PART I - FINANCIAL INFORMATION This section presents the company's financial statements and management's discussion and analysis Item 1. Financial Statements Unaudited financial statements for the nine months ended September 30, 2019, reflect significant changes from the Asterias acquisition, impacting assets, net loss, and cash flows Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $14,366 | $23,587 | | Marketable equity securities | $21,318 | $7,154 | | Goodwill | $12,977 | $0 | | Intangible assets, net | $48,746 | $3,125 | | Total Assets | $132,978 | $101,660 | | Total Liabilities | $17,459 | $9,414 | | Total Shareholders' Equity | $115,519 | $92,246 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $567 | $982 | $2,274 | $4,230 | | Research and development | $4,266 | $4,882 | $14,462 | $17,175 | | General and administrative | $4,609 | $6,422 | $19,527 | $17,585 | | Loss from operations | ($8,422) | ($10,357) | ($32,004) | ($31,580) | | Total other (expense) income, net | ($9,084) | $76,901 | $18,110 | $29,780 | | Net (Loss)/Income Attributable to Lineage | ($16,505) | $66,725 | ($7,227) | ($1,038) | | Net (Loss)/Income Per Share (Basic & Diluted) | ($0.11) | $0.53 | ($0.05) | ($0.01) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($26,424) | ($25,070) | | Net cash provided by investing activities | $16,237 | $2,032 | | Net cash provided by financing activities | $622 | $5,680 | | Net Decrease in Cash | ($9,437) | ($17,398) | Business Overview and Significant Transactions Lineage, a clinical-stage biotech, significantly altered its 2019 financial position through the Asterias Biotherapeutics acquisition and prior AgeX deconsolidation - The company's core focus is on three clinical-stage cell therapy programs: OpRegen for dry-AMD, OPC1 for acute spinal cord injuries, and VAC2 for non-small cell lung cancer2633 - On March 8, 2019, Lineage acquired the remaining outstanding shares of Asterias Biotherapeutics, making it a wholly-owned subsidiary through a stock-for-stock transaction1031 - The Asterias Merger was accounted for as a business combination with a total purchase price of $52.6 million, resulting in $13.0 million in goodwill and $46.5 million in acquired in-process research and development (IPR&D) assets7479 - In August 2018, Lineage sold a large portion of its AgeX common stock to Juvenescence, reducing its ownership from 80.4% to 40.2% and leading to the deconsolidation of AgeX, followed by a distribution of remaining AgeX shares to Lineage's shareholders in November 20181213111 Significant Accounting Policies Key accounting policies include the adoption of ASC 842 for leases, ASC 805 for business combinations, and fair value accounting for marketable equity securities - Adopted new lease standard ASC 842 on January 1, 2019, using the modified retrospective method, resulting in the recognition of right-of-use (ROU) assets and lease liabilities for leases with terms greater than twelve months5960 - Business combinations are accounted for using the acquisition method (ASC 805), where the purchase price is allocated to the fair value of tangible and intangible assets acquired and liabilities assumed, with any excess recorded as goodwill45207 - Holdings in OncoCyte, AgeX, and HBL are accounted for as marketable equity securities, measured at fair value with unrealized gains and losses reported in the consolidated statements of operations4647 - Government grants are accounted for under ASC 730-20, with grant revenue recognized as related research and development expenses are incurred, as repayment is not required unless the R&D is successful52 Commitments and Contingencies The company faces significant lease commitments, ongoing litigation related to the Asterias Merger, and royalty obligations on future product sales - A putative shareholder class action lawsuit challenging the Asterias Merger was filed in February 2019 and dismissed in August 2019 after a settlement of attorneys' fees, but a new, similar lawsuit was filed in Delaware Chancery Court on October 14, 2019184185186 - The company entered into a lease for new corporate headquarters in Carlsbad, California, commencing August 1, 2019171 Future Minimum Lease Commitments (in thousands) | Year Ending Dec 31, | Operating Leases | Finance Leases | | :--- | :--- | :--- | | 2019 | $339 | $11 | | 2020 | $1,589 | $43 | | 2021 | $1,528 | $36 | | 2022 | $1,508 | $36 | | 2023 | $397 | $15 | | Thereafter | $1,015 | - | | Total Lease Payments | $6,376 | $141 | - An agreement with Orbit Biomedical for its subretinal injection device requires Lineage to pay aggregate access fees of $2.5 million, all of which was paid by August 2019182 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A details financial changes post-Asterias merger and AgeX deconsolidation, highlighting revenue decline, mixed operating expenses, and sufficient liquidity for the next twelve months Results of Operations Results of operations show a 46% revenue decrease, a 16% R&D expense reduction, and an 11% G&A expense increase, influenced by the Asterias merger and equity investment volatility Revenue Comparison (in thousands) | Revenue Source | 9M 2019 | 9M 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Grant revenue | $1,628 | $2,985 | ($1,357) | (45)% | | Royalties and license fees | $390 | $312 | $78 | 25% | | Subscription and advertisement | $0 | $691 | ($691) | (100)% | | Total Revenues | $2,274 | $4,230 | ($1,956) | (46)% | Operating Expense Comparison (in thousands) | Expense Category | 9M 2019 | 9M 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Research and development | $14,462 | $17,175 | ($2,713) | (16)% | | General and administrative | $19,527 | $17,585 | $1,942 | 11% | | Total Operating Expenses | $33,989 | $35,560 | ($1,571) | (4)% | - The increase in G&A expenses for the nine-month period was primarily due to a $6.1 million increase in severance, legal, accounting, and other expenses related to the Asterias Merger229 - Other income/expense is highly volatile, driven by unrealized gains/losses on equity method investments, including a $6.7 million gain on Asterias shares (pre-merger) and an $8.0 million gain on OncoCyte shares for the nine months ended Sep 30, 2019231 Liquidity and Capital Resources The company maintains $35.7 million in liquidity, deemed sufficient for twelve months, supported by cost-saving initiatives targeting $16 million net operational spend in 2020 - The company had $35.7 million in cash, cash equivalents, and marketable equity securities as of September 30, 2019253 - Management believes current liquidity is sufficient to fund operations for at least twelve months from the report's issuance date254 - Significant cost savings initiatives have been implemented, with a target net operational spend of $16 million for 2020, a substantial reduction from the combined $43 million spent by Lineage and Asterias in 2018256 - Net cash used in operating activities was $26.4 million for the nine months ended September 30, 2019, while net cash provided by investing activities was $16.2 million, primarily from sales of marketable securities258260 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report264 - There were no material changes in the company's internal control over financial reporting during the third quarter of 2019265 PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, and other relevant corporate information Item 1. Legal Proceedings Legal proceedings information, incorporated from Note 15, details ongoing litigation related to the Asterias Merger - Information regarding legal proceedings is incorporated by reference from Note 15 of the financial statements, which discusses litigation challenging the Asterias Merger267184186 Item 1A. Risk Factors No material changes have occurred in the risk factors previously disclosed in the company's 2018 Form 10-K - There have been no material changes from the risk factors disclosed in the company's 2018 Form 10-K268 Item 5. Other Information The company announced its 2020 annual meeting of shareholders for June 9, 2020, with a March 11, 2020, deadline for shareholder proposals - The 2020 annual meeting of shareholders is scheduled for June 9, 2020272 - The deadline for shareholder proposals for the 2020 Annual Meeting is March 11, 2020272
Lineage Cell Therapeutics(LCTX) - 2019 Q3 - Quarterly Report