Exhibit 1

 

Renalytix plc Annual Report and Financial Statements FOR THE YEAR ENDED 30 JUNE 2021

 

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		Index

 

STRATEGIC REPORT			4-23
Chairman & CEO’s Joint Statement			4
Company Overview			9
Operational and Financial Highlights			10
Product Overview and Strategy			12
Financial Review			15
Risk Management Approach			17
Section 172 Statement			21
Corporate Social Responsibility Review			23
CORPORATE GOVERNANCE			24-53
Board of Directors			24
Directors’ Report			27
Corporate Governance Statement			31
Directors’ Remuneration Report and Policy			34
Independent Auditors’ Report			49
FINANCIAL STATEMENTS			54-88
Consolidated Income Statement			54
Consolidated Statement of Comprehensive Income			55
Consolidated and Company’s Statements of Financial Position			56
Consolidated and Company’s Statements of Cashflows			58
Consolidated Statement of Changes in Equity			60
Company’s Statement of Changes in Equity			62
Notes to the Financial Statements			64
Additional Financial Information			86

 

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		STRATEGIC REPORT

Chairman & CEO’s Joint Statement

TO THE MEMBERS OF RENALYTIX AI PLC

We are delighted to present the annual report for the twelve months ended 30 June 2021 for Renalytix plc (“Renalytix” or the “Company”).

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 continue shifting the conversation from kidney disease to kidney health through a more accurate understanding of patient risk early on. With KidneyIntelX deployment this year, Renalytix is the 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 opened our doors in 2018 through a public listing on AIM, a market of the London Stock Exchange. We subsequently expanded our capital base by raising 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:

 

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A 10-year government-wide contract by the U.S. General Services Administration at $950 per test

 

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Hiring of sales, medical science liaison, and customer service support for national coverage

 

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The Centers for Medicare & Medicaid Services awarding a national price of $950 per test

 

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27 state Medicaid program authorization contracts

 

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Partnerships announced with the Mount Sinai Health System, University of Utah, Atrium Health, Wake Forest Baptist Health, and Capital District Physicians’ Health Plan (CDPHP)

 

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New York State Department of Health approval

 

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A distinct Common Procedural Terminology (CPT) Code for reimbursement granted by the American Medical Association

 

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Over 17 private payor coverage determinations

 

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Multi-center, peer reviewed clinical studies that found KidneyIntelX is 72% more effective than the current standard of care in identifying early-stage patients at high risk for kidney disease progression and failure

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

 

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disease, representing nearly 40% of its cases, and DKD patients are the highest contributors to emergency room dialysis starts. Unfortunately, many DKD patients are unaware that their kidney 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 equip 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 CKD 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

In the year ended 30 June 2021 (“FY21”) and the immediate post-period, the Company expanded its announced partnership base to include the University of Utah Health System, Atrium Health and Wake Forest Baptist Health. In September 2021, Mount Sinai Health System and Renalytix announced a scale-up of the KidneyIntelX care program to a targeted run-rate of 300 tests per week. Renalytix testing is fully covered at $950 per test under the Mount Sinai real-world evidence program and we expect an estimated 6,000 tests to be completed by the end of fiscal 2022. We expect that Atrium Health, Wake Forest Baptist Health and University of Utah will be running live testing as early as December 2021.

Expert experience is reflected in the design of the KidneyIntelX test report and the newly launched product website – www.kidneyintelx.com. We believe our education and support program will be an important resource to help inform and improve care for early-stage DKD patients and support future hospital system deployments of KidneyIntelX in the United States and abroad.

The Company also continues to execute on a number of key operational items including (1) growing our world-class employee base and leadership team to manage U.S. national commercial expansion, (2) developing expanded products which will add to the KidneyIntelX clinical use cases and addressable market, (3) adding laboratory services capacity with our facility in Salt Lake City, Utah, and (4) generating additional utility and validation data to build-out our peer-reviewed performance data dossier.

Reimbursement and Regulatory

We have achieved full insurance coverage for U.S. government physicians ordering of KidneyIntelX through our granted General Services Administration (GSA) and are moving assertively to activate our VA Health System sales strategy. We estimate there is full coverage available at $950 per test to an estimated 400,000 DKD patients in the VA Health System alone.

Under our agreement with the Mount Sinai Health System, we receive payment for KidneyIntelX testing at $950 per reportable result through the first approximately 6,000 patients tested under a real-world evidence development program. In October, this program was expanded system-wide and Mount Sinai is working to achieve a weekly testing run rate of 300 patients.

The recent government repeal of the Medicare Coverage of Innovative Technologies (MCIT) rule was disappointing. However, the earlier delay of MCIT implementation from May to December 2021 had already decreased the rule’s potential value to Renalytix given the existing planning for a local Medicare coverage determination which was underway before MCIT was announced in January 2021. Ultimately, we do not see a material impact on our business plan if MCIT is ultimately repealed and believe Medicare payment for KidneyIntelX at $950 per reportable result can be achieved by the summer of 2022. We estimate that over four million DKD patients are covered under Medicare and, in certain metro markets such as our New York City launch market, Medicare represents a majority of insured DKD patients.

As we have previously reported, KidneyIntelX has achieved both a distinct Common Procedural Terminology (“CPT”) reimbursement code 0105U and inclusion in the final 2020 Clinical Laboratory Fee Schedule (“CLFS”) by CMS which set a national price for KidneyIntelX at $950 per reportable test result.

As has been experienced broadly across the diagnostics industry, KidneyIntelX has had a prolonged review since our De Novo submission in August of 2020 due to FDA staffing challenges and continued prioritization of a significant number of COVID-19 related Emergency Use Authorization submissions. Across a number of applications, the FDA is not currently meeting ITS 150-day De Novo review goal in MDUFA IV due to “considerable increases in COVID-19 activities” and this is not unique to Renalytix. We are committed to working collaboratively and expeditiously with the FDA and continue to provide additional information, clarification and supplemental analyses related to our novel KidneyIntelX design as requested. While we will continue to decline to forecast projecting a definitive timeline for De Novo marketing authorization, we are confident that KidneyIntelX will receive FDA De Novo marketing authorization given interactive dialogue and data requirements to date and that Fiscal 2022 commercial objectives are on track.

 

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Strategic Collaborations

An innovative partnership with AstraZeneca (LSE/STO/NYSE: AZN) was secured in the period to develop and launch precision medicine strategies for cardiovascular, renal and metabolic diseases. The first stage in the collaboration is examining the uptake of, and patient adherence to, treatments for diabetes as well as common complications of CKD, including hyperkalemia and anemia. This will provide key insights into the impact of the KidneyIntelX platform to optimize utilization of therapeutics in CKD under current standard of care protocols. Importantly, this collaboration extends the potential impact of KidneyIntelX to populations beyond the first indicated use, DKD, that is approved with New York State and under breakthrough review with the FDA.

In January 2021, we entered into a partnership with DaVita (NYSE: DVA) for a program aimed at slowing disease progression and improving health outcomes in CKD patients by enabling earlier intervention for patients with early-stage kidney disease through actionable risk assessments and end-to-end care management. After risk stratification using KidneyIntelX, program patients identified as intermediate- and high-risk are expected to receive care management support through DaVita’s integrated kidney care program.

In February 2021, we entered into a partnership with the University of Utah to implement KidneyIntelX in combination with a range of advanced clinical management solutions to optimize patient care and drive towards improved outcomes system-wide at University of Utah Health, which serves millions of patients in six states. Core to this partnership is the implementation of care navigation and pharmacy programs, behavioral and health economic assessments, together with data-driven analytics. KidneyIntelX will be deployed directly into the EHR system at University of Utah Health, enabling access to more than 1,700 clinicians for seamless test ordering and patient risk score reporting as part of the standard clinical workflow.

In May 2021, we entered into a partnership with Atrium Health, Wake Forest Baptist Health and Wake Forest School of Medicine to implement an advanced clinical care model to improve kidney health and reduce kidney disease progression and kidney failure. Through these partnerships, KidneyIntelX access will be enabled to primary care physicians, endocrinologists, nephrologists and care teams in 37 hospitals and more than 1,350 care locations across the Carolinas and Georgia.

Financing

Renalytix has continued to benefit from the participation of a growing investor base. In July 2019, we raised gross proceeds of $17.3 million in a following-on financing on the AIM market, and in July 2020, we raised an additional $85.1 million in gross proceeds through an offering and concurrent dual-listing on the Nasdaq Global Market in the U.S. The Directors believe our company is now well positioned to build on our competitive advantages.

In November 2020, the Company completed a spin-out of Verici Dx (previously known as FractalDx). Shares in Verici were distributed to Renalytix shareholders in July, 2020, and Verici subsequently listed on the AIM market of the London Stock Exchange in November, 2020. Renalytix retains a minority equity interest in Verici.

Patient Studies

During fiscal year 2021 and in the post-period, several publications and presentations supporting KidneyIntelX were disseminated, including:

 

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Peer-reviewed publication in Diabetologia demonstrating KidneyIntelX more accurately predicted progressive kidney function decline and kidney failure in a multi-center, diverse cohort of 1,146 type 2 diabetes patients with early-stage (stages 1, 2, and 3) kidney disease versus the current standard of care

 

•

Data presented at World Congress of Nephrology (WCN) showing that the KidneyIntelX algorithm published in Diabetologia and currently deployed commercially accurately predicted progression of diabetic kidney disease (DKD) in a multinational cohort from the CANagliflozin CardioVAScular Assessment Study (CANVAS) with early-stage DKD (stages 1-3)

 

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Data presented at the American Diabetes Association (ADA) Annual Scientific meeting from the CANVAS trial demonstrating KidneyIntelX can be effective at monitoring therapeutic response and improvements in kidney health over time in adults with type 2 diabetes

 

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Peer-reviewed submission accepted by American Journal of Nephrology summarizing the aforementioned findings presented at the WCN and ADA from the analyses in the CANVAS clinical trial cohort

 

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Peer-reviewed publication in Journal of Medical Economics supports payer coverage for early-stage risk assessment and care management in the primary care office; projects significant savings from KidneyIntelX testing at primary care level

 

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Intellectual Property

In the period, the U.S. Patent and Trademark Office allowed claims extending the use of one of KidneyIntelX’s primary blood biomarkers, sTNFR1, to all patients with diabetes to determine an increased risk of developing progressive kidney disease or kidney failure. We have also completed rights to additional patent applications for use with KidneyIntelX. We continue to build out our intellectual property portfolio and are actively evaluating in-licensing opportunities that will enhance our competitive product positioning.

Real World Evidence Program

Through our growing number of health system partnerships, pharmaceutical collaborations and payor models, we are creating a comprehensive real-world evidence (RWE) and data generation program including the previously announced programs at Mount Sinai, Wake Forest / Atrium Health and Utah Health. The primary objective is to demonstrate the clinical and economic impact of KidneyIntelX informed care management in large populations and we expect to expand the scale of this program with extensive publication and dissemination of the results.

Additionally, through these Institutional Review Board (IRB)-approved and patient consented studies we will be amassing or have access to a large biorepository of urine, blood and DNA samples (already planned to exceed 10,000 patients) linked to comprehensive longitudinal patient data which will help accelerate the development of diagnostic products and data solutions for kidney disease and related complications and co-morbidities.

Importantly, we are actively pursuing opportunities to leverage the KidneyIntelX platform and this unique RWE program focused on chronic condition management at primary care to other indications, most notably cardiovascular disease, heart failure and liver disease.

A further significant value creation aspect of our RWE program is the enablement and deployment of our comprehensive digital health and data strategy. This program provides an invaluable access to users and insights that inform the features we are building into our digital technology and data platforms.

Additional Business

In May 2020, the Company and the Icahn School of Medicine at Mount Sinai entered into an 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. Owing to a shift in focus from COVID-19 antibody testing to promoting vaccination in the United States and European Union, Kantaro saw a decrease in demand for COVID-19 antibody testing, lower forecasted sales volume and consequently, a lower time commitment from Renalytix employees.

Expansion of Product Portfolio

We believe there are significant opportunities to expand our technology platform through incremental version releases of KidneyIntelX as well as through extending KidneyIntelX application into additional populations of CKD 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. KidneyIntelX has been designed within a regulated, manufacturing-quality environment to allow us to take advantage of the dynamic nature of machine learning to improve product performance through a sequence of controlled version releases. We believe that our product development approach, which is based on a quality systems framework following FDA’s Quality System Regulations and the ISO guidelines applicable to medical devices, will enable our KidneyIntelX platform to rapidly generate exponential data growth and new clinical use cases, with a clearer path to achieving the regulated and reimbursed introduction and subsequent product improvements of an artificial intelligence-powered in vitro diagnostic.

Continued Expansion of People

Our executive team has an average of 25 years’ experience in professional disciplines including bioinformatics, digital health, data security, market access, commercial operations, medical affairs, insurance reimbursement, FDA regulation and International Organization for Standardization, or ISO, quality management systems, population health, clinical medicine, finance and health economics. We believe the integration of such diverse experience is essential to understanding the complex dynamics of deploying a new technology into the highly regulated world of patient clinical care, and we have assembled our team specifically with this multi-disciplinary approach in mind.

We have continued to invest in key hires on the board and in management to support the commercialization pathway. During FY21, we filled positions including a VP of global quality and regulatory appointment, VP of sales, VP and director of commercial partnerships, VP of marketing, among others. Post period end, we appointed Ann Berman and Daniel Levangie to the board of directors, both bringing extensive commercial operating and leadership experience to the Company. Jed Fulk was appointed as vice president of sales, government accounts to develop and lead a team to support the KidneyIntelX rollout to the VA Health System.

 

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Outlook

We believe KidneyIntelX is a powerful, actionable prognostic tool that can inform clinical pathways to slow the progression of kidney disease and potentially prevent the occurrence of progressive kidney function decline such as kidney failure and the need for long-term dialysis or kidney transplant. We are building a body of evidence through clinical validation studies and patient data generation to demonstrate that accurate and early identification of high-risk patients, coupled with guidelines-driven clinical recommendation designed to maximize patient treatment and compliance, can have a measurable positive impact on patient quality of life and significantly lower healthcare costs. By involving a broad range of expert clinical opinions, testing a growing number of patient samples, consulting closely with clinical society and patient advocacy organizations, partnering with healthcare systems and payors and developing a detailed understanding of the clinical practice environment, we believe KidneyIntelX will help ease suffering and improve outcomes for patients living with DKD.

 

/s/ Christopher Mills				/s/ James R. McCullough
Christopher Mills				James R. McCullough
Chairman				Chief Executive Officer

 

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Company Overview

PIONEERING NEXT-GENERATION TECHNOLOGY SOLUTIONS FOR KIDNEY HEALTH

Renalytix is the global founder and leader in the new field of bioprognosisTM for kidney health. The company has engineered a new solution that successfully enables early-stage chronic kidney disease 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.

Renalytix is focused on optimizing clinical management of kidney disease to drive improved patient outcomes and lower healthcare costs. KidneyIntelX, our first-in-class in vitro diagnostic platform, employs a proprietary algorithm that combines diverse data inputs, including validated blood-based biomarkers, inherited genetics and personalized patient data from electronic health record, or EHR, systems, to generate a unique patient risk score. This patient risk score enables prediction of progressive kidney function decline in chronic kidney disease, or CKD, allowing physicians and healthcare systems to optimize the allocation of treatments and clinical resources to patients at highest risk.

ON A MISSION TO COMBAT A DEVASTATING AND COSTLY DISEASE

Kidney disease is a public health epidemic affecting over 850 million people globally. Managing a CKD population of this scale and the associated healthcare spending presents a unique healthcare system challenge, requiring a solution that provides a clearer understanding of clinical risk tied to specific guideline-driven clinical recommendations. The ability to predict which patients will experience progressive kidney function decline, which includes rapid kidney function decline, or RKFD, sustained significant decline in kidney function, kidney failure, initiation of long-term dialysis or kidney transplant, is critical to changing patient outcomes and health economics. Current methods for risk stratification of patients with CKD lack sufficient precision in predicting progressive kidney function decline, especially at earlier stages of the disease. This can exacerbate the occurrence of unexpected and expensive clinical events. In fact, up to 38% of patients with CKD initiate dialysis with little or no prior clinical specialist consultation, and up to 63% of patients with CKD initiate dialysis in an unplanned fashion with a central venous catheter and/or during emergency hospitalization, which we refer to as “dialysis crash.” This highlights the need for an early mechanism to identify potential instances of rapidly progressing CKD before it becomes critical to the patient’s health and costly to healthcare providers. In our clinical validation studies in patients with DKD, KidneyIntelX more accurately identified and segmented patients into three risk categories (low, intermediate and high) when compared to clinical models, including the current standard of care, the KDIGO risk stratification algorithm. When guideline-recommended urine albumin to creatinine ratio testing was performed, the positive predictive value (PPV) for progressive decline in kidney function was 69% for those scored as high-risk by KidneyIntelX versus the 40% identified as highest-risk by KDIGO categorization. This is a 72% improvement compared to standard of care. In addition, only 7% of those scored as low-risk by KidneyIntelX experienced progression (i.e., negative predictive value of 93%). Lack of ability to accurately predict which patients are at higher risk has led to strained clinician resources, inadequate referrals to clinical specialists and suboptimal treatment of DKD, resulting in significant patient suffering and diminished quality of life.

We believe that the KidneyIntelX platform will be central to managing CKD, helping to identify which patients could benefit from clinical interventions at earlier stages of CKD before significant and irreversible kidney damage has taken place. For patients with CKD as a result of diabetes, obesity or other factors, early intervention can lower the risk of progressing to life-altering advanced disease, kidney failure, dialysis and diminished quality of life. For primary care physicians and specialists, KidneyIntelX provides an easy-to-understand, reportable patient risk score integrated with specific guideline-driven clinical recommendations designed to maximize patient treatment and compliance outcomes. For insurance payors, KidneyIntelX can help drive health economics gains over time. For population health and clinical medicine departments, KidneyIntelX provides a powerful prognostic tool to stratify CKD populations into low-, intermediate- and high-risk categories applied to a continuous scale, enabling physicians to optimize the choice of treatment and allocation of clinical resources to benefit patient outcomes and health economics. In our clinical validation studies to date, involving stored specimens from over 1,500 patients with DKD, KidneyIntelX demonstrated the ability to more accurately identify which patients would experience progressive kidney function decline over current clinical practice. We believe early risk stratification, using advanced technology implemented in partnership with healthcare systems and insurance payors, can help support a fundamental shift towards optimal treatment for the over 850 million people suffering from kidney disease worldwide.

 

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Operational and Financial Highlights

REGULATORY & REIMBURSEMENT HIGHLIGHTS

 

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Government-wide contract granted by the U.S. General Services Administration for KidneyIntelXTM testing services at $950 per reportable result; applies to more than 140 U.S. government departments, agencies, and affiliates including U.S. Veterans Administration (VA), Department of Defense military branches (Army, Navy, Air Force, and Marines), and Indian Health Services

 

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Accepted provider in 27 Medicaid state programs (including post-period approvals) with additional applications pending

 

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Ongoing process with Medicare Contractor organizations for Medicare local coverage

 

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Positive coverage determinations from 20 regional and local private health insurance payors to date including the first Blue Cross Blue Shield coverage contract and coverage with HealthFirst, one of New York State’s largest not-for-profit health insurance companies with over 1.5 million members

 

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Ongoing process with FDA towards anticipated De Novo marketing authorization under Breakthrough Device designation

 

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Full CLIA certification of Salt Lake City laboratory facility

COMMERCIAL & PARTNERSHIPS HIGHLIGHTS

 

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KidneyIntelX launched within the Mount Sinai Health System, validating the electronic health record (EHR) integrated care pathway; subsequent (post-period) volume scale-up announced

 

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Collaboration with AstraZeneca to develop and launch precision medicine strategies for cardiovascular, renal and metabolic diseases to potentially expand Renalytix’s portfolio

 

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Partnership with Atrium Health, Wake Forest Baptist Health and Wake Forest School of Medicine to implement advanced clinical care models to improve kidney health and reduce kidney disease progression and kidney failure; expected go-live testing starting in November

 

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Partnership with the University of Utah to implement KidneyIntelX and advanced clinical management care pathway to reduce the risk of kidney failure

 

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Collaboration with DaVita to enable first-of-its-kind program combining early risk assessment and comprehensive care management to improve early to late-stage patient outcomes and provide meaningful cost reductions for health care providers

 

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Exclusive option to license novel biomarkers with Joslin Diabetes Center, which could provide additional clinical utility for understanding early disease progression, risk of kidney failure, therapeutic response, and the mechanistic pathways of kidney disease beyond the markers that are currently captured by KidneyIntelX

CLINICAL & VALIDATION HIGHLIGHTS

 

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Peer-reviewed publication in Diabetologia demonstrating KidneyIntelX more accurately predicted progressive kidney function decline and kidney failure in a multi-center, diverse cohort of 1,146 type 2 diabetes patients with early-stage (stages 1-3) kidney disease versus the current standard of care

 

•

Data presented at World Congress of Nephrology (WCN) showing that the KidneyIntelX algorithm published in Diabetologia and currently deployed commercially accurately predicted progression of diabetic kidney disease (DKD) in a multinational cohort from the CANagliflozin CardioVAScular Assessment Study (CANVAS) with early-stage DKD (stages 1-3)

 

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Data presented at the American Diabetes Association (ADA) Annual Scientific meeting from the CANVAS trial demonstrating KidneyIntelX can be effective at monitoring therapeutic response and improvements in kidney health over time in adults with type 2 diabetes

 

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Peer-reviewed submission accepted by American Journal of Nephrology summarizing the aforementioned findings presented at the WCN and ADA from the analyses in the CANVAS clinical trial cohort.

 

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FINANCIAL HIGHLIGHTS

 

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Achieved dual listing on Nasdaq Global Market and associated $85.1 million gross equity financing

 

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Completed spin-out of Verici Dx; shares in Verici were distributed to Renalytix shareholders, and Verici subsequently listed on the AIM market of the London Stock Exchange

 

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Cash and equivalents of $65.2 million at 30 June 2021

POST-PERIOD END DEVELOPMENTS

 

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Scale-up of Mount Sinai Health System KidneyIntelX population health care-navigated risk assessment program with a target run rate of 300 patient tests per week

 

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Launch program for KidneyIntelX initiated for Veterans Health Administration with target of 43 sales personnel plus supporting medical science liaison and technical infrastructure

 

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Achieved first Blue Cross Blue Shield private insurance coverage contract in October 2021

 

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Welcomed new board members Ann Berman and Daniel Levangie both with extensive backgrounds in healthcare company growth and finance

 

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Peer-reviewed publication in Journal of Medical Economics supporting payer coverage for early-stage risk assessment and care management in the primary care office; projecting significant savings from KidneyIntelX testing at primary care level

 

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Product Overview and Strategy

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.

OUR STRATEGY

Our goal is to lower healthcare costs and improve patient quality of life by transforming the paradigm for kidney disease risk assessment and clinical management through our KidneyIntelX platform. To achieve this goal, we plan to:

 

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Continue to Build Integrated Partnerships with Healthcare Systems on a Population Health Basis. We are focused on building partnerships with healthcare systems and the engagement and support of their clinical leadership teams, which will enable us to efficiently initiate and deploy our solution to patient populations with DKD. A key aspect of this is technical integration of the KidneyIntelX software platform with healthcare systems’ EHR systems and clinical workflow. In September 2020, we announced the launch of our partnership with Mount Sinai Health System, including initiation of patient testing. Integrated partnerships such as this are designed to allow KidneyIntelX to be deployed directly to patient populations and their treating clinicians in a cost-efficient and timely manner. We are engaging with multiple healthcare institutions and national payors regarding additional partnership opportunities.

 

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Actively Market KidneyIntelX in Veterans Health Administration. Following our 10-year government-wide contract provided in April 2021 by the U.S. General Services Administration for KidneyIntelX testing services at $950 per reportable result, we are now staffing sales and support teams and establishing enabling infrastructure to deploy KidneyIntelX at Veterans Health Administration. The Veterans Health Administration is America’s largest integrated health care system, providing care at 1,293 health care facilities, including 171 medical centers and 1,112 outpatient sites, serving nine million enrolled veterans each year. The veteran population has an approximately one-third higher chronic kidney disease and DKD prevalence than the general population, which has been attributed to the significant multi- morbidity and higher mean age in this group. The economic costs for providing healthcare for Veterans with kidney disease are high and are increasing at a rapid rate. Excluding costs associated with dialysis, $17.9 billion was spent on care for Veterans with CKD in 2014. New VHA Directive 1053, distributed on March 17, 2020, established policy to improve prevention, early recognition, and management of CKD in VA medical facilities. An update to the VA/DoD Clinical Practice Guideline for the Management of CKD released in 2019 identified the need for accurate risk assessment in patients with early-stage kidney disease. KidneyIntelX and associated care management tools provide information that is essential to realizing the directive’s goals for appropriate pharmacy management, promoting communication and collaboration between care providers, particularly between nephrologists and primary care physicians and developing a patient-centered plan for treatment and education about kidney disease.

 

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Further Expand Insurance Payor Coverage. We believe that the potential of KidneyIntelX to improve patient outcomes and promote benefits in health economics for patients, physicians and payors provides a strong foundation for our reimbursement strategy. Moreover, early and ongoing engagement with insurance payors will be key to supporting the deployment of KidneyIntelX. In October 2019, Capital District Physicians’ Health Plan, Inc., a physician-led health insurance payor in New York, adopted coverage determination policies that provide insurance for certain patients with DKD who are tested with KidneyIntelX. We are working with additional private insurance payors and healthcare providers to expand insurance coverage for KidneyIntelX nationwide, which we believe will be accelerated by our recent achievement of a CPT code and national Medicare pricing.

 

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Continue to Pursue Medicare Coverage. Following the receipt of national Medicare pricing at $950 per reportable test for KidneyIntelX in January 2020, we are actively pursuing multiple distinct pathways for Medicare coverage, which would expedite the claims payment process. We estimate that Medicare currently provides insurance coverage for approximately 14 million patients with CKD, an estimated 40% of which have DKD.

In January 2021, the U.S. Centers for Medicare & Medicaid Services (CMS) announced the Medicare Coverage of Innovative Technologies, or MCIT, rule, which could have accelerated national Medicare coverage under certain conditions. Following a subsequent delay in the implementation of the final rule, CMS issued a proposal to repeal the final rule prior to implementation on December 15, 2021. CMS stated that it believes there are other ways to achieve the goal of providing innovation and access to important new technologies including future policies and potential rulemaking. CMS is now reviewing comments received during the open public comment period. Independent of MCIT, Renalytix has continued to develop clinical evidence to support Medicare coverage at the local level from a Medicare Administrative Contractor (MAC), which it could receive as early as mid-calendar 2022. Coverage from a MAC would allow for Medicare reimbursement at $950 for any Medicare beneficiary in the United States receiving KidneyIntelX testing.

 

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Obtain FDA Clearance of KidneyIntelX to Further Drive Commercial Adoption in the United States. While not required for commercialization as an LDT, we are seeking marketing authorization from the FDA through the De Novo pathway as part of our strategy to produce a product capable of becoming the new, long-term standard of care for patients with CKD. We have designed KidneyIntelX under a quality-controlled product development process to support our FDA clearance application, and to take advantage of the dynamic capability of machine learning applied to large datasets through regulated, versioned product releases. KidneyIntelX was granted breakthrough device designation from the FDA in May 2019. In addition, we believe that preparing for and potentially obtaining FDA clearance could support our eventual efforts to obtain regulatory approvals of KidneyIntelX in the United Kingdom, European Union, China and other major global market territories, provide support for the adoption of KidneyIntelX across clinical disciplines and assist with the establishment of private third-party and government-based reimbursement.

 

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Build Substantial Repository of Kidney Disease-Related Data. We are building a repository of kidney disease-related data for the development of progressive KidneyIntelX product versions and additional artificial intelligence-powered clinical applications. We are designing applications to examine disease patterns in large patient populations and to optimize clinical care navigation and management effectiveness. These developments are underpinned by the goals of driving patient and physician behavior changes and ultimately improving patient outcomes. Access to current and historical patient data, combined with the ability to analytically and clinically validate study results in a quality-controlled framework, provides us with a powerful product development platform. Moreover, the depth, specificity and quality of data is of paramount importance to developing solutions with demonstrated clinical utility across a range of practice specialties and patient demographics, and securing access to this data is central to our strategy of demonstrating both short- and long-term impact on patient outcomes and health economics. We have tested this capability in our clinical validation studies involving stored specimens from over 1,500 patients with DKD from the Mount Sinai Health System and University of Pennsylvania Health System biobanks. As we continue to build our data repository, we believe our predictive capabilities will continue to improve, and we expect that we will have the most comprehensive kidney disease data repository geared toward early identification of high- risk patients and optimization of care pathways.

 

•

Expand Our Product Portfolio. We believe there are significant opportunities to expand our technology platform through incremental version releases of KidneyIntelX as well as through extending the KidneyIntelX platform into new applications into additional populations of CKD patients beyond those with diabetes, including repeat testing to monitor changes in risk and therapeutic response and other CKD subtypes, 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 CKD associated cardiovascular disease. KidneyIntelX has been designed within a regulated, manufacturing-quality environment to allow us to take advantage of the dynamic nature of machine learning to improve product performance through a sequence of controlled version releases. We believe that our product development approach, which is based on a quality systems framework following FDA’s Quality System Regulations and the ISO guidelines applicable to medical devices, will enable our KidneyIntelX platform to rapidly generate exponential data growth and new clinical use cases, with a clearer path to achieving the regulated and reimbursed introduction and subsequent product improvements of an artificial intelligence-powered in vitro diagnostic.

 

•

Real World Evidence Program. Through our growing number of health system partnerships, pharmaceutical collaborations and payor models, we are creating a comprehensive real-world evidence (RWE) and data generation program including the previously announced programs at Mount Sinai, Wake Forest / Atrium Health and Utah Health. The primary objective of demonstrating the clinical and economic impact of KidneyIntelX informed care management in large populations and we expect to expand the scale of this program with extensive publication and dissemination of the results. Additionally, through these Institutional Review Board (IRB)-approved and patient consented studies we will be amassing a vast biorepository of urine, blood and DNA samples (already planned to exceed 10,000 patients) linked to comprehensive longitudinal patient data which will help accelerate the development of diagnostic products and data solutions for kidney disease and related complications and co-morbidities.

Importantly, we are actively pursuing opportunities to leverage the KidneyIntelX platform and this unique RWE program focused on chronic condition management at primary care to other indications, most notably, kidney disease associated cardiovascular disease, heart failure and liver disease.

A further significant value creation aspect of our RWE program is the enablement and deployment of our comprehensive digital health and data strategy. This program provides an invaluable access to users and insights that inform the features we are building into our digital technology and data platforms.

 

•

Launch in Major International Markets. We plan to pursue the launch of KidneyIntelX in major medical markets outside of the United States, including in the United Kingdom, European Union and China, which have large and growing populations of CKD patients and are facing cost and clinical management challenges similar to the United States. According to a recent report published by NHS Kidney Care, in the United Kingdom, treatment for CKD costs more than breast, lung, colon and skin cancer combined. We plan to pursue foreign regulatory approval pathways, continue data accumulation and study development with ex-U.S. clinical investigators and seek integrated medical center opportunities for addressing CKD patient populations outside of the United States, subject to obtaining the required marketing authorizations.

 

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We believe KidneyIntelX is a powerful, actionable prognostic tool that can inform clinical pathways to slow the progression of kidney disease and potentially prevent the occurrence of progressive kidney function decline such as kidney failure and the need for long-term dialysis or kidney transplant. We are building a body of evidence through clinical validation studies and patient data generation to demonstrate that accurate and early identification of high-risk patients, coupled with guidelines-driven clinical recommendation designed to maximize patient treatment and compliance, can have a measurable positive impact on patient quality of life and significantly lower healthcare costs. By involving a broad range of expert clinical opinions, testing a growing number of patient samples, consulting closely with clinical society and patient advocacy organizations, partnering with healthcare systems and payors and developing a detailed understanding of the clinical practice environment, we believe KidneyIntelX will help ease suffering and improve outcomes for patients living with DKD.

 

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Financial Review

The results presented cover FY21. The presentational currency for Renalytix plc and its subsidiaries (together, the “Group”) is the United States Dollar.

INCOME STATEMENT

Revenue

The Group recognized revenue of $1.5m in the financial year ended 30 June 2021 (“FY21”) related to services performed as well as the successful launch of commercial testing in the second half of the financial year.

Cost of Sales

The cost of sales associated with the services performed and commercial testing revenue was $0.8m for FY21.

Administrative Costs

During FY21, administrative expenses totaled $33.3m (financial year ended 30 June 2020 (“FY20”): $11.1m). The major items of expenditure were general and administrative costs of $31.2m (FY20: $9.9m) which included $13.8m in employee-related costs (FY20: $4.6m), $9.1m in subcontractors, legal, accounting, and other professional fees (FY20: $3.0m), and $8.3m in insurance, marketing, materials, rent, and other administrative costs (FY20: 2.3m). Depreciation and amortization expense totaled $2.1m for the period (FY20: $1.2m).

Finance Income (Expense)

Finance expense totaled $7.95m during FY21 (FY20: $0.5m income) related to unrealized foreign exchanges losses offset by interest income and other income related to PPP loan forgiveness.

BALANCE SHEET

Inventory

Inventory consists of consumable materials used by the labs to carry out KidneyIntelX tests. During FY21, inventory levels increased slightly due to purchases as the company prepares for increased KidneyIntelX testing volumes. Inventory on hand at 30 June 2021 totaled $0.4m (FY20: $0.3m).

Fixed Assets

Property, plant, and equipment consists of laboratory equipment being used to support testing and product development activities. At 30 June 2021, the company held $1.1m in net property, plant, and equipment (FY20: $0.6m).

Intangible Assets

The Group held $18.0m net book value of intangible assets held at 30 June 2021 (FY20: $17.1m) includes payments made primarily to Mount Sinai for license and patent costs for the intellectual property underlying KidneyIntelX, as well as amounts capitalized as development costs. Intangible assets also include the value of the biomarker business purchased (in exchange for ordinary shares in the Company) from EKF. Intangible assets increased period over period due to capitalized software and the impact of foreign exchange translation at period end.

Deferred Tax

A deferred tax asset totaling $7.1m (FY20: $2.3m) has been calculated based on the unused tax losses in the U.S.

Investment in Verici

In the first half of FY21 the Group converted the note receivable into equity in Verici Dx. At the end of FY21 the group held 9,831,681 shares in Verici Dx. The fair value of the investment in Verici Dx was $9.3 million at June 30, 2021.

 

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Cash

The Group had cash on hand of $65.2m (FY20: $13.3m). Cash and equivalents are held in several deposit accounts in the US ($64.0m), UK ($1.1m) and IRE ($0.1m). Our expenditure plans remain sufficiently adaptable to align with available resources.

Borrowings

The Group has no long-term debt outstanding as of 30 June 2021.

 

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Risk Management Approach

We recognize that effective risk management is essential to the successful delivery of the Group’s strategy. As we grow our business, we believe it is important to develop and enhance our risk management processes and control environment on an ongoing basis and ensure it is fit for purpose by identifying and managing risks across the Group in a consistent and robust manner.

Below we describe our risk management approach, the principal risks and uncertainties faced by the Group and the controls in place to manage them.

OVERVIEW OF RISK MANAGEMENT APPROACH

The key principles that guide the Group’s risk management approach are outlined below:

 

•

It is the employees’ responsibility to ensure they understand and comply with the Risk Management Policy and their defined risk management roles and responsibilities.

 

•

There is a defined risk management governance structure with clear accountabilities.

 

•

A consistent risk management approach is used throughout the Group to identify and manage risks posed in the AI and life sciences industries.

 

•

Risk management is embedded in all key processes and decision-making within the Group (including strategy setting, budgeting, planning and day-to-day operations and activities).

A risk register is maintained and updated periodically. The register includes the risk description, risk owner, mitigation/control description and risk profile.

PRINCIPAL RISKS AND UNCERTAINTIES

Set out below are the principal risks which we believe could materially affect the Group’s ability to achieve its financial and operating objectives and control or mitigating activities adopted to manage them. The risks are not listed in order of significance.

THE GROUP IS DEPENDENT UPON ITS STRATEGIC COLLABORATION WITH THIRD PARTY PARTNERS

The Group is working to develop and commercialize its products in close collaboration with strategic partners. The Group is dependent upon third parties for resources and revenue. Failure by these strategic partners to meet its key contractual obligations or to purchase KidneyIntelX tests, for whatever reason, would likely have a material adverse effect on the Group and its ability to achieve its commercial objectives, potentially including the attainment of sales volumes leading to profitability, and may ultimately result in the Group becoming unviable.

REGULATORY RISK

There can be no guarantee that any of the Group’s products will be able to obtain or maintain the necessary regulatory approvals in any or all of the territories in respect of which applications for such approvals are made. Where regulatory approvals are obtained, there can be no guarantee that the conditions attached to such approvals will not be considered too onerous by the Group or its partners in order to be able to market its products effectively.

The Group seeks to reduce this risk by seeking advice from regulatory advisers, consultations with regulatory approval bodies and by working with experienced partners.

REIMBURSEMENT LEVELS

There is no guarantee that the Company will be able to continue to sell its products or services profitably if the reimbursement level from third party payers, including government and private health insurers, is limited or subsequently withdrawn. Third party payers are increasingly attempting to contain health care costs through measures that could impact the Company including challenging the prices charged for health care products and services, limiting both coverage and the amount of reimbursement for new diagnostics products and services, and denying or limiting coverage for products that are approved by the regulatory agencies but are considered experimental by third party payers.

 

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The Company understands that due to third party dependency it is extremely difficult to eradicate this risk. However, the Company manages this risk with constant dialogue and educating the third-party payers on the Group’s products and also developing new technologies in order to seek additional reimbursements.

KEY EMPLOYEES

The Company’s future development and prospects depend to a significant degree on the continuing contribution of key members of its Board, Senior Management and Scientific Advisory Board. As a small organization, the Company relies on a core team of staff and is therefore exposed to any significant departures of key personnel. In particular, the Company’s performance depends significantly on the continuing contribution of its CEO, James McCullough, its President, Thomas McLain, its CTO, Fergus Fleming, its CFO, O. James Sterling and its CMO, Michael Donovan.

The Group operates in a highly competitive field and the expertise and skills of key individuals are also applicable in a number of other fields and industries. The high level of demand for such expertise and skills means that there is increasingly intense competition for talent. The departure of any of the key members to pursue other opportunities or because they are no longer able to continue to perform their roles (for whatever reason) could have a negative impact on its operations and could affect the Group’s ability to execute the Group’s business strategy.

To seek to mitigate the potential risk of departures, the Company has adopted a competitive remuneration structure, which includes share-based incentives. The Company has also taken out key- man insurance on James McCullough. However, there can be no assurance that this insurance will be adequate or continue to be available on appropriate terms or at all.

OBSOLESCENCE OF GROUP’S PRODUCTS

Demand for the Group’s products could be adversely impacted by the development of alternative technology and alternative medicines specifically intended for the identification, stratification and/ or treatment of CKD patients. There can be no assurance that the technology and products currently being developed by the Group will not be rendered obsolete. New AI technology may continue to emerge and develop. As a result, there is the possibility that new technology may be superior to, or render obsolete, the technology that the Group currently is developing. Any failure of the Company to ensure that its technology platform and products remain up to date with the latest technology may have a material adverse impact on the

Company’s competitiveness and financial performance. The Group’s success will depend, in part, on its or its partners’ ability to develop and adapt to these technological changes and industry trends.

THE GROUP IS SUBJECT TO INCREASINGLY STRINGENT PRIVACY AND DATA SECURITY LEGISLATION

Regulatory, legislative or self-regulatory/standard developments regarding privacy and data security matters could adversely affect the Group’s ability to conduct the Group’s business. The Group is subject to laws, rules, regulations and industry standards related to data privacy and cyber security, and restrictions or technological requirements regarding the collection, use, storage, protection, retention or transfer of data.

For the foreseeable future, the Group will only process data relating to patients in the US and will therefore be subject to various rules and regulations, including those promulgated under the authority of the US Department of Health and Human Services, the Federal Trade Commission, and state cybersecurity and breach notification laws, as well as regulator enforcement positions and expectations.

If the Company begins processing personal data in the context of an establishment in a country that is subject to the GDPR or if it offers products or services to residents of an EU country, it will have to comply with various robust obligations.

Globally, governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws, policies, regulations, and standards covering user privacy, data security, technologies that are used to collect, store and/or process data, marketing online, the use of data to inform marketing, the taxation of products and services, unfair and deceptive practices, and the collection (including the collection of information), use, processing, transfer, storage and/or disclosure of data associated with unique individual internet users. New regulation or legislative actions regarding data privacy and security (together with applicable industry standards) may increase the costs of doing business and could have a material adverse impact on the Group’s operations and cash flows.

 

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Despite the Group’s ongoing efforts to ensure practices are compliant, the Group may not be successful either due to various factors within the Group’s control, such as limited financial or human resources, or other factors outside the Group’s control. It is also possible that local data protection authorities may have different interpretations of the GDPR, leading to potential inconsistencies amongst various EU member states.

COMPETITION

The markets in which the Group operates, which include the markets for laboratory developed tests, clinical diagnostic support tools and clinical AI solutions, are potentially highly competitive and rapidly changing.

Competitors may have access to considerably greater financial, technical and marketing resources. The availability and price of the Group’s competitors’ clinical AI development services could limit the demand, and the price the Group is able to charge, for its services. New competing products may enter the market and make the Group’s discoveries and the products developed from those discoveries obsolete.

Alternatively, a competitor’s products may be more effective, cheaper or more effectively marketed than the products developed by the Group, which could have a material adverse effect on the Group’s profitability and/or financial condition.

Technological competition from medical device companies, life science companies, universities and academic medical centers is intense and can be expected to increase. Many competitors and potential competitors of the Group have substantially greater product development capabilities and financial, scientific, marketing and human resources than the Group. The future success of the Group depends, in part, on its ability to maintain a competitive position, including an ability to further progress through the necessary preclinical and clinical trials to support commercialization, marketing authorization where necessary, and coverage and reimbursement. Other companies may succeed in commercializing products earlier than the Group or in developing products that are more effective than those which may be produced by the Group. While the Group will seek to develop its capabilities in order to remain competitive, there can be no assurance that research and development by others will not render the Group’s products obsolete or uncompetitive.

RESEARCH AND DEVELOPMENT RISK

The Group operates in the life sciences sector and will look to exploit opportunities within that sector. The Group is involved in complex clinical development processes and industry experience indicates that there may be a very high incidence of delay or failure to produce the desired results. The Group may not be able to develop new products or to identify specific market needs that can be addressed by technology solutions developed by the Group. The ability of the Group to develop new technology relies, in part, on the recruitment of appropriately qualified staff as the Group grows. The Group may be unable to find a sufficient number of appropriately highly trained individuals to satisfy its growth rate which could affect its ability to develop as planned.

Product development timelines are at risk of delay, particularly since it is not always possible to predict the rate of patient recruitment into clinical trials. There is a risk therefore that product development could take longer than presently expected by the Board. If such delays occur, the Group may require further working capital. The Board shall seek to minimize the risk of delays by careful management of projects.

In addition, research and development may be subject to various requirements, such as research subject protection for individuals participating in clinical evaluations of new laboratory developed tests and products, institutional review board oversight, regulatory authorizations, and design control requirements for FDA and EU-regulated products. Failure to comply with requirements could result in penalties, delay, or prevent commercialisation of products.

FINANCIAL REPORTING AND DISCLOSURE

Due to the nature of the Group there is a requirement to report accurate financial information in compliance with accounting standards and applicable legislation.

This risk is mitigated through the Group’s internal controls over the financial information and reporting, overseen by the local financial heads and then reviewed by the central finance team, including the Chief Financial Officer. The annual financial statements are also subject to audit by the Group’s external auditors.

CYBER SECURITY RISK

The Group uses computers extensively in its operations and has an online presence but does not trade online. It is at risk of attack through hacking or other methods. This risk is mitigated by the use of robust security measures, staff training, and back-up systems.

 

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INTELLECTUAL PROPERTY RISK

The commercial success of the Group and its ability to compete effectively with other companies depends, amongst other things, on its ability to obtain and maintain patents sufficiently broad in scope to provide protection for the Group’s intellectual property rights against third parties and to exploit its products. The absence of any such patents may have a material adverse effect on the Group’s ability to develop its business.

The Group mitigates this risk by developing products where legal advice indicates patent protection would be available, seeking patent protection for the Group’s products, maintaining confidentiality agreements regarding Group know-how and technology and monitoring technological developments and the registration of patents by other parties. The commercial success of the Group also depends upon not infringing patents granted, now or in the future, to third parties who may have filed applications or who have obtained, or may obtain, patents relating to business processes which might inhibit the Group’s ability to develop and exploit its own products.

PANDEMIC RISK

The COVID-19 pandemic has created uncertainty in the market. The eventual severity and length of the economic disruption is impossible to forecast. We believe we still have a robust plan in place to mitigate the effect of the disruption on the business including taking the following actions (amongst others):

 

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Organizing for as many staff as possible to work from home

 

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Improving our computer networking to facilitate remote working

 

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Gaining designation as a company essential to basic medical care which allows our premises to remain open even in a lockdown

 

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Improved social distancing by limiting physical meetings, expanding flexible working, and altering production practices

 

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Preparing requests for support for short time working with local authorities in case this becomes necessary

 

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Banning international travel and limiting domestic travel

 

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Increasing supplier and customer contact so as to be able to anticipate issues and react quickly

We have insurance cover in place in case there is a loss of business, although it cannot be guaranteed that cover will be sufficient to protect against all eventualities.

We have not yet seen any material disruption to our business as a result of the COVID-19 pandemic and current trading suggests that our base case forecasts are still applicable. However, at this stage, it is difficult to assess reliably whether there will be any material disruption in the future. We have modelled a number of scenarios covering reductions in revenue of 10% and 50%, without taking into account the potential benefits of any mitigation strategies such as potential cost savings or insurance claims. We have also modelled out 100% reductions in revenue with cost savings within our control. While the eventual severity and length of the economic disruption stemming from the pandemic is impossible to forecast these models give the Directors reasonable confidence that the business has sufficient resources to continue as a going concern for at least the next 12 months.

 

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Section 172 Statement

The Directors are required by law to act in good faith to promote the success of the Company for the benefit of the shareholders as a whole and are also required to have regard to the following:

 

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the likely long-term consequences of any decision;

 

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the interests of the Company’s employees;

 

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the need to foster the Company’s business relationships with suppliers, customers and others;

 

•

the impact of the Company’s operations on the community and the environment;

 

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the desirability of the Company maintaining a reputation for high standards of business conduct; and

 

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the need to act fairly as between shareholders of the Company.

Please see the Corporate Governance Statement in the Directors’ Report for an overview of the Company’s corporate governance arrangements.

The Chairman and Chief Executive Officer’s joint statement and the section headed “Product Overview and Strategy” in this Strategic Report describes the Group’s activities, strategies and future prospects, including the considerations for long-term decision making. In particular, the Group has made significant progress towards its operational, regulatory and reimbursement goals and is now engaged in commercial roll-out of its lead product, KidneyIntelX in the United States. In addition, the Group is seeing an increase in strategic partnering activities which will continue to build on the validation and commercial use cases for KidneyIntelX.

The Board has a good relationship with the Group’s employees. The Board maintains constructive dialogue with employees through the Chief Executive Officer and other members of the executive team. Appropriate remuneration and incentive schemes are maintained to align employees’ objectives with those of the Group. See further under Employees in the section headed “Corporate Social Responsibility” below.

The Group endeavors to maintain good relationships with its suppliers by contracting on fair business terms, paying within agreed timeframes, and responding promptly to inquiries.

The Group’s operations have minimal environmental impact. Please see Environment in the section headed “Corporate Social Responsibility” below for more details.

The Board recognizes the Group’s duty to be a good corporate citizen. See Social, community and human rights in the section headed “Corporate Social Responsibility” below for more details.

The Board recognizes the importance of maintaining high standards of business conduct. The Group operates a Code of Business Conduct and Ethics applicable to its employees, independent contractors, executive officers and directors. A current copy of the Code of Business Conduct and Ethics is available on our website, which is located at www.renalytixai.com.

The Board endeavors to maintain good relationships with its shareholders and treat them equally. This is described in more detail in the Corporate Governance Statement under the heading “Relations with Shareholders.”

There were a number of initiatives and strategic actions undertaken during FY21 which the Directors believe were in the best interests of the Company and all its stakeholders as follows:

 

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Achieved dual listing on Nasdaq Global Market and associated $85.1 million gross equity financing

 

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Government-wide contract granted by the U.S. General Services Administration for KidneyIntelXTM testing services at $950 per reportable result; applies to more than 140 U.S. government departments, agencies, and affiliates including U.S. Veterans Administration (VA), Department of Defense military branches (Army, Navy, Air Force, and Marines), and Indian Health Services

 

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Full CLIA certification of Salt Lake City laboratory facility

 

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KidneyIntelX launched within the Mount Sinai Health System, validating the electronic health record (EHR) integrated care pathway; subsequent (post-period) volume scale-up announced

 

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Collaboration with AstraZeneca to develop and launch precision medicine strategies for cardiovascular, renal and metabolic diseases to potentially expand Renalytix’s portfolio

 

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Partnership with Atrium Health, Wake Forest Baptist Health and Wake Forest School of Medicine to implement advanced clinical care models to improve kidney health and reduce kidney disease progression and kidney failure; expected go-live testing starting in November

 

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Partnership with the University of Utah to implement KidneyIntelX and advanced clinical management care pathway to reduce the risk of kidney failure

 

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Collaboration with DaVita to enable first-of-its-kind program combining early risk assessment and comprehensive care management to improve early to late-stage patient outcomes and provide meaningful cost reductions for health care providers

 

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Exclusive option to license novel biomarkers with Joslin Diabetes Center, which could provide additional clinical utility for understanding early disease progression, risk of kidney failure, therapeutic response, and the mechanistic pathways of kidney disease beyond the markers that are currently captured by KidneyIntelX

 

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Welcomed new board members Ann Berman and Daniel Levangie both with extensive backgrounds in healthcare company growth and finance

 

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Corporate Social Responsibility

ENVIRONMENT

The Directors consider that the nature of the Group’s activities is not inherently detrimental to the environment. The Group is committed to identifying and minimizing any effect on the environment caused by its operations. As a minimum standard, we will fully comply with all relevant legislation and, wherever possible, look for opportunities to make a positive contribution to the environments in which we operate.

EMPLOYEES

The Group places great value on the involvement of its employees and they are regularly briefed on the Group’s activities. The Group closely monitors staff attrition rates which it seeks to keep at low levels and aims to structure staff compensation levels at competitive rates in order to attract and retain high calibre personnel.

DISABLED EMPLOYEES

Applications for employment by disabled persons are always fully considered, bearing in mind the specific aptitudes of the applicant involved. It is the policy of the Group that the training, career development and promotion of disabled persons, as far as possible, be identical to that of other employees.

SOCIAL, COMMUNITY AND HUMAN RIGHTS

The Board recognizes that the Group has a duty to be a good corporate citizen and to respect and comply with laws, regulations, and where appropriate the customs and culture of the territories in which it operates. The Group encourages employees to take part in charitable activities which are related to our business areas or customers. It contributes as far as is practicable to the local communities in which it operates and takes a responsible and positive approach to employment practices.

 

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CORPORATE GOVERNANCE

Board of Directors

 

		Christopher Mills   Non-Executive Chairman (Aged 68)   Christopher Mills has served as a member of the Renalytix Board since its inception. Christopher founded Harwood Capital Management in 2011, a successor to its former parent company, J.O. Hambro Capital Management, which he co-founded in 1993. He is Chief Executive and Investment Manager of North Atlantic Smaller Companies Investment Trust plc and Chief Investment Officer of Harwood Capital LLP. He is a Non-executive Director of a number of companies, including EKF Diagnostics. Christopher was a Director of Invesco MIM, where he was Head of North American Investments and Venture Capital, and of Samuel Montagu International.
		James McCullough   Chief Executive Officer and Director (Aged 53)   James McCullough has served as Renalytix’s co-founder and Chief Executive Officer since its inception. James has leadership experience building emerging technology companies in both the public and private sectors with specific expertise in the life-sciences industry. James was most recently Chief Executive Officer of Exosome Diagnostics, a venture-backed personalized medicine company developing non-invasive liquid biopsy diagnostics in cancer, which was recently acquired by Bio-Techne Corporation. James is also a managing partner of Renwick Capital, LLC, a management consulting firm specializing in assisting emerging healthcare technology companies with strategic planning and business execution, and was a co-founder of PAIGE.AI, a computational pathology spin-out from the Memorial Sloan Kettering Cancer Center. James received his B.A. from Boston University and an M.B.A. from Columbia Business School. James is currently Chairman of BalletNext, a performing arts company in New York City.
		Fergus Fleming   Chief Technical Officer and Director (Aged 54)   Fergus Fleming has served as Renalytix’s Chief Technical Officer since its inception. Fergus is managing director of FF Consulting Limited and Head of Business Development for Oncomark Limited. Fergus has over 25 years’ experience in the life sciences sector, including leadership positions with Baxter Healthcare, Boston Scientific, Trinity Biotech plc, and EKF Diagnostics. Fergus has extensive experience in the design and manufacture of medical device software, in vitro diagnostics instruments and reagents, and electromechanical devices. He has extensive experience managing global projects, including clinical research collaborations, product development, acquisition integration, and manufacturing site transfers.

 

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		Erik Lium Ph.D.   Non-Executive Director (Aged 53)   Erik Lium, Ph.D., has served as a member of the Renalytix Board since November 2018. Dr. Lium is the executive vice president of Mount Sinai Innovation Partners and is responsible for advancing Mount Sinai’s research, instruction, and public service missions through strategic research partnerships with industry, the management, transfer and commercialisation of technologies, and fostering the development of start- ups and joint ventures to advance promising early-stage technologies. Dr. Lium also serves as a director of Amathus Therapeutics and as a member of the Investment Review Committee for the Accelerate NY Seed Fund.
		Prior to joining Mount Sinai, Dr. Lium served as the assistant vice chancellor of Innovation, Technology & Alliances at the University of California, San Francisco (UCSF), and the UCSF Principal Investigator for the Bay area National Science Foundation I-Corps node. He held previous positions at UCSF, including assistant vice chancellor of Research and director of Industry Contracts, and director of Business Development for the Diabetes Center & Immune Tolerance Network. Dr. Lium served as president of LabVelocity Inc., an Information Services Company focused on accelerating research and development in the life sciences prior to its acquisition in 2004. He pursued post-doctoral research at UCSF, and earned a PhD with honours from the Integrated Program in Cellular, Molecular and Biophysical Studies at Columbia University. Dr. Lium holds a BS in Biology from Gonzaga University.
		Chirag R. Parikh, Ph.D., M.D.   Non-Executive Director (Aged 48)   Chirag R. Parikh, Ph.D., M.D., has served as a member of the Board since October 2019. Since July 2018, Dr. Parikh has served as a Professor of Medicine and the Division Director of Nephrology at Johns Hopkins University. Dr. Parikh also served as a faculty member at Yale University where he directed the Program of Applied Translational Research. Dr. Parikh’s research focuses on the translation and validation of novel biomarkers for the diagnosis and prognosis of kidney diseases. He has assembled multi-centre longitudinal prospective cohorts for translational research studies across several clinical settings of acute kidney injury and chronic kidney disease for the efficient translation of novel biomarkers. Dr. Parikh received his medical degree from Seth G.S. Medical College and KEM Hospital in Mumbai, India, and subsequently completed his Nephrology fellowship and a Ph.D. in Clinical Investigation at the University of Colorado Health Sciences Center.
		Ann Berman   Non-Executive Director (Aged 69)   Ann E. Berman joined our board of directors in 2021. She is a former chief financial officer of Harvard University, where she was responsible for financial strategy, policy and planning, financial reporting and operations, treasury and risk management, and various audit functions. She served on the board of Harvard Management Company, the investment management firm for Harvard University’s endowment.   Ms. Berman currently serves on the board of directors of Loews Corporation (NYSE: L) as well as the board of Immuneering Corporation where she chairs the audit committee. She is a member of the board of trustees of Beth Israel Deaconess Medical Center, where she is the chair of the compliance and risk committees. She is a certified public accountant with experience overseeing audit-related matters, enterprise risk management, internal audit, cybersecurity, and compliance. Ms.   Berman was previously a partner with Richard A. Eisner & Co., an accounting firm, and began her career at Price Waterhouse & Co. She holds a B.A. from Cornell University and M.B.A. from the University of Pennsylvania’s Wharton School of Business.

 

|  Renalytix plc Annual Report and Financial Statements		25

		Daniel J. Levangie   Non-Executive Director (Aged 71)   Daniel J. Levangie was appointed to the Company’s board of directors in August 2021. He is an experienced executive and long-serving board director in the diagnostics and medical devices industry. Mr. Levangie is co-founder and manager of ATON Partners, a private investment firm, and president and CEO of CereVasc, LLC, a medical device company. He has also served on the board of directors of Exact Sciences Corporation since 2010. From 2013 through January 2017, Mr. Levangie served as president of Insulet Drug Delivery Systems and served as a lead director of Insulet Corporation. From 2011 through 2013, Mr. Levangie was chief executive officer of Dune Medical Devices, Inc., and co-founder and managing partner of Constitution Medical Investors, Inc., a Boston-based private investment and product development firm acquired by Roche Diagnostics Corporation in 2013. Previously, he held executive management positions with Cytyc Corporation including executive vice president and chief operating officer, chief executive officer and president until the acquisition of Cytyc by Hologic, in 2007. He served on the board of Hologic from 2007 to 2009. Mr. Levangie holds a B.S. in Pharmacy from Northeastern University.

Barbara Murphy M.D.

Non-Executive Director - Deceased on 29 June 2021 (Aged 54)

Julian Baines MBE

Non-Executive Chairman - Resigned on 16 July 2020 (Aged 57)

Richard Evans

Non-Executive Director - Resigned on 16 July 2020 (Aged 64)

This report was approved by the Board on 19 November 2021 and signed on behalf of the Board by:

 

/s/ Christopher Mills

Christopher Mills

Chairman

 

|  Renalytix plc Annual Report and Financial Statements		26

Directors’ Report

The Directors present their annual report on the affairs of the Group, together with the consolidated financial statements and auditor’s report for the year ended 30 June 2021. The Corporate Governance Statement set out on pages 31 to 33 forms part of this report.

CORPORATE DETAILS

Renalytix plc is a public limited company incorporated in the under the laws of England & Wales (Registration Number 11257655). The address of the registered office is Finsgate, 5-7 Cranwood Street, London EC1V 9EE. On 25 June 2021 the company changed its name from RenalytixAI plc to Renalytix plc.

DIRECTORS

The Directors, who served in office during the year and as date of signing these financial statements were as follows:

 

•

Christopher Mills

 

•

James McCullough

 

•

Erik Lium

 

•

Fergus Fleming

 

•

Chirag Parikh

 

•

Ann Berman (appointed on 28 July 2021)

 

•

Daniel Levangie (appointed on 31 August 2021)

 

•

Barbara Murphy (Deceased on 29 June 2021)

 

•

Julian Baines (resigned on 16 July 2020)

 

•

Richard Evans (resigned on 16 July 2020)

Details of the Directors’ membership of committees is shown on page 32. The Company Secretary is Salim Hamir.

PRINCIPAL ACTIVITIES

The principal activity of the Group is the development of artificial intelligence-enabled clinical diagnostic solutions for kidney disease.

GOING CONCERN

The Group and Company meet their day-to-day working capital requirements through the use of cash reserves.

The Directors have considered the applicability of the going concern basis in the preparation of the financial statements. This included the review of internal budgets and financial results which show, taking into account reasonably probable changes in financial performance, that the Group and Company should be able to operate within the level of its current funding arrangements.

We have not yet seen any material disruption to our business as a result of the COVID-19 pandemic and current trading suggests that our base case forecasts are still applicable. However, at this stage, it is difficult to assess reliably whether there will be any material disruption in the future. In addition, the Directors have considered the potential effects of the COVID-19 pandemic as laid out in the Strategic Report. We have modelled a number of scenarios covering reductions in revenue of 10% and 50%, without taking into account the potential benefits of any mitigation strategies such as potential cost savings or insurance claims. We have also modelled out 100% reductions in revenue with cost savings within our control. While the eventual severity and length of the economic disruption stemming from the pandemic is impossible to forecast these models give the Directors reasonable confidence that the business has sufficient resources to continue as a going concern for at least the next 12 months.

 

|  Renalytix plc Annual Report and Financial Statements		27

The Directors believe that the Group and the Company have adequate resources to continue in operation for the foreseeable future. For this reason, they have adopted the going concern basis in the preparation of the financial statements.

FUTURE DEVELOPMENTS AND RESEARCH AND DEVELOPMENT ACTIVITIES

Future developments and research and development activities are discussed in the Strategic Report on pages 4 to 23.

RESULTS AND DIVIDENDS

The Group recorded a loss for the year of $31.0 million (FY20: $9.3 million). When it is commercially prudent to do so and subject to the availability of distributable reserves, the Board may approve the payment of dividends. However, at present, the Directors consider that it is more prudent to retain cash to fund the development of the Group and, as a result, feel it is inappropriate to give an indication of the likely level or timing of any future dividend payment. The Directors do not recommend payment of a dividend in respect of FY21 (FY20: nil).

FINANCIAL RISK MANAGEMENT

Financial risk management is discussed in Note 4 of the financial statements.

EMPLOYEE POLICIES

Employee policies are discussed in the Strategic Report on page 23.

POLITICAL CONTRIBUTIONS AND CHARITABLE CONTRIBUTIONS

Neither the Company nor any of its subsidiaries made any political donations or incurred any political expenditure during the year ended 30 June 2021 (FY20: nil).

DIRECTORS’ INTERESTS

The interests in the share capital of the Company of those Directors serving at 30 June 2021 and as at the date of signing of these financial statements, all of which are beneficial, were as follows:

 

		On 30 June 2021 Ordinary Shares of 0.25p each				On 30 June 2020 Ordinary Shares of 0.25p each
Christopher Mills			9,174,401				9,197,501
James McCullough			2,740,110				2,870,110
Erik Lium			—				—
Fergus Fleming			569,481				584,481
Chirag Parikh			—				—
Ann Berman			—				—
Daniel Levangie			—				—

Christopher Mills’ shareholding includes shares held through North Atlantic Smaller Companies Investment Trust plc and Oryx International Growth Fund Limited. Christopher Mills is a partner and Chief Investment Officer of Harwood Capital LLP. Harwood Capital LLP is investment manager to North Atlantic Smaller Companies Investment Trust plc and investment adviser to Oryx International Growth Fund Limited.

 

|  Renalytix plc Annual Report and Financial Statements		28

SUBSTANTIAL SHAREHOLDINGS

As at 12 November 2021, the following interests in 3% or more of the issued Ordinary Share capital had been notified to the Company:

 

Shareholder		Number of Shares				Percentage of Issued Share Capital
Icahn School of Medicine at Mount Sinai			10,750,926				14.9	%
Christopher Mills			9,174,401				12.7	%
Gilder Gagnon Howe and Co LLC			6,042,634				8.4	%
James McCullough			2,740,110				3.8	%
Amati Global Investors			2,455,247				3.4	%
Fidelity Investment International			2,173,851				3.0	%

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) in conformity with the requirements of the Companies Act 2006 and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) in conformity with the requirements of the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to:

 

•

select suitable accounting policies and then apply them consistently;

 

•

state whether applicable IFRSs in conformity with the requirements of the Companies Act 2006 have been followed for the group financial statements and IFRSs in conformity with the requirements of the Companies Act 2006 have been followed for the parent company financial statements, subject to any material departures disclosed and explained in the financial statements;

 

•

make judgements and accounting estimates that are reasonable and prudent; and

 

•

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent company will continue in business.

The Directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and parent company’s performance, business model and strategy.

 

|  Renalytix plc Annual Report and Financial Statements		29

Each of the Directors, whose names and functions are listed in the Report of the Directors confirm that, to the best of their knowledge:

 

•

the parent company financial statements, which have been prepared in accordance with IFRSs in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and loss of the Company;

 

•

the Group financial statements, which have been prepared in accordance with IFRSs in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and

 

•

the Strategic Review includes a fair review of the development and performance of the business and the position of the Group and parent company, together with a description of the principal risks and uncertainties that it faces.

DIRECTORS’ INDEMNITIES

The Company has entered into deeds of indemnity for the benefit of each Director of the Company in respect of liabilities to which they may become liable in their capacity as Director of the Company and of any Company in the Group. Those indemnities are qualifying third party indemnity provisions for the purposes of section 234 of the Companies Act 2006 and have been in force during the whole of the financial period and up to the date of approval of the financial statements.

INDEPENDENT AUDITORS

PKF Littlejohn LLP has expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.

DISCLOSURE OF INFORMATION TO THE AUDITORS

The Directors who hold office at the date of approval of this report confirm that so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware, and each Director has taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

CORPORATE GOVERNANCE

The Company’s statement of corporate governance can be found in the Corporate Governance Statement on pages 24 to 26 of these financial statements. The Corporate Governance Statement forms part of this Report of the Directors and is incorporated into it by cross-reference.

ANNUAL GENERAL MEETING

The resolutions to be proposed at the forthcoming Annual General Meeting are set out in a separate notice sent to the shareholders.

RECOMMENDATION

The Board considers that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and it is unanimously recommended that shareholders support these proposals as the Board intends to do in respect of their own holdings.

This report was approved by the Board on 19 November 2021 and signed on behalf of the Board by:

 

/s/ Christopher Mills

Christopher Mills

Chairman

 

|  Renalytix plc Annual Report and Financial Statements		30

Corporate Governance Statement

COMPLIANCE

The Company recognizes the value of good corporate governance in every part of its business. The Board has adopted the corporate governance principles of the 2018 Quoted Companies Governance Code (the “QCA Code”) and the Company has continued to comply with the QCA Code throughout the reporting period. The Board believes that this corporate governance framework is appropriate for the Company, having regard to its size and nature. Details of the QCA Code can be obtained from the Quoted Companies Alliance’s website (www.theqca.com).

Details of how the Group seeks to address the principles underlying the QCA Code and how it leverages its principles to support the long-term success of the Group can be found on the Company’s website.

BOARD COMPOSITION AND RESPONSIBILITY

The Board currently comprises two Executive Directors and four Non-Executive Directors.

It is the Board’s opinion that the Barbara Murphy was independent has been independent in character and judgement and that there were no relationships or circumstances which could materially affect or interfere with the exercise of her independent judgement during the course of FY21. Since the passing away of Barbara Murphy the Board have appointed two independent two Non-Executive Directors, Ann Berman and Daniel Levangie.

All Directors are subject to election by Shareholders at the first Annual General Meeting after their appointment, and are subject to re-election at least every three years. Non-Executive Directors are appointed for a specific term of office which provides for their removal in certain circumstances, including under section 168 of the Companies Act 2006. The Board does not automatically re-nominate Non-Executive Directors for election by Shareholders. The terms of appointment of the Non- Executive Directors can be obtained by request to the Company Secretary.

The Board’s primary objective is to generate value for the Group by identifying and assessing business opportunities and ensuring that potential risks are identified, monitored and controlled. Matters reserved for Board decisions include strategic long-term objectives and the capital structure of major transactions. The implementation of Board decisions and day to day operations of the Group are delegated to senior management.

There is a division of responsibilities between the Non-Executive Chairman, who is responsible for the overall strategy of the Group and running the Board, and the Chief Executive Officer, who is responsible for implementing the strategy and day to day running of the Group. He is assisted by the Chief Technical Officer, who is a Board member, and Chief Financial Officer who is not a Board member.

BOARD MEETINGS

Eighteen Board meetings were held during the year. The Directors’ attendance record during their period of office is as follows:

 

Christopher Mills (Non-Executive Chairman)		17/18
James McCullough (Chief Executive Officer)		18/18
Erik Lium (Non-Executive Director)		17/18
Fergus Fleming (Chief Technology Officer)		18/18
Chirag Parikh (Non-Executive Director)		16/18
Barbara Murphy (Non-Executive Director)		10/16
Julian Baines (Non-Executive Chairman)		1/1 (Resigned on 16 July 2020)
Richard Evans (Non-Executive Director)		1/1 (Resigned on 16 July 2020)

 

|  Renalytix plc Annual Report and Financial Statements		31

During the year, the Board conducted an evaluation of the performance of the Board and that of the Chairman, as well as the effectiveness of the Board Committees. The Board intends to develop further its evaluation of the performance of the Board and Committees on an annual basis. The evaluation will include Board composition, experience, dynamics and the Board’s role and responsibilities for strategy, risk review and succession planning. The evaluations will involve a detailed questionnaire and individual discussions between the Non-Executive Chairman and the Directors. The Board is considering overhauling its evaluations process now it has listed at Nasdaq.

AUDIT COMMITTEE

The Audit Committee comprises of Ann Berman, who acted as chair, Daniel Levangie and Erik Lium. The Audit Committee, among other things, determines and examines matters relating to the financial affairs of the Company including the terms of the engagement of the Company’s auditors and, in consultation with the auditors, the scope of the audit. It receives and reviews the reports from management and the Company’s auditors relating to the half yearly and annual forward statements and the accounting and the internal control systems in use throughout the Company.

The committee has met formally once during the year ended 30 June 2021. There have been no significant matters communicated to the Committee by the auditors and no interaction with the Financial Reporting Council.

Before the appointment of Ann Berman and Daniel Levangie, the composition of the Audit Committee was Erik Lium, acting as chair, Barbara Murphy and Christopher Mills.

REMUNERATION COMMITTEE

The Remuneration Committee comprised Daniel Levangie, who acted as chair, and Chirag Parikh. The Remuneration Committee reviews and makes recommendations in respect of the Executive Directors’ remuneration and benefits packages, including share options and the terms of their appointment. The Remuneration Committee also make recommendations to the Board concerning the allocation of share options to employees under the intended share option schemes.

The Committee has met three time during the year ended 30 June 2021.

NOMINATION COMMITTEE

The Nomination Committee comprised Ann Berman, who acted as chair, and Christopher Mills. The Nomination Committee reviews and recommends nominees as new Directors to the Board.

INTERNAL CONTROL

The Directors are responsible for ensuring that the Group maintains a system of internal control to provide them with reasonable assurance regarding the reliability of financial information used within the business and for publication and that the assets are safeguarded. There are inherent limitations in any system of internal control and accordingly even the most effective system can provide only reasonable, but not absolute, assurance with respect to the preparation of financial reporting and the safeguarding of assets.

The Group, in administering its business, has put in place strict authorization, approval and control levels within which senior management operates. These controls reflect the Group’s organizational structure and business objectives. The control system includes clear lines of accountability and covers all areas of the organization. The Board operates procedures which include an appropriate control environment through the definition of the above organization structure and authority levels and the identification of the major business risks.

INTERNAL FINANCIAL REPORTING

The Directors are responsible for establishing and maintaining the Group’s system of internal reporting and as such have put in place a framework of controls to ensure that on-going financial performance is measured in a timely and correct manner and that risks are identified as early as is practicably possible. There is a comprehensive budgeting system and monthly management accounts are prepared which compare actual results against both the budget and the previous year. They are reviewed and approved by the Board and revised forecasts are prepared on a regular basis.

 

|  Renalytix plc Annual Report and Financial Statements		32

RELATIONS WITH SHAREHOLDERS

The Company reports to Shareholders twice a year. The Company dispatches the notice of its Annual General Meeting, together with a description of the items of special business, at least 21 clear days before the meeting. Each substantially separate issue is the subject of a separate resolution and all Shareholders have the opportunity to put questions to the Board at the Annual General Meeting.

The Chair(s) of the Audit and Remuneration Committees normally attend the Annual General Meeting and will answer questions which may be relevant to their work. However, due to the ongoing COVID-19 pandemic, the Committee Chairs will not be in attendance at this year’s Annual General Meeting. The Chairman advises the meeting of the details of proxy votes cast on each of the individual resolutions after they have been voted on in the meeting. The Chairman and the Non- Executive Directors intend to maintain a good and continuing understanding of the objectives and views of the Shareholders.

Shareholders May Contact the Company as Follows:

Tel: +44 (0)20 7933 8790 (from USA: +1-646-217-4999)            Email: investors@renalytix.com

CORPORATE SOCIAL RESPONSIBILITY

The Board recognizes that the Group has a duty to be a good corporate citizen and is conscious that its business processes minimize harm to the environment, that it contributes as far as is practicable to the local communities in which it operates and takes a responsible and positive approach to employment practices. The Group is subject to the requirements of the Modern Slavery Act 2015 and published the required statement on its website. The directors consider that the nature of the Group’s activities is not inherently detrimental to the environment. The Group is committed to minimizing any effect on the environment caused by its operations.

The Corporate Governance Statement was approved by the Board on 19 November 2021 and signed on its behalf by:

 

/s/ Salim Hamir

Salim Hamir

Company Secretary

 

|  Renalytix plc Annual Report and Financial Statements		33

Director’s Remuneration Report and Policy

For the Period Ended 30 June 2021

STATEMENT OF COMPLIANCE

This report does not constitute a Directors’ Remuneration Report in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the Companies (Miscellaneous Reporting) Regulations 2018, and the Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 which do not apply to the Company as it was not a quoted company (as defined in the Companies Act 2006) as at the end of the financial year. This report sets out the Group policy on Directors’ remuneration, including emoluments, benefits and other share-based awards made to each Director.

 

 

REMUNERATION COMMITTEE

REPORT DR. ERIK LIUM

CHAIR OF THE REMUNERATION

COMMITTEE

 

 

Dear shareholder,

As the Chair of the Remuneration Committee (the “Committee”), I am pleased to present, on behalf of the board of directors (the “Board”) of Renalytix PLC (the “Company” or “Renalytix”), the Directors’ remuneration report for the year ended 30 June 2021 (the “Directors’ Remuneration Report”).

The Company’s Annual Report and Accounts, along with the Directors’ Remuneration Report, will be subject to an advisory vote at the forthcoming Annual General Meeting on 17 December 2021 (the “AGM”) and the remuneration policy section of the Directors’ Remuneration Report will be subject to a binding vote at the AGM.

Introduction

During the period covered by this Directors’ Remuneration Report, we maintained the remuneration programs and policies that the Committee established during the financial year 2021 and implemented strategic compensation initiatives designed to incentivise and retain key employees in the Company.

As we move into 2022 and beyond, the Committee’s role will be to ensure that Directors and senior executives at Renalytix are appropriately compensated and incentivised to deliver growth to shareholders in a long-term and sustainable manner. The Committee seeks to accomplish this by establishing remuneration programs that are grounded in market practice, are effective at driving proper management behaviors, clearly link pay and performance and are cost efficient overall.

Corporate Governance Standards

As a public company, we are subject to corporate governance standards and regulations applicable in the United States and the United Kingdom.

The Global Marketplace for Talent

Renalytix is a biopharmaceutical company with operations in Europe and the United States. The Company plans to expand its operations in both geographic regions in line with the growth of its clinical and manufacturing activities and its plans to commercialize its products in these geographies. Given that the market for experienced directors and biopharmaceutical executive management talent, particularly in the United States, is very competitive, the Committee references the US market as the leading indicator for remuneration levels and practices. This will help attract and retain directors and motivate the superior executive management talent needed to successfully manage the Company’s complex global operations. Being consistent in this market view of the United States as the primary benchmark for remuneration practices for directors and executive directors (CEO and CTO) is key for the Company as it builds its global operations in a manner designed to deliver sustainable long-term growth and shareholder value.

 

|  Renalytix plc Annual Report and Financial Statements		34

Committee decisions have been taken in light of the extensive benchmarking for director and executive director compensation conducted in 2021, which included a review of compensation practices of comparable companies to Renalytix in the US and Europe. In taking any actions, the Committee is mindful of the general UK compensation framework, including investor bodies’ guidance, and the UK Corporate Governance Code, and has incorporated these into its remuneration programs, policies and decisions where it believes they best serve the long-term interests of shareholders.

Remuneration Program Highlights

While I recommend that you carefully read the disclosure on our programs and policies that follows this letter to help with the understanding of our approach to director compensation, I want to highlight the following aspects of our program below:

 

•

Pay for Performance - We believe that a significant portion of remuneration of our directors and our executive directors (CEO & CTO) should be based on achieving objectives designed to create inherent value in the Company, and ultimately on achieving value creation for our shareholders. In line with this belief, the compensation of our CEO includes a significant performance-based cash bonus opportunity and a large equity incentive component. Further, our directors receive equity incentives designed to reward long-term value creation for our shareholders.

 

•

Shareholding requirements for Executive Directors - We believe having these requirements encourages executive directors to build meaningful shareholding positions and furthers alignment of their interests with those of shareholders.

 

•

2021 Remuneration Outcome - As outlined above, a core principle in Renalytix’s remuneration program is the linkage between pay and performance. In financial year 2021, the annual bonus of James McCullough our CEO and Fergus Fleming our CTO, our executive directors were based on a combination of corporate and personal objectives. The Committee of the Board determined that the Company achieved 100% of its annual corporate objectives, bonuses for company executives are still being finalized and are expected to be paid in Q2 financial year 22. This outcome was based on achievements versus goals in the following key areas: EHR Integration, FDA Submission, healthcare/commercial partnerships, coverage agreements, regulatory compliance and attracting and retaining top talent.

 

•

Major Decisions and Substantial Changes regarding Directors’ Remuneration - During financial year 2021, there were no major decisions or substantial changes on our directors’ remuneration scheme however the company did engage remuneration consultants in financial year 2020 to advise the Committee on all aspects of senior executive remuneration. The remuneration consultant’s findings were relied upon when approving salary increases for financial year 2021.

Conclusion

The Committee believes the proposals put forth in this report will properly motivate our directors and our CEO to deliver sustainable growth and shareholder value over the long term and do so in a responsible and cost efficient manner.

I hope that you find the information in this report helpful, and look forward to the AGM, where we hope to have your support.

Dr. Erik Lium¹

Chair of the Remuneration Committee

19 November 2021

 

1.	Dr. Erik Lium served as Chair of the Remuneration Committee for the entirety of the year ended 30 June 2021 and was replaced on 12 October 2021 when Daniel Levangie was appointed Chair of the Remuneration Committee.

 

|  Renalytix plc Annual Report and Financial Statements		35

DIRECTORS’ REMUNERATION POLICY

This part of the Directors’ remuneration report sets out the Directors’ remuneration policy for the Company’s directors and executive directors and has been prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

The remuneration policy will be put forward for approval by shareholders in a binding vote at the forthcoming AGM on 17 December 2021.

If approved, it is intended that the remuneration policy will take effect from the date of approval and apply for a maximum period of three years (or until a revised policy is approved by shareholders).

Renalytix’s remuneration policy has been designed to:

 

•

align to the Company’s strategy and business model;

 

•

attract, retain and motivate high calibre individuals who have the potential to support the growth of the Company;

 

•

be competitive against appropriate market benchmarks, focusing particularly on the US bio-technology sector; and

 

•

take account of good governance and promote the long-term success of the Company.

EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE

The table below sets out, for each element of pay, a summary of how remuneration of executive directors is structured and how it supports the Company’s strategy.

 

Executive Directors
Purpose and Link to Strategy		Operation		Maximum Opportunity		Performance Metrics
BASE SALARY
To attract, retain and motivate executive directors of the highest calibre who are capable of delivering the Company’s strategic objectives, reflecting the individual’s experience and role within the Company.   Base salary is designed to provide an appropriate level of fixed income to avoid an over-reliance on variable pay elements that could encourage excessive risk taking.		Salaries are normally reviewed annually, and changes are generally effective from 1 October.   The annual salary review of the Executive Directors takes into consideration a number of factors, including:   •  scope of the individual’s responsibilities;   •  abilities, experience and performance of the individual;   •  business performance;   •  salary increases awarded to the overall employee population;   •  market competitiveness and US and UK market practice; and   •  the underlying rate of inflation.		Executive Director level salaries are determined considering industry benchmarking data. There is no prescribed maximum annual salary or salary increase.   Base salary increases are awarded at the discretion of the Committee; however, the Committee is guided by the general increase for the broader employee population but may decide to award a lower increase for Executive Directors or exceed this to recognize, for example, an increase in the scale, scope or responsibility of the role and/or take account relevant market movements.   Salary increases will normally Executive Director level salaries are approved by the Board in line with corporate performance and are consistent with positions held.		No formal metrics, although any increases take account of Company performance and the individual performance of the Executive Director.
BENEFITS
Benefits in kind offered to Executive Directors are provided on a market- competitive basis, to assist with their recruitment and retention.		The Company aims to offer benefits that are in line with the Executive Directors’ local market and those offered to the wider workforce.		There is no defined maximum value for benefits, but the Committee will consider the aggregate value of any such benefits when determining what should be offered.		Not performance related.

 

|  Renalytix plc Annual Report and Financial Statements		36

Executive Directors
Purpose and Link to Strategy		Operation		Maximum Opportunity		Performance Metrics
PENSION
The Company aims to provide a contribution towards life in retirement.		Depending on their location and comparable benefits offered to local employees, Executive Directors may be eligible to receive employer contributions to a defined contribution pension scheme or a cash supplement in lieu of such contributions, or a mixture of both.		The maximum employer pension contribution or cash in lieu amount will be a percentage of annual base salary aligned with that provided to other senior executives in the Executive Director’s location.		Not performance related.
ANNUAL BONUS
An annual bonus rewards the achievement of objectives that support the Company’s corporate goals and delivery of the business strategy		Bonuses are determined based on objectives that are agreed with the Committee, and the Board, at the start of each financial year although the Committee retains the discretion to amend objectives during the year if it considers that objectives are no longer appropriate.   Different performance measures and weightings may be used each year, as agreed with the Committee, to take into account changes in the business strategy.   Bonuses are normally paid in cash (but may be paid in the form of an equity award, at the discretion of the Committee).		Executive Director level bonuses are approved by the Board in line with corporate performance and are consistent with positions held.		Performance measures are determined by the Committee each year and may vary to ensure that they promote the Company’s business strategy and shareholder value. The annual bonus will be based on corporate measures, including, but not limited to, financial and/or strategic measures. Bonus measures are reviewed at least annually and the Committee has the discretion to change the measures or to introduce new measures when it deems appropriate.
EQUITY INCENTIVE PLAN (‘EIP’)
To attract, motivate, retain and reward for long-term, sustainable performance linked to corporate strategy and provide alignment with shareholders’ interests.		Equity awards granted to Executive Directors may take the form of options, restricted shares, performance share units, restricted share units, or other forms of awards granted in accordance with the discretionary EIP that may be in place from time to time.   The Executive Directors received a grant under the EIP’s predecessor plan upon listing on AIM and it is intended that top-up awards shall be issued under the EIP from time to time in the discretion of the Committee.		There is no maximum opportunity for equity incentives. However, the Committee will generally assess the position at similar sized comparator companies prior to making any award to ensure that any awards are aligned to the market.		Vesting of equity awards is generally subject to continued employment and may also be subject to the achievement of performance conditions aligned with the Company’s strategic plan. Measures, their weightings and the period over which performance is tested will be determined by the Committee.   The Committee will select the most appropriate form of EIP for awards each year and/or each individual grant.   Vesting of equity awards may be accelerated in part or in full in connection with certain corporate events such as a change of control.
ALL EMPLOYEE EQUITY PLANS
Encourages employee share ownership and therefore increases alignment of interests with shareholders.		The Company may, from time to time, operate tax-advantaged share plans for which Executive Directors would be eligible on the same basis as all other eligible employees.		Within the limits of the relevant legislation.		Not performance related.

 

|  Renalytix plc Annual Report and Financial Statements		37

Notes to the Executive Director Remuneration Policy Table

Legacy arrangements

For the duration of this Remuneration Policy, the Company will honour any commitments made in respect of current or former Directors before the date on which either: (i) the Remuneration Policy becomes effective; or (ii) an individual becomes a Director, even where not consistent with the Remuneration Policy set out in this report or prevailing at the time such commitment is fulfilled. For the avoidance of doubt, all outstanding historic awards that were granted in connection with, or prior to, our IPO on NASDAQ remain eligible to vest based on their original or modified terms.

Clawback Provisions

The Company does not currently have a policy on recoupment and clawback, but the Committee will keep this under review.

Shareholding Requirements

Executive directors are not currently required to build and retain a shareholding, but the Committee will keep this under review.

NON-EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE

The table below sets out, for each element of pay, a summary of how remuneration of non-executive directors is structured and how it supports the Company’s strategy.

 

Chair and Non-Executive Directors
Purpose and Link to Strategy		Operation		Maximum Opportunity		Performance Metrics
CASH FEES AND BENEFITS
Set at a level that is sufficient to attract and retain high calibre non-executives who contribute to the business.		The Chair and the Non-Executive Directors receive fees paid in cash.   Fees are paid and reviewed annually.   Non-Executive Directors ordinarily do not participate in any pension, bonus or performance-based share incentive plans. Travel, accommodation and other business-related expenses incurred in carrying out the role as well as fees for tax advice associated with completion of international tax returns will be paid by the Company including, if relevant, any gross-up for tax and/or social security contributions.   Tax equalization and/or relocation benefits may be provided to Non-Executive Directors who are required to relocate or become tax resident in a new jurisdiction.		When reviewing fee levels and benefits, account is taken of market movements in the fees and benefits of Non-Executive Directors, Board Committee responsibilities and ongoing time commitments.   Actual fee levels are disclosed in the annual Directors’ Remuneration Report for the relevant financial year.		Not performance related.

 

|  Renalytix plc Annual Report and Financial Statements		38

Chair and Non-Executive Directors
Purpose and Link to Strategy		Operation		Maximum Opportunity		Performance Metrics
EQUITY-BASED AWARDS
To facilitate share ownership and provide alignment with shareholders.		Non-Executive Directors may receive equity awards under any equity incentive plan operated by the Company from time to time which permits their participation with careful consideration being given to ensuring their independence.   Non-Executive Directors may receive an initial equity award upon appointment or election. Initial equity awards will normally vest over a specified period of time, subject generally to continued service. Vesting of equity awards may be accelerated in part or in full in connection with certain corporate events such as a change of control.   In addition, Non-Executive Directors may be granted an equity award each year which may vest in full upon grant or over time subject to continued service. If a new Non-Executive Director joins the Board following the date of grant of this annual grant in any calendar year, such Non-Executive Director may be granted a pro rata portion of the next annual grant to reflect his or her service during the relevant part of the relevant year.		There is no maximum number of equity incentive awards that may be awarded to individuals each year. However, when reviewing award levels, account is taken of market movements in equity incentive awards, Board committee responsibilities, ongoing time commitments and the general economic environment.		Non-executive directors do not participate in performance based equity incentives.

REMUNERATION FOR NEW APPOINTMENTS

Where it is necessary to appoint or replace an Executive Director, the Committee has determined that the new Executive Director will receive a compensation package in accordance with the provisions of the approved remuneration policy in force at the time of appointment but focusing on the objective of appointing the most appropriate person in the right geography.

In setting base salaries for new Executive Directors, the Committee will consider the existing salary package of the new Director, the individual’s skills, level of experience and the market rate for the role.

In setting the annual performance bonus, the Committee may wish to set different performance metrics (to those of other Executive Directors) in the first year of appointment. Where it is appropriate to offer a below-median salary on initial appointment, the Committee will have the discretion to allow phased salary increases over a period of time for a newly appointed Director as the Executive gains experience in their new role, even though this may involve increases in excess of inflation and the increases awarded to the wider workforce.

Benefits and pensions will be in line with those offered to other executive directors, taking account of local market practice with relocation expenses provided at the discretion of the Committee if necessary. Tax equalization may also be considered if an executive is adversely affected by taxation due to their employment with the Group. Legal fees and other costs incurred by the individual may also be met by the Company.

 

|  Renalytix plc Annual Report and Financial Statements		39

The ongoing incentive opportunity offered to new recruits will be in line with that offered to existing Directors. Different measures and targets under the bonus plan or the Company’s equity incentive arrangements may be set initially taking account of the responsibilities of the individual and the point in the financial year at which they join. A new employee may be granted normal annual equity awards in the first year of employment in addition to any awards made with respect to prior employment being forfeited, which shall be excluded from any annual maximum on the size of awards.

To enable the recruitment of exceptional talent, the Committee may determine that the buy-out of remuneration forfeit from a prior employer is necessary. Where possible, any replacement remuneration will be offered on a like-for-like basis with the forfeited awards and may be in the form of cash or shares and depending whether the award forgone has similar performance conditions, may or may not be subject to performance conditions. The value of any buy-out will be limited to the value of remuneration forfeit. Where appropriate, such awards will be granted under existing share plans, however, the Committee will have discretion to make standalone awards where appropriate.

In respect of internal appointments, any commitments entered into in respect of a prior role, including variable pay elements, may be allowed to pay out according to their prior term, adjusted as relevant to take into account the appointment.

The terms of appointment for a new Non-Executive Director would be in accordance with the remuneration policy for Non-Executive Directors in force at that time.

EXECUTIVE DIRECTORS’ SERVICE CONTRACTS

James McCullough (Chief Executive Officer) is currently employed at-will pursuant to an employment agreement entered into with Renalytix AI, Inc, dated 2 November 2018 but effective on 1 November 2018. His employment may be terminated by either party at any time for any or no reason, with or without notice. Severance payments no more generous than those described in this policy will be payable to him on termination. Upon termination of his employment agreement, our Chief Executive Officer is required to resign from all other positions within the Company’s group. Following termination of his employment, our Chief Executive Officer will be bound by certain post-termination covenants.

As is customary for US executives, our Chief Executive Officer’s remuneration is subject to a “best-after-tax” cutback for excise tax calculations under section 280G of the US Internal Revenue Code of 1986, with no tax gross-up.

Fergus Fleming (Chief Technology Officer) is currently employed on an indefinite term pursuant to an employment agreement entered into with the Company dated 1 November 2018. His employment may be terminated by either party on 12 months written notice.

At its discretion, upon receipt of his written notice, or as an alternative to providing notice, terminate the employment with immediate effect and make a payment in lieu of notice, comprising base salary only, for the notice period (or remainder thereof, should notice have been given). In the event of a breach of service agreement or other summary termination of employment, no such payments will be made.

A copy of these contracts may be viewed at the Company’s head office or may be requested from the Company Secretary at the annual general meeting.

NON-EXECUTIVE DIRECTORS’ TERMS OF ENGAGEMENT

All Non-Executive Directors, including the Chair, have specific terms of engagement which may be terminated on not less than six months’ notice by either party.

The remuneration of Non-Executive Directors is determined by the Board within the limits set by the Company’s articles of association and based on a review of fees and equity-based remuneration paid to Non-Executive Directors of similar companies.

A Board evaluation has been performed and the results of this exercise confirmed that all Non-Executive Directors were independent.

TERMINATION AND LOSS OF OFFICE PAYMENTS

Depending on market practice in the jurisdiction in which an Executive Director is employed, exit payments shall depend on the circumstances of termination and may be made by reference to a notice period (including a payment in lieu of notice) or employment “at-will” together with a severance payment. Where a notice period applies, this will not exceed 12 months but may be accompanied by additional severance entitlements where applicable.

The Company’s policy on remuneration for Executive Directors who leave the Company is set out below. The Committee will exercise its discretion when determining amounts that should be paid to leavers, taking into account the facts and circumstances of each case.

 

|  Renalytix plc Annual Report and Financial Statements		40

US-BASED EXECUTIVES

 

		Termination without cause or with Good Reason1		Termination for cause		Termination without cause or with Good Reason1 in connection with change in control
Salary and benefits		Subject to the executive executing a release: a payment of up to 12 months’ salary and benefits including COBRA or other applicable healthcare coverage payable in equal monthly instalments or as a lump sum, at the discretion of the Committee.		No payment.		Subject to the executive executing a release: a payment of up to 18 months’ salary and benefits and benefits payable in equal monthly instalments or as a lump sum, at the discretion of the Committee.
Annual bonus		Any earned but unpaid bonus, a pro-rata portion of the bonus that would have been due for any part year worked, plus up to one year’s target bonus, or a higher bonus at the discretion of the Committee, payable as a lump sum or on a monthly basis.		No payment.		Any earned but unpaid bonus, a pro-rata portion of the bonus that would have been due for any part year worked, plus up to 1.5 year’s target bonus, or a higher bonus at the discretion of the Committee, payable as a lump sum or on a monthly basis.
Equity incentive awards		The Company may accelerate the vesting of the portion of equity held on the termination date that would have vested over the following one year period.		Unvested awards lapse in full.		Full vesting on termination.

1: Includes, among others, a material diminution in role, a material reduction in base salary or mandated relocation, as defined by contract.

NON-US BASED EXECUTIVES

When calculating termination payments for Non-US based Executives, the Committee will consider a variety of factors, including individual and Company performance, the length of service of the Executive Directors in question and, where appropriate, the obligation for the Executive Directors to mitigate loss. In the event of a change of control and ownership, the Committee may exercise its discretion to provide for additional remuneration and/or benefits for Executive Directors who leave the Company in connection with such change of control, and will take into account all relevant circumstances when making any such determination.

In the case of a ‘good leaver’ (to be determined at the discretion of the Committee) the following policy will normally apply, although the Committee retains the discretion to make payments which are no more generous than those applicable to a US based Executive Director (as described above), when viewed in the round with notice / payment in lieu of notice entitlements:

 

•

notice period of twelve months or payment in lieu of notice;

 

•

statutory redundancy payments will be made, as appropriate;

 

•

Executive Directors have no entitlement to a bonus payment in the event that they cease to be employed by the Company, however, they may be considered for a pro-rated award by the Committee in good leaver circumstances; and

 

•

any share-based entitlements granted to an Executive Director under the Company’s share and individual share contracts or share option plans will be determined based upon the relevant individual share option contracts or plan rules, and performance conditions or hurdles and vesting may be accelerated in the discretion of the Committee.

 

|  Renalytix plc Annual Report and Financial Statements		41

ADDITIONAL PAYMENTS

The Committee will make payment of any statutory entitlements as necessary. In addition, the Committee will retain the discretion to make additional payments in settlement of, or to compromise, an actual or potential claim in connection with a termination of any Executive Director as necessary.

The Committee reserves the right to make reasonable legal, relocation and outplacement costs, if deemed necessary.

REMUNERATION COMMITTEE (THE “COMMITTEE”)

Governance

In its decision-making process, the Committee takes account of information from both internal and independent sources and Compensia surveys. Compensia were appointed as remuneration consultants by the Committee based on their expertise in the field via a competitive tender process. Compensia advises the Committee on all aspects of senior executive remuneration. Compensia has kept the Committee up to date on remuneration trends and corporate governance best practice. Compensia does not have any other connection with the Company and is considered to be independent and objective by the Committee. During the year ended 30 June 2021, fees charged by Compensia amounted to approximately USD 16,000 and this was charged on a time spent basis.

The current members of the Committee are Dr. Erik Lium (Chair), Dr. Chirag Parikh, and Daniel Levangie (who became a member of the Remuneration Committee on 30 August 2021 following his appointment as a director of the Company on that date). Each member is deemed to be independent.

Remuneration Committee report (continued)

The Company’s Chief Human Resources Officer provides updates to the Committee, as required, to ensure that the Committee is fully informed about pay and performance issues throughout the Company. The Committee takes these factors into account when determining the remuneration of the Executive Directors and senior executives.

No Executive Director or employee can participate in any discussion directly relating to their own personal conditions of service or remuneration.

No conflicts of interest have arisen during the year and none of the members of the Committee has any personal financial interest in the matters discussed, other than as option holders. The fees of the Non-Executive Directors are approved by the Board on the joint recommendation of the Committee and the Chief Executive Officer.

 

Director		Meetings attended
Dr. Erik Lium			3
Dr. Chirag Parikh			3

The Committee met three times in the year to 30 June 2021.

Discretions retained by the Committee

The Committee operates under the powers it has been delegated by the Board. In addition, it complies with rules that require certain matters to be put to either shareholder or Board approval. These rules provide the Committee with certain discretions which serve to ensure that the implementation of the Remuneration Policy is fair, both to the individual director and to the shareholders. The Committee operates the Company’s remuneration plans in accordance with their rules from time to time. To maintain an efficient administrative process, the Committee retains the following discretions to apply its judgement in setting remuneration:

 

•

the eligibility to participate in the plans;

 

•

the timing of grant of awards and any payments;

 

•

the size of awards and payments (subject to any maximum limits set out in the policy table above and the respective plan rules);

 

•

the determination of whether the performance conditions have been met;

 

•

determining a good or bad leaver under the terms of the plan and the treatment of such leaver’s cash and equity remuneration;

 

|  Renalytix plc Annual Report and Financial Statements		42

•

dealing with a change of control or restructuring of the Group;

 

•

adjustments required in certain capital events such as rights issues, corporate restructuring, events and special dividends and certain other out-of-the-ordinary events;

 

•

the annual review of performance and other vesting conditions for the annual bonus plan and equity awards.

In certain circumstances, such as a material acquisition/divestment of a Group business, which mean the original performance conditions are no longer appropriate, the Committee may adjust the targets, alter weightings or set different measures as necessary, to ensure the conditions achieve their original purpose and are not materially less difficult to satisfy.

The Committee may make minor amendments to the Remuneration Policy (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.

ILLUSTRATION OF APPLICATION OF THE POLICY

Pay-for-performance scenario analysis

The charts below provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split between different elements of remuneration under different performance scenarios:

 

•

Minimum - fixed pay only.

 

•

Target (performance in line with expectations) - fixed pay, plus bonus and equity payouts at threshold level (50% of maximum).

 

•

Maximum (performance meets or exceeds maximum) - fixed pay, plus the maximum bonus payout and full vesting of any equity awards, based on grant-date face value of awards to be granted in financial year 2022.

Fixed pay comprises:

 

•

Salaries - salary effective at 1 July 2020.

 

•

Benefits - an estimated value of all benefits receivable in the 2022 financial year.

 

•

Pension - 5% of salary for the CEO and CTO.

 

Amounts are shown in thousands (USD).

Values do not include the impact of any share price appreciation over the vesting period. The reporting regulations require the disclosure of maximum total pay including the impact of a 50% increase in share price over the vesting period for equity awards subject to multi-year performance measures which is not applicable to any of our current equity awards. The equity award amounts shown above relate to share options vesting during the year using the Company’s AIM closing price at the end of the quarter in which the award vested less associated exercise price.

 

|  Renalytix plc Annual Report and Financial Statements		43

Statement of consideration of employees’ pay and remuneration conditions elsewhere in the Group

The Company does not formally consult with employees on the matters of Executive Director remuneration. However, the Committee is made aware of employment conditions in the wider Group. The same broad principles apply to the remuneration policy for both Executive Directors and the wider employee population. However, the remuneration for Executive Directors has a stronger emphasis on performance-related pay than for other employees. Salaries, benefits and pensions are compared to appropriate market rates in the jurisdiction in which the Executive Director is employed and is set at an appropriate level with allowance for role, responsibilities and experience.

Statement of consideration of Shareholders’ views

The Committee will consider any Shareholder feedback received at the Annual General Meeting and at meetings throughout the year, when reviewing the overall remuneration policy each year. The guidance from relevant shareholder representative bodies is also considered on an ongoing basis.

More specifically the Committee will consult with major Shareholders when proposing any significant changes to the policy in the future.

ANNUAL REPORT ON REMUNERATION¹

This section of the remuneration report provides details of how our remuneration policy was implemented during the financial year ended 30 June 2021, and how it will be implemented during the year ending 30 June 2022.

This report splits certain information into that for Executive Directors and that for Non-Executive Directors.

Directors’ Remuneration – financial year ended 30 June 2021

The total remuneration of the individual Directors who served during the period is shown below. Total remuneration is the sum of emoluments for the period in service as a director plus Company pension contributions, and the value of long-term incentive awards vesting by reference to performance in the twelve months to 30 June 2021.

Directors’ Remuneration – financial year ended 30 June 2021

 

		Year				Basic Salary ($000s)a				Benefits ($000s)b				Bonus ($000s)c				EIPd				Pension ($000s)e				Total Remuneration ($000s)				Total Fixed Remuneration ($000s)				Total Variable Remuneration ($000s)
Executive Directors
James McCullough			2021				586				62				530				—				15				1,193				663				530
			2020				370				46				471				—				17				904				433				471
Fergus Fleming			2021				366				17				211				2,379				24				2,997				407				2,590
			2020				317				3				180				910				11				1,321				331				910
Non-Executive Directors
Erik Lium (Mount Sinai representative)1			2021				27				—				—				904				—				931				27				904
			2020				25				—				—				346				—				371				25				346
Christopher Mills			2021				27				—				—				—				—				27				27				—
			2020				25				—				—				—				—				25				25				—
Barbara Murphy2			2021				27				—				—				1,190				—				1,217				27				1,190
			2020				25				—				—				455				—				480				25				455
Chirag Parikh3			2021				87				—				—				548				—				635				87				548
			2020				69				—				—				165				—				234				69				165
Ann Berman4			2021				—				—				—				—				—				—				—				—
			2020				—				—				—				—				—				—				—				—
Daniel Levangie5			2021				—				—				—				—				—				—				—				—
			2022				—				—				—				—				—				—				—				—

 

|  Renalytix plc Annual Report and Financial Statements		44

Notes to the remuneration table

 

a.	All amounts presented were earned in respect of the financial period.

b.

This is the taxable value of benefits paid or payable in respect of the financial period. For Non-Executive Directors, the taxable benefits comprise travel costs (and the gross-up for associated income tax and employees’ National Insurance Contributions which will be settled on behalf of the Non-Executive Directors) for attendance at Board meetings.

 

For executive directors, benefits include health, dental, vision, life and long-term disability insurance paid for by the Company

 

c.

Executive bonuses for financial year 2021 have not been approved by the Committee yet therefore for financial year 2021 this is the total bonus expected to be earned under the annual bonus scheme in respect of the financial year (despite being paid in the following financial year, following determination of final outcomes). The final amounts in respect of such bonuses will be disclosed in next year’s report.

 

d.	The amount shown relates to the market value of the EIP and other equity awards vesting during the year using the Company’s AIM closing price at the end of the quarter in which the award vested less associated exercise price.

 

e.	The amount shown relates to Company contributions to the defined contribution scheme, plus any cash in lieu.

 

1.	Dr. Lium sits on our board as a representative of the Icahn School of Medicine at Mount Sinai. This fee is invoiced annually by Mt. Sinai.

 

2.	Dr. Murphy passed away on June 29, 2021.

 

3.	In addition to $25,206 in board fees Chirag Parikh’s remuneration includes consulting services performed for Renalytix. Chirag received $500/hr for consulting services in both financial year 2020 and financial year 2021.

 

4.	Ann Berman joined the board in July 2021 therefore she did not receive remuneration for the 2020 and 2021 financial years.

 

5.	Dan Levangie joined the board in August 2021 therefore he did not receive remuneration for the 2020 and 2021 financial years.

ANNUAL PERFORMANCE BONUS – 2020/2021 FINANCIAL YEAR

In the 2020 financial year, all employees were eligible for an annual discretionary cash bonus, whereby performance objectives were established at the beginning of the financial year by reference to suitably challenging corporate goals.

For the 2021 financial year, the company refined the annual bonus calculation as annual bonuses for all staff (including Executive Directors and Non-Executive Directors) were calculated and achieved by reference to both corporate and individual performance.

The achievement against the scorecard of corporate goals was as follows:

 

Corporate goals		Weighting %				2021 Achievement %
Achieve first implementation and associated building blocks for future implementations			20	%			100	%
FDA Submission for KidneyIntelX			20	%			100	%
Announced Events with Healthcare Systems / Payer Groups			20	%			100	%
Payor coverage agreements			20	%			100	%
Pass Regulatory Audits and Certifications			10	%			100	%
Attract and Retain Top Talent			10	%			100	%
Total			100	%			100	%

 

|  Renalytix plc Annual Report and Financial Statements		45

Specific targets associated with each corporate goal are commercially sensitive and have been omitted to protect competitive information. However, full details of the targets will be disclosed when they are no longer considered commercially sensitive.

Achievement against objectives is given careful consideration by the Committee prior to finalisation of bonus outcomes. The Committee reviewed the formulaic outcome of the scorecard and concluded that 100% of corporate goals were met and the scorecard outcome, as shown above, reflected the performance of the Executive Directors in the year. As a result of corporate performance, the following bonuses were calculated for the Company’s executive directors and will be presented to the Board for approval.

 

		Bonus scorecard Outcome ($000s)				% of salary				Maximum opportunity Cash amount ($000s)				% of salary
James McCullough			530				90	%			1,060				180	%
Fergus Fleming			211				67	%			422				133	%

During the year ended 30 June 2021, no Executive Directors or non-executive directors were awarded options under the EIP scheme. There was no change in the exercise price or date of existing options.

EXECUTIVE DIRECTORS’ SHARE AWARDS

Directors’ interests in shares at 30 June 2021

 

Director		Total shares owned outright plus vested options				Shares owned outright				Percentage of issued share capital				Vested but not exercised				Unvested but subject to performance				Unvested and not subjected to performance
Current Directors
James McCullough1			2,740,110				2,740,110				3.8	%			—				—				—
Fergus Fleming			1,017,949				569,481				0.79	%			448,468				—				89,694
Ann Berman			—				—				—				—				—				—
Mount Sinai (Board Seat)			170,418				—				—				170,418				—				34,084
Christopher Mills2			9,174,401				9,174,401				12.7	%			—				—				—
Chirag Parikh			92,270				—				—				92,270				—				38,454
Daniel Levangie			—				—				—				—				—				—

 

1.	James McCullough shareholding includes 2,554,398 shares held through his family trust, The McCullough 2020 Irrevocable Trust (the “Trust”).

2.

Christopher Mills is partner and Chief Investment Officer of Harwood Capital LLP. Harwood Capital LLP is Investment Manager to North Atlantic Smaller Companies Investment Trust plc and investment adviser to Oryx International Growth Fund Limited. Christopher’s shareholding is made up of 6,145,001 ordinary shares held by North Atlantic Smaller Companies Investment Trust PLC, 2,780,000 ordinary shares are held by Oryx International Growth Fund Limited and 249,400 ordinary shares are held by Harwood Capital LLP.

 

|  Renalytix plc Annual Report and Financial Statements		46

REMUNERATION COMMITTEE REPORT (CONTINUED)

Performance graph and table

The following graph shows Renalytix’s cumulative Total Shareholder Return (“TSR”) from the Company’s November 2018 IPO on AIM relative to the FTSE AIM All Share Index and the Nasdaq Biotech Index. These two indices were chosen due to

Renalytix’s listing on both exchanges and the sector in which it operates. For the period from 6 November 2018 to 30 June 2021 Renalytix Plc data relates to AIM TSR, and from 17 July 2020 the data relates to Nasdaq TSR (as show by the separate line).

TSR is defined as the return on investment obtained from holding a company’s shares over a period. It includes dividends paid, the change in capital value of the shares and any other payment made to or by shareholders within the period.

 

ALIGNING PAY WITH PERFORMANCE

CEO remuneration compared with annual growth in TSR:

The total 2020/21 remuneration figure for the CEO (James McCullough) is shown in the table below, along with the value of bonuses paid in respect of the year, and EIP vesting, as a percentage of the maximum opportunity. As this is the first year reported since listing on Nasdaq and therefore the first year for which this disclosure is required, it is not possible to provide meaningful comparative data. However, full disclosure of the year on year movement will be provided in future remuneration reports.

 

James McCullough $000s
Total remuneration			1,193
Actual bonus as a % of the maximum			50	%
Actual share award vesting as % of the maximum			—

 

|  Renalytix plc Annual Report and Financial Statements		47

Percentage change in remuneration of the Directors and employees

Set out below is the change over the prior period in base salary, benefits, pension and annual performance bonus for all the directors and the Company’s employees.

 

		Salary % change 2019/20 vs 2020/21				Benefits % change 2019/20 vs 2020/21				Bonus % change 2019/20 vs 2020/21
James McCullough			58	%			36	%			371	%
Fergus Fleming			58	%			512	%			116	%
Ann Berman			—				—				—
Mount Sinai			—				—				—
Christopher Mills			—				—				—
Chirag Parikh			—				—				—
Dan Levangie			—				—				—

Statement of Implementation of Policy in 2021/22

Base salary: There was no change in James McCullough’s or Fergus Fleming’s base salary for the 2021/2022 financial year. The 2021/2022 target base salary increases for other employees are expected to be in line with market rates for all of eligible employees, being those that had joined the business prior to 1 July 2021.

Pension and benefits: In 2021/2022, Executive Directors are eligible for the same benefits as provided to all senior employees. The Executive Directors are each entitled to the maximum employer pension contribution of 5% of their respective base salary which is paid into a defined contribution pension scheme / paid in cash in lieu of pension contributions.

Annual performance bonus: For 2021/2022, the Executive Directors’ annual cash bonus target payouts are still being determined by the Committee as the benchmarking process is ongoing and will be disclosed in next year’s report. The Committee considers overall corporate performance and individual performance when determining the final bonus amount to be awarded to an Executive Director. Performance will be tested against targets set by the Committee at the start of the year and will comprise a combination of corporate goals and individual goals for James McCullough and Fergus Fleming.

Specific targets are commercially sensitive and therefore are not disclosed in advance. However, full details of the targets and performance against them will be disclosed when they are no longer considered commercially sensitive.

The Chairman and non-executive directors will continue to be paid their current level of fees.

Payments for loss of office (audited information)

There were no loss of office payments in 2020/2021.

Payments to past Directors (audited information)

There were no payments to past directors in 2020/2021.

Dr. Erik Lium

Chair of the Remuneration Committee

19 November 2021

 

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Independent Auditor’s Report to the Members of Renalytix plc

OPINION

We have audited the financial statements of Renalytix Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 June 2021 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statement of Financial Position, the Consolidated and Parent Company Statements of Cash Flows and the Consolidated and Parent Company Statements of Changes in Equity and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:

 

•

the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 June 2021 and of the group’s loss for the year then ended;

 

•

the group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;

 

•

the parent company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act 2006; and

 

•

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

CONCLUSIONS RELATING TO GOING CONCERN

In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting included:

 

•

a consideration of the inherent risks to the group’s business model and an analysis of how those risks might affect the group’s financial resources or ability to continue operations over the period from the date of signing the financial statements to November 2022.

 

•

Identification of the risks that we considered most likely to affect the group’s financial resources or ability to continue operations over this period, which were adverse circumstances impacting growth in revenues, timely conversion of trade receivables to cash, reduction in expenses and operating cash outflows, and access to financial resources in the form of debt facilities if so required. We considered this through a review of the application of reasonably foreseeable downside scenarios.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s or parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

 

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OUR APPLICATION OF MATERIALITY

The scope of our audit was influenced by our application of materiality. The quantitative and qualitative thresholds for materiality determine the scope of our audit and the nature, timing and extent of our audit procedures. Materiality for the consolidated financial statements was set at $1,005,000 (2020: $410,000) based on the group’s gross assets with performance materiality for the group set at $603,000 (2020: $246,000). Gross assets are considered to be a key benchmark as the group holds product trademarks and licenses and product development costs are capitalised in the group. We have also set a separate, lower, materiality for revenue owing to this being the first period in which revenue is recognised based on revenue for the year. We have determined materiality for revenue as $32,000 and performance materiality as $19,200.

Materiality for the parent company financial statements was set at $470,000 (2020: $260,000), with Gross assets being used as the benchmark with performance materiality for the parent company set at $282,000 (2020: $156,600). Gross assets are considered to be a key benchmark as the parent company holds the product trademarks and licenses and product development costs are capitalised in this company.

For each component in the scope of our group audit, we allocated a materiality that was less than our overall group materiality. Component materiality for significant and/or material subsidiary undertakings ranged from $603,000 to $410,000 (2020: $246,000 to $240,000).

We agreed with the audit committee that we would report all individual audit differences identified during the course of our group audit in excess of $50,250 (2020: $20,500) together with any other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds. For the parent company, this threshold was $23,500 (2020: $13,000).

OUR APPROACH TO THE AUDIT

In designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at areas involving significant accounting estimates and judgement by the Directors such as the recoverability of intangible fixed assets and eligibility of capitalised development costs, as outlined in the Key Audit Matter section below, and considered events that are inherently uncertain.

We also addressed the risk of management override of controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. All significant and/or material subsidiary undertakings were audited directly by PKF Littlejohn LLP.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

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Key Audit Matter		How our scope addressed this matter
Recoverability of intangible fixed assets and eligibility of capitalised development costs (Note 20)
Intangible assets comprise the following categories as at 30 June 2021 with a total value of $18,021,000:   •  Trademarks, trade names and licenses   •  Trade secrets   •  Product development costs   Intangible assets that are subject to amortisation are assessed for indicators of impairment.   Estimated recoverable amounts using value in use calculations are subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows. Judgement is also required when estimating useful economic lives.   The eligibility for capitalisation of expenditure is assessed in accordance with the criteria in IAS 38 Intangible Assets. There is a risk that these assets have been capitalised incorrectly and are not recoverable. Given the judgements and estimates involved these were a key focus for our audit.		We confirmed the Group held good title to the trademarks, trade names and licenses.   We assessed whether any indicators of impairment (including regulatory issues, progress on obtaining milestones towards commercialisation, development of competing technology and products entering the market) existed which required an impairment charge to be recognised in profit or loss.   We performed substantive testing of additions in all intangible asset categories to supporting documentation. We reperformed the amortisation calculations.   Our testing on the forecasts and value in use calculations included:   •  Evaluation and challenge of the key assumptions used by management;   •  The performance of a sensitivity analysis on the headroom to reasonably possible changes in key assumptions.   We tested and verified the eligibility for capitalisation of development costs in accordance with the criteria under IAS 38, in particular technical feasibility, the ability to commercialise the asset and the availability of technical and financial resources to complete development.

OTHER INFORMATION

The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the group and parent company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion, based on the work undertaken in the course of the audit:

 

•

the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

 

•

the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

 

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We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

 

•

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

 

•

the parent company financial statements are not in agreement with the accounting records and returns; or

 

•

certain disclosures of directors’ remuneration specified by law are not made; or

 

•

we have not received all the information and explanations we require for our audit.

RESPONSIBILITIES OF DIRECTORS

As explained more fully in the statement of directors’ responsibilities in respect of the financial statements, the directors are responsible for the preparation of the group and parent company financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the group and parent company financial statements, the directors are responsible for assessing the group and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

 

•

We obtained an understanding of the group and parent company and the sector in which they operate to identify laws and regulations that could reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with management, and experience of the AI diagnostics sector.

 

•

We determined the principal laws and regulations relevant to the group and parent company in this regard to be those arising from:

 

•

Companies Act 2006

 

•

AiM listing rules

 

•

General Data Protection Regulation

 

•

Quoted Companies Alliance compliance

 

•

Food and Drug Administration Agency

 

•

Local laws and regulations in UK and the USA where the group operates; and

 

•

Local tax and employment law where each member of the group operates

 

|  Renalytix plc Annual Report and Financial Statements		52

•

We designed our audit procedures to ensure the audit team considered whether there were any indications of non-compliance by the group and parent company with those laws and regulations. These procedures included, but were not limited to:

 

•

Enquires of management

 

•

Review of Board minutes

 

•

Review of legal expenses

 

•

Review of RNS announcements

 

•

We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption of a risk of fraud arising from management override of controls, the potential for management bias was identified in relation to the impairment of intangible fixed assets and as noted above, we addressed this by challenging the assumptions and judgements made by management when auditing that significant accounting estimate.

 

•

As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but were not limited to: the testing of journals; reviewing accounting estimates for evidence of bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

 

•

All significant components of the group were audited by PKF Littlejohn LLP. Our work in relation to the points noted above considers all aspects of the group.

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

USE OF OUR REPORT

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

 

/s/ David Thompson David Thompson

(Senior Statutory Auditor)

For and on behalf of PKF Littlejohn LLP Statutory Auditor   15 Westferry Circus

Canary Wharf

London E14 4HD   19 November 2021

 

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FINANCIAL STATEMENTS

Consolidated Income Statement

FOR THE YEAR ENDED 30 JUNE 2021

 

		Note		Year to 30 June 2021				Year to 30 June 2020
				$’000				$’000
Continuing operations
Revenue		8			1,491				—
Cost of Sales					(804	)			—
Gross Profit					687
Administrative expenses		9			(33,298	)			(11,078	)
Operating loss					(32,611	)			(11,078	)
Share of Net loss in Associate accounted for using the equity method					(199	)			(63	)
Impairment of Investment of associate		37			(1,913	)			—
Gain on financial assets at fair value through profit or loss		24			6,483				—
Gain on distribution of assets classified as held for sale		36			402				—
Finance (costs) income - net		14			(7,950	)			531
Loss before tax					(35,788	)			(10,610	)
Taxation		15			4,778				1,360
Loss for the period					(31,010	)			(9,250	)
Earnings per Ordinary share from continuing operations
Basic and diluted		16		$	(0.43	)		$	(0.16	)

 

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Consolidated Statement of Comprehensive Income

FOR THE YEAR ENDED 30 JUNE 2021

 

		Year to 30 June 2021				Year to 30 June 2020
		$’000				$’000
Loss for the period – continuing operations			(31,010	)			(9,250	)
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Currency translation differences			11,616				(1,265	)
Other comprehensive loss for the period			(19,394	)			(10,515	)
Total comprehensive loss for the period			(19,394	)			(10,515	)

Items stated above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note 15.

 

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Consolidated and Company’s Statements of Financial Position

AS AT 30 JUNE 2021

 

		Notes		Group As at 30 June 2021				Group As at 30 June 2020				Company As at 30 June 2021				Company As at 30 June 2020
				$’000				$’000				$’000				$’000
Assets
Non-current assets
Property, plant and equipment		18			1,081				580				—				—
Right of use asset		19			297				365				—				—
Intangible assets		20			18,021				17,118				17,524				16,841
Investment in subsidiaries		21			—				—				4,588				2,264
Investments accounted for using the equity method					—				1,937				—				—
Note receivable		22			75				83				—				2,106
Deferred tax assets		15			7,097				2,319				—				—
Total non-current assets					26,571				22,402				22,112				21,211
Current Assets
Inventory		23			353				326				—				—
Security deposits		24			86				71				—				—
Assets classified as held for sale		36			—				1,705				—				—
Financial asset at fair value through profit or loss		24			9,295				—				9,295				—
Trade and other receivables		25			594				18				84,686				21,956
Prepaid and other current assets		26			520				2,501				271				2,408
Short term investments		24			—				982				—				—
Cash and cash equivalents		27			65,159				13,293				15,063				2,441
Total current assets					76,007				18,896				109,315				26,805
Total assets					102,578				41,298				131,427				48,016
Equity attributable to owners of the parent
Share capital		28			233				192				233				192
Share premium		29			76,457				—				76,457				—
Share-based payment reserve		30			4,940				2,833				4,940				2,833
Foreign currency reserves					9,701				(1,915	)			9,687				(1,970	)
Retained earnings/(deficit)					3,771				34,852				38,917				46,710

 

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		Notes		Group As at 30 June 2021				Group As at 30 June 2020				Company As at 30 June 2021				Company As at 30 June 2020
Total equity					95,102				35,962				130,234				47,765
Liabilities
Current liabilities
Trade and other payables		31			6,652				2,899				1,193				251
Deferred Revenue		8			122				—				—				—
Current lease liabilities		19			86				92				—				—
Borrowings		32			53				121				—				—
Current due to affiliated company		33			350				271				—				—
Total current liabilities					7,263				3,383				1,193				251
Non-current liabilities
SBA PPP Funding - long-term					—				134				—				—
Non-current lease liabilities		19			213				275				—				—
Non-current due to affiliated company					—				1,544				—				—
Total non-current liabilities					213				1,953				—				—
Total liabilities					7,476				5,336				1,193				251
Total equity and liabilities					102,578				41,298				131,427				48,016

The notes on pages 62 to 83 are an integral part of these financial statements.

The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent Company income statement. The loss for the Parent Company for the year was ($7,718,000). (Year ended 30 June 2020: loss of $1,793,000).

The financial statements were approved and authorized for issue by the Board on 19 November 2021 and signed on its behalf by:

 

/s/ Christopher Mills Christopher Mills				/s/ James R. McCullough James R. McCullough
Chairman				Chief Executive Officer

Company number: 11257655

 

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