Lineage Cell Therapeutics(LCTX) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides an overview of the company's financial statements and management's analysis of its performance Item 1. Financial Statements This section presents Lineage Cell Therapeutics' unaudited condensed consolidated financial statements as of June 30, 2020 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $12,676 | $9,497 | | Marketable equity securities | $7,575 | $21,219 | | Total current assets | $46,200 | $57,519 | | Total Assets | $112,080 | $125,478 | | Liabilities & Equity | | | | Total current liabilities | $7,519 | $6,494 | | Total Liabilities | $14,387 | $14,231 | | Total shareholders' equity | $97,693 | $111,247 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $386 | $779 | $900 | $1,707 | | Loss from operations | $(6,402) | $(10,821) | $(13,840) | $(23,582) | | Net (Loss)/Income | $(6,530) | $(30,052) | $(14,958) | $9,244 | | Net (Loss)/Income per Share (Basic) | $(0.04) | $(0.20) | $(0.10) | $0.07 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,265) | $(18,981) | | Net cash provided by investing activities | $11,958 | $2,752 | | Net cash provided by financing activities | $493 | $543 | | Net increase (decrease) in cash | $3,148 | $(15,603) | Note 1: Organization and Business Overview This note describes Lineage's focus on developing novel cell therapies for degenerative retinal diseases, neurological conditions, and cancer - Lineage is a clinical-stage biotechnology company focused on developing novel cell therapies for degenerative retinal diseases, neurological conditions, and cancer[21] - The company has three allogeneic cell therapy programs in clinical development: OpRegen for dry AMD, OPC1 for spinal cord injuries, and VAC2 for non-small cell lung cancer[22][27] - As of June 30, 2020, Lineage held a 5.4% ownership stake in OncoCyte Corporation, representing approximately 3.6 million shares[28] Note 2: Basis of Presentation, Liquidity and Summary of Significant Accounting Policies This note details Lineage's financial position, liquidity, and accounting policies as of June 30, 2020 - As of June 30, 2020, Lineage had working capital of $38.7 million and an accumulated deficit of $288.3 million[36] - Management believes its cash, cash equivalents, marketable securities, and access to capital are sufficient to fund planned operations for at least the next twelve months[36] - The company entered into a Controlled Equity Offering Sales Agreement in May 2020, allowing it to raise up to $25.0 million in at-the-market transactions, with no sales made as of June 30, 2020[35] - A promissory note from Juvenescence, valued at $24.4 million as of June 30, 2020, was due on August 30, 2020, providing a potential source of liquidity[37] Note 3: Asterias Merger This note outlines the acquisition of Asterias Biotherapeutics, Inc. and the allocation of its purchase price - On March 8, 2019, Lineage acquired Asterias Biotherapeutics, Inc. in a stock-for-stock transaction with a total purchase price valued at $52.6 million[63][66] Purchase Price Allocation (in thousands) | Item | Fair Value | | :--- | :--- | | Acquired in-process research and development (IPR&D) | $46,540 | | Goodwill | $10,672 | | Net assets acquired (excluding goodwill) | $38,473 | | Total purchase price | $52,580 | - The acquired IPR&D assets consist of the OPC1 program for spinal cord injury ($31.7 million) and the VAC2 program for cancer immunotherapy ($14.8 million)[72] Note 8: Accounts Payable and Accrued Liabilities This note details Lineage's accounts payable and accrued liabilities, including a PPP loan - In April 2020, Lineage received a $523,000 loan under the Paycheck Protection Program (PPP), with a substantial portion believed to be eligible for forgiveness[106] Note 15: Commitments and Contingencies This note discusses Lineage's legal proceedings, licensing agreements, and future payment obligations - A putative class action lawsuit challenging the Asterias Merger was filed in October 2019, which Lineage intends to vigorously defend[171][172] - In May 2020, Lineage exercised its option to acquire VAC2 Phase 1 clinical trial data from Cancer Research UK, involving a signature fee of £1.25 million and future milestone and royalty payments[175][177] - Cell Cure's license agreement for OpRegen technology includes potential future milestone payments up to $3.5 million and mid-single-digit royalties on net sales[179][181] Note 16: Subsequent Events This note reports significant events occurring after the reporting period, including a services agreement termination - On August 4, 2020, Lineage terminated a services agreement, resulting in the return of approximately $0.8 million in unspent project funds, to be offset against R&D expenses in Q3 2020[186] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Lineage's financial performance, liquidity, and capital resources for the three and six months ended June 30, 2020 Results of Operations This section compares Lineage's revenues and operating expenses for the three and six months ended June 30, 2020 Comparison of Revenues (in thousands) | Revenue Source | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $386 | $779 | (50)% | | Revenue Source | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | Total Revenues | $900 | $1,707 | (47)% | - The decrease in revenue was primarily due to reduced grant-related activities and the cessation of sales of research products and services[205][206] Comparison of Operating Expenses (in thousands) | Expense Category | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Research and development | $2,805 | $5,235 | (46)% | | General and administrative | $3,908 | $6,258 | (38)% | | Expense Category | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | Research and development | $6,144 | $10,196 | (40)% | | General and administrative | $8,427 | $14,918 | (44)% | - R&D expenses decreased significantly due to reduced manufacturing activities for the OpRegen program and lower development activities for the OPC1 program post-merger[214][219] - G&A expenses decreased primarily due to a reduction in Asterias Merger-related expenses, lower compensation costs, and reduced accounting and investor relations expenses[216][217] Liquidity and Capital Resources This section assesses Lineage's cash position, funding sufficiency, and the impact of the COVID-19 pandemic - As of June 30, 2020, the company had $20.3 million in cash, cash equivalents, and marketable equity securities[239] - Management believes current cash, marketable securities, and access to capital are sufficient to fund planned operations for at least the next twelve months[240] - The COVID-19 pandemic has impacted patient enrollment in the OpRegen and VAC2 clinical trials, potentially causing delays or adverse effects[244] - Net cash used in operating activities for the six months ended June 30, 2020, was $9.3 million, a significant reduction from $19.0 million in the same period of 2019[247][248] PART II - OTHER INFORMATION This section covers non-financial information, primarily focusing on risk factors affecting the company Item 1A. Risk Factors This section identifies significant risks to Lineage's business, including operational, regulatory, and financial challenges - The company has a history of significant operating losses, with an accumulated deficit of $288.3 million as of June 30, 2020, and expects substantial losses for the foreseeable future[262] - The ongoing COVID-19 pandemic may adversely affect operations by delaying patient enrollment in clinical trials for OpRegen and VAC2 and disrupting the supply chain[348][352][354] - The company's ability to use its net operating loss (NOL) carryforwards of approximately $164.0 million (federal) and $121.1 million (state) may be limited due to ownership changes, including the Asterias merger[271][272] - Risks related to international operations, particularly through its subsidiary Cell Cure in Israel, include Israeli government grant regulations that may restrict technology transfer and manufacturing outside of Israel[365][369][374]