Longeveron Inc. 10-Q Summary — Q1 2023
Business Context and Reporting Period
Longeveron Inc. is a clinical-stage biotechnology company developing Lomecel-B™ cellular therapy for hypoplastic left heart syndrome, aging-related frailty, and Alzheimer’s disease. The company has no FDA-approved products and generates revenue primarily from grants, the Bahamas Registry Trial, and limited contract manufacturing activities.
This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022. The company reported substantial doubt about its ability to continue as a going concern because forecasted cash is insufficient to fund minimum expenditure commitments for one year from the financial statements’ issuance date.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $279,000 | $370,000 | Down $91,000, or 25% |
| Gross profit | $76,000 | $165,000 | Down $89,000 |
| Gross margin | 27.2% | 44.6% | Down 17.4 percentage points |
| Operating expenses | $4.792 million | $3.559 million | Up $1.233 million, or 35% |
| Loss from operations | $4.716 million | $3.394 million | Loss increased $1.322 million |
| Net loss | $4.647 million | $3.510 million | Loss increased $1.137 million, or 32% |
| Basic and diluted loss per share | $0.22 | $0.17 | Loss per share increased |
| Net cash used in operating activities | $5.848 million | $4.152 million | Use increased $1.696 million |
Revenue consisted of $238,000 of clinical trial revenue and $41,000 of grant revenue. Cost of revenues was $203,000. The filing does not report material product sales.
At March 31, 2023, cash and cash equivalents were $4.984 million, marketable securities were $8.693 million, and total current assets were $14.870 million. The notes separately report approximately $9.950 million of marketable securities, including money market funds classified as cash equivalents on the balance sheet.
Total liabilities were $5.490 million, including $2.466 million of operating lease liabilities and a $1.398 million estimated securities lawsuit settlement liability. The company reported no credit facility or committed debt financing. Total stockholders’ equity was $16.318 million, compared with $20.503 million at December 31, 2022.
Material Changes Versus the Prior Comparable Period
- Revenue declined 25%, primarily because clinical trial revenue from the Bahamas Registry Trial decreased $72,000, or 23%, and grant revenue decreased $19,000, or 32%.
- Management attributed the Bahamas revenue decline to increased demand being offset by additional discounts and one-time price adjustments.
- Gross margin declined substantially because revenue decreased while cost of revenues remained approximately $0.2 million.
- Research and development expense increased $1.488 million, or 115%, to $2.780 million. The increase primarily reflected Alzheimer’s clinical-trial milestone and enrollment costs and setup costs for the aging-frailty trial in Japan.
- General and administrative expense decreased 6% to $1.855 million, while selling and marketing expense decreased 45% to $157,000.
- Operating cash use increased 41% to $5.848 million, driven mainly by the higher net loss, payments of outstanding accounts payable, and prepaid insurance expenses.
- Cash and cash equivalents declined from $10.503 million at December 31, 2022 to $4.984 million at March 31, 2023.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects operating losses and cash needs to continue increasing as clinical programs, manufacturing capabilities, regulatory activities, intellectual property efforts, and staffing expand.
- The company stated that existing cash and cash equivalents were expected to fund operating and capital requirements into the first half of 2024, but also stated that it does not have sufficient cash to meet minimum expenditure commitments for one year and that substantial doubt exists regarding going-concern status.
- Management intends to seek additional equity or debt financing, strategic partnerships, licensing arrangements, grants, and other funding. No assurance was provided that financing will be available on acceptable terms; future equity financing could dilute existing stockholders.
- Unused grant funds available for drawdown declined to approximately $0.1 million at March 31, 2023 from $0.8 million at December 31, 2022.
- Clinical development remains subject to enrollment, safety and efficacy results, regulatory approval, manufacturing scale-up, competition, intellectual property protection, and the company’s ability to retain key personnel.
- ELPIS II, a 38-subject Phase 2 randomized controlled HLHS trial, continued enrolling, but the company did not provide a completion-date projection because enrollment was insufficient to support one.
- The company had approximately $3.5 million of expected expenditures over the next two years under active clinical research and services agreements and approximately $2.5 million of operating lease obligations.
- A securities class action settlement of approximately $1.4 million was accrued and remains subject to documentation and court approval.
- Subsequent events included accelerated vesting of RSUs and separation agreements providing $112,000 of severance to the former chief medical officer and $275,000 of severance, plus three months of COBRA coverage, to the chief financial officer.
- The company transferred deposits and marketable securities from a regional bank to a larger bank in response to banking-sector volatility. Management reported no material operational impact from macroeconomic conditions through the reporting date.
- Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Cash runway, the timing and terms of required financing, and whether additional capital can be raised before liquidity becomes insufficient.
- The basis for the going-concern substantial doubt conclusion and the difference between management’s first-half-2024 cash-runway statement and the one-year funding shortfall disclosed in the financial statements.
- Enrollment progress, timing, and clinical results for ELPIS II and the Alzheimer’s and Japan aging-frailty programs.
- Whether revenue from the Bahamas Registry Trial is sustainable given discounts, pricing adjustments, and its investigational status.
- Potential dilution from future equity offerings, outstanding RSUs, stock options, and approximately 1.271 million warrants.
- Final court approval and payment timing for the approximately $1.4 million securities litigation settlement.
- The accuracy and classification of cash equivalents and marketable securities, including money market funds included in cash on the balance sheet.