Lineage Cell Therapeutics(LCTX) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021, including balance sheets, statements of operations, comprehensive loss, cash flows, and notes on key accounting policies and contingencies Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $60,809 | $32,585 | | Total current assets | $68,344 | $43,999 | | Total Assets | $131,212 | $107,949 | | Liabilities & Equity | | | | Total current liabilities | $8,791 | $7,769 | | Total Liabilities | $11,623 | $12,822 | | Total shareholders' equity | $119,589 | $95,127 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,270 | $571 | $3,173 | $1,471 | | Loss from operations | $(6,843) | $(6,725) | $(20,973) | $(20,565) | | Net Loss | $(7,834) | $(7,772) | $(14,080) | $(22,730) | | Net Loss Per Share (Basic & Diluted) | $(0.05) | $(0.05) | $(0.09) | $(0.15) | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(17,688) | $(14,112) | | Net cash provided by investing activities | $9,891 | $12,136 | | Net cash provided by financing activities | $35,976 | $25,051 | | Net increase in cash | $28,145 | $23,039 | Notes to Financial Statements - The company is a clinical-stage biotechnology firm with three main allogeneic cell therapy programs: OpRegen for dry AMD, OPC1 for spinal cord injuries, and VAC2 for non-small cell lung cancer[21][26] - Management has evaluated projected cash flows and believes its $65.1 million of cash, cash equivalents, and marketable equity securities are sufficient to fund planned operations for at least the next twelve months from the report's issuance date[36] - For the three and nine months ended September 30, 2021, the company recorded additional royalty revenues of approximately $1.8 million from a specific customer based on updated communications, which was paid in October 2021[44] - As of September 30, 2021, the company had issued 14,908,735 common shares for gross proceeds of $35.9 million under its Controlled Equity Offering Sales Agreement (ATM facility)[35][95] - A putative class action lawsuit challenging the 2019 Asterias Merger remains pending in Delaware Chancery Court, with a five-day trial scheduled for October 2022[131][132] The company believes the allegations lack merit[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management provides an overview of the business, critical accounting policies, and a detailed analysis of financial results for the three and nine months ended September 30, 2021, covering revenues, operating expenses, other income/expenses, and liquidity, highlighting key performance drivers and confirming sufficient liquidity Results of Operations Revenue Comparison (in thousands) | Period | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $2,270 | $571 | $1,699 | 298% | | Nine Months Ended Sep 30 | $3,173 | $1,471 | $1,702 | 116% | - The significant increase in revenues for both the three and nine-month periods was primarily driven by a $1.8 million increase in royalties from a specific customer, based on updated communications regarding royalties due[175][176] Operating Expense Comparison (in thousands) | Expense Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $2,811 | $3,566 | $9,136 | $9,710 | | General and administrative | $5,317 | $3,628 | $13,788 | $12,055 | - The decrease in R&D expenses for Q3 2021 was mainly due to a prior year signature fee accrual of $1.6 million to Cancer Research UK, partially offset by increased OPC1 program expenses[186] The increase in G&A expenses was primarily due to higher litigation costs related to the Asterias merger and increased share-based compensation[187] Liquidity and Capital Resources - As of September 30, 2021, the company had $65.1 million in cash, cash equivalents, and marketable equity securities[205] - Management believes that current cash, cash equivalents, and marketable securities are sufficient to fund planned operations for at least the next twelve months[206] - For the nine months ended September 30, 2021, net cash used in operating activities was $17.7 million[209] Net cash provided by financing activities was $36.0 million, primarily from the sale of common shares ($29.8 million net) and proceeds from employee stock option exercises ($6.3 million)[213] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2021, with no material changes to internal control over financial reporting identified during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[217] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[218] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section details ongoing litigation, primarily a putative class action lawsuit in Delaware Chancery Court challenging the 2019 Asterias Merger, which the company believes lacks merit - The company is involved in a putative class action lawsuit filed in Delaware Chancery Court challenging the Asterias Merger, with a trial scheduled for October 2022[131][132] - Lineage believes the allegations in the action lack merit and intends to vigorously defend the claims asserted[133] The company has not recorded any accrual for a contingent liability as it is not considered probable or estimable[133] Item 1A. Risk Factors This section outlines material risks and uncertainties, including those related to business operations, capital requirements, government regulation, clinical development, intellectual property, third-party dependence, and common stock Risks Related to Business Operations and Capital Requirements - The company has a history of significant operating losses, with a total operating loss of $21.0 million for the nine months ended September 30, 2021, and an accumulated deficit of $308.1 million[224] - The company will need to issue additional equity or debt to raise capital for operating expenses, and there is no assurance that such financing will be available on favorable terms, if at all[229] - The value of the company's investment in OncoCyte is volatile and could be negatively affected by business, regulatory, and market risks applicable to OncoCyte[242] Risks Related to Government Regulation - The company's operations are subject to extensive federal and state healthcare fraud and abuse laws, and non-compliance could lead to substantial penalties[244] - Obtaining regulatory approvals from the FDA and foreign authorities is a lengthy, expensive, and uncertain process that is required before any products can be sold[248] - Commercial success is dependent on securing and maintaining reimbursement and coverage from government and private payors, which is uncertain[249] Risks Related to Clinical Development and Commercial Operations - Clinical studies are costly, time-consuming, and subject to risks that could delay or prevent commercialization[269] Early positive results are not necessarily predictive of future success[272] - The COVID-19 pandemic has impacted and may continue to adversely affect clinical trial enrollment, timelines, and overall operations, including potential disruptions to the supply chain[300][302][304] - The company relies on third parties for manufacturing and conducting clinical trials[295] Any failure by these parties to perform their obligations could significantly delay or halt development programs[342] Risks Related to our Intellectual Property - The company's patent position is uncertain, and its intellectual property may be insufficient to protect its products from competition or provide meaningful commercial advantages[329][330] - The company's success depends on its ability to obtain and enforce patents and protect trade secrets, which can be costly and time-consuming, with no guarantee of success[331] Risks Pertaining to Our Common Shares - The market price of the company's common stock is highly volatile, which is common for biotechnology companies[348] - As of September 30, 2021, insiders owned approximately 24.6% of outstanding common shares, giving them substantial influence over company matters[350] - Future issuance of shares, including through the ongoing at-the-market (ATM) offering, will be dilutive to existing shareholders[351][354]