Lineage Cell Therapeutics, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial amounts below are in U.S. dollars; millions are shown unless stated otherwise.
Business context
Lineage is a clinical-stage biotechnology company developing allogeneic cell therapies. It reported five programs in development, three of which had reached human clinical testing. Roche holds exclusive worldwide development and commercialization rights to OpRegen for ocular disorders, including geographic atrophy associated with age-related macular degeneration; Roche is conducting a Phase 2a trial. Lineage reported OPC1 in long-term follow-up after a Phase 1/2a trial, while ANP1 and PNC1 remained preclinical. A Phase 1 VAC2 trial in non-small cell lung cancer had been completed.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $3.2m | $4.6m | $5.6m | $9.8m |
| Gross profit | $3.1m | $4.3m | $5.4m | $9.4m |
| Gross margin | 96.1% | 95.3% | 95.6% | 96.0% |
| Operating expenses | $8.1m | $8.6m | $17.0m | $20.0m |
| Loss from operations | $(5.0)m | $(4.2)m | $(11.7)m | $(10.6)m |
| Net loss attributable to Lineage | $(5.2)m | $(6.8)m | $(9.6)m | $(13.9)m |
| Net loss per share, basic and diluted | $(0.03) | $(0.04) | $(0.06) | $(0.08) |
Collaboration revenue was $2.9m in Q2 and $5.0m for the first half, primarily reflecting recognition of Roche’s $50m upfront payment under the collaboration agreement. The company recognizes that payment over time based on costs incurred relative to estimated total collaboration costs.
Cash, liquidity and financing
- At June 30, cash and cash equivalents were $33.9m and marketable securities were $12.0m; management cited $45.9m in combined cash, cash equivalents and marketable securities.
- For the first half, operating cash use was $17.5m, compared with $14.8m provided in the prior-year period. Investing activities provided $34.6m, mainly from Treasury maturities, while financing activities provided $5.6m, mainly from ATM share sales.
- Lineage raised $5.8m gross through the ATM in Q2, selling approximately 4.24m shares. A further $58.0m remained available under the program at June 30. Shares outstanding were 174.4m at quarter-end and 174.99m on August 4.
- Total liabilities were $40.4m. The filing reports operating and finance lease liabilities totaling approximately $3.4m; it does not report conventional borrowings.
- Management believes available liquidity and projected cash flows will fund planned operations for at least 12 months from issuance of the financial statements.
Material changes and notable items
- Revenue declined 29% in Q2 and 43% in the first half year over year, primarily because less Roche upfront-payment revenue was recognized following an updated collaboration forecast.
- R&D expense increased 17% in Q2 and 28% year to date, including higher spending on OpRegen, OPC1 and ANP1. G&A expense fell 19% in Q2 and 35% year to date, largely reflecting lower legal and litigation costs and reduced third-party and consulting costs.
- First-half net loss improved year over year, partly reflecting a $1.8m deferred tax benefit, higher interest income and smaller unrealized losses on marketable equity securities. Operating loss nevertheless increased.
- Operating cash flow differed sharply from the prior-year period, which included the timing of Roche upfront-payment-related receipts and payments. The 2023 investing cash inflow largely reflects Treasury maturities rather than operating cash generation.
- In February 2023, Lineage paid approximately $3.53m toward the $10.65m settlement of Asterias merger litigation; insurers funded the balance. A separate Premvia settlement payment was covered by insurance except for a $25,000 deductible.
- Cell Cure opposed an April 2023 document-disclosure motion by HBL concerning an intercompany agreement. The company said the potential outcome and any possible liability could not be reasonably estimated and recorded no accrual.
Outlook, risks and contingencies
Management expects losses to continue for at least several years and operating expenses to increase as product candidates advance. It says additional capital will be needed over the longer term and may be sought through equity, debt, grants, partnerships or licensing. Failure to obtain adequate funding could require delaying, limiting or stopping development activities; equity financing could dilute shareholders. Management’s stated 12-month liquidity assessment is based on its current operating plan and is not a guarantee.
Under the Roche agreement, Lineage may receive up to $620m in development, regulatory and commercialization milestones, plus tiered double-digit royalties, all subject to contractual conditions. The company also owes the Israel Innovation Authority approximately 24.3% of certain Roche payments, subject to a growing aggregate cap that was about $92.1m at June 30, 2023; payments are contingent and not recorded as balance-sheet liabilities. Hadasit and other licensors also have contingent payment rights. Roche may terminate the agreement with advance notice.
Key facts for investors to verify
- Progress, enrollment and results for Roche’s OpRegen Phase 2a trial, and any resulting milestone or royalty prospects.
- Whether the updated Roche collaboration cost forecast continues to reduce the pace of deferred-revenue recognition.
- Cash consumption versus management’s stated runway, and the potential dilution and market capacity associated with further ATM sales.
- Clinical and regulatory plans for OPC1 and progress in the preclinical ANP1 and PNC1 programs; status of the VAC/ITI collaboration and its remaining $1.6m performance obligation.
- Developments in HBL’s document-disclosure proceeding and any later assessment of potential liability.