Filing summary
Issuer and period: The supplied filing is BioTime, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017, filed May 10, 2017. This does not match the request metadata naming Lineage Cell Therapeutics, Inc.; the summary below covers the filing text provided.
Business context and reporting changes
BioTime described itself as a clinical-stage biotechnology company developing products for degenerative diseases, with programs in aesthetics, ophthalmology, and cell and drug delivery. It also held substantial stakes in Asterias and OncoCyte.
Comparisons are materially affected by changes in consolidation. Asterias was deconsolidated in May 2016; OncoCyte was deconsolidated on February 17, 2017, after BioTime’s ownership fell below 50%. Q1 2017 includes OncoCyte’s results only through February 16; Q1 2016 includes both companies’ results for the full quarter. BioTime subsequently measured its retained stakes at fair value, with changes recognized in earnings.
Key financial metrics
Amounts below are in millions of dollars, except per-share data.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $0.390 | $2.073 |
| Gross profit | $0.333 | $1.848 |
| Operating expenses | $11.595 | $25.606 |
| Operating loss | $(11.262) | $(23.758) |
| Net income (loss) attributable to BioTime | $49.288 | $(17.112) |
| Basic and diluted earnings (loss) per share | $0.46 | $(0.19) |
| Net cash used in operating activities | $(8.098) | $(14.313) |
- Revenue fell about 81%, primarily because Asterias’ prior-year grant income was no longer consolidated. The filing reports a gross margin of approximately 85% in Q1 2017, but on very low revenue.
- Research and development expense was $6.494 million, down 52.7%; general and administrative expense was $5.101 million, down 57.0%. Management attributed most of the decreases to the Asterias and OncoCyte deconsolidations, while BioTime’s own spending increased in some areas.
- Reported net income included a $71.697 million gain on OncoCyte deconsolidation, a $16.142 million unrealized gain on OncoCyte shares, and a $26.097 million unrealized loss on Asterias shares. It also included a $3.877 million deferred tax provision. These items—not operating performance—drove the reported profit.
- Cash and cash equivalents were $23.816 million at quarter-end, versus $22.088 million at December 31, 2016; available-for-sale securities were $0.915 million. Working capital was $20.4 million. Cash, cash equivalents, and securities totaled $24.7 million.
- Cash declined by $8.098 million from operations and $9.154 million from investing activities, offset by $19.097 million provided by financing activities. Financing included approximately $18.8 million net proceeds from a February common-stock offering.
- Total liabilities were $15.519 million. Related-party convertible debt, net of discount, totaled $2.147 million; promissory notes totaled $0.219 million. Lease liabilities were also reported. The filing does not present a single total-debt figure.
- Total assets were $205.216 million, including fair-value investments of $87.312 million in OncoCyte and $73.942 million in Asterias. Shareholders’ equity was $189.697 million.
Outlook, risks, and unusual items
- Management said available cash and securities, together with the stated $161.3 million market value of its Asterias and OncoCyte holdings, were expected to provide liquidity for current operations for at least 12 months from issuance of the financial statements. The share value may not be realizable at that amount because of trading, market, and legal restrictions.
- No revenue or earnings guidance was provided. Management warned that results may fluctuate with the market prices of Asterias and OncoCyte shares, which affect reported gains, losses, and deferred taxes.
- BioTime reported significant historical operating losses and said additional financing may be needed. It cautioned that insufficient funding or loss of grant support for Cell Cure could delay, reduce, or cancel clinical activity; new equity financing could dilute existing shareholders.
- After quarter-end, BioTime entered an agreement allowing it to sell up to $25 million of common stock from time to time through an at-the-market or other permitted offering.
- Cell Cure’s related-party convertible notes included $0.614 million of matured principal and interest that was due and payable; the company was negotiating renewal terms.
- Cell Cure’s two European patent opposition proceedings concerning patents related to OpRegen were upheld. The decisions could be appealed; the filing stated that the patents provide protection until April 2028.
- BioTime said it was not party to pending litigation, other than the noted patent proceedings, and reported no off-balance-sheet arrangements. Management assessed disclosure controls as effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: the filing is for BioTime, Inc., not Lineage Cell Therapeutics, Inc.
- Assess the effect of the Asterias and OncoCyte deconsolidations when comparing results, assets, liabilities, and cash flows across periods.
- Separate recurring operating performance and cash burn from the large, noncash deconsolidation and market-value gains and losses.
- Verify the liquidity assumptions, including the potential saleability and market impact of BioTime’s large Asterias and OncoCyte holdings.
- Track grant funding and Cell Cure’s matured notes, clinical-program funding needs, and any use of the $25 million equity sales facility.
- Monitor stock-price-driven investment valuation and deferred-tax changes, as well as dilution from future equity issuance.