Filing summary
Issuer and period: The supplied filing is BioTime, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2014, not a filing identifying Lineage Cell Therapeutics, Inc. as the registrant. Confirm the issuer and historical corporate relationship before attributing these results to Lineage. Amounts below are in U.S. dollars.
Business context
BioTime was a biotechnology company focused on regenerative medicine, including stem-cell research products and therapeutic candidates developed through subsidiaries. Other activities included cancer diagnostics, database products, and licensing and royalties from Hextend. BioTime consolidated several majority-owned subsidiaries, so consolidated results include noncontrolling interests.
Financial results and liquidity
- Revenue: Total revenue was $1.07 million, up 73.6% from $614,473 in Q1 2013. Grant income rose to $575,659 from $90,326 and drove much of the increase. Revenue net of cost of sales was $934,721, versus $431,724.
- Profit and expenses: Operating loss was $11.14 million, compared with $8.38 million a year earlier. Net loss was $9.73 million, including a $1.35 million deferred income-tax benefit; net loss attributable to BioTime was $8.10 million versus $7.72 million. Basic and diluted loss per share was $0.14 versus $0.15.
- Research and development: R&D expense increased 55.8% to $8.41 million, chiefly reflecting expanded Asterias activity after the Geron asset transaction, including staffing, consulting, intangible amortization, and laboratory costs. General and administrative expense increased 7.3% to $3.67 million.
- Cash flow: Operating activities used $10.36 million, compared with $7.02 million in Q1 2013. Investing activities used $0.53 million. Financing activities provided $12.13 million, principally from common-share sales and $3.5 million raised through preferred stock.
- Cash and liquidity: Cash and cash equivalents were $6.64 million at March 31, 2014, up from $5.50 million at year-end. Current assets were $9.25 million and current liabilities $5.62 million, implying working capital of approximately $3.63 million. The company stated that revenues did not cover operating expenses and that further capital would be needed.
- Debt and obligations: The balance sheet does not present a borrowings balance. Disclosed operating-lease commitments totaled $12.03 million, including $0.94 million due within one year.
- Equity and dilution: BioTime issued 70,000 Series A convertible preferred shares for $3.5 million. They carry a cumulative 3% annual dividend and convert at $4.00 per common share, or 12.5 common shares per preferred share. Common shares outstanding were 59.07 million at quarter-end; the filing reports 72.15 million outstanding as of May 9, 2014.
Material changes versus Q1 2013
- Revenue growth was primarily grant-driven; license fees declined 15.8%, and reported product royalties declined 9.0%. Hextend royalties recognized for the quarter were $35,905 versus $107,599, reflecting lower sales in the U.S. and South Korea.
- Operating loss widened as R&D and, to a lesser extent, general and administrative expenses increased. Management linked the R&D rise mainly to Asterias’s expanded post-acquisition operations.
- Cash used in operations increased, while financing remained a significant source of cash. Cash at quarter-end was below the $9.90 million reported at March 31, 2013.
Outlook, risks, and unusual items
- Management said additional equity or debt financing would be needed unless revenue increased materially. It warned that unavailable or unfavorable financing could force the company or subsidiaries to modify, delay, or suspend planned operations; further equity issuance could dilute shareholders.
- Asterias was reviewing its programs and expected to focus spending on opportunities with third-party funding or other support. Grant and collaboration funding discussed for OPC1, VAC2, and other programs was prospective, not assured.
- Hextend sales faced continued pressure from competition, market contraction, and FDA-mandated hydroxyethyl-starch labeling. The boxed warning cited increased mortality and renal-injury risk in critically ill adults, including patients with sepsis; management expected Hextend royalties to decline as a share of revenue.
- Key development risks included clinical-trial outcomes, regulatory approval, manufacturing scale-up, financing, competition, and the uncertain condition of some biological materials acquired by Asterias. Asterias had verified the viability of three OPC1 cell lots; other materials required testing.
- Asterias assumed an appeal and related patent proceedings concerning definitive-endoderm technology. An unsuccessful appeal could limit development or commercialization of relevant cell types and reduce the value of the affected patent applications.
- The filing recorded a $1.35 million deferred tax benefit despite continuing losses. The Geron asset allocation was described as preliminary and subject to potentially material adjustment; the detailed assessment was expected to be completed in Q2 2014.
- After quarter-end, the company reported additional at-the-market equity proceeds and a new NIH grant. The filing’s Note 10 reports May equity proceeds of $6,380,640, while MD&A reports $6,316,834; reconcile this difference. A May agreement also committed BioTime to purchase $5 million of LifeMap Sciences shares in tranches to fund mobile-health product development.
Most important facts to verify
- Whether this BioTime 2014 filing is the intended filing for the requested company, Lineage Cell Therapeutics.
- The differing May 2014 equity-proceeds figures and the precise amount of post-quarter financing available to the parent versus subsidiaries.
- Cash runway, subsequent financing needs, and whether planned grants or collaborations were actually secured.
- The status and financial impact of the Asterias patent appeal, Geron asset valuation, and testing of acquired cell materials.
- The trajectory of Hextend royalties following the FDA labeling changes and declining sales.