Lineage Cell Therapeutics(LCTX) - 2019 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements The unaudited statements reflect the Asterias acquisition and significant unrealized gains from equity investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $30,656 | $36,358 | | Total Assets | $183,715 | $101,660 | | Total Current Liabilities | $8,723 | $6,812 | | Total Liabilities | $22,479 | $9,414 | | Total Shareholders' Equity | $161,236 | $92,246 | Condensed Consolidated Statement of Operations Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Total Revenues | $928 | $701 | | Loss from Operations | $(12,761) | $(12,187) | | Total Other Income (Expense), Net | $47,673 | $(51,511) | | Net Income/(Loss) | $39,296 | $(63,698) | | Net Income/(Loss) Attributable to BioTime, Inc. | $39,310 | $(63,548) | | Diluted EPS | $0.30 | $(0.50) | Note 1: Organization and Business Overview The company is a clinical-stage biotech focusing on cellular therapies, recently expanding via the Asterias acquisition - The company's three primary clinical-stage cell therapy programs are OpRegen (dry-AMD), OPC1 (spinal cord injury), and VAC2 (cancer immunotherapy)[25][31] - On March 8, 2019, BioTime completed the acquisition of Asterias Biotherapeutics, Inc., which is now a wholly-owned subsidiary[27][29][30] - BioTime holds a significant equity stake in OncoCyte Corporation, owning 28% of its outstanding shares as of March 31, 2019[32] Note 2: Basis of Presentation, Liquidity and Summary of Significant Accounting Policies The company adopted the new lease standard (ASC 842) and confirms sufficient liquidity for the next twelve months - The company believes its $27.1 million in cash and marketable securities, plus its $58.0 million OncoCyte investment, provide sufficient liquidity for at least 12 months[39] - On January 1, 2019, the company adopted the new lease accounting standard, ASC 842, recognizing right-of-use (ROU) assets and lease liabilities[57][62] - The investment in OncoCyte is accounted for using the equity method at fair value, with changes reported in the consolidated statements of operations[47] Note 3: Asterias Merger The acquisition of Asterias for $52.6 million resulted in $13.0 million in goodwill and $46.5 million in IPR&D assets Preliminary Purchase Price Allocation (in thousands) | Item | Value | | :--- | :--- | | Total Purchase Price | $52,580 | | Net Assets Acquired (excluding goodwill) | $36,168 | | Fair value of BioTime common stock held by Asterias | $3,435 | | Estimated Goodwill | $12,977 | Acquired Intangible Assets (in thousands) | Asset | Estimated Fair Value | | :--- | :--- | | In process research and development (IPR&D) | $46,540 | | Royalty contracts | $650 | | Total | $47,190 | - BioTime incurred $3.5 million in acquisition-related costs during the three months ended March 31, 2019, recorded in G&A expenses[94] Note 4: Equity Method Accounting for OncoCyte The company recognized a $37.7 million unrealized gain on its OncoCyte investment due to a stock price increase OncoCyte Investment Fair Value and Gain/(Loss) (in millions) | Date | Fair Value | Unrealized Gain/(Loss) for Quarter | | :--- | :--- | :--- | | Dec 31, 2018 | $20.3 | N/A | | Mar 31, 2019 | $58.0 | $37.7 | Note 15: Commitments and Contingencies The company discloses lease commitments, a research agreement, and a shareholder lawsuit related to the Asterias Merger - A putative shareholder class action lawsuit was filed challenging the Asterias Merger, which BioTime believes lacks merit[176][177] - The company entered into a Research and Option Agreement with Orbit Biomedical for its subretinal injection device, with access fees totaling $2.5 million[174] Future Minimum Lease Commitments (in thousands) | Lease Type | Total Lease Payments | Less Imputed Interest | Total Liability | | :--- | :--- | :--- | :--- | | Operating Leases | $6,237 | $(1,298) | $4,939 | | Finance Leases | $163 | $(29) | $134 | Management's Discussion and Analysis (MD&A) The Asterias Merger increased operating expenses, while net income was driven by non-cash unrealized investment gains Results of Operations Q1 2019 net income of $39.3 million was driven by investment gains, despite a wider loss from operations Revenue by Source (in thousands) | Revenue Source | Q1 2019 | Q1 2018 | $ Change | | :--- | :--- | :--- | :--- | | Grant revenue | $749 | $326 | $423 | | Royalties and license fees | $86 | $136 | $(50) | | Subscription and advertisement | $- | $239 | $(239) | | Sale of research products | $93 | $- | $93 | | Total Revenues | $928 | $701 | $227 | Operating Expenses (in thousands) | Expense Category | Q1 2019 | Q1 2018 | $ Change | | :--- | :--- | :--- | :--- | | Research and development | $4,961 | $5,935 | $(974) | | General and administrative | $8,660 | $6,044 | $2,616 | | Total Operating Expenses | $13,621 | $12,779 | $842 | - The $2.6 million increase in G&A expenses was primarily due to $3.5 million in costs related to the Asterias Merger[211] - The swing to net income was driven by a $37.7 million unrealized gain on the OncoCyte investment and a $6.7 million unrealized gain on the Asterias investment[213][215][216] Liquidity and Capital Resources The company has sufficient liquidity for the next year with $27.1 million in cash and a $58.0 million OncoCyte investment - The company holds $27.1 million in cash, cash equivalents, and marketable securities, and a $58.0 million stake in OncoCyte as of March 31, 2019[234] Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2019 | | :--- | :--- | | Net Cash Used in Operating Activities | $(9,314) | | Net Cash Provided by Investing Activities | $2,946 | | Net Cash Provided by Financing Activities | $606 | | Net Decrease in Cash | $(5,709) | - Cash from investing activities was primarily driven by $3.1 million in cash acquired in the Asterias Merger[240] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[244] - No material changes occurred during the quarter that affected the company's internal control over financial reporting[245] PART II - OTHER INFORMATION Legal Proceedings The company faces a class action lawsuit from former Asterias shareholders challenging the recent merger - A putative class action lawsuit was filed by former Asterias shareholders challenging the merger, alleging unfair consideration and an unfair process[248] Risk Factors No material changes were reported to the risk factors disclosed in the 2018 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the 2018 Form 10-K[249]