The share price of ReNeuron Group (LSE: RENE) continued its inexorable slide downwards this morning on release of the full-year results.
Financial results not pretty
The firm is a clinical-stage research company developing cell-based therapies. You have to scroll a long way down the results report — past descriptions of all the exciting research activities the firm is undertaking — before you get to the financial information.
When you get there, it’s not pretty. Revenues in the year were just £46k made up of royalties from non-therapeutic licensing activities. On top of that, the company received grant income of £0.85m. But that income is woefully short of what ReNeuron needs to keep its boffins employed with an honest income.
Escalating costs
Indeed, research and development costs increased to £16.65m from £10.27m the year before, and general and administrative expenses notched up a further £4.14m cost, up a tad from the previous year.
The bottom line is that ReNeuron increased its loss to £15.57m for the year, up from £11.35m the year before. One financial glimmer of light is that the firm still had around £53m in the bank on 31 March – and falling.
The company is notable in that the institution with the largest listed investment is Woodford Investment Management LLP. Neil Woodford and the other investors here must be hoping that ReNeuron can commercialise some of its creations before the cash runs out. If not, the firm will be back to the market for more money and the share price will continue its journey south.
Potential for spectacular outcomes
Of course, spectacular investing results can be achieved with new businesses like this. All we need is for ReNeuron to get one of its treatments through all the trial stages and it could be sitting on a hot property. Maybe a big pharmaceutical company will move in at that point and pay millions for the new product or even for the whole company, or ReNeuron could take the product to market on its own.
However, investing in ReNeuron now is a gamble because a lot could go wrong, such as how long the whole process may take, and whether an eventual finished product experiences the hoped-for demand from end users and clinicians.
Show me financial progress first
I would invest in an early-stage firm such as ReNeuron, but only after seeing evidence of an imminent change in financial fortunes, such as a major commercialisation announcement or evidence of revenues from trading and declining losses.
Instead of ReNeuron now, I’d rather invest in another Neil Woodford favourite, growing mid-cap specialist healthcare company BTG (LSE: BTG). The firm is making good progress with a number of medical treatments and has an impressive record growing its earnings each year. City analysts following the firm expect earnings per share to advance 28% for the current year to March 2018 and 15% next year.
Growth is very much still on the table and chief executive Louise Makin recently explained that double-digit product sales generating significant cash flows enable the firm to invest in product innovation, clinical data, geographic expansion and acquisition. It’s a virtuous self-funding circle that potentially leads to even more growth, and very different to the situation at ReNeuron where further funds may end up coming from investors before a commercial breakthrough happens.