Lineage Cell Therapeutics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unless noted otherwise, financial amounts below are in U.S. dollars and millions. Lineage is a clinical-stage cell therapy biotechnology company; its portfolio includes five allogeneic programs, three of which had reached clinical testing.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $2.386 | $5.237 |
| Gross profit | $2.267 | $5.061 |
| Gross margin | Approximately 95% | Approximately 97% |
| Research and development expense | $4.185 | $2.988 |
| General and administrative expense | $4.724 | $8.469 |
| Operating loss | $(6.642) | $(6.396) |
| Net loss attributable to Lineage | $(4.372), or $(0.03) per share | $(7.087), or $(0.04) per share |
| Cash used in operating activities | $(11.242) | Cash provided: $21.904 |
- At March 31, 2023, cash and cash equivalents were $15.451 million and marketable securities were $31.363 million, totaling $46.8 million. Total assets were $113.205 million, total liabilities $44.190 million, and shareholders’ equity $69.015 million.
- Cash, cash equivalents and restricted cash ended the quarter at $16.021 million. Investing activities provided $15.426 million, principally from Treasury maturities net of purchases; financing cash flow was negligible.
- The filing reports no conventional borrowings. Lease liabilities totaled approximately $3.638 million, including operating and finance leases. Deferred revenue was $35.026 million.
Changes versus the prior-year quarter
- Revenue fell 54%, mainly because Lineage recognized $2.744 million less collaboration revenue from the Roche upfront payment, following an updated estimate of collaboration costs. Royalties declined 29% to $0.265 million, partly due to patent expirations in Q4 2022.
- R&D expense rose 40%, led by higher OPC1, ANP1 and other program costs. G&A fell 44%, primarily because prior-year expense included accruals related to the Asterias merger litigation.
- Operating loss widened modestly, but net loss narrowed, principally with a $1.803 million deferred tax benefit in Q1 2023 and more favorable other income/expense comparisons. Q1 2022 included a $0.735 million unrealized loss on marketable equity securities.
- Operating cash flow shifted from $21.904 million provided to $11.242 million used. The prior-year period reflected significant working-capital movements, including collection of Roche-related amounts; Q1 2023 cash use reflected operating losses and changes in assets and liabilities.
Business, outlook, risks and unusual items
- OpRegen is in a Genentech-run Phase 2a study under the Roche collaboration. Lineage received a $50 million upfront payment and may receive up to $620 million in milestones plus tiered double-digit royalties, subject to agreement terms and applicable intellectual-property conditions. Revenue from the upfront payment is recognized over performance obligations, so reported collaboration revenue depends on updated cost estimates.
- Management expects losses for at least the next several years and operating expenses to increase as programs advance. It believes available cash, cash equivalents and marketable securities, with projected cash flows, will fund planned operations for at least 12 months from the financial-statement issuance date. Additional capital may be required; the company warns that financing may be unavailable or dilutive and that programs could be delayed, curtailed or suspended.
- The company had $63.8 million available under its at-the-market offering program at quarter-end and made no ATM sales during Q1. Management’s liquidity outlook also depends on potential collaboration payments and market conditions for any security or share sales.
- The Roche agreement entails contingent payments to licensors and the Israel Innovation Authority (IIA). The IIA is entitled to approximately 24.3% of qualifying Roche payments, subject to an aggregate cap that was approximately $91.7 million at quarter-end; Hadasit also has contractual sublicense and royalty rights. These contingent obligations were not recorded as liabilities because timing and achievement are uncertain.
- In February 2023, the Asterias merger litigation settlement was approved; Lineage paid approximately $3.53 million of the $10.65 million settlement, with insurers funding the balance. A separate Premvia litigation settlement was covered by insurance except for a $25,000 deductible.
- On April 17, 2023, Cell Cure received a books-and-records motion from approximately 5% shareholder HBL, which alleges issues concerning an intercompany agreement and may be seeking information to evaluate a derivative action. Lineage disputes the allegations; the potential exposure could not be reasonably estimated and no accrual was recorded.
- Other notable items include a $1.803 million deferred tax benefit and a reported $0.5 million employee retention credit. Treasury securities had $0.060 million of unrealized losses at quarter-end, which management characterized as temporary and said it intended to hold to maturity.
Investor verification priorities
- Track cash burn against management’s stated minimum 12-month liquidity horizon, and assess the assumptions behind future financing needs and any ATM issuance.
- Monitor clinical progress, spending and funding responsibilities for OpRegen, OPC1, ANP1, PNC1 and VAC, including Roche’s development decisions and potential milestones.
- Verify future Roche-related revenue recognition as cost estimates change, and the timing and potential amounts of IIA, Hadasit and other contingent payments.
- Follow the HBL proceeding and any developments that could affect Cell Cure, the intercompany agreement or potential liabilities.
- Review the effects of noncash tax benefits, investment fair-value changes and the employee retention credit when comparing reported net loss with underlying operating performance.