Longeveron Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
Longeveron is a clinical-stage biotechnology company developing Lomecel-B and other cellular therapies for aging-related and life-threatening conditions, including aging frailty, Alzheimer’s disease, acute respiratory distress syndrome and hypoplastic left heart syndrome. The filing covers the three and six months ended June 30, 2022, and was filed August 12, 2022. The company has no FDA-approved products and generates revenue primarily from grants, clinical trials and contract manufacturing.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0.466 million | $0.489 million | $0.836 million | $0.865 million |
| Gross profit | $0.160 million | $0.208 million | $0.460 million | $0.357 million |
| Gross margin | 34.3% | 42.5% | 55.0% | 41.3% |
| Operating loss | $4.221 million | $5.062 million | $7.615 million | $8.521 million |
| Net loss | $5.624 million | $5.010 million | $9.134 million | $8.121 million |
| Net loss per share | $0.27 | $0.26 | $0.44 | $0.44 |
| Cash used in operations | Not separately provided | Not separately provided | $7.427 million | $5.984 million |
Q2 revenue consisted of $0.340 million of clinical trial revenue and $0.126 million of grant revenue. For the six-month period, clinical trial revenue was $0.650 million and grant revenue was $0.186 million. The company had $20.224 million of cash and cash equivalents and $6.837 million of short-term investments at June 30, 2022, for total cash and investments of approximately $27.1 million. Working capital was approximately $24.6 million.
Total assets were $35.325 million, compared with $42.766 million at December 31, 2021. Total liabilities were $5.944 million, including $2.876 million of lease liabilities and a $1.398 million estimated lawsuit liability. The company reported no credit facility or committed sources of capital and no material conventional debt. Accumulated deficit was $53.072 million.
Material changes versus the prior comparable period
- Q2 revenue decreased 5%, primarily because grant revenue fell 54% to $0.126 million, partly offset by a 59% increase in clinical trial revenue to $0.340 million from increased Bahamas Registry Trial participant demand.
- Six-month revenue declined 3%, while gross profit increased 29% to $0.460 million as cost of revenues declined 26%.
- Q2 operating expenses declined 17% to $4.381 million, mainly because equity-based compensation decreased. The operating loss improved by $0.841 million.
- Q2 net loss increased 12% because the company recorded $1.398 million of lawsuit expense related to a proposed securities class-action settlement. Six-month net loss increased 12% for the same reason and because 2021 included a $0.300 million PPP loan forgiveness gain.
- Cash used in operations increased to $7.427 million from $5.984 million, while financing cash flow shifted from $26.658 million of 2021 IPO proceeds to a $0.289 million use in 2022, primarily for taxes on vested RSUs.
- Class A shares outstanding increased to 5.926 million from 5.175 million at year-end 2021, while Class B shares declined to 15.061 million from 15.703 million, primarily due to Class B-to-Class A conversions.
Guidance, outlook, commentary and risks
- Management expects continuing operating losses and additional capital requirements as clinical development, manufacturing scale-up, intellectual-property protection and public-company costs increase.
- Management stated that cash and investments were expected to fund operating and capital requirements through at least the next 12 months; the MD&A separately stated that existing cash was expected to fund requirements through the first half of 2024. These estimates depend on assumptions that may prove inaccurate.
- The company expects additional financing through equity, debt, grants, collaborations, licensing or other arrangements. Future equity financing could dilute shareholders, while collaboration or licensing transactions could require relinquishing valuable rights.
- The Alzheimer’s Phase 2a trial had enrolled 12 of 48 planned patients, with full enrollment anticipated by year-end 2022. The HLHS Phase 2a ELPIS II trial continued enrollment at all seven planned sites.
- The Japan aging-frailty trial was described as targeted for initiation between the third and fourth quarters of 2022 after protocol acceptance by Japan’s PMDA on August 8, 2022. The ARDS trial continued to experience slower-than-expected screening.
- The company reported that the HERA aging-frailty trial met its primary safety endpoint. Certain exploratory results were favorable, but the study was not powered for statistical significance.
- COVID-19 may continue to affect clinical follow-up, enrollment, regulatory work, manufacturing, supply sourcing, travel and operating results. The company also cited clinical, regulatory, competitive, intellectual-property, funding and commercialization risks.
- The securities lawsuit was preliminarily settled for approximately $1.4 million, subject to documentation and court approval. The amount was accrued at June 30, 2022; the company expected court approval in 2023.
- Other commitments include approximately $3.4 million of expected expenditures under clinical services and research agreements over the next two years, plus lease obligations and potentially uncertain milestone, royalty and licensing payments.
Most important facts for investors to verify
- Whether cash burn remains consistent with management’s stated funding horizon and when additional capital may be required.
- Progress, enrollment and data readouts for the Alzheimer’s, HLHS, Japan aging-frailty and ARDS programs.
- Final court approval and payment timing for the approximately $1.4 million securities litigation settlement.
- The availability and timing of future grant funding, particularly as recognized grant revenue declined materially year over year.
- Potential dilution from future equity financing, outstanding warrants, stock options and restricted stock units.
- Whether exploratory clinical findings translate into statistically significant efficacy and eventual regulatory approvals; no product candidate had been approved for commercial sale as of the filing date.