Filing summary
Reporting period: Quarter and nine months ended September 30, 2017; Form 10-Q filed November 9, 2017. The supplied filing identifies the registrant as BioTime, Inc., not Lineage Cell Therapeutics, Inc. Confirm that this is the intended filing.
Business context and financial performance
BioTime described itself as a clinical-stage biotechnology company developing regenerative medicine products, including OpRegen for dry age-related macular degeneration (AMD) and Renevia for facial lipoatrophy. It also held significant stakes in publicly traded OncoCyte and Asterias. Unless stated otherwise, figures below are in millions of dollars.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $1.69 | $1.50 | $2.46 | $4.84 |
| Gross profit | $1.64 | $1.44 | $2.35 | $4.46 |
| Operating loss | $(9.51) | $(9.56) | $(29.34) | $(47.71) |
| Net income attributable to BioTime | $14.32 | $31.20 | $51.96 | $38.65 |
| Basic EPS | $0.12 | $0.30 | $0.47 | $0.40 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(24.84) | $(33.47) |
Gross margin was approximately 97% in Q3 2017 and 95% for the first nine months of 2017. These margins reflect a small revenue base and are not indicative of product-level commercial profitability.
- Revenue changes: Q3 revenue rose 13%, mainly on higher grant and subscription/advertising revenue. Nine-month revenue fell 49%, primarily because Asterias was no longer consolidated and contributed approximately $2.2 million of prior-year revenue.
- Operating costs: Q3 R&D and G&A were broadly flat year over year at $6.56 million and $4.59 million. Nine-month R&D fell 34% to $19.33 million and G&A fell 39% to $14.11 million, in part reflecting the deconsolidation of Asterias and OncoCyte.
- Earnings quality: Net income was driven by noncash investment remeasurement and deconsolidation gains, not operating profitability. Nine-month other income included a $71.7 million OncoCyte deconsolidation gain, a $39.6 million unrealized OncoCyte gain, and a $26.1 million unrealized Asterias loss. Q3 included a $34.5 million unrealized OncoCyte gain and a $3.3 million unrealized Asterias loss. The nine-month results also included $4.8 million of deferred tax expense and a $2.8 million noncash debt-extinguishment loss.
Liquidity, debt, and capital
- At September 30, cash and cash equivalents were $16.66 million and available-for-sale securities were $1.51 million, totaling $18.17 million in cash and securities. Working capital was $17.2 million; accumulated deficit was $144.4 million.
- Operating activities used $24.84 million of cash in the first nine months. Investing activities used $9.64 million, including $8.90 million of cash removed from consolidation when OncoCyte was deconsolidated. Financing activities provided $29.01 million, including BioTime’s February equity offering and AgeX’s financing.
- Total liabilities were $12.88 million. Current liabilities were $6.01 million. Reported debt-related balances included $0.14 million of promissory notes and related-party convertible debt, and a $1.26 million lease liability; no capital lease liability remained at quarter-end. The balance sheet also included a $4.85 million deferred tax liability.
- BioTime held OncoCyte shares valued at $110.8 million and Asterias shares valued at $73.9 million at quarter-end. Their combined $184.7 million market value is subject to stock-price, trading-volume, and sale restrictions and should not be viewed as cash or assured realizable proceeds.
- On October 17, 2017, BioTime raised approximately $26.7 million net by issuing 11.06 million common shares. Management said cash, securities, and offering proceeds were expected to fund current operations for at least 12 months from the financial-statement issuance date.
Material changes, outlook, and risks
- BioTime deconsolidated OncoCyte effective February 17, 2017 after its ownership fell below 50%; it now accounts for the holding at fair value. Asterias had been deconsolidated in May 2016. These changes materially limit comparability with prior periods.
- AgeX was capitalized in August 2017. BioTime contributed assets and retained approximately 85% ownership; AgeX raised $10.0 million from investors. Its initial focus includes brown-fat, vascular progenitor, and induced tissue-regeneration programs.
- Management reported that Renevia met its primary endpoint in an EU pivotal trial and expected to submit for approval later in 2017, with a commercial launch anticipated in 2018. OpRegen was in a Phase I/IIa multicenter trial for dry AMD. These are stated expectations, not guarantees; the filing provides no formal financial guidance.
- OpRegen received an Israel Innovation Authority grant of up to approximately $2.0 million, with $1.2 million recorded as a receivable at quarter-end. BioTime also received an NIH SBIR award of up to $1.56 million, payable as allowable costs are incurred.
- Management warned that loss of grant funding or insufficient working capital could delay, reduce, or cancel OpRegen trials; additional financing may be needed and could dilute shareholders. BioTime reported significant ongoing operating losses and uncertainty about achieving profitability.
- Key risks include clinical and regulatory setbacks, manufacturing dependence on third parties, competition, intellectual-property challenges, and the volatility of OncoCyte and Asterias share prices. Changes in those share prices can materially swing reported earnings and deferred taxes.
- Cell Cure’s two European patent opposition appeals concerning patents related to OpRegen were withdrawn; the patents were upheld as amended and were expected to provide protection through April 2028. The company reported no pending litigation and no known claims likely to have a material adverse effect.
Most important facts to verify
- Confirm the registrant identity: the supplied 10-Q is for BioTime, although the request names Lineage Cell Therapeutics.
- Assess operating cash burn and runway using the post-quarter October offering, and distinguish cash from marketable affiliate-share holdings.
- Review the size and drivers of noncash investment gains, deconsolidation accounting, and deferred tax expense when evaluating reported net income.
- Check subsequent progress on Renevia’s regulatory submission and launch plans, OpRegen trial funding and execution, and the terms and availability of grant funding.
- Consider dilution from the October share issuance and potential future equity financing, as well as the liquidity and price sensitivity of BioTime’s OncoCyte and Asterias stakes.