceptors should do better. We therefore make an

assumption that treating patients within a few years of diagnosis offers better long-term value and

results. This will need evidence from trials, follow-up data and economic studies.

The other factor is that the bulk of patients form a ‘prevalence’ market, as there is no significant

annual inflow of new patients. Consequently, once all patients with disease who can be treated, or

can access care, are treated, by ReNeuron, jCyte or a gene therapy, the market becomes saturated

and sales drop. The big qualification on this is if retreatment is needed and beneficial. If so, we

expect the price per treatment to fall - although the cost over a patient’s lifetime could be much

higher. Presently, there is no data on retreatment, so we have not assumed that this happens but is

seems a plausible scenario as enough hRPC need to persist and survive to maintain ongoing

retinal health and function.

There is nonetheless a steady, if small, stream of new patients perhaps 1,100–2,500 new

diagnoses per year in the US. If the price was $275,000, as we assume, this is still a $690m

potential market. These patients may be the most cost effective to treat (assuming a very sustained

treatment effect).

We therefore split these two segments for a market forecast.

For incidence, we assume a high treatment rate within a few years of diagnosis this is the core

long-term market. Those who are not treated enter the prevalence pool; We use the current and

projected populations of the US, the top European countries and Japan.

For prevalence, we assume much lower peak sales (especially in the US), although as patients are

treated, the pool shrinks. We limit the eligible treatment population in the prevalence pool to the 30–

70 age range. It is unlikely all will be suitable for therapy, possibly due to particular genetic

conditions. As yet, we cannot define this.

Exhibit 6 summarises the 2025 treatable population, the peak market penetration for hRPC

assumed and the projected 2030 sales level in US dollars.

Exhibit 6: Edison projected market parameters

Region

Incidence Prevalence Total

New Cases per year

Maximum Peak share

2030 sales ($m)

Total cases 2025

2025 treatable

cases

Maximum Peak share

2030 sales ($m)

hRPC treated (cases)

2030 sales ($m)

USA 2648 35% $262 73,600 31,333 5% $167 1,344 $428

Europe 3200 25% $172 88,900 44,444 5% $195 1,561 $367

Japan 965 35% $64 27,000 13,478 5% $55 520 $120

Totals 6,813 $498 189,400 89,255 $417 3,425 $915

Source: Edison Investment Research, note peak is maximum achievable market not the actual projected rate which is slight lower

Example: US market

For the incidence market, we assume 2,648 new cases based on the Danish studies (about 40 new

cases per year in a population of five million). We assume a high therapy response rate and that

ReNeuron can gain a peak share of 35% of this market. We assume that gene therapies and jCell

take an equal combined share to ReNeuron (35%) as we cannot yet separate the efficacy and cost

13 In the US, which has seen a lot of population growth, the prevalence in patients over age 40’s will reflect the US population in 1980, about 280m not 330m as projected in 2025.

ReNeuron Group | 26 August 2020 10

of the various approaches. Once treated, patients are not retreated. Untreated patients move into

the prevalence pool.

Prevalence is more complex. We assume about half the overall population prevalence are in the

age groups where RP becomes manifest and is diagnosed. This means about 31,000 available

cases in the US. We then assume a steady treatment rate of up to 10% per year for all therapies

combined with hRPC gaining half of these sales.

The other markets, including China from 2024, are modelled in the same way. We note that the

Chinese forecast is subject to high forecasting error.

Exosomes and induced pluripotent stem cells

The main future internal use of the CTX line is to generate exosomes. Exosomes are tiny lipid (oil)

vesicles about 100nm in diameter (Exhibit 7). ReNeuron also has early-stage induced pluripotent

stem cell (IPSC) projects.

Exhibit 7: Exosome technology

Source: ReNeuron

Exosomes are secreted by cells, particularly mesenchymal stem cells (MSCs), the basis of the CTX

platform. Exosomes carry proteins and RNA messages between cells and may be responsible for

the modification of the local immune response by MSCs. They have relatively robust membranes,

making them potential delivery vehicles.

At an R&D day in 2018 ReNeuron announced it can scale up exosome production under GMP

conditions, which should allow a clinical study. The main preparation method in research

laboratories is ultracentrifugation, which gives tight size ranges but is laborious and small scale.

Exosomes can be loaded once isolated with short RNA sequences and/or small therapeutic

proteins or drugs. The membrane can be modified to enable the exosomes to target specific cell

types or be produced from specific cell lines, giving inherent targeting to that tissue. ReNeuron

notes that it can add the SARS-CoV-2 spike protein, for example, which could make the exosomes

appear like viral particles making this a possible SARS-CoV-2 vaccine candidate. Exosomes also

appear to pass though the blood/brain barrier, as shown by literature reports of down-regulation of

brain proteins by exosomes injected into mice.

The ability to load and modify/target exosomes is very important as, when produced inside MSCs,

exosomes will contain an assorted variety of RNA and proteins. To ensure a consistent product

therefore, isolation, exosome loading and possible targeting would appear necessary. For a

therapeutic product, consistency and scale are essential.

ReNeuron has a portfolio of potential exosome opportunities (Exhibit 8).

ReNeuron Group | 26 August 2020 11

Exhibit 8: Exosome and progenitor cell projects

Source: ReNeuron

We are aware of only one very small academic trial with exosomes so far. There are also some

emerging specialist companies such as Evox Therapeutics, based in Oxford, UK. Evox announced

a deal with Takeda in 2020 worth up to €803m (over several years and assuming successful

development). The US company Codiak has two late-stage preclinical projects in the area of

tumour immunotherapy deigned to stimulate anti-tumour responses.

Exosomes are hard to value. ReNeuron has several promising projects and two collaborations

running. Management has positioned exosomes as a delivery system that can mimic viral particles

(so a possible SARS-CoV2 vaccine candidate and, of more commercial interest currently, as a

method of delivering genetic therapies to the brain). As such, ReNeuron exosomes could be the

delivery component of a patented therapeutic and ReNeuron would gain royalties and potentially a

product supply agreement. Exosome competitors have signed significant agreements after showing

the potential for their technologies in preclinical models. ReNeuron has indicated it will have similar

data from late 2020 (announced as published, so in stages) and deals could be signed from H221

onwards. Exhibit 9 shows recent deals in the exosome area indicating it could be very valuable.

Exhibit 9: Recent Exosome deals

Source: ReNeuron

Two IPSC projects are also shown in Exhibit 7. We expect more information on these in 2021 after

further preclinical development in 2020; again there are no specific trials so data can be announced

as it is published. The projects are promising, allogeneic CAR T-cells, for example, are a ‘hot’

clinical area, but they are still early stage and would presumably be partnered. Indications such as

diabetes and haematological cancers are complex and crowded markets.

ReNeuron Group | 26 August 2020 12

Sensitivities

ReNeuron is in a transition phase where there is a strong set of projects and putting the CTX stroke

disability project on hold has opened up some strategic flexibility and freed resources. The lead

hRPC project looks strong and capable of moving into pivotal studies in 2022. However, it is still

subject to considerable uncertainty. We have limited clarity of potential maximal efficacy or duration

of treatment. We do not know the distribution of visual degeneration in the treatable population and

the treatable population itself is subject to considerable uncertainty. One crucial sensitivity is if

multiple hRPC treatments are needed to sustain efficacy over a 30 to 40-year treatment period –

this seems possible to us but there is no data as yet.? If so, this alters the pricing dynamics and

could make the project much more valuable. In the medium term the interest in ReNeuron is mainly

deal driven. What exosome deals can be struck in 2021 and can a large hRPC deal be done before

pivotal studies in 2022? There is still potential for returns from CTX, not least with Fosun in China

and Asia, and the IPSC projects should start to become more visible.

Valuation: Revised to £170m based on hRPC

The following adjustments have been made with the discount date reset to 30 June 2020. For some

items, we use nominal values based on our best estimates. As nominal, values are not discounted;

an investor can adjust the value by subtracting the nominal amount or substitute a different value.

The revised value is shown in Exhibit 10. Overall, these revisions change the valuation to £170m

(30 June 2020) from £107m.

Exhibit 10: Revised ReNeuron valuation

Product Indication Status Launch NPV (£m) Probability of success

Royalty rate

rNPV (£m)

Jul-20 Jun-20

hRPC RP Phase I/II 2025 550 30% 25% 168 64

hRPC US partnering* RP FY23 deal 2022 20 50% N/A 10 N/A

Fosun (China + Asia ex Japan) N/A Milestones N/A 33 N/A N/A 32 17

Other hRPC* N/A Preclinical hold N/A N/A

N/A 5 11

Exosomes* Delivery Preclinical validation N/A N/A

N/A 5 N/A

CTX* Stroke Phase II (hold) N/A NA Nominal N/A 6 6

Portfolio total

603

220 99

Cash 31th March 2020

13 8

Non-clinical cash need FY21-22

(12)

Operational costs to 2034

(51)

Overall valuation

170 107

Source: Edison Investment Research Note * = Nominal amount

Revenues

◼ RP revenues from sales of hRPC are as discussed for the US, Europe and Japan. We used a

price of $275,000 per treatment for both eyes in the US reduced by 30% in Europe and Japan.

As discussed above, we assume the project is partnered. The previous assumption of a 30%

royalty rate appears too high and we have adjusted this to 25%. Clearly, these assumptions will

be revised if and when a deal is announced. The probability of success is unchanged at 30%.

◼ Assumed hRPC partnering milestones and fees, these have a nominal NPV of £20m with a

50% deal probability by 2023. We note the very high value of gene therapy deals and

acquisitions so this appears very `conservative.

◼ Fosun milestones have been adjusted. Prior estimates of payment for FY21 and FY22 have

been revised form £3m per year to £1m per in line with management guidance. We have

shown milestones as a separate value item.

ReNeuron Group | 26 August 2020 13

◼ Fosum royalties have been extended to 2032 (2030 previously) staring in 2024 (unchanged).

The hRPC royalties are been revised as above. The peak rate is 5% for both incidence and

prevalence and as we are not certain of the regional diagnosis and treatment rates in China.

The CTX China values are unchanged. This has given an increased value for these royalties,

unchanged at 13%.

◼ Other hRPC indications: the previous estimates for cone-rod dystrophy of £11m NPV have

been removed as this is not an active project. We recognise the further potential of the

technology by giving a nominal £5m value.

◼ Exosomes: this is an exciting delivery system with multiple partnering and licensing

opportunities. We do not foresee independent development. ReNeuron has indicated that it

needs to validate the concept before deals. We therefore give a £5m nominal value at this time.

◼ Stroke: the CTX cell project to treat stroke disability was revised after the strategic review in

June 2020 halted further investment while ReNeuron seeks regional partners. We do not

expect any product approval before 2027 (excluding China and Asia where the project is being

developed by Fosun). We have converted our June 2020 estimate of £6m NPV to a nominal

value that will not be adjusted until partnering occurs.

Costs and cash

◼ Cash is stated as of 31 March 2020.

◼ We have subtracted the G&A and R&D costs needed for FY21 and FY22. Some clinical costs

are included in individual project NPV estimates and have been deducted from R&D.

◼ We have estimated the basic corporate running costs for the forecast period from 2023–2034

based on £4m administration costs and our estimate of £8m R&D core costs. Tax is included in

individual project estimates as before, although this has the does not fully utilise tax losses.

This approach makes clear that we anticipate ReNeuron operating as a going concern

Financials: FY20

Exhibit 11 shows our updated financial forecast with reported full-year accounts to 31 March 2020

and revised FY21 and FY22 forecasts.

FY20 was as expected with £6m of revenues from the Fosun deal and a tax credit of £2.6m. R&D

was level at £16.3m with general and admin costs slightly lower at £4.2m (vs £4.7m FY19).

Operating cash outflow was £13.7m (before interest, tax and capex) as no offsetting tax credit was

received in cash in the period; we expect it in the current financial year and note a tax credit

receivable of £5.8m in the balance sheet. Overall cash (31 March 2020) was £12.6m (with no

outstanding debt) and all investments have been converted to cash.

Over FY21 and FY22, further Fosun milestones are, according to management, expected to be

about £2m in total. We have spread these over the two years, but they may be weighted to FY22.

The spending outlook for FY21 is of lower cash use as R&D costs are guided by management to

fall 30–40%. This is because the CTX stroke trial is suspended and will only resume when a

funding partner is found. The extension trial of hRPC could start in late September but with only

nine patients and deliberately cautious recruitment; costs are unlikely to be high in FY21 or FY22. A

pivotal hRPC study is not likely to start until Q1 of calendar year 2022 (Q4 FY22) so our assumption

of increased R&D in FY22 might be aggressive. Costs will certainly be higher from FY23 if

ReNeuron funds a large multicentre Phase III trial but it is possible the project might be partly or

wholly partnered by then.

ReNeuron Group | 26 August 2020 14

In cash terms, we assume an FY21 funding requirement of about £20m, down from £30m

previously. The capital needed will depend on investment in other projects and on any deals.

Exhibit 11: Financial summary

£'000s

2019 2020 2021e 2022e

Year end 31 March

IFRS IFRS IFRS IFRS

PROFIT & LOSS

Revenue 2,720 6,165 1,100 1,100

Cost of Sales

0 0 0 0

Gross Profit

2,720 6,165 1,100 1,100

R&D expenses

(16,246) (16,335) (10,618) (11,000)

SG&A expenses

(4,773) (4,239) (4,000) (4,200)

EBITDA (18,129) (14,250) (13,368) (13,950)

Operating Profit (before amort. and except.) (18,299) (14,409) (13,518) (14,100)

Intangible Amortisation

0 0 0 0

Exceptionals

0 0 0 0

Operating Profit

(18,299) (14,409) (13,518) (14,100)

Other

0 0 0 0

Net Interest

1,064 551 460 460

Profit Before Tax (norm) (17,235) (13,858) (13,058) (13,640)

Profit Before Tax (FRS 3) (17,235) (13,858) (13,058) (13,640)

Tax

2,887 2,446 1,600 2,000

Profit After Tax (norm)

(14,348) (11,412) (11,458) (11,640)

Profit After Tax (FRS 3)

(14,348) (11,412) (11,458) (11,640)

Average Number of Shares Outstanding (m)

31.6 31.8 31.9 31.8

EPS - normalised (p) (45.34) (35.85) (35.97) (36.57)

EPS - FRS 3 (p) (45.34) (35.85) (35.97) (36.57)

Dividend per share (p)

0.0 0.0 0.0 0.0

BALANCE SHEET

Fixed Assets 1,522 1,229 1,129 1,029

Intangible Assets

186 186 186 186

Tangible Assets

632 452 452 452

Other

704 591 491 391

Current Assets 29,988 19,147 28,623 17,917

Stocks

0 0 0 0

Debtors

834 696 696 696

Cash and deposits

26,386 12,625 22,947 11,841

Other

2,768 5,826 4,980 5,380

Current Liabilities (7,402) (6,446) (6,446) (6,446)

Creditors

(7,261) (6,280) (6,280) (6,280)

Short term borrowings

0 0 0 0

Short term leases

(141) (166) (166) (166)

Other

0 0 0 0

Long Term Liabilities (864) (707) (20,541) (20,375)

Long term borrowings

0 0 (20,000) (20,000)

Long term leases

0 0 0 0

Other long term liabilities

(864) (707) (541) (375)

Net Assets 23,244 13,223 2,765 (7,875)

CASH FLOW

Operating Cash Flow (15,037) (13,651) (12,090) (12,672)

Net Interest

303 258 260 260

Tax

3,129 (611) 2,446 1,600

Capex

(239) (119) (150) (150)

Acquisitions/disposals

0 0 0 0

Financing

0 188 20,000 0

Dividends

0 0 0 0

Other

4,365 6,128 19,856 (144)

Net Cash Flow

(7,479) (7,807) 30,322 (11,106)

Opening net debt/(cash) (27,911) (26,245) (12,459) (22,781)

HP finance leases initiated

0 0 0 0

Other

5,813 (5,979) (20,000) 0

Closing net debt/(cash) (26,245) (12,459) (22,781) (11,675)

Source: ReNeuron accounts, Edison Investment Research

ReNeuron Group | 26 August 2020 15

Contact details Revenue by geography

ReNeuron Group Pencoed Business Park, Pencoed, Bridgend Wales CF35 5HY +44 (0)20 3819 8400 www.reneuron.com

N/A

Management team

Chairman: John Berriman CEO: Olav Hellebø

John Berriman was appointed to the board in July 2011 and became chairman in March 2015. He is the chairman of Confo Therapeutics, Autifony Therapeutics and Depixus. John was a past chairman of Heptares Therapeutics (sold to Sosei in February 2015) and Algeta (sold to Bayer in 2014 and previously listed on the Oslo stock exchange). He is a non-executive director (NED) of Autolus, and was a NED of Micromet (until its sale to Amgen in 2012) and Abingworth Management, an international healthcare venture capital firm. Previously, he spent 14 years with Celltech Group and was a member of its board when it listed on the London Stock Exchange in 1994.

Appointed CEO in September 2014, Olav was previously CEO of Clavis Pharma, a Norwegian oncology company, from February 2010 to June 2013. Before that he was senior VP of UCB Pharma (2004–10), COO of Novartis UK (2003–04) and for 10 years prior to that held a series of senior roles at Schering-Plough, the last as head of the company's oncology biotech division in the US. He graduated summa cum laude in international business studies from Hofstra University, New York, and has an MBA from the IESE Business School-Barcelona.

CFO: Michael Hunt

Michael joined ReNeuron in 2001 as CFO, was appointed COO in 2003 and CEO in 2005. He guided the company through the difficult period to 2014 and returned to the CFO role. Michael previously spent six years at Biocompatibles International (sold to BTG) where he held a number of senior financial and general management roles. His early industrial career was spent at Bunzl. He studied economics at UCL.

Principal shareholders (22 July 2020) (%)

Schroder Investment Management 16.58

Obotritia Capital 15.63

Arthurian Life Sciences as GP of The Wales Life Sciences Investment Fund 9.42

ReNeuron Group | 26 August 2020 16

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