Lineage Cell Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial amounts below are in millions of U.S. dollars unless stated otherwise. Lineage is a clinical-stage biotechnology company developing allogeneic cell therapies.
Business context
Lead program OpRegen, a retinal cell therapy for geographic atrophy secondary to age-related macular degeneration, is being evaluated in a Roche-conducted Phase 2a trial. Lineage is responsible for specified ongoing study and manufacturing activities; Roche holds exclusive worldwide development and commercialization rights. Other programs include OPC1 for spinal cord injury, plus preclinical ANP1 and PNC1 programs and the VAC platform.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1.246 | $2.998 | $6.857 | $12.788 |
| Gross profit | $1.077 | $2.763 | $6.442 | $12.162 |
| Gross margin | 86.4% | 92.2% | 93.7% | 95.1% |
| Operating expenses | $7.782 | $8.014 | $24.813 | $28.043 |
| Operating loss | $(6.705) | $(5.251) | $(18.371) | $(15.881) |
| Net loss attributable to Lineage | $(7.110) | $(6.069) | $(16.711) | $(19.919) |
| Basic and diluted loss per share | $(0.04) | $(0.04) | $(0.10) | $(0.12) |
Revenue is primarily Roche upfront-payment revenue recognized over the collaboration’s performance period, plus royalties and license fees. Operating cash flow was $(22.547) million for the nine months, compared with $9.362 million provided in the prior-year period. Investing activities provided $36.707 million, principally from Treasury maturities; financing activities provided $6.436 million, mainly from ATM share sales. Cash, cash equivalents and marketable securities totaled $41.3 million at September 30, 2023. Current assets were $43.481 million and current liabilities $15.881 million.
Total liabilities were $39.493 million, including $3.080 million of operating lease liabilities and $0.152 million of finance lease liabilities. The filing reports no conventional borrowings. The company had an accumulated deficit of $380.1 million. Management stated that available cash, cash equivalents and marketable securities, together with projected cash flows, were expected to fund planned operations for at least 12 months from the financial statements’ issuance date.
Changes versus the prior comparable period
- Q3 revenue declined 58% year over year; nine-month revenue declined 46%. Management attributed the decrease mainly to lower recognition of the Roche upfront payment following an updated collaboration cost forecast.
- Q3 operating loss widened to $6.705 million from $5.251 million, despite slightly lower total operating expenses, as gross profit fell substantially. Nine-month operating loss increased to $18.371 million from $15.881 million.
- Nine-month R&D expense rose 19% to $11.799 million, with increases in OpRegen, OPC1 and preclinical/other programs, partly offset by lower VAC spending. Nine-month G&A fell 28% to $13.014 million, primarily reflecting lower legal and litigation costs, including costs associated with the Asterias litigation.
- Nine-month net loss improved year over year, in part reflecting lower equity-security losses and a $1.803 million deferred tax benefit; however, Q3 net loss increased year over year.
- Cash and cash equivalents increased from $11.355 million at year-end 2022 to $31.474 million; marketable securities declined from $46.520 million to $9.858 million, largely reflecting Treasury maturities and cash movements.
Outlook, risks and unusual items
- No specific revenue, earnings or cash-burn guidance was provided. Management expects continued losses for at least several years and expects operating expenses to increase as product candidates advance; significant additional capital will be needed. If financing is unavailable, trials could be delayed, limited or cancelled.
- OpRegen’s Roche agreement provides eligibility for up to $620 million in developmental, regulatory and commercialization milestones and tiered double-digit royalties. These payments are contingent; the filing does not present them as assured funding. The IIA is entitled to approximately 24.1% of future Roche agreement payments, subject to an aggregate cap that was approximately $92.7 million at quarter-end; Hadasit also has contractual payment rights.
- All manufacturing, cell banking and product manufacturing occur at Cell Cure’s Jerusalem facility, where more than two-thirds of employees are based. The Israel-Hamas war had not materially adversely affected operations as of the report date, but temporary operational impacts and employee military call-ups were reported. A prolonged disruption or facility damage could materially affect operations; insurance may not cover war-related losses.
- A Cell Cure shareholder, HBL, sought documents in an Israeli court concerning an intercompany agreement and alleged unfair pricing. A hearing was set for December 3, 2023. The company stated that loss was possible but not probable or estimable and recorded no accrual.
- The Asterias merger class-action settlement was approved in February 2023; Lineage paid approximately $3.53 million, with insurers funding the balance of the $10.65 million settlement. A separate Premvia-related settlement was covered by insurance except for a $25,000 deductible.
- Lineage raised $6.6 million gross through its ATM program in the first nine months and had $57.2 million of capacity remaining at September 30. Shareholders approved increasing authorized common shares to 450 million and adding 19.5 million shares to the 2021 equity plan, creating potential dilution.
Important facts for investors to verify
- Progress and timing of the Roche-led OpRegen program, and the assumptions behind the updated forecast used to recognize Roche collaboration revenue.
- Actual cash burn and whether the stated 12-month liquidity runway remains adequate, given expected losses and the need for additional capital.
- Operational continuity at the Jerusalem facility, including effects of the war, staff availability, and the adequacy of insurance and business-continuity plans.
- Developments in the HBL court proceeding and any resulting financial, governance or operational consequences.
- Future ATM issuance, equity-plan awards and share-count changes, as well as the contingent IIA and Hadasit obligations associated with Roche payments.