Business context and reporting period
The supplied filing is BioTime, Inc.’s Form 10-Q for the quarter ended June 30, 2017, not a filing identified in its text as Lineage Cell Therapeutics, Inc. BioTime is a clinical-stage biotechnology company developing regenerative medicine and cell- and drug-delivery products. Unless otherwise noted, figures below are in millions of U.S. dollars; the filing presents financial statements in thousands.
Comparability is materially affected by BioTime’s deconsolidation of Asterias in May 2016 and OncoCyte in February 2017. Since deconsolidation, BioTime has carried its holdings in both companies at fair value, with market-price changes reported in earnings.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Revenue | $0.381 | $0.771 |
| Gross profit | $0.376 | $0.709 |
| Operating expenses | $10.694 | $22.289 |
| Operating loss | $10.318 | $21.580 |
| Net income (loss) | $(12.227) | $34.797 |
| Net income (loss) attributable to BioTime | $(11.651) | $37.637 |
| Net cash used in operating activities | Not separately presented | $17.161 |
Quarterly revenue was down from $1.266 million a year earlier; six-month revenue was down from $3.340 million. Management attributed most of the declines to Asterias revenues included in the earlier periods before its deconsolidation, as well as lower subscription and advertising revenue. Six-month net income included a $71.7 million gain on OncoCyte deconsolidation, partly offset by fair-value losses on the Asterias investment; it should not be read as recurring operating profitability. Second-quarter net loss also included an $11.0 million unrealized loss on OncoCyte shares.
Research and development expense was $6.271 million in the quarter and $12.765 million for six months; general and administrative expense was $4.423 million and $9.524 million, respectively. Both were lower year over year, principally because Asterias and OncoCyte were no longer consolidated for the comparable periods. BioTime reported a $3.877 million deferred tax benefit in the second quarter, reversing a first-quarter provision; there was no income tax provision or benefit for the six-month period.
At June 30, cash and cash equivalents were $14.550 million, available-for-sale securities were $1.220 million, and restricted escrow cash was $5.100 million. Working capital was approximately $12 million. Total assets were $193.353 million, total liabilities $15.168 million, and shareholders’ equity $178.185 million. Current liabilities included $2.555 million of related-party convertible debt; total promissory notes were $0.219 million, and the filing reported no capital lease liability at quarter-end. The company had an accumulated deficit of approximately $159 million.
Six-month cash flows were $(17.161) million from operations, $(14.484) million from investing, and $24.020 million from financing. Cash and cash equivalents declined by $7.538 million to $14.550 million. Financing included approximately $18.5 million of net proceeds from a February share offering. The filing also reports $5.1 million deposited in escrow for a proposed AgeX share sale; those funds were restricted pending completion conditions.
Material changes versus the prior comparable period
- Operating losses continued, but operating expenses decreased year over year largely because the company stopped consolidating Asterias and OncoCyte. BioTime’s own therapeutic-program spending increased in several areas, including OpRegen.
- Six-month reported earnings changed from a $2.653 million consolidated net loss in 2016 to $34.797 million of net income in 2017, primarily because of the noncash OncoCyte deconsolidation gain and changes in investment fair values.
- BioTime’s Asterias investment was valued at $77.2 million at June 30, down from $100.0 million at December 31, 2016. Its OncoCyte investment was valued at $76.3 million at June 30.
- BioTime issued 7.454 million shares in a February offering for approximately $18.5 million net proceeds, and entered into an at-the-market sales agreement allowing up to $25 million of additional share sales.
Outlook, risks and unusual items
Management stated that cash, cash equivalents and available-for-sale securities of $15.8 million, together with the $153.5 million market value of its Asterias and OncoCyte holdings, were expected to provide liquidity for current operations for at least 12 months from issuance of the financial statements. Management cautioned that investment values may not be realizable at their quoted market values because of trading depth, volume, regulatory restrictions and market conditions. It had no present plan to sell those holdings.
No quantified revenue or earnings guidance was provided. Management emphasized continuing operating losses, dependence on equity financing, grants and other external funding, and uncertainty about obtaining financing on acceptable terms. OpRegen clinical trials depend in part on grant funding; losing that funding or lacking working capital could delay, limit or halt trials. AgeX’s early-stage programs also depend on securing capital.
Subsequent to quarter-end, BioTime reported that it acquired additional Cell Cure shares and convertible notes on July 10, issuing 4.925 million BioTime shares valued at $15.2 million and increasing its Cell Cure ownership to 99.8%. The company expected a noncash loss on extinguishment of the purchased Cell Cure notes in the following quarter. On August 8, the Israel Innovation Authority approved an OpRegen grant of up to approximately $2.0 million for 2017. Shareholders reaffirmed the authorization of 150 million common shares on August 9.
Cell Cure’s OpRegen-related patents were upheld in two European Patent Office opposition proceedings; appeals were pending, with grounds due in September 2017. The company said it did not expect the proceedings to materially alter OpRegen’s protection or positioning. BioTime disclosed no pending litigation involving the company, but noted ordinary-course indemnification obligations and potential executive severance obligations. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is BioTime, Inc., although the request metadata names Lineage Cell Therapeutics, Inc.
- Separate recurring operating performance from the $71.7 million OncoCyte deconsolidation gain and volatile Asterias and OncoCyte fair-value changes.
- Assess the liquidity available from cash versus the market value and potential saleability of the publicly traded investment holdings, including any sale restrictions.
- Review the funding status of OpRegen and AgeX, and the terms and potential dilution associated with BioTime’s at-the-market offering authority.
- Track the Cell Cure acquisition accounting and expected note-extinguishment loss, and the outcomes of the OpRegen patent appeals.