Filing summary
Entity note: Although the request identifies Lineage Cell Therapeutics, Inc., the supplied Form 10-Q is filed by BioTime, Inc. (ticker BTX). Verify that this is the intended filing. It covers the quarter ended March 31, 2019; financial amounts below are in U.S. dollars.
Business context and reporting period
BioTime was a clinical-stage cell-therapy company developing OpRegen for dry age-related macular degeneration, OPC1 for spinal cord injury, and VAC2 for non-small cell lung cancer. OpRegen was in Phase I/IIa, as was OPC1; VAC2 was in Phase I. The quarter included Asterias Biotherapeutics only from its March 8, 2019 acquisition date. AgeX had been deconsolidated in August 2018, so the prior-year comparison includes AgeX results that are absent from Q1 2019.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $0.928 million | $0.701 million |
| Gross profit / gross margin | $0.860 million / 92.7% | $0.592 million / 84.5% |
| Operating expenses | $13.621 million | $12.779 million |
| Operating loss | $12.761 million | $12.187 million |
| Net income (loss) attributable to BioTime | $39.310 million | ($63.548 million) |
| Net cash used in operating activities | $9.314 million | $10.338 million |
- Revenue rose 32%, primarily due to higher grant revenue; subscription and advertising revenue fell to zero following AgeX deconsolidation.
- Q1 2019 reported profit was driven chiefly by noncash fair-value gains: $37.7 million on OncoCyte shares, $6.7 million on Asterias shares before the merger closed, and $1.9 million on marketable equity securities. A $4.4 million deferred tax benefit also contributed. These items do not indicate operating profitability.
- Cash, cash equivalents and marketable equity securities totaled $27.1 million at March 31, 2019. Working capital was $21.9 million; accumulated deficit was $222.4 million; shareholders’ equity was $161.2 million.
- BioTime held OncoCyte shares valued at $58.0 million and a Juvenescence promissory note with $22.5 million principal and accrued interest. Total liabilities were $22.5 million, including $5.9 million of operating lease liabilities and $0.1 million of finance lease liabilities; the filing reports no material conventional borrowings.
- Cash and cash equivalents on the balance sheet were $18.0 million. Cash, cash equivalents and restricted cash were $18.7 million at quarter-end, down $5.7 million during the quarter.
Material changes and unusual items
- Asterias merger: BioTime acquired the remaining Asterias shares for BioTime stock, issuing approximately 24.7 million shares to former Asterias shareholders. The preliminary purchase price was $52.6 million; acquired in-process R&D was valued at $46.5 million and goodwill at $13.0 million. Purchase accounting remained preliminary and could change materially.
- Merger-related costs included $3.5 million recorded in general and administrative expense. The company also accrued $2.0 million in change-of-control and separation payments; additional employee separation costs were expected to be recognized over service periods.
- General and administrative expense increased 43% to $8.7 million, mainly reflecting merger-related costs and higher stock compensation. Research and development expense declined 16% to $5.0 million, while the comparison was affected by AgeX’s prior-year expenses and the absence of a prior-year acquired-R&D charge.
- Common shares outstanding rose from 127.1 million at year-end to 149.4 million at March 31, primarily due to the merger. The filing reports 149.6 million shares outstanding as of May 6, 2019.
- BioTime adopted the new lease accounting standard in January 2019, recognizing right-of-use assets and lease liabilities. Operating lease liabilities were $4.9 million at quarter-end.
Outlook, risks and contingencies
- Management stated that available cash, marketable securities and the OncoCyte investment were expected to support planned operations for at least 12 months from the financial statement issuance date. It said it might sell OncoCyte shares if additional near-term liquidity were needed; sale proceeds could be affected by market depth, trading restrictions and prevailing prices.
- Management planned extensive Asterias headcount reductions and lower nonclinical spending, while anticipating significant acquisition and integration costs. The company warned that insufficient financing could require delaying, limiting or suspending programs or trials; future equity financing could dilute shareholders.
- Management expected other income and expense to fluctuate with OncoCyte share prices. Accordingly, reported earnings may be materially affected by investment valuation changes.
- Renevia’s EU CE Mark review was ongoing; management expected a notified-body decision in the second half of 2019. No financial guidance was provided.
- A putative shareholder lawsuit challenging the Asterias merger was pending; an amended complaint was filed May 3, 2019. BioTime denied the allegations and intended to defend the case. It recorded no litigation accrual because loss was not considered probable or reasonably estimable.
- The filing states that no material changes had occurred in the risk factors from the 2018 Form 10-K. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm that the BioTime 10-Q, rather than a Lineage Cell Therapeutics filing, is the intended document.
- Separate operating performance and cash burn from noncash investment gains and the deferred tax benefit when assessing Q1 profitability.
- Review the preliminary Asterias purchase-price allocation, integration costs, workforce reductions and merger litigation updates.
- Assess the liquidity actually realizable from OncoCyte and AgeX shares and the Juvenescence note, including sale restrictions, market prices and note-conversion or repayment terms.
- Track clinical-trial funding and progress, the OpRegen device collaboration’s remaining payment, and the timing and outcome of the Renevia regulatory review.