Longeveron Inc. — Form 10-Q Summary
Business context and reporting period
Longeveron is a clinical-stage biotechnology company developing Lomecel-B and other cellular therapies for aging-related and life-threatening conditions, including aging frailty, Alzheimer’s disease, metabolic syndrome, ARDS, and hypoplastic left heart syndrome. The filing covers the unaudited three- and nine-month periods ended September 30, 2021. The company completed its conversion from an LLC to a corporation and began trading on Nasdaq under LGVN on February 12, 2021.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $0.2 million | $1.9 million | $1.1 million | $4.4 million |
| Gross profit | $0.2 million | $0.4 million | $0.5 million | $1.3 million |
| Gross margin | 70.7% | 20.0% | 47.5% | 29.2% |
| Operating loss | $4.9 million | $1.0 million | $13.4 million | $2.4 million |
| Net loss | $4.9 million | $0.9 million | $13.0 million | $2.4 million |
| Basic and diluted loss per share | $0.25 | $0.06 | $0.70 | $0.15 |
Revenue consisted primarily of grants and clinical trial revenue. Q3 revenue declined 88%, driven by a 96% reduction in grant revenue, partially offset by $0.2 million of clinical trial revenue. Nine-month revenue declined 75%, reflecting lower grant revenue and reduced Bahamas Registry Trial activity.
Operating expenses increased to $5.1 million in Q3 and $13.9 million for the nine months, principally because of higher public-company, compensation, professional, insurance, research and development costs. Equity-based compensation was $2.5 million in Q3 and $6.0 million for the nine months, compared with $36,000 for the nine months ended September 30, 2020.
- Cash and cash equivalents: $9.7 million at September 30, 2021, compared with $0.8 million at December 31, 2020.
- Short-term investments: $9.2 million, consisting primarily of corporate bonds and other fixed-income securities.
- Working capital: approximately $17.7 million.
- Net cash used in operating activities: $8.4 million for the first nine months of 2021, versus $1.9 million in the prior-year period.
- Net cash used in investing activities: $9.4 million, primarily from purchases of short-term investments.
- Net cash provided by financing activities: $26.7 million, primarily from the IPO and partial exercise of the underwriters’ overallotment option.
- Total debt was approximately $0.1 million, primarily the remaining SBA disaster loan; the $0.3 million PPP loan was forgiven in March 2021.
- Operating lease liability was approximately $3.3 million, with total future operating lease payments of $3.9 million.
Material changes versus the prior comparable period
- Revenue fell from $1.9 million to $0.2 million in Q3 and from $4.4 million to $1.1 million for the nine months, mainly because previously funded grant programs were completed or had reduced available funding.
- Clinical trial revenue increased in Q3 to $0.2 million from $30,000, but declined 31% for the nine months to $0.5 million because of COVID-19-related international travel restrictions affecting the Bahamas Registry Trial.
- General and administrative expense increased 327% in Q3 and 317% for the nine months, while research and development expense increased 250% and 252%, respectively.
- The company raised approximately $29.1 million in gross IPO proceeds during 2021, including the overallotment exercise, and reported $26.7 million of net financing cash inflows for the nine-month period.
- The corporate conversion changed the capital structure from membership units to Class A and Class B common stock. Class B shares have five votes per share and are not publicly tradable.
Guidance, outlook, commentary, risks and unusual items
Management expects operating losses and cash use to continue as clinical development, manufacturing, regulatory, intellectual-property and public-company activities expand. Management stated that available cash and investments were expected to fund operating expenses and capital requirements for at least the next 12 months from issuance of the financial statements; the MD&A separately indicated that existing cash and cash equivalents were expected to fund operations into the second half of 2022. The company has no credit facility or committed source of additional capital and expects it will need additional financing.
- The Phase 2b aging frailty trial did not show a statistically significant treatment-versus-placebo difference at the prespecified Day 180 primary endpoint, although statistically significant differences were reported at Day 270 for certain doses and for pooled Lomecel-B subjects.
- The Phase 2 ELPIS II HLHS trial enrolled its first subject in July 2021 and targeted 38 infants. Earlier Phase 1 HLHS results reported no treatment-related major adverse cardiac events or infections in 10 infants.
- Top-line data from the HERA influenza vaccine trial were anticipated in the first quarter of 2022.
- COVID-19 caused missed, delayed or out-of-window clinical follow-up visits, some trial dropouts and reduced Bahamas Registry participation. The company warned that excessive dropout or protocol disruption could require a trial to be restarted.
- A securities class action was filed on September 13, 2021, alleging materially false or misleading statements in IPO materials and other disclosures. The company considers the claims without merit, but the potential loss or range of loss was not determinable.
- The Alzheimer’s Association grant arrangements may require revenue-sharing or other payments of up to five times the award amount, although the potential payments are not currently defined.
- Unregistered Class A shares valued at approximately $1.2 million were issued during the nine months for consulting and licensing obligations, including 110,387 shares issued to the University of Miami.
- On October 1, 2021, 657,062 restricted stock units vested. The company paid approximately $489,000 of employee and employer taxes and withheld 123,659 Class A shares to satisfy employee tax obligations.
Most important facts for investors to verify
- Whether the company can sustain operations after the stated cash runway and the timing, terms and dilution associated with future financing.
- Clinical efficacy, safety, enrollment and regulatory progress for Lomecel-B, particularly the aging frailty and HLHS programs.
- The effect of reduced grant funding and COVID-19-related disruption on revenue and trial timelines.
- The cash impact and potential outcome of the securities litigation and other licensing, royalty and milestone obligations.
- The magnitude and future persistence of equity-based compensation and other public-company operating expenses.
- The voting concentration associated with the five-votes-per-share Class B common stock and the potential dilution from outstanding RSUs, options and warrants.