Lineage Cell Therapeutics, Inc. — Q3 2021 Form 10-Q
Business context and period. Clinical-stage biotechnology company developing off-the-shelf cell therapies. This filing covers the quarter and nine months ended September 30, 2021; amounts below are in millions except per-share data. Its programs are OpRegen for dry age-related macular degeneration, OPC1 for spinal cord injury, and VAC2 for non-small cell lung cancer.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.27 | $0.57 | $3.17 | $1.47 |
| Gross profit / margin | $1.29 / 56.6% | $0.47 / 82.1% | $1.95 / 61.5% | $1.20 / 81.6% |
| Operating expenses | $8.13 | $7.19 | $22.92 | $21.77 |
| Operating loss | $(6.84) | $(6.73) | $(20.97) | $(20.57) |
| Net loss attributable to Lineage | $(7.82) | $(7.76) | $(14.03) | $(22.68) |
| Basic and diluted loss per share | $(0.05) | $(0.05) | $(0.09) | $(0.15) |
- Revenue growth reflected increased royalties and new ITI collaboration revenue, partly offset by lower grant revenue. Q3 royalties included $1.8 million of additional amounts reported by a royalty customer; half was accrued as royalty cost. The $1.8 million receivable was collected in October 2021.
- Q3 gross margin declined year over year as cost of sales rose substantially alongside royalties. Nine-month net loss narrowed largely because of OncoCyte share-sale gains and lower unrealized investment losses, rather than a comparable improvement in operating performance.
- Cash and cash equivalents were $60.8 million and marketable equity securities $4.3 million at September 30, 2021, totaling $65.1 million. Working capital was $59.6 million; accumulated deficit was $308.1 million.
- For the first nine months, operating cash use was $17.7 million, investing cash inflow $9.9 million, and financing cash inflow $36.0 million. Financing included $29.8 million net proceeds from common-share sales and $6.3 million from option exercises.
- Total liabilities were $11.6 million, including $2.7 million of operating lease liabilities and $0.03 million of financing lease liabilities. The PPP loan was forgiven in full in May 2021, producing a $0.5 million gain; the filing reports no material conventional borrowing.
Material changes versus the prior comparable period
- Q3 revenue increased $1.7 million year over year, led by royalties ($1.9 million versus $0.3 million) and $0.3 million of ITI collaboration revenue; grant revenue fell to $0.07 million from $0.23 million.
- Q3 R&D expense decreased 21% to $2.8 million, while G&A increased 47% to $5.3 million, principally reflecting higher Asterias-merger litigation costs and share-based compensation. Nine-month R&D declined 6%; G&A rose 14%.
- Nine-month other income included a $6.0 million realized gain on OncoCyte share sales and a $0.5 million PPP forgiveness gain. Q3 included a $2.5 million unrealized loss on marketable equity securities.
- Common shares outstanding increased from 153.1 million at December 31, 2020 to 168.5 million at September 30, 2021. The ATM program generated $35.9 million gross proceeds through period-end.
Outlook, commentary, risks and unusual items
- Management believes available cash, cash equivalents and marketable securities can fund planned operations for at least 12 months from issuance of the financial statements. This is an estimate dependent on program spending, funding, revenues and other assumptions; management says additional financing may be needed and may dilute shareholders.
- No specific revenue, earnings or clinical-development guidance is provided. Management expects losses to continue and anticipates substantial R&D spending. It may need to delay, curtail or suspend activities if financing is insufficient.
- In September 2021, Lineage reported OpRegen updates from its fully enrolled 24-patient Phase 1/2a study, including reported retinal structural observations and visual-acuity trends. The company cautions that early and interim clinical results may change and are not predictive of later trials or approval.
- COVID-19 had affected OpRegen enrollment previously and was affecting VAC2 trial activity; sites had paused enrollment or redirected resources. Further enrollment and follow-up delays remain possible.
- A Delaware shareholder class action challenging the Asterias merger remained in discovery, with trial scheduled for October 2022. The company intends to defend the case; it recorded no liability because loss was not considered probable or reasonably estimable. A prior California action was dismissed after a $0.2 million fee settlement.
- Other notable uncertainties include clinical-trial and regulatory failure, manufacturing and supply constraints, dependence on grants and collaborators, intellectual-property challenges, reimbursement and commercialization risk, and Israeli Innovation Authority restrictions and potential repayment obligations associated with grant-funded know-how.
Most important facts for investors to verify
- Whether the reported $1.8 million royalty adjustment is recurring, and how future royalties and related payable costs develop.
- Cash runway under actual spending, clinical-trial timelines and future financing needs; assess potential dilution from additional equity issuance.
- Progress, safety, enrollment and independently verified data for OpRegen, OPC1 and VAC2, including the impact of COVID-19 on trial execution.
- Movements in OncoCyte’s share price and holdings, which can materially affect reported non-operating income, taxes and liquidity estimates.
- Outcome and potential costs of the Asterias-merger litigation, and any developments affecting IIA grant compliance or technology-transfer obligations.