AZNCF - Renalytix: Commercializing First AI Kidney Disease Diagnostic Tool

2023-07-16 02:49:02 ET

Summary

• Renalytix's lead product, KidneyIntelX, an AI diagnostic tool for kidney disease, has received FDA approval and established insurance reimbursement, partnerships, and a sales team.
• The KidneyIntelX platform combines a blood test and data from patients' electronic health record with AI algorithms to provide a risk score for diabetic kidney disease.
• Despite some risks, Renalytix has the potential to reach profitability in two years if it can successfully scale its product, which could result in stock price appreciation.

The Renalytix's ( RNLX ) lead product is KidneyIntelX, a prognostic solution for kidney health that recently received de nova marketing authorization from the FDA. This is the first in vitro AI diagnostic tool approved by the FDA for kidney disease. The company has established government and private insurance reimbursement, a partnership ecosystem, and a sales team in order to capture its huge total addressable marke t opportunity. My investment thesis is that the company has established an ecosystem to quickly scale and capture profitability within two years.

The Product

Renalytix coined what I think is a new word to describe its platform; Bioprognosis ^TM which is defined by the company as the use of proven, highly prognostic biomarkers, select clinical features, and machine learning to best predict outcomes and to promote and preserve patient health. The company obtained the license for the KidneyIntelX technology that was developed at the Icahn School of Medicine at Mount Sinai by nephrologist Dr. Barbara Murphy who identified the biomarkers and genetic makeup that forecast kidney disease.

The KidneyIntelX Bioprognosis platform combines a blood test and data from the patient's electronic health record with its artificial intelligence-enabled algorithms to provide a score for the risk of diabetic kidney disease.

The effectiveness and accuracy of the KidneyIntelX platform were established by clinical utility studies published in the Journal of Primary Care and Community Health , and the American Journal of Managed Care , and recently presented at the 83rd American Diabetes Association conference.

The company plans to scale its platform to identify other types of kidney disease beyond diabetes such as cardio-renal disease, chronic kidney disease in diverse populations, and coronavirus disease (COVID)-related kidney disease.

The Need

Kidney disease has grown to epidemic levels with diabetes being the leading cause of kidney failure. 90% of Americans suffering from chronic kidney disease ("CKD") do not know they have it. CKD is not reversible but early detection can prevent it from worsening. The Renalytix platform can improve patient outcomes as well as save billions of dollars.

According to the Centers for Disease Control and Prevention, Kidney disease represents about 20% of the total expenditures by government insurance programs. The cost is higher for private insurance companies. The financial burden is an incentive for government and private insurers to advocate for wide adaptation of the KidneyIntelX platform.

Ecosystem

Renalytix collaborates with non-profit organizations such as the National Kidney Foundation to share research on early kidney disease detection and treatment policies.

The company first began using electronic health records and live blood tests at Mt. Sinai Hospital in New York in the fall of 2020 and formed a joint venture named Kantaro for the distribution of Covid tests. Mount Sinai is a shareholder in Renalytix and has shareholders on the Renalytix Board of Directors.

Renalytix partners with DaVita ( DVA ) to provide a full range of services from risk assessment to managed care. The collaboration began in January of 2021 with three initial locations and has been expanding to add more locations. The company has a similar relationship with AstraZeneca ( AZN ).

The company announced that the KidneyIntelX platform would be available starting in 2022 throughout the Veteran's Administration facilities. The VA is the largest health system in the U.S.

The KidneyIntelX test received a special reimbursement code (0105U) in 2020 for Medicare and Medicaid at the rate of $950 per test. The major private insurance companies followed suit offering similar reimbursement rates for their covered customers as outlined in the press release for the most recent quarterly report.

The company's sales force is provided by EVERSANA, a life sciences solution company serving over 600 life science customers. Renalytix plans on transitioning the EVERSANA salesforce into an in-house team.

Financial

There are about 94 million shares with i nsiders and institutions owning almost half of the shares. Mt Sinai has about a 16% stake and is the largest shareholder. The company last reported about $32 million in cash and l$12 million in debt for a market cap of $179 million and an EV of $155 million.

The January 2022 investor presentation , cited expectations that the company would be operating in 20 medical centers in addition to Veteran's facilities, resulting in a TAM of almost 2 million patients for that calendar year. The FDA approval was delayed and the company is behind schedule and has not provided forward revenue guidance at this time.

The revenue run rate was close to $4 million prior to FDA approval. With the ecosystem that the company has created in place, I estimate that revenues should easily double over the next 12 months and again double over the following 12 months. I estimate that the burn rate will be about $25 million per year based solely on my exposure to other early commercial-stage medical device companies. Using my estimates gives the company two years before it will need funding. The market opportunity is large enough, estimated at $12 billion for the company to reach profitability in 2025 if it can successfully scale.

Risks

The company may need another round of funding if it is not successful in scaling prior to reaching profitability resulting in diluting revenue. There is a chance that the company will receive grant money as has been the case prior. The target market is primary care doctors' offices. It remains to be seen how quickly the company can penetrate this market. My estimates do not account for unseen events on circumstances which almost always come into play in the microcap world.

Conclusion

Kidney disease is at an epidemic level in the U.S. The primary cause of kidney disease is diabetes. Renalytix offers an easy-to-use, minimally invasive solution. The company has put together all of the pieces from developing the technology, conducting successful clinical studies, establishing an ecosystem of partners, hiring a sales team, and obtaining FDA marketing approval.

I estimate that the company has funds to carry out its business plan over the next two years at which time there is a possibility that it may reach profitability. Successful scaling and product acceptance should result in stock price appreciation.

Editor’s Note : This article was submitted as part of Seeking Alpha’s Best AI Ideas investment competition , which runs through August 15. With cash prizes, this competition -- open to all contributors -- is one you don’t want to miss. If you are interested in becoming a contributor and taking part in the competition, click here to find out more and submit your article today!

For further details see: