Business context and reporting period
The supplied filing is BioTime, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed March 16, 2017. It is not a filing by Lineage Cell Therapeutics, Inc.; investors should confirm the issuer identity before relying on this summary. BioTime was a clinical-stage biotechnology company developing stem-cell and cell-delivery therapies, alongside research products and database services, and held significant interests in Asterias and OncoCyte.
The filing includes fourth-quarter results, but its primary reporting period is the full 2016 fiscal year. Effective May 13, 2016, Asterias was deconsolidated; OncoCyte remained consolidated through year-end and was deconsolidated on February 17, 2017.
Key financial metrics
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $5.923 million | $7.036 million |
| Gross profit / gross margin | $5.565 million / 94.0% | $5.929 million / 84.3% |
| Research and development expense | $36.106 million | $42.604 million |
| General and administrative expense | $28.426 million | $29.134 million |
| Operating loss | $58.967 million | $65.809 million |
| Net income (loss) attributable to BioTime common shareholders | $33.572 million | $(47.406) million |
| Operating cash flow | $(42.326) million | $(44.544) million |
| Cash and cash equivalents at year-end | $22.088 million | $42.229 million |
| Total assets / total liabilities | $142.572 million / $12.064 million | $94.660 million / $18.213 million |
| Working capital / shareholders’ equity | $17 million / $130.508 million | Not clearly stated for comparison |
FY 2016 earnings included a $49.048 million gain on Asterias deconsolidation and a $34.361 million unrealized gain from marking the retained Asterias stake to market. These non-operating gains more than offset the operating loss; reported net income should not be read as evidence of operating profitability. The company reported no income-tax provision or benefit for 2016.
Fourth-quarter 2016 revenue was $1.103 million, operating expenses were $12.356 million, operating loss was $11.253 million, and net loss attributable to BioTime was $4.945 million, or $0.05 per share. Fourth-quarter 2015 revenue was $1.306 million, operating loss was $21.707 million, and attributable net loss was $13.507 million, or $0.16 per share.
Year-end cash included $13.6 million held by subsidiaries, including $10.2 million at OncoCyte. BioTime reported $627,000 of available-for-sale securities and total current assets of $25.649 million against current liabilities of $8.850 million. Debt and lease obligations included $2.544 million principal and accrued interest on Cell Cure convertible debt, $219,000 in promissory notes, $512,000 in capital lease obligations, and $6.132 million in operating lease commitments. Contractual obligations totaled $9.407 million.
Material changes versus the prior comparable period
- Revenue declined 16% year over year, principally because Asterias revenue was no longer consolidated after May 12, 2016. Excluding Asterias, management said revenue was broadly stable at about $3.6 million versus $3.5 million.
- R&D expense fell 15% as a result of Asterias deconsolidation, although BioTime’s R&D excluding Asterias increased about 8%, to $27.4 million.
- Operating loss narrowed by $6.8 million. Gross profit declined $364,000, but cost of sales fell more sharply than revenue.
- Net income attributable to BioTime common shareholders shifted from a $47.406 million loss to $33.572 million income, largely due to the Asterias deconsolidation and fair-value gains, not improved core operating results.
- Cash fell $20.141 million during 2016. Financing activities provided $32.782 million, including approximately $18.6 million net proceeds from BioTime’s share offering and $9.8 million from OncoCyte’s financing.
- After year-end, BioTime raised approximately $18.7 million net in a February 2017 offering. OncoCyte’s deconsolidation will also change the composition of future consolidated financial statements.
Outlook, management commentary, risks and unusual items
- Management stated that year-end cash, cash equivalents and available-for-sale securities of $12.5 million, excluding OncoCyte cash, plus the February 2017 offering proceeds were expected to fund current operations for at least 12 months from issuance of the financial statements. This outlook depends on projected spending and financing assumptions; management cautioned that additional funding may be needed and may not be available on favorable terms.
- Clinical and development milestones included planned completion of enrollment in the European Renevia pivotal study in the first half of 2017 and a planned CE-mark filing in the second half of 2017; continued OpRegen Phase I/IIa dose escalation; and OncoCyte’s anticipated lung-test launch in the second half of 2017, subject to laboratory certification and further clinical validation. These are plans, not assured outcomes.
- The company remained loss-making from operations, with accumulated deficit of $196.321 million, and stated it would continue to incur substantial R&D costs. It relies on grants, equity financings, royalties and other external funding; loss of grant support or inability to raise capital could delay or curtail programs.
- Key risks include clinical-trial failure or delay, regulatory approval and manufacturing challenges, uncertain reimbursement and adoption, competition, patent disputes, potential shareholder dilution, and volatility in the market value of Asterias and OncoCyte shares. Hextend sales faced pricing pressure and safety-label restrictions.
- Cell Cure’s Israeli Innovation Authority grants carry potential future royalties and restrictions on transferring or manufacturing related intellectual property and products outside Israel. Cell Cure’s OpRegen-related European patents were subject to pending opposition proceedings in March 2017.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2016.
Most important facts an investor should verify
- Confirm whether the intended issuer is BioTime, Inc. or Lineage Cell Therapeutics, Inc.; the supplied 10-K identifies BioTime as registrant.
- Review the audited statements and notes for the Asterias deconsolidation, fair-value gains, and their noncash effect on reported 2016 earnings.
- Assess cash burn, the 12-month liquidity assertion, the February 2017 financing, and cash held in subsidiaries that may not be available to the parent.
- Check subsequent filings for OncoCyte deconsolidation accounting and the effect on consolidated cash, expenses, and investment valuation.
- Verify progress and results for Renevia, OpRegen, and OncoCyte’s diagnostic validation and commercialization plans, along with grant-funding and patent-opposition developments.