Lineage Cell Therapeutics, Inc. annual report, FY2023

Business context and reporting period

Lineage Cell Therapeutics, Inc. filed this Form 10-K for the fiscal year ended December 31, 2023. It is a clinical-stage biotechnology company developing allogeneic cell therapies. Its lead program, OpRegen (RG6501), is being developed by Roche/Genentech for geographic atrophy secondary to age-related macular degeneration; Lineage’s leading unpartnered program is OPC1 for spinal cord injury.

Financial performance and position

Revenue fell 39%, primarily because less of the Roche upfront payment was recognized as collaboration revenue: $7.6 million in 2023 versus $13.4 million in 2022. Revenue also included $1.4 million of royalties, license and other revenue, principally from legacy patent-related sources. The Roche upfront payment is recognized over time based on estimated costs and progress; $29.5 million of deferred revenue remained at year-end.

At December 31, 2023, cash, cash equivalents and marketable securities totaled $35.5 million; current assets were $38.4 million and current liabilities $18.0 million. Total liabilities were $39.0 million and shareholders’ equity $62.0 million. The filing reports lease liabilities of approximately $3.0 million and no material conventional borrowings. Operating cash use increased from 2022, when working-capital movements included the Roche upfront payment. Management said year-end liquidity plus $13.8 million net proceeds from a February 2024 share offering was expected to fund planned operations for at least 12 months after issuance of the financial statements, but not through product approval.

Material changes versus the prior comparable period

• Revenue declined $5.8 million, while operating expenses decreased 10% to $33.0 million. Lower legal and litigation costs, including a $4.2 million decrease, drove the reduction in general and administrative expense; R&D expense increased 12%.
• Net loss narrowed by $4.8 million, supported by higher interest income, smaller marketable-equity and foreign-currency losses, and a $1.8 million deferred tax benefit. Operating loss nevertheless widened by $2.2 million.
• Cash and cash equivalents increased from $11.4 million to $35.4 million, while marketable securities reported separately on the balance sheet fell from $46.5 million to $0.05 million, reflecting investment maturities and cash management.
• Lineage raised $6.4 million net through its at-the-market program in 2023. In February 2024 it issued 13.46 million shares at $1.04 per share for approximately $13.8 million net; 188.5 million common shares were outstanding as of March 1, 2024.

Outlook, management commentary, risks and unusual items

• Management expects continued operating losses and substantial funding needs. It provided no revenue or earnings guidance. The stated 12-month runway is based on planned operations and remains subject to spending, program and financing assumptions.
• Roche controls further OpRegen development and commercialization and may terminate the collaboration. Potential milestone payments of up to $620 million and tiered double-digit royalties are contingent, not assured; intellectual-property conditions and offsets may apply.
• OpRegen remains in a Roche-led Phase 2a study. The company cited preliminary Phase 1/2a findings, including average visual-acuity gains in a small patient cohort, while cautioning that early and interim data may change and may not predict later trial results. Two competing GA treatments were FDA-approved in 2023.
• The FDA cleared Lineage’s OPC1 IND amendment in February 2024. The planned DOSED study will assess the safety and utility of a delivery device in a small group of subacute and chronic spinal cord injury patients; initial site opening was expected in Q2 2024. Additional CIRM funding was uncertain after the agency postponed acceptance of new applications.
• All cGMP manufacturing is conducted at the company’s Jerusalem facility. The Israel-Hamas war temporarily affected operations; reserve call-ups, facility disruption, supply constraints and geopolitical conditions could materially affect manufacturing and development. Management reported no material adverse operating impact as of the filing date.
• Contingent obligations include payments to the Israeli Innovation Authority and Hadasit linked to Roche proceeds. The IIA cap was $93.2 million at year-end and accrues interest; the amounts and timing of future payments depend on milestones and royalties. The company also reported a $3.53 million contribution to the 2023 settlement of Asterias-merger litigation, with insurers funding the balance of the $10.65 million settlement.
• An Israeli shareholder’s request for Cell Cure records relating to an intercompany agreement was pending; the company said the outcome and potential exposure could not be estimated. It reported no material legal proceedings currently. The auditor identified collaboration revenue recognition as a critical audit matter because of estimates of total expected costs and performance progress.

Important facts for investors to verify

• Progress, enrollment, safety and meaningful clinical outcomes in Roche’s OpRegen Phase 2a study, and Roche’s continued commitment to the program.
• Whether the OPC1 DOSED study opens on schedule, obtains funding, and supports further development of OPC1.
• Cash burn, financing needs and dilution, including subsequent share issuance and use of the ATM program.
• Manufacturing continuity in Israel, supply availability, and the effect of IIA/Hadasit payment obligations on any future Roche proceeds.
• Revenue-recognition assumptions and the timing of recognition of the remaining deferred collaboration revenue.
• Developments in the Cell Cure shareholder proceeding and any other contingent legal or contractual liabilities.