Lineage Cell Therapeutics, Inc. quarterly report, Q3 FY2018

Business context and reporting period

The source filing is BioTime, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. The request metadata names Lineage Cell Therapeutics, Inc.; verify that the filing is mapped to the intended company. BioTime describes itself as a clinical-stage biotechnology company developing cell-replacement and cell/drug-delivery therapies. Its lead programs included OpRegen, in a Phase I/IIa trial for dry age-related macular degeneration, and Renevia for facial lipoatrophy.

Financial results and liquidity

Amounts below are in millions of dollars unless noted otherwise.

• Q3 revenue fell 41.8% year over year; nine-month revenue rose 72.0%. The filing attributes the nine-month increase mainly to higher grant revenue.
• Q3 net income was driven by a $78.5 million gain from selling AgeX shares and deconsolidating AgeX, rather than operating profitability. BioTime reported a nine-month net loss attributable to the company despite that gain.
• At September 30, cash and cash equivalents were $19.467 million; marketable equity securities were $1.972 million; and a $10.8 million Juvenescence receivable was collected on November 2, 2018. BioTime reported working capital of $32.4 million and shareholders’ equity of $169.6 million.
• Total liabilities were $6.519 million, including $1.562 million of lease liabilities and capital leases and $0.070 million of current promissory notes. Total debt and lease obligations are not separately stated as a single measure.
• BioTime held publicly traded Asterias and OncoCyte shares valued at $28.3 million and $36.7 million, respectively. Their combined $65.0 million carrying value is market-sensitive and may not equal proceeds realizable in a sale.

Material changes versus comparable periods

• BioTime’s AgeX ownership fell from 80.4% to 40.2% after the August 30 sale of 14.4 million shares to Juvenescence at $3 per share. AgeX was deconsolidated; BioTime retained a fair-value-accounted 40.2% interest.
• The $43.2 million AgeX sale consideration comprised $10.8 million paid at closing, a further $10.8 million received November 2, 2018, and a $21.6 million two-year convertible promissory note bearing 7% interest.
• Revenue from LifeMap Sciences subscriptions and advertising was included only through August 29, 2018. BioTime said it did not expect to recognize that revenue in subsequent periods following AgeX’s deconsolidation.
• Nine-month R&D expense declined to $17.2 million from $19.3 million, while general and administrative expense increased to $17.6 million from $14.1 million. The company cited lower R&D from program timing and deconsolidations, offset by higher compensation, CEO transition, legal/compliance costs, and patent-related costs.
• Fair-value losses on OncoCyte and Asterias holdings were $31.6 million and $20.7 million, respectively, for the nine months. These noncash valuation changes contributed to substantial period-to-period earnings volatility.

Outlook, risks and unusual items

• Management said available cash, cash equivalents, the Juvenescence receivable, marketable securities, and other liquidity sources were sufficient to fund current operations for at least 12 months from issuance of the interim financial statements. The company also cautioned that financing may be needed and is not assured on favorable terms.
• OpRegen trials rely in part on grant funding; loss of grants or insufficient working capital could delay, reduce, or cancel trials. The filing describes continuing operating losses, an accumulated deficit of $216.9 million, and the risk of future equity dilution.
• The planned AgeX share distribution to BioTime shareholders was subject to SEC effectiveness and other conditions. If completed, it would be taxable to BioTime; any resulting tax obligation was not estimable in the filing.
• On November 7, 2018, BioTime announced a definitive agreement to acquire the remaining Asterias interest in a stock-for-stock merger at 0.71 BioTime shares per Asterias share, with closing expected in Q1 2019 subject to shareholder approvals and other conditions. BioTime cited integration costs, possible dilution, execution and retention risks, and a potential $2.0 million termination fee under specified circumstances.
• BioTime reported no pending litigation and no off-balance-sheet arrangements. It stated disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.

Investor verification points

1. Confirm whether this BioTime 10-Q is the intended filing for the Lineage Cell Therapeutics metadata.
2. Separate recurring operating performance and cash burn from the noncash $78.5 million AgeX transaction gain and other investment fair-value movements.
3. Verify collection and terms of the Juvenescence installments and note, including repayment or conversion prospects.
4. Check the status, tax consequences, and completion conditions of the proposed AgeX distribution.
5. Check the status, exchange terms, financing and integration implications, and closing conditions of the proposed Asterias merger.
6. Assess dependence on grants and the market liquidity and volatility of BioTime’s Asterias and OncoCyte holdings.