Lineage Cell Therapeutics(LCTX) - 2021 Q4 - Annual Report

Part I Business Lineage Cell Therapeutics is a clinical-stage biotechnology company developing allogeneic cell therapies for unmet medical needs, leveraging its pluripotent cell technology for internal programs and strategic partnerships, notably with Roche - Lineage is a clinical-stage biotechnology company developing novel cell therapies based on its proprietary pluripotent cell-based technology and manufacturing capabilities[21] - The company's strategy focuses on advancing its programs, such as OpRegen, OPC1, and VAC, both internally and through strategic partnerships to enhance their value[22][29][30] - A key strategic achievement in 2021 was the exclusive worldwide collaboration and license agreement with Roche for the development and commercialization of OpRegen, which included a $50.0 million upfront payment[22][28][51] Product Candidates The company's clinical pipeline includes OpRegen® for dry AMD (partnered with Roche), OPC1 for spinal cord injuries (RMAT designated), and the VAC immuno-oncology platform with VAC2 in a Phase 1 trial for NSCLC - OpRegen® is an RPE cell replacement therapy in a Phase 1/2a trial for dry AMD with GA, showing evidence of retinal tissue restoration and statistically significant visual acuity improvement in Cohort 4[25][43][49] - OPC1 is an oligodendrocyte progenitor cell therapy for SCI, with the Phase 1/2a SCiStar trial demonstrating improved motor function and receiving Regenerative Medicine Advanced Therapy (RMAT) and Orphan Drug designations from the FDA[25][58][60] - VAC is an allogeneic cancer immunotherapy platform, with VAC2 in a Phase 1 trial for NSCLC funded by Cancer Research UK, showing potent immune response induction, and a separate VAC-based candidate for glioblastoma in preclinical development with Immunomic Therapeutics, Inc (ITI)[25][65][68] Collaboration Agreements Lineage has established key strategic collaborations, most notably with Roche for OpRegen, involving a $50 million upfront payment and up to $620 million in milestones, and with Immunomic Therapeutics, Inc (ITI) for a VAC-based immunotherapy for glioblastoma - On December 17, 2021, Lineage entered into an exclusive worldwide collaboration with Roche to develop and commercialize OpRegen for ocular disorders, receiving a $50.0 million upfront payment and eligible for up to $620.0 million in milestones plus tiered double-digit royalties[73][75] - A portion of the payments from Roche are owed to the Israel Innovation Authority (IIA) and Hadasit Medical Research Services, with Lineage obligated to pay the IIA approximately 24.3% of payments received (up to a cap of ~$102.7 million) and Hadasit up to 21.5% of upfront/milestone payments and up to 50% of royalties[76][77] - In April 2021, Lineage entered a worldwide license and collaboration agreement with ITI to develop a VAC-platform based immunotherapy for glioblastoma, entitling Lineage to $2.0 million in upfront fees and up to $67.0 million in milestones, plus royalties up to 10%[69][81] Intellectual Property The company protects its technology through patents, trade secrets, and licensing agreements, with portfolios covering OpRegen (expiring 2028-2036), OPC1 (expiring 2023-2036), and the VAC platform (expiring 2022-2041) - The OpRegen patent portfolio includes issued patents with expiration dates from 2028 to 2036 and pending applications that would expire between 2028 and 2041, with these rights licensed to Roche[92] - The OPC1 patent portfolio, including rights acquired from Geron, covers neural cells and methods of production, with expiration dates ranging from 2023 to 2036, and pending applications extending to 2042[93] - The VAC platform is protected by patents covering dendritic cells and immunogenic compositions, with expiration dates for patents and pending applications ranging from 2022 to 2041[94] Manufacturing and Operations Lineage operates a cGMP cell therapy manufacturing facility in Jerusalem, Israel, for all clinical-stage product candidates, employs 61 individuals as of year-end 2021, and relies on third-party, sometimes sole-source, suppliers for key manufacturing components - The company conducts all cGMP manufacturing for its cell therapy candidates at its facility in Jerusalem, Israel, which includes process development labs and is designed for both clinical and potential commercial scale production[98] - As of December 31, 2021, the company had 61 employees, with 43 located at its subsidiary Cell Cure in Israel[97] - Lineage depends on third-party manufacturers and suppliers for key components required for its cell therapy products, including some sole-source suppliers, and does not have long-term supply agreements for certain key components[99] Government Regulation The company's products are subject to extensive regulation by the FDA and foreign authorities, covering development, manufacturing (cGMP), and marketing, along with compliance requirements for healthcare fraud, abuse, data privacy, and human embryonic stem cell research - Products are regulated as drugs, biologics, or medical devices by the FDA and foreign authorities, requiring a rigorous review process including preclinical testing and multi-phase clinical trials before a Biologics License Application (BLA) can be approved[108][109][111] - The company is subject to various federal and state fraud and abuse laws, including the Anti-Kickback Statute and False Claims Act, as well as health information privacy laws like HIPAA and data security laws like CCPA and GDPR[124][125][127] - The use of human embryonic stem (hES) cells is regulated by NIH guidelines for federally funded research and state laws like California's, which require oversight, with the company's hES cell lines on the NIH registry and meeting federal funding standards[121][122][123] Risk Factors The company faces significant risks including a history of operating losses, dependence on the Roche collaboration, the need for additional capital, lengthy and uncertain clinical development, stringent government regulation, intellectual property challenges, and operational disruptions from events like the COVID-19 pandemic - The company has a history of significant operating losses ($49.2 million in 2021) and an accumulated deficit of $337.1 million, with no certainty of achieving profitability[151] - Lineage is heavily dependent on its collaboration with Roche for the development and commercialization of OpRegen, where failure by Roche or termination of the agreement would result in the loss of a significant source of potential revenue[155][156] - Clinical development is a lengthy, expensive, and uncertain process, where early positive results are not predictive of future success, and product candidates may fail in later-stage trials or fail to receive regulatory approval[197][200] - The business is subject to extensive government regulation, including potential bans or restrictions on the use of hES cells, and complex healthcare fraud, abuse, and data privacy laws, which could result in substantial penalties if non-compliant[174][178] - The ongoing COVID-19 pandemic has affected and may continue to adversely affect operations, including the conduct of clinical trials, manufacturing, and the operations of third-party partners[226][227][229] Properties The company's corporate headquarters are in a 8,841 square foot leased office space in Carlsbad, California, while its subsidiary Cell Cure leases approximately 19,328 square feet of office and laboratory space in Jerusalem, Israel, housing its cGMP manufacturing facility - Corporate headquarters are in Carlsbad, California, in a leased space of 8,841 square feet[309] - Subsidiary Cell Cure leases approximately 19,328 square feet (1,796 sq. meters) of office and laboratory space in Jerusalem, Israel, under leases expiring in December 2025[310][311][312] Legal Proceedings Lineage is a defendant in a putative class action lawsuit in Delaware Chancery Court challenging the 2019 merger with Asterias Biotherapeutics, alleging breach of fiduciary duty, inadequate merger consideration, and misleading disclosures, which the company is vigorously defending - A putative class action lawsuit (Ross v. Lineage Cell Therapeutics, Inc., et al.) is pending in Delaware Chancery Court, challenging the 2019 merger with Asterias[314] - The complaint alleges breach of fiduciary duty, inadequate consideration, and misleading proxy statements, with a five-day trial scheduled for October 17-21, 2022[314] - Lineage believes the claims lack merit but cannot assess if the outcome will have a material adverse effect on its financial position[315] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE American and the Tel Aviv Stock Exchange under 'LCTX', with 375 record holders as of March 1, 2022, and no cash dividends have ever been paid or are anticipated, as earnings will be retained for business operations - Lineage's common stock is traded on the NYSE American and the Tel Aviv Stock Exchange under the symbol LCTX[318] - The company has never paid dividends and intends to retain future earnings to finance business growth[320] Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2021, revenues increased to $4.3 million from $1.8 million in FY2020, driven by higher royalties and new collaboration revenues, while operating expenses rose significantly to $52.1 million from $27.9 million, primarily due to a $21.0 million one-time expense related to the Roche collaboration, resulting in a net loss attributable to Lineage of $43.0 million, with $58.4 million in cash, cash equivalents, and marketable securities at year-end, deemed sufficient to fund operations for at least the next 12 months, further bolstered by the $50 million upfront payment from Roche received in January 2022 Results of Operations Total revenues for 2021 increased by 138% to $4.3 million, primarily due to a $2.0 million increase in royalties and $1.1 million from new collaboration agreements, while research and development expenses surged to $33.9 million from $12.3 million in 2020, largely due to $21.0 million in royalty and redemption fee expenses related to the Roche deal, leading to a net loss of $43.0 million Revenues and Gross Profit Comparison (2021 vs. 2020) | | Year Ended December 31, | | $ Increase/ (Decrease) | % Increase/ (Decrease) | | :--- | :--- | :--- | :--- | :--- | | | 2021 (in thousands) | 2020 (in thousands) | | | | Royalties | $2,776 | $773 | $2,003 | 259% | | Collaboration revenues | $1,120 | $- | $1,120 | 100% | | Grant revenues | $445 | $1,053 | $(608) | (58)% | | Total revenues | $4,341 | $1,826 | $2,515 | 138% | | Cost of sales | $(1,426) | $(385) | $(1,041) | 270% | | Gross profit | $2,915 | $1,441 | $1,474 | 102% | Operating Expenses Comparison (2021 vs. 2020) | | Year Ended December 31, | | $ Increase | % Increase | | :--- | :--- | :--- | :--- | :--- | | | 2021 (in thousands) | 2020 (in thousands) | | | | Research and development expenses | $33,914 | $12,317 | $21,597 | 175% | | General and administrative expenses | $18,212 | $15,571 | $2,641 | 17% | - The $21.6 million increase in R&D expenses was primarily driven by a $19.9 million increase in the OpRegen program, which includes a $12.1 million redemption fee to the IIA and an $8.9 million royalty expense to Hadasit related to the Roche agreement[361][362] Liquidity and Capital Resources As of December 31, 2021, Lineage had $58.4 million in cash, cash equivalents, and marketable securities, which, supplemented by the $50 million upfront payment from Roche received in January 2022 and available ATM program capacity, is believed sufficient to fund planned operations for at least the next twelve months, with net cash used in operating activities at $23.6 million and net cash provided by financing activities at $36.9 million in 2021 - The company had $58.4 million in cash, cash equivalents, and marketable securities at year-end 2021, a position strengthened by a $50.0 million upfront payment from Roche received in January 2022[378][380] - Net cash used in operating activities was $23.6 million for the year ended December 31, 2021[383] - Net cash provided by financing activities was $36.9 million in 2021, mainly from $29.8 million in net proceeds from at-the-market (ATM) offerings and $7.2 million from the exercise of employee stock options[387] Financial Statements and Supplementary Data The consolidated financial statements for the year ended December 31, 2021, report total assets of $174.5 million, total liabilities of $83.6 million, total shareholders' equity of $90.9 million, and a net loss of $43.3 million on total revenues of $4.3 million Consolidated Balance Sheet Highlights (as of Dec 31, 2021) | Metric | Amount (in thousands) | | :--- | :--- | | Assets | | | Cash and cash equivalents | $55,742 | | Total current assets | $111,549 | | Total assets | $174,545 | | Liabilities & Equity | | | Accounts payable and accrued liabilities | $27,969 | | Deferred revenues | $50,573 | | Total liabilities | $83,647 | | Total shareholders' equity | $90,898 | Consolidated Statement of Operations Highlights (Year Ended Dec 31, 2021) | Metric | Amount (in thousands) | | :--- | :--- | | Total revenues | $4,341 | | Research and development | $33,914 | | General and administrative | $18,212 | | Loss from operations | $(49,211) | | Net loss attributable to Lineage | $(43,019) | | Net loss per share (Basic & Diluted) | $(0.26) | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[593] - Management assessed the effectiveness of internal control over financial reporting and concluded it was effective as of December 31, 2021, based on the 2013 COSO framework[597] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Other Matters Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, certain relationships and related transactions, director independence, and principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Shareholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive proxy statement for its 2022 Annual Meeting of Shareholders[603][606][607][608][609] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements filed with the report and provides an index of all exhibits filed, including material contracts such as the Merger Agreement with Asterias, various equity incentive plans, and key collaboration and license agreements with partners like Roche and Cancer Research UK - This section contains the index to the consolidated financial statements and a list of exhibits filed with the Form 10-K[611][614]