Lineage Cell Therapeutics, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Unless otherwise noted, financial amounts below are in U.S. dollars.
Business context
Lineage is a clinical-stage biotechnology company developing allogeneic cell therapies. Its principal clinical programs are OpRegen for advanced dry age-related macular degeneration, OPC1 for acute spinal cord injury, and VAC2 for non-small cell lung cancer. Renevia, a medical device for facial-volume restoration, received a European CE Mark in September 2019; Lineage was seeking a commercialization partner.
Lineage acquired the remaining interest in Asterias on March 8, 2019, adding OPC1 and VAC2 and consolidating Asterias from that date. The company changed its name from BioTime to Lineage in August 2019. The 2018 comparison is affected by AgeX’s deconsolidation in August 2018, so periods are not fully comparable.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $3.5 million | $5.0 million |
| Gross profit | $3.1 million | $4.7 million |
| Gross margin | 88.3% | 93.9% |
| Research and development expense | $17.9 million | $21.0 million |
| General and administrative expense | $24.0 million | $24.7 million |
| Operating loss | $38.9 million | $41.8 million |
| Net loss attributable to Lineage | $11.7 million | $46.0 million |
| Net loss per share, basic and diluted | $0.08 | $0.36 |
| Net cash used in operating activities | $31.9 million | $30.9 million |
Revenue fell 30%, mainly because grant revenue declined and 2018 included subscription and advertising revenue from AgeX, which Lineage no longer consolidates. Royalties and license fees increased to $1.2 million from $0.4 million, including an upfront license payment. Grants accounted for $2.0 million, or about 58% of 2019 revenue.
Net loss narrowed substantially, but it should not be read as an equivalent improvement in core operations: 2019 included $19.6 million of other income, including investment-related gains, and a $7.4 million income-tax benefit. The 2018 comparison included a $78.5 million gain on AgeX deconsolidation, alongside large investment fair-value losses.
Fourth quarter 2019: Revenue was $1.2 million, operating expenses $8.0 million, operating loss $6.9 million, and net loss attributable to Lineage $4.5 million (basic loss per share $0.03).
Liquidity and balance sheet: At year-end, cash and cash equivalents were $9.5 million; marketable equity securities were $21.2 million; and the Juvenescence promissory note was $23.6 million, including accrued interest. The note bears 7% interest and was due August 30, 2020, unless converted. Management stated that $30.7 million of cash, cash equivalents and marketable securities was expected to fund planned operations for at least 12 months from the financial statements’ issuance date. Working capital was $51.0 million; total assets $125.5 million; total liabilities $14.2 million; and shareholders’ equity $111.2 million.
Cash flow from investing activities was positive $17.0 million, primarily from sales of OncoCyte, AgeX and Hadasit shares and cash acquired in the Asterias merger. Financing activities provided $0.6 million. The company reported no off-balance-sheet arrangements. It had lease liabilities of approximately $5.1 million for operating leases and $0.1 million for finance leases; these are distinct from conventional borrowings.
Material changes, outlook and risks
- Lineage issued approximately 24.7 million shares to acquire Asterias; year-end common shares outstanding rose to approximately 149.8 million from 127.1 million. The acquisition added $46.5 million of in-process R&D intangible assets and $10.7 million of goodwill.
- Following the merger, management reduced costs by eliminating duplicate spending and rationalizing projects; headcount was reduced substantially. Management anticipated lower operating spending in 2020 than in prior periods.
- OpRegen trial data were described as encouraging but preliminary. The company reported visual-acuity improvements in some patients and good tolerability to date; the small, early-stage study does not establish efficacy. In February 2020, the independent safety board removed the mandated treatment stagger, and Lineage planned to open two U.S. trial sites to accelerate enrollment.
- OPC1’s 25-patient Phase 1/2a SCiStar trial had completed enrollment. Management reported a favorable safety profile and sustained motor-function gains in follow-up, while analyzing data and discussing next steps with the FDA. OPC1 has FDA Regenerative Medicine Advanced Therapy and Orphan Drug designations.
- VAC2’s Phase 1 trial is funded and conducted by Cancer Research UK. Lineage has an option, after trial completion, to acquire the trial data and continue development for an approximately $1.6 million fee plus potential milestones and royalties.
- Renevia’s CE Mark permits marketing in the EU and certain other recognizing markets, but commercialization depends on securing a partner. The filing does not provide revenue guidance or a projected date for profitability; management expects continued losses and substantial development spending.
- Key risks include clinical-trial failure or delay, regulatory and manufacturing hurdles, reliance on third parties and grants, the need for future capital, and volatility in the value of public-company investments. COVID-19 was identified as a potential source of trial, site, staffing and supply disruption. A Delaware class action concerning the Asterias merger remained pending; Lineage disputed the allegations, and no liability was accrued because loss was not considered probable or estimable.
The auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2019. Management also concluded disclosure controls were effective.
Important facts for investors to verify
- Liquidity runway assumptions, cash burn, and collection, repayment or conversion of the $23.6 million Juvenescence note due August 2020.
- Current market value and saleability of the OncoCyte, AgeX and other securities holdings; these assets are price-volatile and may not be liquidated at reported values.
- Updated OpRegen enrollment, longer-term safety and efficacy data, and whether improvements are confirmed in larger controlled studies.
- FDA-agreed development and manufacturing plans for OPC1, and the status and results of the CRUK-funded VAC2 trial and Lineage’s option decision.
- Ability to secure a Renevia commercialization partner and the financial and regulatory terms of any arrangement.
- Outcome and potential cost of the pending Asterias-merger litigation, and any related developments not reflected in the year-end statements.