Filing identity and reporting period
The supplied filing is BioTime, Inc.’s Form 10-Q for the quarter ended September 30, 2014, filed November 7, 2014. It is not filed under the name Lineage Cell Therapeutics, Inc.; investors should verify the company and filing match the requested issuer.
BioTime reported a regenerative-medicine and stem-cell business with research-product, database, licensing, royalty, and grant revenue, alongside substantial clinical and preclinical development programs conducted by it and its subsidiaries.
Financial results and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $1.19 million | $0.71 million | $3.37 million | $2.54 million |
| Gross profit | $0.96 million | $0.51 million | $2.75 million | $1.97 million |
| Operating expenses | $13.10 million | $10.71 million | $39.03 million | $28.66 million |
| Net loss attributable to BioTime | $8.27 million | $9.00 million | $25.83 million | $24.27 million |
| Basic and diluted loss per share | $0.12 | $0.16 | $0.41 | $0.45 |
Gross margin was approximately 80.6% for Q3 2014 versus 71.1% a year earlier, and 81.7% for the nine-month period versus 77.6%. These margins reflect the reported revenue and cost of sales; they do not offset the much larger operating expense base.
At September 30, 2014, cash and cash equivalents were $7.42 million, current assets $9.94 million, and current liabilities $5.79 million. Total assets were $55.65 million. The balance sheet showed $0.47 million of related-party convertible-note principal and accrued interest, net carrying value $3,088 after debt discount, and $0.10 million of capital-lease liabilities. It also included a $10.79 million deferred tax liability. Stockholders’ equity was $38.95 million, including non-controlling interests.
For the nine months, operating cash use was $29.74 million, investing cash use $0.80 million, and financing cash provided $32.65 million. Cash increased $1.92 million to $7.42 million. Nine-month R&D expense was $26.27 million and G&A expense was $12.76 million.
Changes versus comparable periods
- Q3 revenue rose 66.8% and nine-month revenue rose 32.4%. Grant income increased 303.7% for the quarter and 98.0% year to date; research-product and service sales also grew. License fees declined 25.5% in Q3 and 19.6% year to date.
- R&D expense increased 37.2% in Q3 and 51.1% for nine months, largely due to acquired-intangible amortization and expanded Asterias and LifeMap Solutions programs, as well as clinical development and manufacturing activity. G&A was nearly flat in Q3 but increased 13.2% year to date.
- BioTime-attributable loss narrowed in Q3 but widened for the nine-month period. The nine-month 2014 loss included a $5.17 million deferred tax benefit; the prior-year comparable period had no tax benefit.
- Net cash used in operations increased from $20.88 million in the first nine months of 2013 to $29.74 million in 2014. Financing proceeds, rather than operating cash generation, supported the increase in cash.
Outlook, risks, and notable items
Management provided no specific revenue, earnings, or cash-flow guidance. It stated that revenue was insufficient to cover operating costs and that continued equity, debt, grant, or other financing would be needed. Management warned that unavailable or inadequate financing could lead to research or clinical programs being modified, delayed, curtailed, or abandoned, and that equity issuance could dilute existing holders.
Subsequent to quarter-end, BioTime sold 9,431,398 common shares for approximately $29.43 million gross proceeds. Subsidiaries separately sold BioTime shares for approximately $1.57 million; those proceeds belong to the subsidiaries. Asterias also received the first $0.92 million payment under a $14.3 million CIRM award after quarter-end. These subsequent funding events materially supplement the quarter-end cash balance but do not establish a date by which cash will last.
Asterias entered a Cancer Research UK agreement under which the organization funds Phase I/IIa AST-VAC2 clinical development, while Asterias bears process-development and manufacturing-scale-up costs. Asterias has an option to license trial data, which could trigger milestone and royalty obligations. Asterias’s $14.3 million CIRM grant for AST-OPC1 is payable over four years and subject to progress and safety milestones.
Key risks include continuing losses and financing dependence; clinical-trial outcomes and regulatory approvals; competition and commercialization uncertainty; the condition of acquired biological materials; possible clinical-trial liabilities; foreign-currency exposure without hedging; and declining Hextend royalties following FDA safety-label changes and market shifts. Management reported no current litigation and concluded disclosure controls were effective. The filing states the nine-month results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm whether this BioTime 2014 filing is the intended filing for Lineage Cell Therapeutics.
- Assess cash runway using the $7.42 million quarter-end cash balance, $29.74 million nine-month operating cash use, and subsequent financing and grant receipts.
- Review the timing, restrictions, and milestone conditions on CIRM funding and any future financing needs at BioTime and its subsidiaries.
- Track R&D spending, clinical progress, regulatory milestones, and potential commercialization of the principal product candidates.
- Evaluate the dilution and capital structure implications of the October share offering, preferred stock, options, warrants, and non-controlling interests.
- Review the assumptions and potential material adjustments relating to acquired intangible assets, deferred taxes, and the Geron asset valuation.