Lineage Cell Therapeutics, Inc. annual report, FY2014

Filing and reporting period

The supplied filing is BioTime, Inc.’s Form 10-K for the fiscal year ended December 31, 2014, filed March 10, 2015. This does not match the request metadata naming Lineage Cell Therapeutics, Inc.; the filing’s results below are BioTime’s consolidated results, including its subsidiaries. The filing also provides unaudited fourth-quarter 2014 data.

BioTime was a regenerative-medicine biotechnology company, with programs spanning stem-cell therapies, diagnostics, research products, online biomedical databases and Hextend plasma-volume expander licensing. Most therapeutic programs remained in research or clinical development, while current revenues came mainly from grants, database subscriptions and advertising, product royalties, and research-product sales.

Financial performance and liquidity

• Fourth-quarter 2014 revenue was $1.89 million, versus $1.89 million in Q4 2013. Q4 2014 operating loss was $14.40 million and net loss attributable to BioTime was $10.57 million; the comparable 2013 figures were $(29.29) million and $(19.61) million, respectively. The 2013 quarter included a $17.46 million acquired in-process R&D charge.
• Cash and cash equivalents at year-end were $29.49 million, versus $5.50 million a year earlier. Working capital was $25.28 million; total assets were $74.90 million, total liabilities $12.18 million, and shareholders’ equity $62.72 million.
• Net cash used in operating activities was $38.85 million, compared with $29.51 million in 2013. Investing activities used $1.01 million; financing activities provided $63.62 million, primarily from equity and subsidiary share sales. Management said year-end cash was expected to fund operations at least through 2015.
• Reported liabilities included $60,237 of related-party convertible debt, net of discount, and capital-lease liabilities; the filing lists $11.21 million of future operating-lease payments. Management warned that continued operations and development would require additional financing.

Material changes versus the prior year

• Revenue rose 18.2%. Grant income increased to $3.30 million, including $1.03 million recognized from Asterias’ CIRM award, and research-product and service sales grew 36.1% to $376,000.
• License-fee revenue fell 47.1% to $1.17 million. The 2013 figure included accelerated recognition of remaining Summit license fees after those agreements ended; LifeMap database subscription and advertising revenue also declined.
• Hextend royalties recognized fell from $366,000 to $208,000. Management cited lower sales and pricing, hospitals’ shift toward albumin, FDA-mandated safety-label changes, and a 50% reduction in CJ Health’s royalty rate under an extended license.
• R&D expense increased 41.1%, reflecting acquired-intangible amortization and expanded Asterias and LifeMap Solutions programs, as well as diagnostic and Renevia development. The absence of the 2013 acquired IPR&D charge helped reduce the operating loss; deferred tax benefits also contributed to lower reported net loss.

Outlook, commentary, risks and unusual items

• Management stated that cash was expected to support operations through 2015, but emphasized dependence on additional capital, grants, licensing, and future revenue. Asterias raised approximately $5.5 million in February 2015, after year-end.
• Asterias received a $14.3 million CIRM grant for AST-OPC1 development, payable over four years subject to progress and safety milestones. The company cautioned that missed milestones could suspend or reduce payments. CRUK agreed to fund the AST-VAC2 Phase I/IIa lung-cancer trial, while Asterias was responsible for process development and transfer.
• Key development milestones included the AST-OPC1 cervical spinal-cord-injury trial, which began enrollment in March 2015; an OpRegen dry-AMD trial planned to begin enrollment in Q2 2015; and ongoing Renevia clinical development in Europe. Premvia received FDA 510(k) clearance in August 2014. These programs remained subject to clinical, manufacturing, and regulatory uncertainty.
• The company had incurred substantial cumulative losses and reported an accumulated deficit of $182.19 million. Risks include financing needs and potential shareholder dilution; trial failures or delays; regulatory approval and reimbursement uncertainty; competition; dependence on collaborators and license rights; and possible loss of milestone-based grant funding.
• Hextend’s FDA boxed warning identifies increased mortality and renal-injury risks in critically ill adults, including patients with sepsis, and says it should not be used in that population. The filing says the warning and competitive pricing pressured sales.
• The 2014 financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting; management reported no material control changes during the year. The filing reported no pending litigation and no off-balance-sheet arrangements.

Important facts for investors to verify

• Confirm the issuer identity: this is BioTime’s 2014 10-K, not a Lineage Cell Therapeutics filing.
• Track cash burn against the stated runway, subsequent financing, and the timing and terms of any future equity or debt raises.
• Check progress against CIRM grant milestones and whether the AST-OPC1, OpRegen, and Renevia clinical programs meet their enrollment, safety, and regulatory targets.
• Assess whether grants, database revenue, research-product sales, and royalties can grow enough to offset rising R&D and administrative costs, particularly as Hextend royalties decline.
• Review dilution exposure from BioTime and subsidiary equity plans, outstanding warrants and options, and future subsidiary financings; also verify operating-lease commitments and other contractual obligations.