Lineage Cell Therapeutics, Inc. quarterly report, Q2 FY2019

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Business context and reporting period

The filing is BioTime, Inc.’s Form 10-Q for the quarter and six months ended June 30, 2019, filed August 8, 2019. The request identifies Lineage Cell Therapeutics, Inc.; however, the supplied filing names BioTime, Inc. as the registrant (ticker BTX). Investors should verify the entity and filing attribution.

BioTime was a clinical-stage biotechnology company developing cell therapies. Its programs included OpRegen for dry age-related macular degeneration (Phase I/IIa), OPC1 for acute spinal cord injury (Phase I/IIa), and VAC2 for non-small cell lung cancer (Phase I). On March 8, 2019, BioTime acquired the remaining Asterias shares, adding OPC1 and VAC2 and issuing approximately 24.7 million BioTime shares. AgeX had been deconsolidated in August 2018, making year-over-year comparisons less directly comparable.

Financial performance and liquidity

Amounts below are in millions of dollars, except per-share data and where noted.

  • Q2 revenue: $0.779, down 69% from $2.547 in Q2 2018. The decline largely reflected lower grant revenue and the absence of AgeX-related subscription and advertising revenue following its deconsolidation. Q2 gross profit was $0.672, versus $2.441.
  • Q2 operating results: Operating expenses were $11.493, including $5.235 of R&D and $6.258 of general and administrative costs. Operating loss was $10.821, compared with $9.144 a year earlier. Net loss attributable to BioTime was $30.032, or $0.20 per share, versus a $4.215 million loss, or $0.03 per share.
  • Six-month results: Revenue was $1.707, down 47% from $3.247; operating loss was $23.582 versus $21.224. BioTime reported net income attributable to the company of $9.278, or $0.07 per share, compared with a $67.763 million loss in the first half of 2018. The 2019 result included non-cash fair-value gains, notably a $16.288 million gain on OncoCyte and a $6.744 million gain on Asterias shares before the merger; the prior-year period included large investment losses.
  • Cash flow: Net cash used in operating activities was $18.981 in the first half of 2019, compared with $17.738 in the prior-year period. Investing activities provided $2.752, including $3.117 of cash acquired in the Asterias merger. Financing activities provided $0.543.
  • Balance sheet and liquidity: At June 30, cash and cash equivalents were $8.210; marketable equity securities were $8.477; and working capital was $12.6. Cash, cash equivalents and marketable securities totaled about $16.7. Total assets were $151.691, total liabilities $19.932, and shareholders’ equity $131.759. Accumulated deficit was $252.435.
  • Debt and other obligations: The balance sheet reported no material conventional borrowing balance. Lease liabilities totaled approximately $4.874, including operating and finance leases. BioTime also held a $22.860 million Juvenescence promissory note receivable, bearing 7% interest and due August 30, 2020 if not converted.
  • Share count: Common shares outstanding increased from 127.136 million at December 31, 2018 to 149.643 million at June 30, 2019, principally reflecting the Asterias merger issuance.

Material changes versus the prior comparable period

  • Q2 net loss widened substantially, principally because a $21.425 million unrealized loss on BioTime’s OncoCyte investment offset operating results. The investment’s fair value was $36.539 million at June 30, down from $58.0 million at March 31.
  • First-half net income reversed the prior-year loss mainly because investment fair-value movements differed sharply between periods; it should not be read as evidence of recurring operating profitability.
  • R&D expense declined year over year partly because AgeX was no longer consolidated, while costs for acquired Asterias programs increased. General and administrative expense rose, including merger-related, severance, legal and integration costs.
  • The Asterias acquisition added $46.540 million of preliminary in-process R&D value and $12.977 million of goodwill. The purchase-price allocation was preliminary and could change materially.

Outlook, management commentary, risks and unusual items

  • Management expected cash spending of $14–$15 million in the second half of 2019 and $24–$28 million in 2020, compared with expected 2019 spending of $32–$34 million. Management attributed anticipated reductions to corporate simplification and cost savings.
  • Management stated that liquidity, including July 2019 proceeds from sales of OncoCyte and Hadasit shares and the remaining OncoCyte investment, was expected to fund planned operations for at least 12 months from the financial-statement issuance date. It cautioned that share values may not be realizable at quoted market prices and that further equity sales could dilute shareholders.
  • In July 2019 BioTime received $4.2 million net from selling 2.25 million OncoCyte shares and $1.2 million net from selling Hadasit shares. It reported a $1.4 million realized loss on the OncoCyte sale and a $0.3 million gain on the Hadasit sale. At August 6, its remaining OncoCyte stake was valued at about $21.7 million.
  • Key risks include clinical and regulatory uncertainty, manufacturing and third-party execution, funding needs, and fluctuating fair values of equity investments. Management warned that insufficient financing could require clinical trials or other activities to be delayed, curtailed or suspended.
  • BioTime expected a decision on Renevia’s European market-clearance application in the second half of 2019. No revenue or earnings guidance was provided.
  • A shareholder lawsuit challenging the Asterias merger remained subject to court approval and dismissal procedures; the parties agreed in principle to resolve plaintiffs’ fee claim for $200,000. BioTime said it believed the claims lacked merit.
  • BioTime said disclosure controls were effective and reported no material changes in internal control over financial reporting. It reported no material changes to the risk factors in its 2018 Form 10-K.

Most important facts for investors to verify

  1. Confirm whether this BioTime 10-Q is the intended filing for the requested company, Lineage Cell Therapeutics, Inc.
  2. Review operating cash burn and the assumptions supporting management’s at-least-12-month liquidity assessment, including the availability and marketability of investment holdings.
  3. Separate recurring operating performance from large, non-cash fair-value gains and losses on OncoCyte, Asterias and other securities.
  4. Track clinical progress, regulatory milestones and funding responsibilities for OpRegen, OPC1, VAC2 and Renevia.
  5. Check final Asterias purchase accounting, integration savings and costs, and subsequent developments in the merger-related litigation.
  6. Assess dilution risk from the increased share count, equity-compensation plans and the remaining capacity under the at-the-market sales agreement.