Longeveron Inc. — Form 10-Q Summary
Business Context and Reporting Period
Longeveron Inc. is a clinical-stage biotechnology company developing cellular therapies for aging-related and life-threatening conditions. Its lead candidate, Lomecel-B, is being evaluated in Phase 1 and Phase 2 studies for Aging Frailty, Alzheimer’s disease, Metabolic Syndrome, ARDS and Hypoplastic Left Heart Syndrome. The unaudited filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
In February 2021, Longeveron converted from an LLC to a Delaware corporation and completed its initial public offering. Class A common stock began trading on Nasdaq under the symbol LGVN on February 12, 2021.
Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $0.4 million | $1.7 million | Down $1.3 million, or 78% |
| Gross profit | $0.1 million | $0.8 million | Down $0.7 million, or 82% |
| Gross margin | Approximately 40% | Approximately 48% | Down approximately 8 percentage points |
| Operating expenses | $3.6 million | $1.0 million | Up $2.6 million |
| Loss from operations | $(3.5) million | $(0.2) million | Loss increased $3.2 million |
| Net loss | $(3.1) million | $(0.2) million | Loss increased $2.9 million |
| Basic and diluted loss per share | $(0.18) | Not meaningful; no common shares reported | Not comparable |
| Net cash used in operations | $(3.0) million | $(0.4) million | Use increased $2.6 million |
| Net cash provided by financing | $26.7 million | $1.2 million | Primarily IPO proceeds |
Revenue consisted of $0.2 million of grant revenue and $0.2 million of clinical trial revenue in Q1 2021. Grant revenue declined primarily because grant-funded clinical trials had been completed or had less available funding. Clinical trial revenue, generated primarily by the Bahamas Registry Trial, declined because of COVID-19-related international travel concerns.
General and administrative expense increased to $2.2 million from $0.7 million, primarily due to higher compensation, insurance and professional costs, including approximately $0.8 million of equity-based compensation. Research and development expense increased to $1.4 million from $0.3 million, including approximately $0.4 million of equity-based compensation and higher clinical trial costs.
Cash and cash equivalents were $24.5 million at March 31, 2021, compared with $0.8 million at December 31, 2020. Working capital was approximately $22.5 million. Total assets were $32.4 million and total liabilities were $5.9 million. The company reported an accumulated deficit of $30.0 million.
Gross IPO proceeds were $26.6 million from the February offering and $2.5 million from the partial exercise of the underwriters’ over-allotment option. Net cash provided by financing activities was $26.7 million after offering costs and other financing activity.
Debt was limited relative to cash. The PPP loan of approximately $0.3 million was forgiven in March 2021. Remaining SBA disaster loan borrowings totaled approximately $0.15 million, and the short-term insurance-financing note had an outstanding balance of approximately $0.02 million. Operating lease liabilities totaled approximately $3.5 million at March 31, 2021.
Material Changes Versus the Prior Comparable Period
- Revenue declined 78%, driven by lower grant revenue and reduced Bahamas Registry Trial activity.
- Operating expenses increased 252%, reflecting public-company costs, higher clinical development activity and substantial stock-based compensation.
- Net loss increased to $3.1 million from $0.2 million.
- Operating cash use increased to $3.0 million from $0.4 million.
- Cash increased by $23.6 million because IPO financing more than offset operating cash consumption.
- Equity-based compensation increased to $1.3 million from $13,000. Approximately $6.6 million remained to be recognized over approximately 2.75 years at March 31, 2021.
- The company completed or announced progress on the Phase 2b Aging Frailty study, the Phase 1 HLHS study, and expansion of enrollment criteria for the ARDS RECOVER trial.
Guidance, Outlook, Risks and Unusual Items
Management expects research and development and general and administrative expenses to increase as clinical programs advance, staffing expands and public-company compliance costs continue. Management stated that March 31, 2021 cash and cash equivalents were expected to fund operating expenses and capital requirements into the second half of 2022, although the estimate depends on assumptions that may prove inaccurate.
The company expects continuing operating losses and has not generated positive operating cash flow or commercial product revenue. It has no credit facility or committed source of additional capital and expects to require additional equity, debt, grants, collaborations or other financing.
COVID-19 disrupted follow-up visits, caused some missed or out-of-window visits and contributed to trial dropouts. The company cannot yet determine whether these issues will materially affect clinical results and stated that excessive dropout or protocol ineffectiveness could require a trial to be restarted. COVID-19 also reduced participation in the Bahamas Registry Trial.
Key development and regulatory risks include failure to demonstrate safety or efficacy, delays in clinical trials, inability to obtain FDA or other regulatory approvals, competition, manufacturing and supply-chain disruptions, intellectual-property risks, dependence on key personnel and the need for substantial additional financing.
The March 2021 amendment to the University of Miami license increased patent-related payments, required issuance of 110,387 unregistered Class A shares and revised future milestone payments. Potential future payments include $0.5 million after completion of the first Phase 3 trial, $0.5 million upon the first applicable regulatory approval and $0.5 million after the first post-approval sale.
Other unusual items included $0.3 million of PPP loan forgiveness income and $1.3 million of equity-based compensation. The company also reported up to $4.2 million of operating lease obligations, less than $1.0 million of expected 2021 expenditures under active clinical-service agreements, and potential revenue-sharing obligations under an Alzheimer’s Association grant that could reach five times the award amount.
Important Facts for Investors to Verify
- Confirm the company’s cash runway assumptions, particularly the expectation that cash will fund operations into the second half of 2022.
- Track the timing and results of the Aging Frailty Phase 2b top-line data expected in the third quarter of 2021 and the HLHS Phase 2 plans.
- Assess the effect of COVID-19-related missed visits, participant dropouts and reduced Bahamas Registry Trial activity on clinical and revenue prospects.
- Monitor the pace of operating cash burn, increasing clinical expenses and the timing of any additional financing.
- Review dilution from 869,134 outstanding RSUs, 106,400 underwriter warrants and subsequent equity awards.
- Verify the terms, timing and potential cost of University of Miami milestone, royalty and patent-related obligations.
- Confirm the remaining availability and conditions of approximately $1.2 million in unused grant funds as of March 31, 2021.
- Consider that current revenue is derived from grants, clinical trials and contract services rather than approved commercial products.