Lineage Cell Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Dollar amounts below are in millions unless stated otherwise. Lineage is a clinical-stage cell-therapy company; its principal clinical programs are OpRegen (dry age-related macular degeneration), OPC1 (acute spinal cord injury), and VAC2 (non-small-cell lung cancer). It is also seeking a commercialization partner for Renevia.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0.386 | $0.779 | $0.900 | $1.707 |
| Gross profit / gross margin | $0.311 / 80.6% | $0.672 / 86.3% | $0.731 / 81.2% | $1.532 / 89.8% |
| Operating expenses | $6.713 | $11.493 | $14.571 | $25.114 |
| Operating loss | $(6.402) | $(10.821) | $(13.840) | $(23.582) |
| Net income (loss) attributable to Lineage | $(6.522) | $(30.032) | $(14.921) | $9.278 |
| Basic and diluted EPS | $(0.04) | $(0.20) | $(0.10) | $0.07 |
| Operating cash flow | Not presented by quarter | $(9.265) | $(18.981) |
At June 30, cash and cash equivalents were $12.676; marketable equity securities were $7.575; and the Juvenescence promissory note, including accrued interest, was $24.372. Working capital was $38.7, total assets $112.1, total liabilities $14.4, and shareholders’ equity $97.7. The company reported $4.486 of operating lease liabilities and $0.093 of finance lease liabilities, plus a $0.523 PPP loan classified as current. No other conventional borrowing was identified in the supplied filing text.
Six-month investing cash inflow was $11.958, mainly from selling OncoCyte shares ($10.941) and AgeX shares ($0.985). Financing cash inflow was $0.493, mainly the PPP loan. Cash, cash equivalents, and restricted cash ended the period at $13.244. The filing says cash, cash equivalents, and marketable securities of approximately $20.3, together with potential ATM proceeds, were expected to fund planned operations for at least 12 months from issuance of the financial statements.
Changes versus the prior comparable periods
- Revenue declined 50% in Q2 and 47% for the first half, mainly because grant revenue fell and research-product sales ceased. Grant revenue was down 46% in Q2 and 50% year to date; royalties and license fees were lower in Q2 but higher year to date.
- Operating expenses fell 42% in Q2 and 42% for the first half. Lower R&D spending reflected reduced OpRegen manufacturing and OPC1 development activity; lower G&A largely reflected fewer Asterias merger-related costs and reduced compensation and professional expenses.
- The Q2 net loss narrowed substantially from 2019, when a $21.425 OncoCyte valuation loss affected results. The 2020 quarter included a $2.470 gain on securities sales and a $4.146 unrealized loss on marketable equity securities. For the first half, Lineage moved from net income in 2019 to a loss in 2020, as prior-year OncoCyte and Asterias fair-value gains and a tax benefit did not recur.
- First-half operating cash use improved by $9.716 year over year, to $9.265, alongside reduced expenses. The improvement in cash balance also reflected sales of investment securities, rather than operating cash generation.
Outlook, commentary, risks, and unusual items
- Outlook and funding: Management stated that available liquidity and access to the $25 million at-the-market (ATM) facility were sufficient for planned operations for at least 12 months. No sales had been made under the ATM by June 30. The company warned that future financing may be needed and could dilute shareholders; financing may be unavailable or unfavorable.
- Juvenescence note: The $24.4 million note was due August 30, 2020, unless converted under its terms. It bears 7% interest. The filing describes cash repayment or conversion as alternatives; realization and timing are important liquidity considerations.
- COVID-19: Management reported enrollment impacts in OpRegen and VAC2 as some sites paused recruitment and patients avoided or discontinued participation. Delays could affect trial timing, costs, data integrity, manufacturing and access to capital. Management said spending might increase later in 2020 to accelerate trials and mitigate delays.
- VAC2 license: In May 2020, Lineage assumed Asterias’s obligations and exercised an option to obtain CRUK Phase 1 trial data; CRUK continues to conduct the study. Lineage agreed to a £1.25 million signature fee, payable in installments beginning September 2020, and potential development and sales milestones and mid-single-digit royalties.
- Subsequent event: On August 4, 2020, a former service provider agreed to return approximately $0.8 million of unspent project funds. Lineage expected to record the amount as an offset to R&D expense in Q3.
- Contingencies: A Delaware shareholder class action concerning the Asterias merger remained pending. Lineage stated that the potential loss was not probable or reasonably estimable and recorded no accrual. The PPP loan may be forgiven in whole or in part, but forgiveness was not assured. The filing also describes grant-related restrictions and potential royalty obligations tied to Israeli-funded research.
- Other risks and unusual items: Results may fluctuate with market prices of OncoCyte and other holdings; management specifically expects volatility in other income and expense. Lineage reported an accumulated deficit of $288.3 million and expects significant future losses. No formal financial guidance was provided.
Most important facts for investors to verify
- Whether the Juvenescence note was repaid or converted by its August 30, 2020 maturity, and how the outcome affected liquidity.
- Subsequent ATM usage, share issuance and dilution; no ATM sales were reported through June 30.
- Current cash runway after operating spending, trial activity, lease commitments, and the $0.8 million post-quarter refund.
- Clinical-trial enrollment and timing updates for OpRegen and VAC2, including the effects of COVID-19 and any increased spending.
- Progress in the Asterias merger litigation, PPP forgiveness determination, and scheduled VAC2 license payments and contingent milestones.