BioTime, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for BioTime, Inc., not Lineage Cell Therapeutics, Inc. It covers the quarter and nine months ended September 30, 2016; amounts below are in U.S. dollars unless noted, and financial-statement amounts are generally in millions.
Business context and reporting period
BioTime is a clinical-stage biotechnology company developing therapies based on pluripotent-cell and cell-delivery-matrix technologies. Its portfolio included five therapeutic candidates in human trials and an affiliated cancer diagnostic program. The filing describes Renevia in a pivotal European study, OpRegen in Phase I/IIa, and Asterias programs AST-OPC1 and AST-VAC1 in clinical development; AST-VAC2 was planned to enter a Phase I/IIa trial in first-quarter 2017.
A key reporting change affects comparability: BioTime lost control of Asterias on May 13, 2016, after its ownership fell from 57.1% to 48.7% following Asterias’ stock offering. BioTime then deconsolidated Asterias and accounted for its retained stake using the fair-value option. BioTime’s 2016 nine-month results include Asterias only through May 12; 2015 comparative results include Asterias for the full periods.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $1.5 | $2.3 | $4.8 | $5.6 |
| Gross profit | $1.4 | $1.9 | $4.5 | $4.6 |
| Operating expenses | $11.0 | $19.0 | $52.2 | $48.7 |
| Operating loss | $(9.6) | $(17.1) | $(47.7) | $(44.1) |
| Net income (loss) | $29.3 | $(16.7) | $26.4 | $(41.3) |
| Net income (loss) attributable to BioTime common shareholders | $31.2 | $(14.0) | $38.6 | $(34.0) |
- Gross margin was approximately 96% in Q3 2016 versus 81% in Q3 2015, and approximately 92% for the 2016 nine-month period versus 83% in 2015.
- Reported 2016 net income was primarily driven by non-operating accounting gains: a $49.0 million gain on Asterias deconsolidation during the first half and a $40.0 million Q3 unrealized gain as BioTime’s Asterias shares rose in market value. The nine-month Asterias fair-value gain was $26.5 million, reflecting the period since deconsolidation. These gains are not operating revenue or cash generation.
- Q3 revenue fell 35% year over year; management attributed the decrease mainly to Asterias no longer being consolidated, partly offset by higher grant income. Nine-month revenue declined about 13%, also reflecting deconsolidation and lower subscription and advertising revenue.
- Q3 operating expenses declined substantially, chiefly because Asterias was no longer consolidated. For the nine-month period, R&D decreased 2% to $29.1 million, while G&A increased 22% to $23.1 million. Excluding Asterias’ included period, BioTime said R&D increased, including spending on PureStem and OpRegen.
- Cash and cash equivalents were $30.5 million at September 30, 2016, down from $42.2 million at year-end; available-for-sale securities were $0.9 million. Working capital was $26.8 million and shareholders’ equity was $136.2 million. Accumulated deficit was $190.5 million.
- Net cash used in operating activities was $33.5 million for the first nine months, compared with $30.6 million in 2015. Investing activities used $10.5 million; financing activities provided $31.9 million. Cash decreased by $11.8 million during the period.
- Total liabilities were $11.3 million. Reported debt and lease obligations included related-party convertible notes with a $1.3 million carrying value, promissory notes, capital leases, and a lease liability. The filing does not present a single aggregate debt figure.
Material changes, outlook, and risks
- BioTime raised approximately $18.6 million net through its June/July 2016 common-stock offering. OncoCyte, which remained a controlled subsidiary after its offering, raised $9.8 million net in August. BioTime reported 103.4 million common shares issued at quarter-end and 103,392,248 shares outstanding as of October 13, 2016.
- BioTime valued its 21.7 million Asterias shares at $92.2 million at September 30. Its OncoCyte holdings had an estimated market value of $74.0 million. Management said it had no present plan to sell either holding and cautioned that quoted market values might not be realizable in full.
- Management expected cash, cash equivalents, and available-for-sale securities of $31.4 million at quarter-end to fund operations through the third quarter of 2017. This is a projection subject to risks, not a guarantee. Cell Cure’s clinical work depends partly on grant funding; losing grants or BioTime support could lead to trial delays or reductions. OncoCyte is expected to need further capital until it can commercialize products and generate sufficient revenue.
- Management expected data from a pivotal European Renevia study in the second quarter of 2017 and planned AST-VAC2 trial initiation in first-quarter 2017. No financial revenue or earnings guidance was provided.
- Key risks include clinical and regulatory uncertainty, continuing operating losses, dependence on equity financing, grants and other external funding, and volatility in Asterias’ share price, which affects reported earnings. BioTime reported no pending litigation and no material off-balance-sheet arrangements. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: this source is BioTime’s filing, not a Lineage Cell Therapeutics filing.
- Review the Asterias deconsolidation and fair-value accounting, including the distinction between cash flows and the large noncash gains affecting reported earnings.
- Assess the cash runway against the reported $33.5 million nine-month operating cash burn, subsidiary funding needs, and the stated Q3 2017 runway estimate.
- Track future capital requirements, grant continuity, clinical-trial timing and results, and the potential dilution from additional financing or outstanding warrants.
- Evaluate the realizability and market-price sensitivity of BioTime’s Asterias and OncoCyte holdings; their quoted market values are not equivalent to cash available for operations.