Longeveron Inc. 2021 Q2 Form 10-Q Summary
Business Context and Reporting Period
Longeveron Inc. is a clinical-stage biotechnology company developing Lomecel-B, an allogeneic cellular therapy, for aging-related and life-threatening conditions. Programs include aging frailty, Alzheimer’s disease, metabolic syndrome, acute respiratory distress syndrome, and hypoplastic left heart syndrome. The company has no FDA-approved products and generates revenue primarily from grants, clinical trials, and contract manufacturing.
This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Longeveron converted from an LLC to a Delaware corporation on February 12, 2021 and began trading on Nasdaq under the symbol LGVN following its initial public offering.
Financial Performance and Liquidity
| Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|---|---|
| Total revenue | $0.5 million | $0.9 million | $0.9 million | $2.6 million |
| Gross profit | $0.2 million | $0.1 million | $0.4 million | $0.9 million |
| Gross margin | 42.5% | 12.8% | 41.3% | 35.8% |
| Operating loss | $(5.1) million | $(1.2) million | $(8.5) million | $(1.4) million |
| Net loss | $(5.0) million | $(1.2) million | $(8.1) million | $(1.4) million |
| Net loss per share | $(0.26) | $(0.08) | $(0.44) | $(0.09) |
| Cash used in operating activities | Not separately provided | Not separately provided | $(6.0) million | $(1.6) million |
- Six-month revenue declined 67% year over year, primarily because of lower grant revenue and reduced Bahamas Registry Trial revenue.
- Operating expenses increased to $8.9 million for the six months, including $5.5 million of general and administrative expense and $3.3 million of research and development expense.
- Equity-based compensation was $3.5 million for the six months, compared with $24,000 in the prior-year period, materially increasing reported operating expenses.
- Cash and cash equivalents were $16.8 million at June 30, 2021, and short-term investments were $4.6 million, for total cash and short-term investments of approximately $21.4 million.
- Working capital was approximately $19.9 million. Total liabilities were $5.2 million, including approximately $0.1 million of SBA loans and $3.4 million of operating lease liabilities.
- Cash provided by financing activities was $26.7 million, primarily from the IPO and partial exercise of the underwriters’ over-allotment option. Cash used in investing activities was $4.7 million, primarily for short-term investments.
- The accumulated deficit was $35.0 million at June 30, 2021. The company has not achieved profitability or positive operating cash flow.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue decreased 44% to $0.5 million, while six-month revenue decreased 67% to $0.9 million.
- Grant revenue declined to $0.3 million for the quarter and $0.5 million for the six months, compared with $0.9 million and $1.8 million, respectively, in 2020.
- Clinical trial revenue increased to $0.2 million in the quarter but declined to $0.4 million for the six months, reflecting continuing travel-related disruption to the Bahamas Registry Trial.
- Quarterly gross profit increased 86% to $0.2 million, despite lower revenue, because cost of revenues declined faster than revenue.
- General and administrative expense increased 401% for the quarter and 315% for the six months, driven by compensation, insurance, professional expenses, public-company costs, and stock-based compensation.
- Research and development expense increased 205% for the quarter and 256% for the six months, reflecting greater clinical activity, manufacturing costs, personnel costs, and equity-based compensation.
- The company completed its corporate conversion and raised approximately $29.1 million of gross IPO and over-allotment proceeds, with approximately $26.7 million of net proceeds reflected in financing cash flows.
- The $0.3 million PPP loan was forgiven in March 2021, producing a nonrecurring gain.
Guidance, Outlook, Risks, and Unusual Items
- Management expects operating losses to continue for the foreseeable future and anticipates increasing research and development and general and administrative spending as clinical programs and public-company operations expand.
- The filing states that existing cash and cash equivalents should fund operating expenses and capital expenditures for at least the next 12 months from issuance of the financial statements; elsewhere, management estimates available cash will fund operations into the second half of 2022. These estimates depend on clinical costs, capital requirements, and other assumptions that may prove inaccurate.
- The company has no credit facility or committed source of additional capital and expects it may require additional equity, debt, grant, collaboration, licensing, or other financing.
- At June 30, 2021, six U.S. FDA-authorized Lomecel-B trials were listed: four completed, one ARDS trial enrolling, and one HLHS Phase IIb trial with enrollment initiated in June 2021. Management also anticipated initiating a U.S. Alzheimer’s disease Phase II trial and a Japanese aging-frailty trial later in 2021.
- The company reported subsequent July 2021 executive option grants, salary increases, IPO bonuses, and related stock-based compensation. These items were recorded or accrued as of June 30, 2021 according to the filing.
- COVID-19 caused travel restrictions, missed or delayed follow-up visits, and some trial dropouts, particularly among elderly participants. The company stated that excessive dropout or protocol disruption could require a trial to be restarted.
- Key risks include clinical-trial failure, regulatory nonapproval, inability to commercialize product candidates, dependence on grant funding and additional capital, competition, intellectual-property protection, key personnel, manufacturing and supply constraints, and COVID-19-related disruptions.
- Potential future obligations include approximately $4.0 million of operating lease payments, license milestones and royalties, and a possible revenue-sharing obligation under an Alzheimer’s Association grant that could reach five times the award amount.
Investor Verification Checklist
- Reconcile the filing’s differing descriptions of IPO net proceeds and confirm the expected cash runway under current spending plans.
- Assess the sustainability of revenue, particularly the decline in grant funding and the uncertain recovery of Bahamas Registry Trial revenue.
- Separate recurring cash operating costs from the substantial noncash stock-based compensation expense.
- Review clinical-trial enrollment, data quality, follow-up completion, regulatory status, and the implications of reported COVID-19 disruptions.
- Review dilution from 879,134 outstanding RSUs, 109,125 stock options, 106,400 IPO warrants, and subsequent executive awards.
- Confirm future financing needs, grant availability, lease commitments, license milestones, royalties, and other contingent obligations.