Business Context and Reporting Period
Company: BioTime, Inc. (Note: Input metadata referenced "Lineage Cell Therapeutics," but the filing text identifies the registrant as BioTime, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: BioTime is a biotechnology company focused on two primary areas: (1) blood plasma volume expanders (primarily Hextend®) and (2) regenerative medicine utilizing human embryonic stem (hES) and induced pluripotent stem (iPS) cell technology. The company operates through subsidiaries including Embryome Sciences, Inc., OncoCyte Corporation, BioTime Asia, Limited, and OrthoCyte Corporation. On May 3, 2010, BioTime acquired ES Cell International Pte Ltd ("ESI"), a Singapore-based distributor of hES cell lines.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $1,447,406 | $728,833 |
| Net Loss (Attributable to BioTime) | $(3,546,538) | $(2,989,584) |
| Loss Per Share (Basic & Diluted) | $(0.10) | $(0.11) |
| Cash and Cash Equivalents (End of Period) | $18,056,089 | $4,692,726 |
| Net Cash Used in Operating Activities | $(2,956,881) | $(1,956,513) |
| Net Cash Provided by Financing Activities | $9,041,403 | $6,651,925 |
| Total Assets | $34,146,912 | $13,433,071 (Dec 31, 2009) |
| Total Liabilities | $2,504,176 | $2,386,082 (Dec 31, 2009) |
Revenue Breakdown (Six Months 2010): Royalties from product sales ($512,294), Grant income ($790,191), License fees ($131,442), and Other revenue ($13,479).
Expense Breakdown (Six Months 2010): Research and development ($2,588,978) and General and administrative ($2,499,973).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 99% year-over-year, driven primarily by a $783,391 increase in grant income from the California Institute of Regenerative Medicine (CIRM). Royalty revenue from Hextend sales decreased 11% ($574,391 to $512,294) due to reduced sales to the U.S. Armed Forces.
- Expense Increases: Operating expenses rose significantly. R&D expenses increased 122% and G&A expenses increased 58% compared to the prior six-month period. Increases were attributed to higher employee compensation, stock-based compensation, scientific consulting fees, and costs associated with the ESI acquisition.
- Liquidity Improvement: Cash and cash equivalents increased by $5.65 million to $18.06 million. This was primarily due to $8.89 million in proceeds from the exercise of warrants and $150,422 from option exercises, offset by operating cash burn.
- Balance Sheet Expansion: Total assets more than doubled from $13.4 million to $34.1 million, largely due to the acquisition of ESI, which added $12.6 million in intangible assets and $2.2 million in deferred license fees.
Guidance, Outlook, and Risks
Outlook and Strategy: Management anticipates continued reliance on royalties from Hextend and the CIRM grant as principal revenue sources. The company is actively marketing stem cell research products through Embryome Sciences and its distributor, Millipore Corporation. Future growth depends on the commercialization of therapeutic stem cell products, which are currently in early preclinical stages.
Capital Needs: The company may require additional debt or equity financing to fund operations and clinical trials. Management is offering a discount on warrant exercise prices (reduced to $1.818 from $2.00) expiring August 18, 2010, to incentivize cash inflows.
Risks and Contingencies:
- Regulatory Approval: Therapeutic products require FDA and foreign regulatory approval, which is uncertain and costly.
- Revenue Timing: Royalty revenues are recognized when reports are received from licensees (Hospira and CJ), not when sales occur, creating volatility.
- Financing: Inadequate financing could force the curtailment of operations. Additional equity sales may result in shareholder dilution.
- Acquisition Integration: The ESI acquisition is accounted for under the purchase method; preliminary valuations may be adjusted.
Investor Verification Checklist
- Warrant Expiration: Verify the status of the 8.08 million outstanding warrants, most of which expire October 31, 2010, and the impact of the current discount offer on cash flow.
- Grant Sustainability: Confirm the timeline and conditions of the $4.72 million CIRM grant, which accounts for the majority of recent revenue growth.
- Hextend Royalty Volatility: Monitor sales trends of Hextend, particularly the shift in U.S. Armed Forces purchasing patterns from field packs to hospital-level usage.
- Acquisition Valuation: Review the final allocation of the $12.87 million purchase price for ESI, specifically the $12.78 million allocated to intangible assets and the associated amortization schedule.
- Burn Rate: Assess the sustainability of the current cash burn rate (~$3 million operating cash outflow per six months) against the $18 million cash balance.