Longeveron Inc. 10-Q Summary
Business context and reporting period
Longeveron is a clinical-stage biotechnology company developing Lomecel-B™, an allogeneic cellular therapy for hypoplastic left heart syndrome, aging-related frailty and Alzheimer’s disease. The company has no FDA-approved products and generates limited revenue from grants, clinical trials, primarily its Bahamas Registry Trial, and contract manufacturing services.
This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The filing was signed August 11, 2023.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $0.2 million vs. $0.5 million | $0.5 million vs. $0.8 million |
| Gross profit | $0.1 million vs. $0.2 million | $0.2 million vs. $0.5 million |
| Gross margin | 42.9% vs. 34.3% | 34.1% vs. 55.0% |
| Operating loss | $5.7 million vs. $4.2 million | $10.4 million vs. $7.6 million |
| Net loss | $5.6 million vs. $5.6 million | $10.3 million vs. $9.1 million |
| Net loss per share | $0.27 vs. $0.27 | $0.49 vs. $0.44 |
| Cash used in operating activities | Not separately provided | $10.4 million vs. $7.4 million |
Revenue declined primarily because of lower grant funding and reduced participant demand in the Bahamas Registry Trial. Six-month research and development expense increased 61% to $5.1 million, driven by higher clinical trial costs, manufacturing supplies, compensation and equity-based compensation. Six-month general and administrative expense increased 19% to $5.2 million.
At June 30, 2023, cash and cash equivalents were $2.7 million, marketable securities were $5.9 million, working capital was approximately $6.2 million, total assets were $17.1 million and stockholders’ equity was $11.3 million. The company had no conventional debt or credit facility; liabilities primarily consisted of operating lease liabilities totaling approximately $2.3 million, including current and long-term portions.
The company reported an accumulated deficit of $73.1 million and has not generated positive operating cash flow. Management stated that existing cash and cash equivalents were expected to fund operating expenses and capital expenditures into the first quarter of 2024, but the financial statements disclose substantial doubt about the company’s ability to continue as a going concern because available resources are insufficient to meet minimum expenditure commitments for one year from issuance of the financial statements.
Material changes versus the prior comparable period
- Six-month revenue decreased 41% to $0.5 million, including a 78% decline in grant revenue and a 30% decline in clinical trial revenue.
- Six-month gross profit decreased $0.3 million to $0.2 million, and gross margin declined to 34.1% from 55.0%.
- Six-month operating expenses increased $2.5 million, or 31%, principally from higher research and development and general and administrative spending.
- Six-month net loss increased $1.1 million, or 13%, despite the absence of the $1.4 million lawsuit accrual recognized in the 2022 period.
- Operating cash use increased $3.0 million to $10.4 million. Proceeds from sales of marketable securities provided $3.1 million of investing cash flow.
- The company paid approximately $1.4 million in May 2023 to settle a securities class action lawsuit. The liability had been accrued in 2022.
- During the first half of 2023, 182,223 restricted stock units vested and 109,769 were forfeited or expired. Outstanding unvested RSUs decreased to 97,754 from 329,746 at December 31, 2022.
- The company filed a registration statement on June 27, 2023 for a proposed tradeable subscription rights offering of up to $30.0 million of Class A common stock. An amendment was filed July 28, 2023; completion and pricing were not assured.
Guidance, outlook, commentary and risks
- ELPIS II, a 38-patient randomized Phase 2a HLHS trial, was more than 50% enrolled. Management planned to complete enrollment around mid-2024, although no specific completion date was assured.
- The 49-patient CLEAR MIND Phase 2a Alzheimer’s trial had been enrolled and treated. The last patient visit was projected near the end of the third quarter of 2023, with topline results expected around early October 2023.
- The company expects research and development and general and administrative expenses to increase as clinical programs, manufacturing capabilities, intellectual property activities and public-company requirements expand.
- Management expects to require additional capital and is pursuing the proposed rights offering, potential equity or debt financings, partnerships, licensing arrangements, grants and other funding sources. No committed financing source was in place.
- Failure to obtain financing could require the company to delay, reduce or terminate development or commercialization activities. Additional equity financing could materially dilute existing stockholders.
- Major risks include failure of clinical trials to demonstrate safety or efficacy, regulatory non-approval, manufacturing scale-up challenges, competition, intellectual-property protection, dependence on key personnel and uncertain market acceptance.
- The company reported some supply constraints and modest price increases but stated that macroeconomic conditions had not materially affected operations. It transferred deposits and marketable securities from a regional bank to a larger bank to mitigate banking-sector risk.
- Clinical programs remain investigational, and the filing provides no assurance that any product will obtain regulatory approval or generate significant product revenue.
Most important facts for investors to verify
- Whether the proposed $30.0 million rights offering was declared effective, completed and sufficient to address the going-concern uncertainty.
- Current cash burn, cash and marketable securities, and the updated runway after June 30, 2023.
- Enrollment progress, safety data and timing of results for ELPIS II, CLEAR MIND and the Japanese aging-related frailty study.
- Whether revenue from the Bahamas Registry Trial and grants is recurring, declining or sufficient to offset clinical development costs.
- The potential dilution from future equity offerings, outstanding options, RSUs, PSUs and approximately 1.3 million warrants.
- Outstanding clinical, lease, licensing, royalty, milestone and CRO obligations, including approximately $3.4 million of expected master-services-agreement expenditures over two years and $1.2 million of CRO payment obligations disclosed in the MD&A.
- Subsequent developments affecting the securities lawsuit settlement, financing plans, regulatory programs and the company’s going-concern assessment.