Lineage Cell Therapeutics, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; filed November 4, 2020. Financial figures below are in U.S. dollars. Unless stated otherwise, amounts are in millions.
Business context
Lineage is a clinical-stage biotechnology company developing cell therapies. Its three clinical programs are OpRegen for dry age-related macular degeneration (Phase 1/2a), OPC1 for acute spinal cord injury (Phase 1/2a), and VAC2 for non-small cell lung cancer (Phase 1). Renevia, which received a CE Mark in 2019, is seeking a European commercialization or development partner.
Financial performance and liquidity
- Q3 revenue: $0.571 million, up 1% from $0.567 million. Royalties and license fees rose to $0.342 million from $0.164 million; grant revenue declined to $0.229 million from $0.350 million, and research product and service sales ceased.
- Q3 profit and margins: Gross profit was $0.469 million, a gross margin of approximately 82%, versus $0.453 million and 80% a year earlier. Operating loss was $6.725 million versus $8.422 million; net loss attributable to Lineage was $7.760 million versus $16.505 million. Loss per share was $0.05 versus $0.11.
- Nine-month results: Revenue was $1.471 million, down 35% from $2.274 million. Gross profit was $1.200 million, down 40%. Operating loss improved to $20.565 million from $32.004 million, while net loss attributable to Lineage increased to $22.681 million from $7.227 million, largely reflecting investment valuation changes and prior-year gains. Loss per share was $0.15 versus $0.05.
- Expenses: Q3 R&D fell 16% to $3.566 million and G&A fell 21% to $3.628 million. Nine-month R&D fell 33% to $9.710 million and G&A fell 38% to $12.055 million. Lower spending included reduced OpRegen manufacturing and merger-related costs; VAC program spending rose, including the CRUK license fee.
- Cash flow: For the nine months, operating cash use was $14.112 million, investing cash provided $12.136 million, and financing cash provided $25.051 million. Financing included $24.624 million received when Juvenescence repaid its promissory note and a $0.523 million PPP loan. Cash, cash equivalents and restricted cash ended at $33.135 million.
- Liquidity and obligations: At September 30, cash and cash equivalents were $32.565 million and marketable equity securities were $5.481 million, totaling about $38.0 million. Working capital was $32.0 million; total liabilities were $12.906 million. Liabilities included $2.273 million of operating lease obligations and a $0.523 million PPP loan payable. Management said available cash and marketable securities should fund planned operations for at least 12 months from issuance of the financial statements.
Material changes and unusual items
- Lineage sold about 4.8 million OncoCyte shares during the first nine months for $10.9 million in proceeds. It held about 3.6 million shares at September 30, valued at approximately $5.0 million. Investment price changes materially affected reported earnings: the company recorded $7.487 million of nine-month unrealized losses on marketable equity securities.
- The Juvenescence note, including accrued interest, was paid in full on August 28, 2020; it had been a $23.616 million current asset at year-end 2019.
- Lineage exercised its option for VAC2 clinical-trial data early and entered a license agreement with Cancer Research UK/CRT. It accrued a £1.25 million signature fee, payable in installments through April 2021, and could owe development and sales milestones and royalties.
- Lineage terminated its larger Alameda leases and moved to a smaller sublease footprint. It paid lease termination fees and reported an estimated $0.780 million reduction in contractual obligations over the remaining term of the original leases.
- The company applied for full forgiveness of its $0.523 million PPP loan on September 30; forgiveness was not assured.
Outlook, risks and contingencies
- No quantitative revenue, earnings or clinical-trial guidance is provided. Management anticipated lower operating spend in 2020 than in prior periods but said spending could increase to accelerate clinical work and mitigate COVID-19 enrollment delays.
- COVID-19 had interrupted enrollment at some OpRegen and VAC2 trial sites; management said most sites had resumed enrollment but could not predict further delays. Delays, patient attrition, supply interruptions and restricted access to capital remain risks.
- Lineage has incurred substantial losses since inception and expects continued losses. Funding constraints could require it to delay, curtail or suspend development. Its $25 million at-the-market offering facility had no sales as of September 30; future equity issuance could dilute shareholders.
- A Delaware shareholder action relating to the Asterias merger remained pending. In September 2020, the court denied dismissal as to Lineage and certain former Asterias directors; the defendants answered in October. Lineage intends to defend the case, has recorded no accrual because loss was not considered probable or reasonably estimable, and said the outcome could not be assessed.
- OpRegen’s early trial observations included tolerability in the first nine patients and relatively stable visual acuity, but the filing cautions that early results do not predict later clinical outcomes. All three programs remain subject to clinical, regulatory, manufacturing, intellectual-property and financing risks.
Key facts for investors to verify
- Whether cash, marketable securities and any future financing are sufficient to fund development beyond management’s stated 12-month runway, considering operating cash use and potential trial spending.
- Current clinical-trial enrollment, timelines and updated safety and efficacy data for OpRegen, OPC1 and VAC2, including the effects of COVID-19.
- The valuation and liquidity of remaining public-company investments, particularly OncoCyte, and their potential impact on reported earnings and available funding.
- PPP loan forgiveness status and the timing and terms of the CRUK/CRT fee, future milestones and royalties.
- Developments in the Asterias merger litigation and any resulting financial exposure; the filing provides no estimable loss range.