Filing summary: AgeX Therapeutics, Inc. Form 10-Q
Company identification: The supplied filing is for AgeX Therapeutics, Inc. (NYSE American: AGE), not Serina Therapeutics, Inc. It covers the quarter and six months ended June 30, 2019; the financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and reporting period
AgeX is a biotechnology company developing therapies focused on aging and regenerative biology, including preclinical programs involving PureStem cell lines, brown adipose tissue and induced tissue regeneration. Its majority-owned LifeMap Sciences subsidiary generates subscription and advertising revenue from biomedical databases and tools. AgeX reported 94.8% ownership of ReCyte Therapeutics and 81.7% ownership of LifeMap Sciences at June 30, 2019.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $0.380m | $0.464m | $0.768m | $0.703m |
| Gross profit | $0.327m | $0.385m | $0.652m | $0.515m |
| Gross margin | 86.1% | 83.0% | 84.9% | 73.3% |
| Operating loss | $3.442m | $2.134m | $6.564m | $5.685m |
| Net loss attributable to AgeX | $3.089m | $1.930m | $6.222m | $2.165m |
| Loss per share, basic and diluted | $0.08 | $0.06 | $0.17 | $0.06 |
- Q2 subscription and advertising revenue was $0.305m, grant revenue was $0.047m and other revenue was $0.028m. For the first half, subscription and advertising revenue was $0.650m and grant revenue was $0.062m.
- At June 30, cash and cash equivalents were $5.813m; total current assets were $6.680m and current liabilities were $2.629m. Total assets were $10.257m and total liabilities were $2.850m. The balance sheet reported $0.628m of operating lease liabilities; no other borrowing balance is shown.
- For the six months, net cash used in operating activities was $5.377m, investing activities provided $0.091m, and financing activities provided $4.491m. Cash, cash equivalents and restricted cash ended the period at $5.913m; this differs from balance-sheet cash and cash equivalents.
- Accumulated deficit was $80.276m at June 30. Current assets exceeded current liabilities by $4.051m.
Material changes versus comparable periods
- Q2 revenue declined 18.1%, primarily reflecting lower subscription and advertising revenue and the absence of the prior-year $0.131m of nonrecurring service revenue. First-half revenue rose 9.2%, with subscription and advertising growth and new NIH grant revenue partly offset by lower other revenue.
- Cost of sales fell as LifeMap’s royalty arrangement changed from a percentage of net collections to a fixed annual fee effective January 1, 2019. Gross margin consequently improved, particularly for the first half.
- Q2 R&D expense increased 19.2% to $1.650m, which management attributed mainly to PureStem and induced tissue regeneration programs. First-half R&D was nearly flat at $2.988m; the 2018 comparison included $0.800m of acquired in-process R&D that did not recur.
- G&A rose 86.7% in Q2 and 74.4% for the first half. Management cited higher stock-based compensation, insurance premiums, professional fees and personnel costs. First-half stock-based compensation expense was $0.996m.
- Loss attributable to AgeX widened year over year in both Q2 and the first half. The 2018 first-half comparison included a $3.215m gain on sale of the Ascendance investment; in June 2019 AgeX received a further $0.277m escrow distribution from that sale.
- AgeX received $4.500m from warrant exercises in March 2019, with 1.8m common shares issued. Outstanding common shares were 37.630m at June 30, compared with 35.830m at December 31, 2018.
Outlook, commentary, risks and unusual items
- Management expects continued operating losses and negative cash flows. It said cash at June 30, together with a subsequent Juvenescence loan facility of up to $2.0m, was expected to fund operations for at least 12 months from the financial statement issuance date. AgeX also said it would need substantial additional funding thereafter and had no committed source of further financing.
- To extend available cash, AgeX adjusted operating plans and budgets, including deferring some development work; management warned this could delay R&D progress. It also anticipated increased costs from moving to a new facility, hiring internal administrative staff and ending reliance on BioTime shared services.
- AgeX ended use of BioTime office and laboratory facilities effective August 1, 2019; shared services were scheduled to end September 30, 2019. The new facility sublease runs through December 31, 2020. A July 2019 sublease of part of that space was conditional on required consents.
- On August 13, 2019, after quarter-end, Juvenescence agreed to provide an 18-month credit line of up to $2.0m. AgeX planned an initial $0.5m draw; further draws require 60 days’ notice and are subject to contractual restrictions. The arrangement includes 19,000 shares issued in lieu of accrued interest on the initial draw, a warrant for 150,000 shares at $2.60, and potential conversion of the balance in a qualified offering. A 10% daily-compounded rate applies to unpaid amounts if repayment is overdue.
- Management reported no known claims likely to have a material adverse effect and no material litigation. It identified anti-bribery and anti-corruption compliance, particularly in China, as an added risk. The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: this filing is AgeX Therapeutics, not Serina Therapeutics.
- Review the assumptions supporting management’s stated 12-month liquidity runway, the timing and availability of Juvenescence draws, and the loan’s default and conversion provisions.
- Assess expected cash needs after BioTime services ended, the cost of operating AgeX’s own facilities and administration, and whether planned R&D deferrals affect program timelines.
- Check whether the required consents for the July 2019 partial sublease were obtained and how the sublease affects facility costs.
- Reconcile the $5.813m balance-sheet cash figure with $5.913m of ending cash, cash equivalents and restricted cash in the cash flow statement.
- Track operating cash use, revenue trends at LifeMap, stock-based compensation and potential dilution from the loan-related shares and warrants.