Renovo: Healing scars and its share price

Biopharmaceutical firm Renovo Group (LSE:RNVO) specialises in the discovery and development of drugs to reduce scarring, improve wound healing and enhance tissue regeneration.

The Manchester-based business has built a portfolio of drugs that have reached the Phase II and Phase III stages of clinical development, as well as several other prospects that are in pre-clinical development.

Renovo’s flagship drug is Juvista. Aimed principally at patients undergoing surgery, or who have very recently undergone surgery, Renovo describes Juvista is a “first-in-class pharmaceutical product candidate” that is aimed at improving the subsequent appearance of surgical scars.

Market research conducted by Renovo shows a high rate of patient dissatisfaction with scars from recent surgical procedures, as well as an appreciation of improvements in scar appearance.

Meanwhile, despite there being 42 million surgical procedures every year in the US, and a further 41.8 million in the European Union, there are currently no marketed pharmaceuticals in the US or Europe for the prevention and reduction of scarring in skin. So, Renovo believes that there are multi-billion dollar markets in the EU and US for Juvista.

In order to optimise the design of its Phase III trials for Juvista, Renovo has conducted a comprehensive Phase I and Phase II programme.

Phase I trials are the first stage of testing a drug in humans. They usually involve a small group (typically up to 20) of healthy volunteers and are used to assess the safety and tolerability of the drug as well as how the body processes the drug and how the drug works in the body.

Phase II trials are performed on medium-sized groups of patients (typically numbering between 20 and 300) once the initial safety of a drug or treatment has been confirmed. They are designed to determine dosage, to see how well a drug works at the prescribed dose and to investigate aspects of trial design e.g. how to measure scarring.

After Renovo’s Phase I and Phase II programme was completed, it reported that in eight double-blind, placebo-controlled trials (involving approximately 1,500 human subjects) of the drug a favourable safety profile, and positive, statistically significant results, demonstrated the efficacy of Juvista in improving scar appearance. Consequently, Professor Mark Ferguson, Renovo’s chief executive officer, describes Juvista as “the most advanced regenerative medicine in the world”.

Phase III studies are trials, usually conducted at a number of clinics, on larger patient groups (up to 3,000), and are aimed at assessing how effective a drug is. Renovo expects to report its first EU Phase III trial for Juvista in the first half of 2011.

In 2007, Renovo signed an $825m licensing agreement with FTSE 100-quoted biopharmaceutical firm Shire to develop and commercialise Juvista in every country in the world, except those in the EU (the rights to which have been retained by Renovo). Under this deal, Renovo has already received an upfront payment of $75m, and an equity investment of $50m. Contingent on the successful development and commercialisation of Juvista, Renovo will become eligible for further milestone payments of up to $700m as well as escalating royalties on sales.

Other clinical products that are in Renovo’s development pipeline include Adaprev, Prevascar and Juvidex.
Adaprev is an injectable solution of mannose-6-phosphate that is being developed for the prevention and reduction of scarring and adhesions between the tendon and surrounding tissues following tendon repair. Renovo anticipates that Adaprev will improve function, which is often impaired following surgical repair of lacerated flexor tendons in the hand.  The company also believes it represents an attractive market opportunity, with more 550,000 procedures to repair severed hand tendons per year in the USA alone and an equivalent number in the EU. A clinical trial for Adaprev began in 2009 and results from this will be reported during H1 2011.  Adaprev is being developed as a class 3 medical device, so it is anticipated that only one further trial will be required for marketing approval.

Prevascar is a therapeutic formulation of human recombinant interleukin 10, which is an important modulator of inflammatory response. Renovo has already reported statistically significant Phase II efficacy data for Prevascar in the reduction of scarring in the skin. Following on from this, the company will begin a clinical trial during the current quarter.

Juvidex is a topical formulation of mannose-6-phosphate that Renovo aims to market as a cosmetic ingredient for improving skin appearance and promoting healing of damaged skin. In March 2009, the company reported results of a double-blind, placebo-controlled randomised Phase II efficacy trial, among 195 male and female subjects, to investigate the safety and efficacy of two dose levels of Juvidex via two routes of administration. The trial had mixed success, but Renovo says after the proof of concept was shown to be positive it is actively seeking a suitable cosmetic partner to ensure rapid development.

But it is the success of Juvista that appears to be crucial to the company’s wellbeing, at least as far as investors are concerned. Two years ago, which was a very bad time for UK-listed life sciences companies generally, Renovo’s shares plummeted after the firm reported that two Phase II trials of Juvista did not meet their primary endpoints. In spite of the explanation by Renovo that the trials  did not use the best dose of Juvista, rather than there being a problem with the drug’s efficacy and the subsequent positive Phase II trials for Juvista, the shares are still far off previous levels (they traded for more than £2 each in 2007).

Renovo is well funded, with £59.9m of cash and cash equivalents on its balance sheet at the end of December (compared with £65.3m at 30 September 2009). This is equivalent to 31 pence per share (a premium to the current share price of 28 pence), although the firm’s management has stated that it expects its cash position to fall to between £25m and £30m by the time it reports its first Juvista EU Phase III trial result in the first half of 2011.

A key point for investors to consider, according to the company itself, is that it has frozen directors’ salaries and has both deferred their 2009 cash bonuses to 2011 and made them contingent on the first Juvista Phase III trial meeting its primary endpoint. “This is a signal to the market that Renovo’s directors believe this trial will be a success,” said Professor Ferguson at a Proactive Investors presentation in London in January.

http://www.proactiveinvestors.co.uk/companies/news/13848/renovo-healing-scars-and-its-share-price-13848.html