Renalytix (LON: RENX) (NASDAQ: RNLX) may have the finest treatment or test known to mankind - or, of course, it may not. That's just the risk that is taken in development stage pharma and medical companies. This is true whether it's a drug, a treatment or a test being developed. For the one grand roadblock on the way to market is the Federal Drug Administration, the FDA.
This then determines any investment in such companies as Renalytix. To develop a product - whatever it is in the medical field - requires capital. But then rather more must be spent shepherding it through the FDA process. Without that approval there is, near always, nothing of value at all. Perhaps some hypothetical value that would apply if marketing authorisation were gained but that's it. Therefore all development stage investment in pharma and medical products is about hope. Hope that the authorisation will be gained.
Renalytix share price from London Stock Exchange
There's also a strong fiscal implication to this. If the FDA process of authorisation gets delayed - for whatever reason - then the capital consumption of the company before that authorisation and the possible start of revenue collection goes up. So a delay is not just a lower net present value of future potential revenue because of the delay, it's also a higher cost now keeping the company going until authorisation.
This is what has just happened to Renalytix, as they've announced:
….the Agency is working towards a decision date by the end of Q2 2023. Previous indications from the FDA were for a completion of the process before the end of Q1 2023.
The risk of approval may or may not have changed - delays and alterations often make people nervous here but they might in fact increase approval probability - but we've definitely got that delay of at least a quarter to any possible revenue streams. That just does reduce the value of the product, thus the 14% share price decline at Renalytix. There's just no way around this, the company is going to eat more capital before we find out whether the product is going to gain authorisation.
