Business context and reporting period
This is BioTime, Inc.’s Form 10-Q for the quarter and six months ended June 30, 2015, filed August 10, 2015. The supplied filing is for BioTime, not Lineage Cell Therapeutics, Inc. BioTime is a regenerative-medicine company with consolidated subsidiaries developing stem-cell therapies, cancer diagnostics, research products and related technologies.
Financial performance and position
Amounts below are in millions of dollars except per-share data. Comparisons are with the same 2014 period unless stated otherwise.
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | 2015: $2.009; 2014: $1.107 | 2015: $3.268; 2014: $2.173 |
| Gross profit | 2015: $1.749; 2014: $0.855 | 2015: $2.743; 2014: $1.790 |
| Gross margin | 2015: approximately 87%; 2014: approximately 77% | 2015: approximately 84%; 2014: approximately 82% |
| Operating loss | 2015: $(13.496); 2014: $(13.062) | 2015: $(27.005); 2014: $(24.183) |
| Net loss attributable to BioTime | 2015: $(9.691); 2014: $(9.520) | 2015: $(19.865); 2014: $(17.609) |
| Net loss per common share | 2015: $(0.12); 2014: $(0.16) | 2015: $(0.25); 2014: $(0.29) |
Revenue growth was driven chiefly by grant income, which rose 125% for the quarter and 75% for the six-month period, and by higher royalties. Grant revenue included CIRM funding for Asterias, NIH grants and Israeli OCS grants. License-fee revenue primarily came from LifeMap database subscriptions and advertising. The company remained substantially dependent on grants, licensing, royalties and financing rather than product sales.
Research and development expense was $9.059 million in the quarter, essentially flat year over year, and $18.383 million for six months, up 5%. General and administrative expense increased 28% to $6.186 million for the quarter and 34% to $11.365 million for six months; management cited increased staffing, stock-based compensation, consulting, investor relations and professional costs. The six-month net loss attributable to BioTime widened by about $2.3 million.
Cash and cash equivalents were $31.465 million at June 30, 2015, versus $29.487 million at December 31, 2014. Working capital was $27.8 million and accumulated deficit was $202.1 million. Six-month operating cash use was $19.036 million; investing cash use was $2.826 million, including $2.518 million of facility construction spending. Financing provided $24.072 million, including subsidiary share sales and warrant exercises. Management reported cash would be sufficient to fund operations at least through 2016, while noting that subsidiary clinical trials partly depend on grants.
Total liabilities were $14.659 million at June 30, including $9.192 million of current liabilities. The balance sheet reported $238,000 of related-party convertible debt, net of discount; the notes state principal and accrued interest totaled $740,000, with maturities in 2017. Lease obligations included a $3.331 million long-term lease liability, and contractual operating lease commitments totaled $10.396 million.
Material changes and notable items
- Cash rose by $1.978 million during the first half despite operating and investing outflows, primarily because of financing proceeds. Asterias received $11.7 million from warrant exercises and raised capital through share offerings; OncoCyte sold shares for $3.3 million.
- Equipment and construction in progress increased to $5.652 million from $2.858 million, mainly due to Asterias’ Fremont laboratory and production facility. The facility was expected to be substantially complete and placed in service in Q3 2015. A landlord allowance was expected to reimburse eligible improvements; $560,000 had been received by June 30.
- BioTime reported $3.7 million of stock-based compensation for the first half, versus $2.2 million in the prior-year period. Intangible assets declined to $36.220 million from $38.848 million, reflecting amortization.
- BioTime consolidated majority-owned subsidiaries, with non-controlling interests accounting for $4.736 million of first-half net loss. Cash held by Asterias and other subsidiaries totaled $21.2 million, so consolidated cash should not be assumed to be fully available to the parent.
Outlook, risks and contingencies
Management provided no revenue or earnings guidance. It stated that cash and cash equivalents were expected to fund operations at least through 2016, but also said ongoing operations require additional equity, debt, grants or other funding because revenue does not cover operating expenses. Failure to obtain financing could require programs to be delayed, curtailed or abandoned and could dilute shareholders.
Clinical and regulatory outcomes are uncertain. Asterias’ $14.3 million CIRM grant is disbursed through July 2018 subject to progress and safety milestones; the filing cautions that the full award is not assured. NIH grants supporting BioTime included two scheduled to expire in August 2015 and another in May 2016. Loss of grant funding could disrupt subsidiary clinical trials. Other risks include product-development and approval uncertainty, competition, financing terms, foreign-exchange exposure (the company did not hedge), and potential losses on uninsured bank deposits or money-market investments.
Asterias’ Fremont facility construction and operating leases are significant commitments. The filing also describes OncoCyte financing arrangements with related or significant investors, including potential warrants if OncoCyte shares were not publicly traded by January 15, 2016, and a conditional investor commitment tied to a future rights offering. The company reported no material subsequent events through the filing date and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: this filing identifies BioTime, Inc.; it does not identify Lineage Cell Therapeutics, Inc.
- Review the availability and intended use of the $31.5 million consolidated cash balance, particularly cash held by subsidiaries, and the assumptions behind management’s runway estimate through 2016.
- Track grant disbursements and milestone conditions, including the CIRM award and the status or renewal of NIH grants.
- Assess the pace of operating cash use, increasing general and administrative expense, and continued dependence on external financing.
- Verify progress, reimbursement and remaining commitments for the Fremont facility, as well as the terms and potential dilution from BioTime and subsidiary warrants and financing arrangements.
- Evaluate clinical, regulatory and commercialization milestones for the subsidiaries’ programs; the filing notes that results are uncertain and may require further capital.