Lineage Cell Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Dollar amounts below are in millions, except per-share data. Lineage is a clinical-stage cell therapy company; three of its five programs had reached clinical testing. OpRegen is licensed to Roche for further development and commercialization.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $4.55 | $0.51 | $9.79 | $0.90 |
| Gross profit / margin | $4.34 / 95.3% | $0.39 / 75.6% | $9.40 / 96.0% | $0.67 / 73.8% |
| Operating expenses | $8.57 | $7.47 | $20.03 | $14.80 |
| Operating loss | $(4.23) | $(7.08) | $(10.63) | $(14.13) |
| Net loss attributable to Lineage | $(6.76) | $(4.79) | $(13.85) | $(6.20) |
| Basic and diluted loss per share | $(0.04) | $(0.03) | $(0.08) | $(0.04) |
| Operating cash flow | Not separately stated | Not separately stated | $14.84 | $(12.84) |
At June 30, cash and cash equivalents were $70.86 million and marketable equity securities were $1.17 million; management reported $72.0 million of combined cash, cash equivalents and marketable securities. Current assets were $74.03 million against current liabilities of $25.09 million. Total liabilities were $54.42 million, including deferred revenue and lease obligations. The filing does not report material conventional borrowings; operating lease liabilities were $2.05 million.
Six-month operating cash flow improved from an outflow to an inflow, largely reflecting timing and working-capital effects associated with the $50 million Roche upfront payment and related payments to the Israel Innovation Authority (IIA) and Hadasit. It should not be read as recurring operating cash generation.
Changes versus the prior comparable period
- Revenue increased sharply, principally because Lineage recognized $4.1 million in Q2 and $9.0 million in the first half from the Roche upfront payment, which had been received in January 2022 and recorded as deferred revenue. Royalties also rose; grant revenue was zero in 2022.
- Despite higher revenue and improved gross margin, the company remained loss-making. Q2 net loss widened year over year, while first-half net loss more than doubled, in part because 2021 included a $6.0 million gain from selling OncoCyte shares and a $1.8 million unrealized securities gain; 2022 instead included a $1.4 million unrealized securities loss for the first half.
- First-half R&D expense was broadly flat at $6.29 million. G&A rose 62% to $13.74 million, including a $3.5 million accrual for a proposed litigation settlement and higher compensation and stock-based compensation.
- Cash and cash equivalents increased from $55.74 million at year-end 2021 to $70.86 million. Receivables declined from $50.84 million to $0.71 million, mainly after collection of Roche’s upfront payment. Marketable equity securities fell from $2.62 million to $1.17 million.
Outlook, risks and unusual items
- Management said available liquidity and projected cash flows were expected to fund planned operations for at least 12 months from the financial statement issuance date. The company expects continued losses for at least several years and says additional capital will be needed over the longer term. It cited the ATM program, with $63.8 million remaining available at June 30, as one potential funding source.
- Under the Roche agreement, Lineage received $50 million upfront and may receive up to $620 million in development, regulatory and commercial milestones, plus tiered double-digit royalties. Payments are contingent; the IIA and Hadasit also have claims on portions of certain Roche proceeds.
- The proposed settlement of Asterias merger litigation is approximately $10.7 million in total; Lineage expects to contribute about $3.5 million, with the remainder expected from insurance. The company accrued its estimated share. Settlement remained subject to final agreement and court approval; trial was scheduled for October 2022 if settlement failed.
- Subsequent events: Cell Cure received approximately $0.89 million from an HBL warrant exercise on July 6, 2022, reducing Lineage’s ownership from approximately 99% to 94%. On August 1, Cell Cure entered a new lease and extended existing leases; total facility rent obligations increased from $2.2 million to $3.5 million.
- Risks highlighted include clinical development and funding uncertainty, possible dilution or unfavorable financing terms, volatility in OncoCyte share value, and potential effects of COVID-19, the Ukraine conflict, inflation, rising interest rates and supply-chain disruption. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- How quickly Roche-related performance obligations are fulfilled and deferred revenue is recognized, and whether further milestone or royalty payments become achievable.
- Whether the stated 12-month liquidity runway remains adequate as development spending, inflation, lease commitments and other cash needs evolve.
- Final court approval and funding of the Asterias litigation settlement, including Lineage’s ultimate cash contribution.
- Clinical progress and funding responsibilities for OpRegen, OPC1, VAC2 and preclinical programs, including the effects of third-party execution and geopolitical or supply-chain disruptions.
- Potential share dilution from the ATM and equity awards, and the sensitivity of reported earnings and liquidity to OncoCyte share-price movements.