Filing summary
Entity and period: The supplied filing is BioTime, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed March 14, 2019. This does not match the request metadata naming Lineage Cell Therapeutics, Inc.; verify the issuer before relying on this summary. The filing reports annual results and unaudited quarterly results, including Q4 2018.
Business context and reporting period
BioTime was a clinical-stage biotechnology company developing cell therapies and related technologies. Its clinical programs included OpRegen for dry age-related macular degeneration, OPC1 for acute spinal cord injury, and VAC2 for non-small cell lung cancer. The filing’s financial statements consolidate AgeX through August 29, 2018, but not after its August 30 deconsolidation; OncoCyte and Asterias were accounted for as investments rather than consolidated subsidiaries during 2018.
BioTime acquired the remaining interest in Asterias on March 8, 2019, after year-end, in a stock-for-stock merger. The company expected integration and cost reductions; Asterias results are to be consolidated from the acquisition date.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $5.0 million | $3.5 million |
| Gross profit / gross margin | $4.7 million / 93.9% | $3.3 million / 95.1% |
| Operating expenses | $46.5 million | $43.9 million |
| Loss from operations | $(41.8) million | $(38.9) million |
| Net loss attributable to BioTime | $(46.0) million | $(20.0) million |
| Loss per share, basic and diluted | $(0.36) | $(0.17) |
| Net cash used in operating activities | $(30.9) million | $(30.5) million |
Revenue growth was mainly from grants, which increased 114% to $3.6 million; grants represented 71.6% of total revenue. Subscription and advertising revenue fell 50.5% to $0.7 million and was not expected to recur after AgeX’s deconsolidation. Research and development expense, including $0.8 million of acquired in-process R&D, was $21.8 million; general and administrative expense rose 24.1% to $24.7 million.
Q4 2018: Revenue was $0.8 million, operating expenses $10.8 million, operating loss $10.1 million, and net loss attributable to BioTime $45.0 million, or $0.36 per share. Q3 reported net income attributable to BioTime of $66.7 million, driven by volatile investment and transaction-related items; quarterly earnings were not representative of operating performance.
Year-end liquidity and debt: Cash and cash equivalents were $23.6 million; current assets were $36.4 million, current liabilities $6.8 million, and working capital $29.5 million. Total liabilities were $9.4 million, primarily lease liabilities, accounts payable and accrued liabilities; the filing shows no material conventional borrowing balance. Total shareholders’ equity was $92.2 million. Marketable equity securities were $7.2 million current, while OncoCyte shares valued at $20.3 million were a noncurrent investment. A $22.1 million Juvenescence convertible promissory note, including accrued interest, was an asset due at maturity in August 2020 unless converted; it bears 7% annual interest.
Material changes and unusual items
- Revenue increased 44.2%, but the mix shifted toward grant funding and away from subscription and advertising revenue. BioTime said it did not expect to recognize the latter revenue after AgeX’s deconsolidation.
- Operating loss widened by $2.9 million. Higher G&A, including management-transition compensation, legal and compliance costs, and stock-based compensation, more than offset lower R&D expense.
- Net loss increased substantially, partly reflecting noncash fair-value losses of $48.0 million on OncoCyte shares and $35.4 million on Asterias shares. A $78.5 million accounting gain from the AgeX share sale and deconsolidation partly offset these losses. These valuation and deconsolidation effects make net income volatile and do not represent recurring operating revenue.
- AgeX sale proceeds included $21.6 million cash and a $21.6 million convertible note; BioTime also distributed AgeX shares with a reported fair value of $34.4 million to its shareholders.
- Cash declined from $36.8 million to $23.6 million. Investing activities provided $11.8 million, mainly from AgeX and Ascendance sales, while operating activities used $30.9 million. Financing activities provided $5.8 million, primarily from subsidiary securities transactions.
- The company adopted Topic 606 revenue accounting in 2018; the reported opening accumulated-deficit adjustment was immaterial. Prior-year revenue was not recast.
Outlook, risks and contingencies
Management stated that cash, cash equivalents and marketable securities of $30.7 million at year-end, the OncoCyte investment, and a $2.1 million OncoCyte receivable collected in February 2019 were expected to support current operations for at least twelve months from issuance of the financial statements. This outlook depends on planned spending, grant funding, available liquidity and possible asset sales. The company continued to incur substantial losses and stated it may need additional capital; financing may be unavailable or dilutive.
- Management planned to complete OpRegen Phase I/IIa enrollment by year-end 2019, incorporate a new delivery device and formulation, and continue development of OPC1 and VAC2. These are forward-looking plans, not guaranteed outcomes.
- BioTime paid Orbit Biomedical $1.25 million in January 2019 and had a further $1.25 million due under a $2.5 million agreement to assess its delivery device for OpRegen.
- Renevia’s EU CE Mark decision was expected in the second half of 2019 after regulatory review delays. The filing states that failure to obtain CE Mark approval could prevent commercialization; the FDA had indicated a larger development program could be required for the U.S.
- Key risks include clinical trial failure or delay, manufacturing and supply constraints, regulatory approval and reimbursement uncertainty, dependence on grants and third parties, intellectual-property challenges, and fluctuations in the market value of investments. Israeli Innovation Authority grants also carry restrictions and potential repayment or approval obligations tied to funded know-how and manufacturing.
- A putative shareholder class action filed in February 2019 challenged the Asterias merger. The company denied the allegations and intended to defend the case; it recorded no contingency because a loss was not considered probable or estimable.
- The independent auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective as of December 31, 2018.
Important facts for investors to verify
- Confirm that BioTime, rather than Lineage Cell Therapeutics, is the intended issuer and that the requested period is the fiscal year ended December 31, 2018.
- Review the audited statements and subsequent filings for updated cash, operating burn, financing needs, and the financial impact of consolidating Asterias after March 8, 2019.
- Check the status and terms of the Juvenescence note, including repayment capacity, conversion provisions, and the August 2020 maturity.
- Track clinical trial enrollment, safety and efficacy updates, regulatory feedback, and the CE Mark status of Renevia; distinguish interim results from confirmatory evidence.
- Assess the liquidity and realizable value of OncoCyte and AgeX holdings, which are market-price dependent, and the recurring effect of losing AgeX-related revenue.
- Monitor the Asterias merger litigation, integration costs and realized cost synergies, as well as grant availability and obligations attached to Israeli-funded programs.