UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to ________
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| (Address of principal executive offices) (Zip code) |
(Registrant’s
telephone number, including area code) (
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol | Name of exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The number of common shares outstanding as of May 5, 2023 was .
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report, but are also continued elsewhere in this report. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this report are forward-looking statements. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. Forward-looking statements in this report include, but are not limited to, statements about:
| ● | the potential to receive developmental, regulatory, and commercialization milestone and royalty payments under our Collaboration and License Agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc.; | |
| ● | our plans to research, develop and commercialize our product candidates; | |
| ● | the initiation, progress, success, cost and timing of our clinical trials and other product development activities; | |
| ● | the therapeutic potential of our product candidates, and the indications for which we intend to develop our product candidates; | |
| ● | our ability to successfully manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture; | |
| ● | the potential of our cell therapy platform; | |
| ● | our expectations and plans regarding existing and potential future collaborations with third parties such as pharmaceutical and biotechnology companies, government agencies, academic laboratories, and research institutes for the discovery, development, and/or commercialization of novel cell therapy products; | |
| ● | the size and growth of the potential markets for our product candidates and our ability to serve those markets; | |
| ● | the potential scope and value of our intellectual property rights; and | |
| ● | the effects on our operations of pandemics, including the COVID-19 pandemic, geopolitical conflicts, political and economic instability, and rising inflation and interest rates. |
Forward-looking statements reflect our views and expectations as of the date of this report about future events and our future performance and condition, and involve known and unknown risks, uncertainties and other factors that may cause our actual activities, performance, results or condition to be materially different from those expressed or implied by the forward-looking statements. You should refer to “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 10-K”) as filed with the Securities and Exchange Commission on March 9, 2023, for a discussion of important factors that may cause our actual activities, performance, results and condition to differ materially from those expressed or implied by our forward-looking statements. As a result of a variety of factors, including those discussed in Part I, Item 1A of the 2022 10-K, our forward-looking statements may prove to be inaccurate, and the inaccuracy may be material. Accordingly, you should not place undue reliance on any forward-looking statement. We anticipate that subsequent events and developments may cause our current views and expectations to change. However, while we may elect to update the forward-looking statements in this report at some point in the future, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this report.
You should read this report completely and with the understanding that our actual future performance, results and condition may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
This report may also contain market data, industry forecasts and other data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.
All brand names or trademarks appearing in this report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report are referred to without the symbols ® and TM, but such references should not be construed as any indication that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
Unless otherwise stated or the context requires otherwise, references in this report to “Lineage,”, the “Company,” “our company,” “we,” “us,” and “our” refer collectively to Lineage Cell Therapeutics, Inc. and its consolidated subsidiaries.
| 2 | Page |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, 2023 (Unaudited) | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable, net (Note 3) | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| NONCURRENT ASSETS | ||||||||
| Property and equipment, net (Notes 6 and 14) | ||||||||
| Deposits and other long-term assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Lease liabilities, current portion (Note 14) | ||||||||
| Financing lease, current portion (Note 14) | ||||||||
| Deferred revenues (Note 3) | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Deferred tax liability | ||||||||
| Deferred revenues, net of current portion (Note 3) | ||||||||
| Lease liability, net of current portion (Note 14) | ||||||||
| Financing lease, net of current portion (Note 14) | ||||||||
| Other long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred shares, par value, authorized shares; issued and outstanding as of March 31, 2023 and December 31, 2022 | ||||||||
| Common
shares, | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Lineage Cell Therapeutics, Inc. shareholders’ equity | ||||||||
| Noncontrolling deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the condensed consolidated interim financial statements.
| 3 | Page |
LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
| Three
Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| REVENUES: | ||||||||
| Collaboration revenues | $ | $ | ||||||
| Royalties | ||||||||
| Total revenues | ||||||||
| Cost of sales | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| OPERATING EXPENSES: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSES): | ||||||||
| Interest income, net | ||||||||
| Unrealized gain (loss) on marketable equity securities | ( | ) | ||||||
| Gain on revaluation of warrant liability | ||||||||
| Other expenses, net | ( | ) | ( | ) | ||||
| Total other income (expenses), net | ( | ) | ||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| Deferred income tax benefit | ||||||||
| NET LOSS | ( | ) | ( | ) | ||||
| Net loss attributable to noncontrolling interest | ||||||||
| NET LOSS ATTRIBUTABLE TO LINEAGE CELL THERAPEUTICS, INC. | $ | ( | ) | $ | ( | ) | ||
| NET LOSS PER COMMON SHARE: | ||||||||
| BASIC | $ | ( | ) | $ | ( | ) | ||
| DILUTED | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||
| BASIC | ||||||||
| DILUTED | ||||||||
See accompanying notes to the condensed consolidated interim financial statements.
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LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
| Three
Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income, net of tax: | ||||||||
| Foreign currency translation adjustment | ||||||||
| Unrealized gain on marketable debt securities | ||||||||
| COMPREHENSIVE LOSS | ( | ) | ( | ) | ||||
| Less: Comprehensive loss attributable to noncontrolling interest | ||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO LINEAGE COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to the condensed consolidated interim financial statements.
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LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| Three
Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss attributable to Lineage Cell Therapeutics, Inc. | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss attributable to Lineage Cell Therapeutics, Inc. to net cash (used in) provided by operating activities: | ||||||||
| Accretion of income on marketable debt securities | ( | ) | ||||||
| Unrealized (gain)/loss on marketable equity securities | ( | ) | ||||||
| Depreciation expense, including amortization of leasehold improvements | ||||||||
| Amortization of intangible assets | ||||||||
| Stock-based compensation | ||||||||
| Deferred income tax benefit | ( | ) | ||||||
| Gain on revaluation of warrant liability | ( | ) | ( | ) | ||||
| Foreign currency remeasurement | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net (Note 3) | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities (Note 7) | ( | ) | ( | ) | ||||
| Deferred revenue and other liabilities (Note 3) | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of marketable debt securities | ( | ) | ||||||
| Maturities of marketable debt securities | ||||||||
| Purchase of equipment and other assets, net | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from employee options exercised | ||||||||
| Common shares received and retired for employee taxes paid | ( | ) | ( | ) | ||||
| Proceeds from exercise of subsidiary warrants, net | ||||||||
| Proceeds from sale of common shares | ||||||||
| Repayment of financing lease liability | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | ||||||||
| At beginning of the period | ||||||||
| At end of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest | $ | $ | ||||||
See accompanying notes to the condensed consolidated interim financial statements
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LINEAGE CELL THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Business Overview
We are a clinical-stage biotechnology company developing novel cell therapies to address unmet medical needs. Our programs are based on our proprietary cell-based technology platform and associated development and manufacturing capabilities. From this platform, we design, develop, manufacture, and test specialized human cells with anatomical and physiological functions similar or identical to cells found naturally in the human body. Cells which we manufacture are created by applying developmental biological differentiation protocols to established, well-characterized, and self-renewing pluripotent cell lines. These cells are transplanted into patients and are designed to (a) replace or support cells that are absent or dysfunctional due to degenerative disease, aging, or traumatic injury, and (b) restore or augment functional activity in the affected person.
Our
strategy is to efficiently leverage our technology platform and our development, formulation, delivery, and manufacturing capabilities
to advance our programs internally or in conjunction with strategic partners to further enhance their value and probability of success.
As one example, in December 2021 we entered into a Collaboration and License Agreement (the “Roche Agreement”) with F. Hoffmann-La
Roche Ltd and Genentech, Inc., a member of the Roche Group (collectively or individually, “Roche” or “Genentech”),
wherein we granted to Roche exclusive worldwide rights to develop and commercialize retinal pigment epithelium (“RPE”) cell
therapies, including our proprietary cell therapy program known as OpRegen®, for the treatment of ocular disorders, including
geographic atrophy (GA) secondary to age-related macular degeneration (AMD). Under the terms of the Roche Agreement, Lineage received
a $
As of March 31, 2023, we have five allogeneic, or “off-the-shelf,” cell therapy programs in development, of which three have reached clinical testing:
Product Candidates
| ● | OpRegen®, an allogeneic retinal pigment epithelium (“RPE”) cell replacement therapy currently in a Phase 2a multicenter clinical trial, being conducted by Genentech, for the treatment of geographic atrophy (GA) secondary to age-related macular degeneration (AMD), also known as atrophic or dry AMD. A previous Phase 1/2a trial conducted by Lineage enrolled twenty-four (24) individuals with dry AMD with GA. In December 2021, this program was partnered with Roche for further clinical development and commercialization. | |
| ● | OPC1,
an allogeneic oligodendrocyte progenitor cell therapy currently in long-term follow-up from a Phase 1/2a multicenter clinical trial
for cervical spinal cord injuries (“SCI”). To date, five (5) patients with thoracic spinal cord injuries and twenty-five
(25) patients with cervical spinal cord injuries have been enrolled in clinical trials of OPC1. The clinical development of OPC1
has been partially funded by $ | |
| ● | ANP1, an allogeneic auditory neuron progenitor cell transplant currently in preclinical development for the treatment of debilitating hearing loss (“DHL”).
| |
| ● | PNC1, an allogeneic photoreceptor cell transplant currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage. | |
| ● | VAC, an allogeneic cancer immunotherapy comprised of antigen-presenting dendritic cells. One of the VAC product candidates, VAC2, is currently in a Phase 1 clinical trial in non-small cell lung cancer (“NSCLC”). This clinical trial is being funded and conducted by Cancer Research UK (“CRUK”), one of the world’s largest independent cancer research charities. An additional VAC-based product candidate is in preclinical development with our partner, Immunomic Therapeutics, Inc. (“ITI”), for the treatment of glioblastoma multiforme (“GBM”). |
| 7 | Page |
Other Programs
We have additional undisclosed product candidates being considered for development and which cover a range of therapeutic areas and unmet medical needs. Generally, these product candidates are based on the same platform technology and employ a similar guided cell differentiation and transplant approach as the product candidates detailed above, but in some cases may also include genetic modifications designed to enhance efficacy and/or safety profiles.
In addition to seeking to create value for shareholders by developing product candidates and advancing those candidates through clinical development, we also may seek to create value from our intellectual property and additional related technologies and capabilities, through partnering and/or strategic transactions.
2. Basis of Presentation, Liquidity and Summary of Significant Accounting Policies
The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by GAAP. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2022 10-K.
The accompanying condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of Lineage’s financial condition and results of operations. The condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
Principles of consolidation
Lineage’s condensed consolidated interim financial statements include the accounts of its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The following table reflects Lineage’s ownership, directly or through one or more subsidiaries of the outstanding shares of its subsidiaries as of March 31, 2023.
| Subsidiary | Field of Business | Lineage Ownership |
Country | |||||||
| Cell Cure Neurosciences Ltd. | %(1)(2) | Israel | ||||||||
| ES Cell International Pte. Ltd. | % | Singapore | ||||||||
| (1) | |
| (2) |
| 8 | Page |
As of March 31, 2023, Lineage consolidated its direct and indirect wholly-owned or majority-owned subsidiaries because Lineage has the ability to control their operating and financial decisions and policies through its ownership, and the noncontrolling interest is reflected as a separate element of shareholders’ equity on Lineage’s condensed consolidated balance sheets.
Liquidity
At
March 31, 2023, we had $
Capital Resources
Since inception we have incurred significant operating losses and have funded our operations primarily through the issuance of equity securities, the sale of common stock of our former subsidiaries, OncoCyte and AgeX, receipt of proceeds from research grants, revenues from collaborations, royalties from product sales, and sales of research products and services.
Our projected cash flows are subject to various risks and uncertainties, including those described and referenced under Part II, Item 1A, “Risk Factors” of this report.
As
of March 31, 2023, $
We may use our marketable securities for liquidity as necessary and as market conditions allow. The market value of our marketable securities may not represent the amount that could be realized in a sale of such securities due to various market and regulatory factors, including trading volume, prevailing market conditions and prices at the time of any sale and subsequent sales of securities by the entities. In addition, the value of our marketable securities may be significantly and adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing pandemics, including the COVID-19 pandemic, geopolitical conflicts, rising inflation and interest rates, and other macroeconomic factors.
Additional Capital Requirements
Our financial obligations primarily consist of obligations to our licensors under various license agreements, obligations related to grants received from government entities, including the Israel Innovation Authority (“IIA”), obligations under vendor contracts to provide research services and other purchase commitments with suppliers.
Our obligations to licensors under various license agreements and related to grants received from government entities require us to make future payments relating to sublicense fees, milestone payments, redemption fees, royalties and patent maintenance costs. Sublicense fees are payable to licensors or government entities when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments, including those related to the Roche Agreement, are due to licensors or government entities upon future achievement of certain commercial, development and regulatory milestones. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone and royalties received under the Roche Agreement. See Note 14 (Commitment and Contingencies) for additional information. Royalties, including those related to royalties we may receive under the Roche Agreement, are payable to licensors or government entities based on a percentage of net sales of licensed products. Patent maintenance costs are payable to licensors as reimbursement for the cost of maintaining license patents. Due to the contingent nature of the payments, the amounts and timing of payments to licensors under our in-license agreements are uncertain and may fluctuate significantly from period to period. As of March 31, 2023, we have not included these commitments on our condensed consolidated balance sheet because the achievement and timing of these events are not fixed and determinable.
| 9 | Page |
In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided.
Significant Accounting Policies
We describe our significant accounting policies in Note 2 to the consolidated financial statements in Item 8 of the 2022 10-K. There have been no changes to our significant accounting policies during the three months ended March 31, 2023.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Lineage adopted this standard on January 1, 2023 and it did not have a significant impact on our condensed consolidated interim financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted – The following recently issued accounting pronouncement that is not yet effective should be read in conjunction with the recently issued accounting pronouncements discussed in the 2022 10-K.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This would apply to companies meeting certain criteria that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. During 2022, FASB issued ASU 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 extended the sunset date of Topic 848 to December 31, 2024. We are currently assessing the impact the new guidance will have on our consolidated financial statements.
3. Revenue
Our disaggregated revenues were as follows for the periods presented (in thousands):
Three Months Ended March 31, (Unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Royalties | $ | $ | ||||||
| Revenues under collaborative agreements | ||||||||
| Upfront license fees | $ | $ | ||||||
| Total revenues under collaborative agreements | ||||||||
| Total revenue | $ | $ | ||||||
During
the three months ended March 31, 2023, we recognized $
| 10 | Page |
We
are recognizing the $
Accounts receivable and other receivable, net, and deferred revenues (contract liabilities) from contracts with customers, including collaboration partners, consisted of the following (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| Accounts receivable and other receivable, net | $ | $ | ||||||
| Deferred revenues | ||||||||
As
of March 31, 2023, the amounts included in the transaction price of our contracts with customers (ASU 2014-09 – Revenue from
Contracts with Customers (Topic 606)), including collaboration partners, and allocated goods and services not yet provided were $
4. Marketable Debt Securities
The following tables are a summary of available-for-sale debt securities in cash and cash equivalents or marketable securities in the Company’s condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022 (in thousands):
March 31, 2023 (Unaudited) | ||||||||||||||||
| Financial Assets: | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
| U.S. Treasury securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Total | ( | ) | ||||||||||||||
| December 31, 2022 | ||||||||||||||||
| Financial Assets: | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
| U.S. Treasury securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Total | ( | ) | ||||||||||||||
The Company has not recognized an allowance for credit losses on any securities in an unrealized loss position as of March 31, 2023. We believe that the individual unrealized losses represent temporary declines resulting from changes in interest rates, and we intend to hold these marketable securities to their maturity. The Company currently does not intend to sell these securities prior to maturity and does not consider these investments to be other-than-temporarily impaired at March 31, 2023.
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As of March 31, 2023 the amortized cost and estimated fair value of the Company’s available-for-sale debt securities by contractual maturity are shown below (in thousands):
Amortized Cost | Estimated Fair Value | |||||||
| Available-for-sale debt securities maturing: | ||||||||
| In one year or less | $ | $ | ||||||
| Total available-for-sale debt securities | ||||||||
As of March 31, 2023 and December 31, 2022 we did not have any marketable debt securities which were classified as cash equivalents on the condensed consolidated balance sheets.
5. Marketable Equity Securities
As
of March 31, 2023, Lineage owned million shares of OncoCyte common stock, which had a fair value of $
As
of December 31, 2022, Lineage owned million shares of OncoCyte common stock, which had a fair value of $
For
the three months ended March 31, 2023, Lineage recorded a net unrealized gain on marketable equity securities of $
All share prices are determined based on the closing price of OncoCyte common stock on the NYSE American on the last day of the applicable quarter, or the last trading day of the applicable quarter, if the last day of a quarter fell on a day that was not a trading day.
6. Property and Equipment, Net
At March 31, 2023 and December 31, 2022 property and equipment, net was comprised of the following (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Equipment, furniture and fixtures | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Right-of-use assets | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Property
and equipment for financing leases was $
Depreciation
and amortization expense amounted to $
| 12 | Page |
7. Goodwill and Intangible Assets, Net
At March 31, 2023 and December 31, 2022 goodwill and intangible assets, net consisted of the following (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Goodwill (1) | $ | $ | ||||||
| Intangible assets: | ||||||||
| Acquired IPR&D – OPC1 (from the Asterias Merger) (2) | $ | $ | ||||||
| Acquired IPR&D – VAC (from the Asterias Merger) (2) | ||||||||
| Intangible assets subject to amortization: | ||||||||
| Acquired patents | ||||||||
| Acquired royalty contracts (3) | ||||||||
| Total intangible assets | ||||||||
| Accumulated amortization (4) | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
| (1) | |
| (2) |
|
| (3) |
|
| (4) |
Lineage
amortizes its intangible assets over an estimated period of
Amortization of intangible assets for periods subsequent to March 31, 2023 is as follows (in thousands):
| Year Ending December 31, | Amortization Expense | |||
| 2023 | $ | |||
| 2024 | ||||
| Total | $ | |||
| 13 | Page |
8. Accounts Payable and Accrued Liabilities
At March 31, 2023 and December 31, 2022 accounts payable and accrued liabilities consisted of the following (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued liabilities (1) | ||||||||
| Other current liabilities | ||||||||
| Total | $ | $ | ||||||
| (1) |
9. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value (ASC 820-10-50), Fair Value Measurements and Disclosures:
| ● | Level 1 – Inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
| |
| ● | Level 3 – Inputs to the valuation methodology are unobservable; that reflect management’s own assumptions about the assumptions market participants would make and significant to the fair value. |
We have not transferred any instruments between the three levels of the fair value hierarchy.
We measure our money market fund, marketable securities and our liability classified warrants at fair value on a recurring basis. The fair values of such assets and liabilities were as follows for March 31, 2023 and December 31, 2022 (in thousands):
| Fair Value Measurements Using | ||||||||||||||||
| Balance
at March 31, 2023 | Quoted
Prices in Active Markets for Identical Assets (Level 1) | Significant
Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Money market fund (1) | $ | $ | $ | $ | ||||||||||||
| Marketable debt securities | ||||||||||||||||
| Marketable equity securities | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrants to purchase Cell Cure ordinary shares (2) | ||||||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| 14 | Page |
| Fair Value Measurements Using | ||||||||||||||||
| Balance
at December 31, 2022 | Quoted
Prices in Active Markets for Identical Assets (Level 1) | Significant
Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Money market fund (1) | $ | $ | $ | $ | ||||||||||||
| Marketable debt securities | ||||||||||||||||
| Marketable equity securities | ||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Warrants to purchase Cell Cure ordinary shares (2) | ||||||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| (1) | ||
| (2) |
10. Related Party Transactions
In
connection with the putative shareholder class action lawsuits filed in February 2019 and October 2019 challenging the Asterias Merger
(see Note 14), Lineage agreed to pay the expenses for the legal defense of Neal Bradsher, a member of the Lineage board of directors,
Broadwood Partners, L.P., a shareholder of Lineage, and Broadwood Capital, Inc., which serves as the general partner of Broadwood Partners,
L.P., all of which were named defendants in the lawsuits, prior to being dismissed. Through March 31, 2023, Lineage has incurred a total
of approximately $
11. Shareholders’ Equity
Preferred Shares
Lineage
is authorized to issue preferred shares,
Common Shares
Lineage
is authorized to issue common shares,
| 15 | Page |
At The Market Offering Program
In May 2020, Lineage entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which Lineage may sell its common shares from time to time through an “at the market offering” program under the Sales Agreement.
In
March 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of $
In
December 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of up to $
As
of March 31, 2023, Lineage had sold common shares under the December 2021 Prospectus Supplement at a weighted average price per
share of $ for gross proceeds of $
The shares offered under the December 2021 Prospectus Supplement are registered pursuant to Lineage’s effective shelf registration statement on Form S-3 (File No. 333-237975), which was filed with the SEC on May 1, 2020 and declared effective on May 8, 2020, and Lineage’s effective shelf registration statement on Form S-3 (File No. 333-254167), which was filed with the SEC on March 5, 2021 and declared effective on March 19, 2021.
Lineage
agreed to pay Cantor Fitzgerald a commission of
Reconciliation of Changes in Shareholders’ Equity
The following tables document the changes in shareholders’ equity for the three months ended March 31, 2023 and 2022 (unaudited and in thousands):
| Preferred Shares | Common Shares | Noncontrolling | Accumulated Other | Total | ||||||||||||||||||||||||||||
| Number | Number | Accumulated | Interest/ | Comprehensive | Shareholders’ | |||||||||||||||||||||||||||
| of Shares | Amount | of Shares | Amount | Deficit | (Deficit) | Income/(Loss) | Equity | |||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued upon exercise of stock options | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | - | - | ||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||
| NET LOSS | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| 16 | Page |
| Preferred Shares | Common Shares | Noncontrolling | Accumulated Other | Total | ||||||||||||||||||||||||||||
| Number | Number | Accumulated | Interest/ | Comprehensive | Shareholders’ | |||||||||||||||||||||||||||
| of Shares | Amount | of Shares | Amount | Deficit | (Deficit) | Income/(Loss) | Equity | |||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Shares issued upon exercise of stock options | - | |||||||||||||||||||||||||||||||
| Subsidiary warrant exercise | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||
| NET LOSS | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
Equity Incentive Plan Awards
In September 2021, our shareholders approved the Lineage Cell Therapeutics, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), which became effective upon such approval. The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, RSUs, and other stock awards. All of our employees (including those of our affiliates), non-employee directors and consultants are eligible to participate in the 2021 Plan.
Subject to adjustment for certain changes in our capitalization, the aggregate number of our common shares that may be issued under the 2021 Plan will not exceed the sum of (i) shares and (ii) the number of shares subject to awards granted under the Lineage Cell Therapeutics Inc. 2012 Equity Incentive Plan (the “2012 Plan”) that were outstanding when the 2021 Plan became effective and are not issued because such awards expire or otherwise terminate. As of March 31, 2023, there were shares available for grant under the 2021 Plan.
As a result of the approval of the 2021 Plan by our shareholders, no additional awards will be granted under the 2012 Plan.
| Number
of Options Outstanding | Number
of RSUs Outstanding | Weighted
Average Exercise Price | ||||||||||
| December 31, 2022 | $ | |||||||||||
| Options granted | ||||||||||||
| Options expired/forfeited/cancelled | ( | ) | ||||||||||
| RSUs forfeited | ( | ) | ||||||||||
| RSUs vested | ( | ) | ||||||||||
| March 31, 2023 | $ | |||||||||||
| Options exercisable at March 31, 2023 | $ | |||||||||||
| 17 | Page |
| Number
of Options Outstanding | Weighted
Average Exercise Price | |||||||
| December 31, 2022 | $ | |||||||
| Options exercised | ( | ) | ||||||
| Options expired/forfeited/cancelled | ( | ) | ||||||
| March 31, 2023 | $ | |||||||
| Options exercisable at March 31, 2023 | $ | |||||||
Stock-based compensation expense
Three Months Ended March 31, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Expected life (in years) | ||||||||
| Risk-free interest rates | % | % | ||||||
| Volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
There Months Ended March 31, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
As of March 31, 2023, total unrecognized compensation costs related to unvested stock options and unvested RSUs under all equity plans (including the 2018 inducement option), were $ million, which is expected to be recognized as expense over a weighted average period of approximately years.
Basic and diluted net income (loss) per share attributable to common shareholders
Basic earnings per share is calculated by dividing net income or loss attributable to Lineage common shareholders by the weighted average number of common shares outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by Lineage, if any, during the period. Diluted earnings per share is calculated by dividing the net income or loss attributable to Lineage common shareholders by the weighted average number of common shares outstanding, adjusted for the effects of potentially dilutive common shares issuable under outstanding stock options restricted stock awards and warrants, using the treasury-stock method, convertible preferred stock, if any, using the if-converted method, and treasury stock held by subsidiaries, if any.
For the three months ended March 31, 2023 and 2022, respectively, Lineage reported a net loss attributable to common shareholders, and therefore, all potentially dilutive common shares were considered antidilutive for those periods.
| 18 | Page |
| Three
Months Ended March 31, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Stock options | ||||||||
| Restricted stock units | ||||||||
13. Income Taxes
The provision for income taxes for interim periods is generally determined using an estimated annual effective tax rate as prescribed by ASC 740-270, Income Taxes, Interim Reporting. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances and changes in valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where Lineage conducts business. ASC 740-270 also states that if an entity is unable to reliably estimate some or a part of its ordinary income or loss, the income tax provision or benefit applicable to the item that cannot be estimated shall be reported in the interim period in which the item is reported. For items that Lineage cannot reliably estimate on an annual basis, Lineage uses the actual year to date effective tax rate rather than an estimated annual effective tax rate to determine the tax effect of each item, including the use of all available net operating losses and other credits or deferred tax assets.
Under ASC 740, a valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Lineage established a full valuation allowance as of December 31, 2018 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by its subsidiaries.
For the tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to IRC Section 174. Although Congress is considering legislation that would repeal or defer this capitalization and amortization requirement, it is not certain that this provision will be repealed or otherwise modified. If the requirement is not repealed or replaced, it will decrease our tax deduction for research and development expenses in future years.
The 2017 Tax Act subjects a U.S. stockholder to Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. In general, GILTI is the excess of a U.S. stockholder’s total net foreign income over a deemed return on tangible assets. The provision further allows a deduction of 50% of GILTI, however this deduction is limited to the company’s pre-GILTI U.S. income. Lineage incurred GILTI income during the years 2021 and 2022. For the three months ended March 31, 2023, no GILTI income was included in the Company’s tax provision.
For
the three months ended March 31, 2023, Lineage recorded a $
14. Commitments and Contingencies
Real Property Leases
Carlsbad Lease
In
May 2019, Lineage entered into a lease for approximately
| 19 | Page |
In addition to base rent, Lineage pays a pro-rata portion of increases in certain expenses, including real property taxes, utilities (to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those expenses incurred by the landlord. These pro-rata charges are expensed as incurred and excluded from the calculation of the ROU assets and lease liabilities.
Carlsbad Sublease
In
September 2022, Lineage, as sublessee, entered into a sublease for approximately
Cell Cure Leases
Cell
Cure leases
In
January 2018, Cell Cure entered into a lease for an additional
In
November 2021, Cell Cure entered into a lease for an additional
In
August 2022, Cell Cure entered into a new lease for
Supplemental Information – Leases
Supplemental cash flow information related to leases is as follows (in thousands):
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Operating cash flows from financing leases | ||||||||
| Financing cash flows from financing leases | ||||||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| 20 | Page |
Supplemental balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):
March 31, 2023 | December 31, 2022 | |||||||
| Operating leases | ||||||||
| Right-of-use assets, net | $ | $ | ||||||
| Right-of-use lease liabilities, current | $ | $ | ||||||
| Right-of-use lease liabilities, noncurrent | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Financing leases | ||||||||
| Right-of-use assets, net | $ | $ | ||||||
| Lease liabilities, current | $ | $ | ||||||
| Lease liabilities, noncurrent | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
| Other current liabilities | $ | $ | ||||||
| Total finance lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted average discount rate | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Future minimum lease commitments are as follows as of March 31, 2023 (in thousands):
| Operating Leases | Finance Leases | |||||||
| Year Ending December 31, | ||||||||
| 2023 | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Total lease payments | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| 21 | Page |
Collaborations
Roche Agreement
In December 2021, Lineage entered into the Roche Agreement, wherein Lineage granted to Roche exclusive worldwide rights to develop and commercialize RPE cell therapies, including Lineage’s proprietary cell therapy known as OpRegen, for the treatment of ocular disorders, including GA secondary to AMD.
Under
the terms of the Roche Agreement, Roche paid Lineage a $
Unless earlier terminated by either party, the Roche Agreement will expire on a product-by-product and country-by-country basis upon the expiration of all of Roche’s payment obligations under the agreement. Roche may terminate the agreement in its entirety, or on a product-by-product or country-by-country basis, at any time with advance written notice. Either party may terminate the agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach or upon certain insolvency events involving the other party.
In
January 2022, Lineage received the $
ITI Collaboration Agreement
Under
Lineage’s collaborative agreement with Immunomic Therapeutics, Inc. (“ITI”), Lineage agreed to perform up to approximately
$
Agreements with Hadasit and IIA
The OpRegen program was supported in part with licenses to technology obtained from Hadasit, the technology transfer company of Hadassah Medical Center, and through a series of research grants from the IIA, an independent agency created to address the needs of global innovation ecosystems. A subset of the intellectual property underlying OpRegen was originally generated at Hadassah Medical Center and licensed to Cell Cure for further development.
Under
the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744, and the regulations (collectively the
“Innovation Law”), guidelines, rules, procedures and benefit tracks thereunder, annual research and development programs
that meet specified criteria and were approved by a committee of the IIA were eligible for grants. The grants awarded were typically
up to
| 22 | Page |
The
terms of the grants under the Innovation Law generally require that the products developed as part of the programs under which the grants
were given be manufactured in Israel. The know-how developed thereunder may not be transferred outside of Israel unless prior written
approval is received from the IIA. Transfer of IIA-funded know-how outside of Israel is subject to approval and payment of a redemption
fee to the IIA calculated according to formulas provided under the Innovation Law. In November 2021, the IIA research committee approved
an application made by Cell Cure with respect to the grant of an exclusive license and transfer of the technological know-how for OpRegen
to Roche. Under the provisions for the redemption fee, Lineage is obligated to pay the IIA approximately
Pursuant
to the Second Amended and Restated License Agreement, dated June 15, 2017, between Cell Cure and Hadasit, and a certain letter agreement
entered into on December 17, 2021, Hadasit was entitled to, and was paid, a sublicensing fee of
Second Amendment to Clinical Trial and Option Agreement and License Agreement with Cancer Research UK
In May 2020, Lineage and Asterias entered into a Second Amendment to Clinical Trial and Option Agreement (the “CTOA Amendment”) with CRUK and Cancer Research Technology (“CRT”), which amends the Clinical Trial and Option Agreement entered into between Asterias, CRUK and CRT dated September 8, 2014, as amended September 8, 2014. Pursuant to the CTOA Amendment, Lineage assumed all obligations of Asterias and exercised early its option to acquire data generated in the Phase 1 clinical trial of VAC2 in non-small cell lung cancer being conducted by CRUK.
Lineage
and CRT effectuated the option by simultaneously entering into a license agreement (the “CRT License Agreement”) pursuant
to which Lineage agreed to pay the previously agreed signature fee of £
Either party may terminate the CRT License Agreement for the uncured material breach of the other party. CRT may terminate the CRT License Agreement in the case of Lineage’s insolvency or if Lineage ceases all development and commercialization of all products under the CRT License Agreement.
Other Contingent Obligations
Other than disclosed above, we have obligations under various license agreements and grants received from government entities to make future payments to third parties, which become due and payable on the achievement of certain development, regulatory and commercial milestones or on the sublicense of our rights to another party. These commitments include sublicense fees, milestone payments, redemption fees and royalties. Sublicense fees are payable to licensors or government entities when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments are due to licensors or government entities upon the future achievement of certain development and regulatory milestones. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone and royalties received under the Roche Agreement. Royalties are payable to licensors or government entities based on a percentage of net sales of licensed products. As of March 31, 2023, we have not included these commitments on our condensed consolidated balance sheet because the achievement and timing of these events are not fixed and determinable.
| 23 | Page |
Litigation – General
From time to time, we are subject to legal proceedings and claims in the ordinary course of business. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or outcomes could occur that have individually or in aggregate, a material adverse effect on our business, financial condition or operating results. We are not currently subject to any pending material litigation, other than ordinary routine litigation incidental to our business, as described above.
Asterias Merger
In November 2018, Lineage, Asterias Biotherapeutics, Inc. (“Asterias”), and Patrick Merger Sub, Inc., a wholly owned subsidiary of Lineage, entered into an Agreement and Plan of Merger pursuant to which Lineage agreed to acquire all of the outstanding common stock of Asterias in a stock-for-stock transaction (the “Asterias Merger”). The Asterias Merger closed in March 2019.
In October 2019, a putative class action lawsuit was filed challenging the Asterias Merger. The lawsuit (captioned Ross v. Lineage Cell Therapeutics, Inc., et al., C.A. No. 2019-0822) was filed in Delaware Chancery Court and named, among other defendants, Lineage, Michael H. Mulroy, Alfred D. Kingsley, Richard T. LeBuhn and Aditya Mohanty. Messrs. Mulroy and Kingsley are members of the Lineage board of directors and were former members of the Asterias board of directors. Messrs. LeBuhn and Mohanty were also former members of the Asterias board of directors, and Mr. Mohanty was a former member of the Lineage board of directors and a former chief executive officer of Lineage. The lawsuit was brought by a purported stockholder of Asterias, on behalf of a putative class of Asterias stockholders, and asserts breach of fiduciary duty and aiding and abetting claims under Delaware law.
In April 2022, the parties reached an agreement in principle to settle the lawsuit and, in October 2022, the plaintiff, on behalf of himself and all others similarly situated, Lineage and Messrs. Mulroy, Kingsley, LeBuhn and Mohanty entered into a Stipulation and Agreement of Compromise and Settlement (the “Settlement Agreement”).
In
February 2023, the court approved the Settlement Agreement. Pursuant to the terms of the Settlement Agreement, Lineage and certain insurers
of the defendants paid $
Lineage and all defendants have denied, and continue to deny, the claims alleged in the lawsuit and the settlement does not reflect or constitute any admission, concession, presumption, proof, evidence or finding of any liability, fault, wrongdoing or injury or damages, or of any wrongful conduct, acts or omissions on the part any defendant.
Premvia Litigation Settlement
In
July 2019, the Company, along with other named defendants, was sued in the Superior Court of the State of California in a matter captioned
Gonzalez v. Aronowitz, M.D., et al. The plaintiff asserted medical negligence and product liability causes of action relating
to the 2017 and 2018 use in a clinical trial of a product candidate, Premvia, that the Company is no longer developing and has no plans
to pursue, and that is not related to the cell therapy candidates the Company currently is developing. In February 2023, the Company
and the other defendants each entered into settlement agreements with the plaintiff pursuant to which the defendants without admitting
any liability, which the defendants expressly denied, each agreed to pay specified amounts to the plaintiff in exchange for a full settlement
and release and discharge of claims. The Company’s insurance covered the full amount paid by the Company excluding the $
| 24 | Page |
HBL Books and Records Request
On April 17, 2023, Cell Cure Neurosciences Ltd. (“Cell Cure”), Lineage’s subsidiary, received a motion for disclosure of documents pursuant to Section 198A of the Israeli Companies Law 5759-1999. The motion was filed in the district court in Tel Aviv-Yafo by HBL Hadasit Bio-Holdings Ltd. (“HBL”), currently an approximately 5% shareholder of Cell Cure. According to the motion, the requested production of documents is intended to allow HBL to examine the possibility of pursuing a derivative action related to, among other things, the validity of an intercompany Collaboration and License Agreement (the “Intercompany Agreement”) entered into between Lineage and Cell Cure pursuant to which Cell Cure conveyed certain rights and other assets to Lineage, and Lineage agreed to undertake certain liabilities and obligations of Cell Cure relating to the OpRegen® program. In its motion, HBL alleges, among other things, that Lineage, in its capacity as Cell Cure’s controlling shareholder, and members of Cell Cure’s board of directors caused damage to Cell Cure because the Intercompany Agreement was an interested party transaction that was not fairly priced and exploits Cell Cure’s resources for the benefit of Lineage. The motion seeks an order to compel Cell Cure to disclose and deliver to HBL the documents described in the motion, such additional, cumulative, or alternative relief as the court deems appropriate, and reimbursement of HBL’s expenses, including attorneys’ fees. Lineage disputes the allegations and Cell Cure intends to oppose the motion. It is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect on Lineage’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with ASC 450, Contingencies, Lineage has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable nor estimable, and any range of potential contingent liability amounts cannot be reasonably estimated at this time. Lineage records legal expenses as incurred.
Employment Contracts
Lineage has entered into employment agreements with certain executive officers. Under the provisions of the agreements, Lineage may be required to incur severance obligations for matters relating to changes in control, as defined in the agreements, and involuntary terminations.
Indemnification
In the normal course of business, Lineage may agree to indemnify and reimburse other parties, typically Lineage’s clinical research organizations, investigators, clinical sites, and suppliers, for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of Lineage’s products and services. Indemnification could also cover third party infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to Lineage products and services. The term of these indemnification agreements generally continue in effect after the termination or expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments Lineage could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Generally, Lineage has not been subject to any material claims or demands for indemnification. Lineage maintains liability insurance policies that limit its financial exposure under the indemnification agreements. Accordingly, Lineage has not recorded any liabilities for these agreements as of March 31, 2023 or December 31, 2022.
Royalty Obligations and License Fees
We have licensing agreements with research institutions, universities and other parties providing us with certain rights to use intellectual property in conducting research and development activities in exchange for the payment of royalties on future product sales, if any. In addition, in order to maintain these licenses and other rights, we must comply with various conditions including the payment of patent related costs and annual minimum maintenance fees.
As part of the Asterias Merger, Lineage acquired certain royalty revenues for cash flows generated under certain patent families that Asterias acquired from Geron Corporation. Lineage continues to make royalty payments to Geron from royalties generated from these patents.
15. Subsequent Events
HBL Books and Records Request
On April 17, 2023, Cell Cure Neurosciences Ltd. (“Cell Cure”), Lineage’s subsidiary, received a motion for disclosure of documents pursuant to Section 198A of the Israeli Companies Law 5759-1999 and Article 2 of the Israeli Class Action Regulations – 2010 filed by HBL Hadasit Bio-Holdings Ltd., currently an approximately 5% shareholder of Cell Cure. For a discussion of legal proceedings in which we are involved, see Note 14 (Commitments and Contingencies) in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
| 25 | Page |
Item 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated interim financial statements and notes thereto included in this report and our audited financial statements and notes thereto for the year ended December 31, 2022 included in the 2022 10-K. Past operating results are not necessarily indicative of results that may occur in future periods.
The following discussion includes forward-looking statements. See “Special Note Regarding Forward-Looking Statements,” above. Forward-looking statements are not guarantees of future performance and our actual results may differ materially from those currently anticipated and from historical results depending upon a variety of factors, including, but not limited to, those discussed in Part I, Item 1A. Risk Factors of our 2022 10-K, and in our subsequent filings with the SEC, including any discussed in Part II, Item 1A of this report under the heading “Risk Factors.”
All information presented in this report is based on our fiscal year. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years ending December 31 and the associated quarters, months and periods of those fiscal years.
Company and Business Overview
We are a clinical-stage biotechnology company developing novel cell therapies to address unmet medical needs. Our programs are based on our proprietary cell-based technology platform and associated development and manufacturing capabilities. From this platform, we design, develop, manufacture, and test specialized human cells with anatomical and physiological functions similar or identical to cells found naturally in the human body. Cells which we manufacture are created by applying developmental biological differentiation protocols to established, well-characterized, and self-renewing pluripotent cell lines. These cells are transplanted into patients and are designed to (a) replace or support cells that are absent or dysfunctional due to degenerative disease, aging, or traumatic injury, and (b) restore or augment functional activity in the affected person.
Our strategy is to efficiently leverage our technology platform and our development, formulation, delivery, and manufacturing capabilities to advance our programs internally, or in conjunction with strategic partners, to further enhance their value and probability of success. As one example, in December 2021 we entered into a Collaboration and License Agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group, wherein we granted to Roche exclusive worldwide rights to develop and commercialize retinal pigment epithelium cell therapies, including our proprietary cell therapy program known as OpRegen®, for the treatment of ocular disorders, including geographic atrophy (GA) secondary to age-related macular degeneration (AMD). Under the terms of the Roche Agreement, Lineage received a $50.0 million upfront payment and is eligible to receive up to $620.0 million in certain developmental, regulatory, and commercialization milestone payments. Lineage also is eligible to receive tiered double-digit percentage royalties on net sales of OpRegen in the U.S. and other major markets. See Note 14 (Commitments and Contingencies) to our condensed consolidated interim financial statements included elsewhere in this report for discussion on the Roche Agreement.
As of March 31, 2023, we have five allogeneic, or “off-the-shelf,” cell therapy programs in development, of which three have reached clinical testing:
Product Candidates
| ● | OpRegen®, an allogeneic retinal pigment epithelium (“RPE”) cell replacement therapy currently in a Phase 2a multicenter clinical trial, being conducted by Genentech, for the treatment of geographic atrophy (GA) secondary to age-related macular degeneration (AMD), also known as atrophic or dry AMD. A previous Phase 1/2a trial conducted by Lineage enrolled twenty-four (24) individuals with dry AMD with GA. In December 2021, this program was partnered with Roche for further clinical development and commercialization. |
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| ● | OPC1, an allogeneic oligodendrocyte progenitor cell therapy currently in long-term follow-up from a Phase 1/2a multicenter clinical trial for cervical spinal cord injuries. To date, five (5) patients with thoracic spinal cord injuries and twenty-five (25) patients with cervical spinal cord injuries have been enrolled in clinical trials of OPC1. The clinical development of OPC1 has been partially funded by $14.3 million received under a grant from the California Institute for Regenerative Medicine. Additional clinical trials are being planned. | |
| ● | ANP1, an allogeneic auditory neuron progenitor cell transplant currently in preclinical development for the treatment of debilitating hearing loss.
| |
| ● | PNC1, an allogeneic photoreceptor cell transplant currently in preclinical development for the treatment of vision loss due to photoreceptor dysfunction or damage. | |
| ● | VAC, an allogeneic cancer immunotherapy comprised of antigen-presenting dendritic cells. One of the VAC product candidates, VAC2, is currently in a Phase 1 clinical trial in non-small cell lung cancer. This clinical trial is being funded and conducted by Cancer Research UK, one of the world’s largest independent cancer research charities. An additional VAC-based product candidate is in preclinical development with our partner, Immunomic Therapeutics, Inc., for the treatment of glioblastoma multiforme. |
Other Programs
We have additional undisclosed product candidates being considered for development and which cover a range of therapeutic areas and unmet medical needs. Generally, these product candidates are based on the same platform technology and employ a similar guided cell differentiation and transplant approach as the product candidates detailed above, but in some cases may also include genetic modifications designed to enhance efficacy and/or safety profiles.
In addition to seeking to create value for shareholders by developing product candidates and advancing those candidates through clinical development, we also may seek to create value from our intellectual property and additional related technologies and capabilities, through partnering and/or strategic transactions.
Critical Accounting Estimates
An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. See Part II, Item 7 – Critical Accounting Estimates and our consolidated financial statements and related notes in Part II, Item 8 of our 2022 10-K for accounting policies and related estimates we believe are the most critical to understanding our condensed consolidated interim financial statements, financial condition and results of operations and which require complex management judgment and assumptions or involve uncertainties. There have not been any changes to our significant accounting policies or their application since we filed our 2022 10-K.
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Results of Operations
Comparison of Three Months Ended March 31, 2023 and 2022
Revenues and Cost of Sales
The amounts in the table below show our consolidated revenues, by source, and cost of sales for the periods presented (in thousands).
Three Months Ended March 31, (unaudited) | $ Increase/ | % Increase/ | ||||||||||||||
| 2023 | 2022 | (Decrease) | (Decrease) | |||||||||||||
| Collaboration revenues | $ | 2,121 | $ | 4,865 | $ | (2,744 | ) | (56 | )% | |||||||
| Royalties | 265 | 372 | (107 | ) | (29 | )% | ||||||||||
| Total revenues | 2,386 | 5,237 | (2,851 | ) | (54 | )% | ||||||||||
| Cost of sales | (119 | ) | (176 | ) | 57 | (32 | )% | |||||||||
| Gross profit | $ | 2,267 | $ | 5,061 | $ | (2,794 | ) | (55 | )% | |||||||
The $2.9 million decrease in total revenues was due to a $2.7 million decrease in collaboration revenues related to less current period recognition of the $50.0 million upfront licensing payment from Roche, resulting from an updated collaboration forecast. The collaboration revenue was included in deferred revenues at December 31, 2022 (see Note 3 for further discussion). Royalty revenues decreased by $0.1 million as a result of patents which expired in the fourth quarter of 2022.
Operating expenses
Our operating expenses consist of research and development expenses and general and administrative expenses.
Research and development expenses. These expenses consist of costs incurred for company-sponsored, collaborative and contracted research and development activities. These costs include direct and research-related overhead expenses including compensation and related benefits, stock-based compensation, consulting fees, research and laboratory fees, rent of research facilities, amortization of intangible assets, and license fees paid to third parties to acquire patents or licenses to use patents and other technology. Research and development expenses that have an alternative future use will be capitalized as tangible assets, and costs with no future benefit or alternative use will be expensed as incurred. Research and development expenses incurred and reimbursed by grants from third parties approximate the grant income recognized in our consolidated statements of operations. Royalties and sublicensing fees are recorded as research and development expenses, unless they are associated with royalties from product sales, which we classify as cost of sales in our consolidated statements of operations.
General and administrative expenses. These expenses include employee and director compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, and allocated overhead such as facilities rent and equipment rent and maintenance, insurance costs allocated to general and administrative expenses, costs of patent applications, prosecution and maintenance, stock exchange-related costs, depreciation expense, marketing costs, legal and accounting costs, and other miscellaneous.
The amounts in the table below are our consolidated operating expenses for the periods presented (in thousands).
| Three
Months Ended March 31, (unaudited) | $ Increase/ | % Increase/ | ||||||||||||||
| 2023 | 2022 | (Decrease) | (Decrease) | |||||||||||||
| Research and development expenses | $ | 4,185 | $ | 2,988 | $ | 1,197 | 40 | % | ||||||||
| General and administrative expenses | 4,724 | 8,469 | (3,745 | ) | (44 | )% | ||||||||||
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The following table shows the amount of our total research and development expenses by program for the periods presented (in thousands).
| Three
Months Ended March 31, (unaudited) | ||||||||||||||||
| Amount | Percent of Total | |||||||||||||||
| Program | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| OpRegen® | $ | 1,517 | $ | 1,277 | 36 | % | 42 | % | ||||||||
| OPC1 | 1,401 | 920 | 34 | % | 31 | % | ||||||||||
| ANP1 | 443 | 56 | 10 | % | 2 | % | ||||||||||
| PNC1 | 158 | - | 4 | % | - | % | ||||||||||
| VAC platform | 286 | 733 | 7 | % | 25 | % | ||||||||||
| All other programs | 380 | 2 | 9 | % | - | % | ||||||||||
| Total research and development expenses | $ | 4,185 | $ | 2,988 | 100 | % | 100 | % | ||||||||
Research and development expenses. For the three months ended March 31, 2023, the $1.2 million increase in total research and development expenses is mainly attributable to: (i) a $0.2 million net increase in expenses related to our OpRegen program, attributable to additional work being performed on the Roche collaboration; (ii) a $0.5 million net increase in expenses related to our OPC1 program, primarily related to nonclinical activities; (iii) a $0.4 million increase in expenses related to our ANP1 program, primarily related to manufacturing activities for our allogeneic auditory neuron cell transplant program; (iv) a $0.2 million increase in expenses related to our PNC1 program, primarily related to research and development activities for our allogeneic photoreceptor cell transplant program; (v) a $0.4 million decrease in expense related to our VAC program, primarily related to less manufacturing activities; and (vi) a $0.4 million increase in expenses related to other programs.
General and administrative expenses. For the three months ended March 31, 2023, the $3.7 million year-over-year decrease in general and administrative expenses was attributable to (i) a $3.5 million decrease in legal and litigation expense, primarily related to the Asterias litigation settlement accrued in the prior year, and a (ii) a $0.2 million decrease in audit and tax services.
Other income and (expenses), net
The following table shows the amount of other income and (expense), net, for the periods presented (in thousands):
| Three
Months Ended March 31, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Other income (expenses), net | ||||||||
| Interest income, net | $ | 410 | $ | 1 | ||||
| Unrealized gain (loss) on marketable equity securities | 40 | (735 | ) | |||||
| Gain on revaluation of warrant liability | 1 | 221 | ||||||
| Other expenses, net | (16 | ) | (184 | ) | ||||
| Total other income (expenses), net | $ | 435 | $ | (697 | ) | |||
Marketable debt securities. During the third quarter of 2022, we began to invest our excess cash in short-term U.S. Treasury securities resulting in an increase in interest income. See Note 4 (Marketable Debt Securities) to our condensed consolidated interim financial statements included in this report for additional information regarding our marketable debt securities.
Marketable equity securities. We expect our total other income (expenses), net, to fluctuate each reporting period based on the changes in the market price of the common stock of OncoCyte Corporation (“OncoCyte”), which could impact our net income or loss reported in our condensed consolidated statements of operations for a particular reporting period. We also account for the shares we hold in Hadasit Bio-Holdings as marketable equity securities. These shares are carried at fair market value on our consolidated balance sheets. The accounting transactions for these shares were not material for either of the three months ended March 31, 2023 and 2022. See Note 5 (Marketable Equity Securities) to our condensed consolidated interim financial statements included in this report for additional information regarding our marketable equity securities.
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Other income and (expenses), net. Other expenses, net, for each of the three months ended March 31, 2023 and 2022 consisted of net foreign currency transaction gains and losses recognized by our subsidiaries Cell Cure and ES Cell International Pte. Ltd and an employee retention credit payroll tax refund (discussed below). Foreign currency transaction gains and losses for the periods presented are principally related to the remeasurement of the U.S. dollar denominated notes payable and notes receivable between Cell Cure and Lineage.
Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company is eligible for an employee retention credit subject to certain criteria. The employee retention credit is a payroll tax refund per employee, which was designed by the U.S. Treasury Department to assist businesses that retained employees during the COVID pandemic. For the three months ended March 31, 2023, we recorded an employee retention credit of $0.5 million, due to a decline in the quarterly revenue during 2020 and 2021 as compared to the same quarterly period in 2019. We recorded the transaction as other income on the condensed consolidated statement of operations and as a receivable on the condensed consolidated balance sheet. We accounted for the employee retention credit by analogy to International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, of International Financial Reporting Standards (IFRS).
Income Taxes
Under ASC 740, Income Taxes, a valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance as of December 31, 2018, due to the uncertainty of realizing future tax benefits from the net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by its subsidiaries.
For the three months ended March 31, 2023, Lineage recorded a $1.8 million deferred tax benefit that was primarily related to federal net operating losses generated for the three months ended March 31, 2023. For the three months ended March 31, 2022, Lineage did not record a deferred tax benefit. See Note 13 (Income Taxes) for additional information.
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Liquidity and Capital Resources
Sources of Liquidity
We have historically funded our operations primarily through proceeds from the sale of shares of our common stock, the sale of common stock of our former subsidiaries, research grants, revenues from collaborations, and royalties from product sales that are unrelated to our current cell therapy product candidates.
As of March 31, 2023, $63.8 million remained available for sale under our at the market offering program and we owned marketable securities with a fair value of $31.4 million based on the closing price of such securities on that date. See Note 4 (Marketable Debt Securities), Note 5 (Marketable Equity Securities) and Note 11 (Shareholders’ Equity) to our condensed consolidated interim financial statements included in this report for additional information regarding the marketable securities we own and our at the market offering program, respectively. We may sell shares of our common stock and the marketable securities we own for liquidity. However, when we can effect such sales and the amount of shares we can sell depends on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price and volume of our common stock and of the marketable securities we own. The market value of our marketable securities may not represent the amount that could be realized in a sale of such securities due to various market factors, including prevailing market conditions and prices at the time of any sale and subsequent sales of securities by the entities. In addition, the value of our marketable securities may be significantly and adversely impacted by deteriorating global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing pandemics, including the COVID-19 pandemic, geopolitical conflicts, rising inflation and interest rates, and other macroeconomic factors.
Cash Flows
Cash flows (used in) provided by operating activities
Net cash used in operating activities was $11.2 million for the three months ended March 31, 2023, which primarily reflects the loss from operations of $6.6 million plus the changes in assets and liabilities of $6.3 million. These items were offset by the non-cash expenses of $1.0 million for stock-based compensation and $0.2 million for depreciation and amortization. The foreign currency remeasurement and deferred tax benefit had no effect on cash flows.
Net cash provided by operating activities was $21.9 million for the three months ended March 31, 2022, which primarily reflects the loss from operations of $6.4 million plus the changes in assets and liabilities of $27.1 million. The change in assets and liabilities was impacted by the collection of the Roche upfront payment, and subsequent related payments to the IIA and Hadasit (see Note 14 (Commitments and Contingencies) to the condensed consolidated interim financial statements included in this report for further explanation), partially offset by the accrual of the litigation settlement as described in Note 15.
Cash flows provided by (used in) investing activities
Cash provided by investing activities for the three months ended March 31, 2023 was $15.4 million and consisted of $23.3 million in U.S. Treasury securities which matured during the period, offset with $7.7 million related to the purchase of U.S. Treasury securities and $0.2 million for the purchase of equipment.
Cash used by investing activities for the three months ended March 31, 2022 was $0.1 million and related to the purchase of equipment.
Cash flows provided by financing activities
Cash provided by financing activities for the three months ended March 31, 2023 was de minimis.
Cash provided by financing activities for the three months ended March 31, 2022 was $0.5 million and consists of $0.4 million of proceeds we received from the exercise of employee stock options and $0.1 million of net proceeds we received from the sale of common shares under our at the market offering program.
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Financial Obligations
Our financial obligations primarily consist of obligations to our licensors under various license agreements, obligations related to grants received from government entities, including the IIA, obligations under vendor contracts to provide research services and other purchase commitments with suppliers.
Our obligations to licensors under various license agreements and related to grants received from government entities require us to make future payments relating to sublicense fees, milestone payments, redemption fees, royalties and patent maintenance costs. Sublicense fees are payable to licensors or government entities when we sublicense underlying intellectual property to third parties; the fees are based on a percentage of the license fees we receive from sublicensees. Milestone payments, including those related to the Roche Agreement, are due to licensors or government entities upon future achievement of certain commercial, development and regulatory milestones. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone and royalties received under the Roche Agreement, see Note 14 (Commitment and Contingencies) for additional information. Royalties, including those related to royalties we may receive under the Roche Agreement, are payable to licensors or government entities based on a percentage of net sales of licensed products. Patent maintenance costs are payable to licensors as reimbursement for the cost of maintaining license patents. Due to the contingent nature of the payments, the amounts and timing of payments to licensors under our in-license agreements are uncertain and may fluctuate significantly from period to period. As of March 31, 2023, we have not included these commitments on our consolidated balance sheet because the achievement and timing of these events are not fixed and determinable.
As discussed above, we have received grants under the Innovation Law and are required to pay royalties to the IIA from the revenues generated from the sale of product candidates and related services developed, in whole or in part pursuant to, or as a result of, a research and development program funded by the IIA. Under the Innovation Law, we are also required to pay redemption fees to the IIA. To date, through a series of separate grants beginning in 2007, Cell Cure has received a total of $15.4 million from the IIA to support the OpRegen program. We are obligated to pay approximately 24.3% of any future payments received under the Roche Agreement to the IIA, up to an aggregate cap on all payments to IIA, such cap growing over time via interest accrual until paid in full, which currently stands at approximately $91.7 million. Redemption fees due to the IIA under the Innovation Law are due upon receipt of any milestone and royalties received under the Roche Agreement. As of March 31, 2023, we have not included any future financial obligations due to the IIA under the Innovation Law in our consolidated balance sheet because the achievement and timing of the events that would require future payments to the IIA under the Innovation Law is not fixed and determinable. See Note 14 (Commitments and Contingencies) to our condensed consolidated interim financial statements included in this report for additional information.
Under the terms of the leases for the facilities from which Cell Cure and Lineage operate, a total of $4.0 million of rent payments will become due, of which $0.8 million will become due in 2023.
In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided.
Future Funding Requirements
At March 31, 2023, we had an accumulated deficit of approximately $367.7 million. We expect to continue to incur losses for at least the next several years. We expect that our operating expenses will continue to increase for the foreseeable future as we continue the development of, and seek regulatory approval for, our product candidates. As a result, we will need significant additional capital to fund our operations. Our determination as to when we will seek additional capital and the amount of additional capital that we will need will be based on our evaluation of the progress we make in our research and development programs, changes to the scope and focus of those programs, changes in grant funding for certain of those programs, and projection of future costs, revenues, and rates of expenditure. If we are unable to raise additional capital when and as needed, we may be required to delay, postpone, or cancel our clinical trials or limit the number of clinical trial sites.
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We may seek to obtain the additional capital we may need through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration agreements. We cannot assure that adequate additional capital will be available on favorable terms, if at all. The issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our common shares to decline, and the issuance of additional equity securities could result in the dilution of the interests of our current shareholders. If we obtain additional capital through strategic alliances and licensing or collaboration agreements, we may be required to relinquish rights to our intellectual property, our product candidates or otherwise agree to terms unfavorable to us. The unavailability or inadequacy of additional capital to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our current planned operations. Our ability to raise additional capital may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing pandemics, including the COVID-19 pandemic, the conflict in Ukraine, rising inflation and interest rates, and other macroeconomic factors.
We believe that our $46.8 million in cash, cash equivalents and marketable securities at March 31, 2023, provide sufficient liquidity to carry out our current planned through at least twelve months from the issuance date of our condensed consolidated interim financial statements included elsewhere in this report. We believe we will meet our longer-term expected future cash requirements and obligations with our current cash and cash equivalents, milestone and other payments we expect to receive under our collaboration agreements, and proceeds we receive from sales under our at the market offering program.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Under SEC rules and regulations, as a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
It is management’s responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Exchange Act. Our management, including our Chief Executive Officer and our Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Following this review and evaluation, management collectively determined that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act: (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) is accumulated and communicated to management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any material legal proceedings. From time-to-time we may be involved in a variety of legal proceedings. Such proceedings may initially be viewed as immaterial but could later prove to be material. Legal proceedings are inherently unpredictable and excessive verdicts do occur. Given the inherent uncertainties in litigation, even when we can reasonably estimate the amount of possible loss or range of loss and reasonably estimable loss contingencies, the actual outcome may change in the future due to new developments or changes in approach. In addition, legal proceedings could involve significant expense and diversion of management’s attention and resources from other matters. For a discussion of legal proceedings in which we are involved, see Note 14 (Commitments and Contingencies) in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
Item 1A. Risk Factors
An investment in our common shares involves a high degree of risk. You should carefully consider the risks and uncertainties described in the 2022 10-K, in addition to other information in this report, when evaluating our business and before deciding whether to purchase, hold or sell our common shares. Each of these risks and uncertainties, as well as additional risks and uncertainties not presently known to us or that we currently consider immaterial, could harm our business, financial condition, results of operations and/or growth prospects, as well as adversely affect the market price of our common shares, in which case you may lose all or part of your investment. There have been no material changes from the risk factors disclosed in Part I, Item 1A. Risk Factors in the 2022 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Incorporation by Reference | ||||||||||
Exhibit Number |
Description | Exhibit Number |
Filing | Filing Date | File No. | |||||
| 3.1 | Restated Articles of Incorporation, as amended | 3.1 | 10-Q | May 10, 2018 | 001-12830 | |||||
| 3.2 | Certificate of Ownership | 3.1 | 8-K | August 12, 2019 | 001-12830 | |||||
| 3.3 | Amended and Restated Bylaws | 3.2 | 8-K | August 12, 2019 | 001-12830 | |||||
| 31.1* | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Form of Rule 13a-14(a), as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |||||||||
| 32.1# | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||
| 101* | Interactive Data File | |||||||||
| 101.INS* | XBRL Instance Document | |||||||||
| 101.SCH* | XBRL Taxonomy Extension Schema | |||||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase | |||||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Document | |||||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase | |||||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase | |||||||||
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||||
* Filed herewith
# Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LINEAGE CELL THERAPEUTICS, INC. | |
| Date: May 11, 2023 | /s/ Brian M. Culley |
| Brian M. Culley | |
Chief Executive Officer
| |
| Date: May 11, 2023 | /s/ Jill Ann Howe |
| Jill Ann Howe | |
| Chief Financial Officer |
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