Lineage Cell Therapeutics, Inc. Q1 FY2020 Earnings Call

Welcome to the Lineage Cell Therapeutics First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. An audio webcast of this call is available on the Investors section of Lineage website at www.lineagecell.com. This call is subject to copyright and is the property of Lineage. And recordings, reproduction, or transmission of this call without the express written consent of Lineage are strictly prohibited. As a reminder, today's call is being recorded. I would now like to hand the call to your host today, Ms. Ioana Hone, Director of Investor Relations at Lineage. Ms. Hone, please go ahead.

Thank you, Nita. Good afternoon and thank you for joining us. A press release reporting our first quarter 2020 financial results was issued earlier today, May 7th, 2020, and can be found on the investors section of our website. Please note that today's conference call and webcast will contain forward-looking statements within the meaning of federal securities laws, including statements regarding our strategy, goals, product candidates, clinical trials, financings and cost savings matters. Such statements are subject to significant risks and uncertainties, including those described in our press release issued on May 7th, 2020, and our recently filed Form 10-K and 10-Q. Actual results or performance may differ materially from the expectations indicated by our forward-looking statements due to those risks and uncertainties. We caution you not to place undue reliance on any of the forward-looking statements, which speak only as of today. Joining us today are our Chief Executive Officer, Brian Culley; our Chief Financial Officer, Brandi Roberts; and Senior Vice President of Clinical and Medical Affairs, Gary Hogge. The executives will provide prepared remarks and then take questions from analysts. With that, I'd like to turn the call over to Brian Culley, our CEO.

Thank you, Ioana. Good afternoon, everyone. We appreciate you joining us on the call today. In addition to our financials, we'll discuss the three announcements we made this week. It has been a busy time for us, and I am proud that the team has been able to maintain a strong pace of progress despite the current COVID-19 pandemic restrictions. I want to reassure you that we are not aware of any COVID-19 cases among our staff or critical consultants, and we will continue to implement necessary measures to ensure the team's safety and performance. During today's call, we will cover four main topics. First, I'll review the new data from the OpRegen clinical trial, our lead program for Dry AMD. Second, I'll discuss why we decided to exercise the VAC option early with Cancer Research U.K., enhancing our immune oncology efforts. Third, I'll outline our plans to utilize the VAC platform to develop a vaccine for COVID-19. Finally, I will provide an update on the progress with OPC1, our cell therapy for spinal cord injuries. After these program updates, Brandi will go over our financials, followed by an open question session. Starting with OpRegen, we are committed to addressing Dry AMD, which affects millions of people but currently lacks FDA-approved treatments. We view the commercial potential for OpRegen as highly attractive, given the limited competition. We were pleased to present new clinical data during the Virtual ARVO Meeting this past Wednesday, delivered by Dr. Christopher Riemann from the Cincinnati Eye Institute. This was his first presentation of OpRegen data. Dr. Riemann's involvement is significant as he designed the Gyroscope Orbit delivery system, and his insights on delivery methods are crucial for our program. His 12-minute presentation is available on our website. To summarize, we have observed promising results by transitioning from treating legally blind patients to those with better baseline vision, who are more aligned with our target population. The first 12 patients had an average vision of 20/400, while our recent cohort averages 20/125, with smaller areas of geographic atrophy, which we believe enhances their response to OpRegen treatment. For the first time, we reported consistent directional improvements across three metrics in some patients: faster reading speed, improved visual acuity (BCVA), and slower progression of geographic atrophy compared to the untreated eye, with all three changes observed in individual patients. Although the current cohort only consists of five patients, suggesting trends rather than statistical significance, we remain hopeful that these trends will persist as we treat additional patients. We also noted anatomical changes in the retina and sustained engraftment in our earliest treated patient over four years, alleviating concerns about the durability of the transplanted cells. We've had two successful surgical experiences using Gyroscope's Orbit device with our thaw-and-inject formulation. We are gaining confidence in using the Orbit device with our new formulation but will confirm these results in four additional patients. Once we have data from them, we aim to conclude the Phase 1/2a study. Dr. Riemann will be available for a follow-up discussion on the OpRegen data and to respond to analysts' queries on a call scheduled for next Monday, May 11th, at 2 p.m. Pacific and 5 p.m. Eastern. We are working to identify and treat the final four patients in Cohort 4, and I’m pleased to report that Dr. Riemann's center is preparing to resume elective surgeries and clinical trial activities in the coming weeks. They have already identified an eligible patient, and OpRegen will be among the first to treat patients after establishing safety procedures for participants and staff. Overall, our progress is encouraging, and we aim to gather more patient data to inform our clinical strategies and partnerships. Next, on the VAC program, which is our off-the-shelf dendritic cancer cell vaccine, it consists of mature dendritic cells manufactured from established pluripotent cell lines, enhanced with tumor-specific markers to activate the immune system against cancer. Our partner, Cancer Research U.K., is conducting a Phase 1 clinical trial of VAC in patients with non-small cell lung cancer. Asterias, which we acquired last year, established this partnership. The initial plan was for CR U.K. to treat 12 patients, after which we would decide whether to maintain the program based on the data. However, the early data was compelling enough that we chose to exercise our option early. It’s important to clarify that this decision was not due to concerns about patient enrollment times; rather, it was based on clear signals from the initial patients indicating effective targeting of T cell education. We made the data-driven decision to reacquire the program immediately, considering the likelihood of extended enrollment delays due to COVID-19. Additionally, the VAC program requires significant process development, and regaining control early allows us to begin working on it in our manufacturing facility. As we studied SARS-CoV-2, we saw potential for adapting the VAC platform to create a coronavirus vaccine. Following further evaluation, we submitted a U.S. provisional patent application and engaged in discussions with CR U.K. to incorporate COVID vaccine development into the program. Consequently, we exercised the option early, enabling our manufacturing team to work simultaneously on immune-oncology and infectious disease initiatives. Now, Lineage has control of the VAC2 clinical program, and CR U.K. has agreed to continue collecting data from current patients and to enroll two additional patients when feasible in the U.K. We are also exploring additional oncology and infectious disease applications and seeking non-dilutive support for these efforts. One of the benefits of this deal is that all programs, whether VAC2, future VAC3, VAC4, or the COVID vaccine, require similar upfront process development work, allowing us to optimize spending across all initiatives. Bringing the VAC program in-house not only enhances its development potential but also positions us for partnering opportunities in immune-oncology, enabling access to our dendritic cell platform for various cancer treatments. We foresee generating a diverse pipeline of product candidates targeting different cancer types, similar to an oncology platform, which will promote exciting collaborations. As we transfer the program from CR U.K. to Lineage, we will provide more insights into the clinical data collected so far and our future plans. This is a significant positive for Lineage, with a clinical-stage oncology program, a broad platform for immune-oncology, and plans for an infectious disease vaccine potentially supported by non-dilutive funding. Now, about OPC1, our program for spinal cord injury, our manufacturing team aims to implement commercially advantageous characteristics into the product profile. We are focusing on improving production consistency, reproducibility, and scalability, alongside developing a thaw-and-inject formulation for OPC1, which has been successfully achieved in OpRegen. This formulation would facilitate broader clinical trial accessibility and expedite enrollment, minimizing the overall development cost and timeline. Our team has completed approximately ten manufacturing runs for OPC1, revealing opportunities for enhancing the differentiation process and product purity, as well as validating growth on microcarriers, crucial for commercial-scale production. The continued optimization of the OPC1 process confirms our advantage in cell therapy manufacturing capabilities. Additionally, we are exploring new delivery devices for spinal cord injuries, leveraging our exclusive option for the Gyroscope SDS device from the AMD program experience. Our strategy prioritizes combining optimal cell production and delivery elements for effective treatments, which we believe will give us a competitive edge. I’ll now hand over to Brandi to review our financials and discuss additional plans for the year.

Thank you, Brian. I'd like to start with some highlights of our balance sheet accounts. As of March 31, 2020, we had $25.8 million in cash, cash equivalents and marketable securities. Additionally, the value of our note receivable due from Juvenescence was $24 million as of this date. During the first quarter of 2020, we sold 2.4 million shares of OncoCyte stock for net proceeds of $5 million. In April 2020, we sold another 1.6 million shares of OncoCyte stock for net proceeds of $3.7 million. After this sale, we still have about 4.3 million shares of OncoCyte stock on our books. The value of this stock as of May 5 was approximately $11.3 million. Our ownership in OncoCyte is now at about 6.3%. Cash management is an important priority at Lineage. Throughout 2019 and continuing into 2020, we have worked to reduce our operating expenses considerably, while also advancing our programs in an efficient manner. We regularly re-forecast our anticipated expenses to ensure that we are staying the course. We also carefully evaluate our assets on a regular basis to determine how best to fund our operations. We are excited about the future of Lineage and the positive changes we announced this week. It's unfortunate that the COVID-19 pandemic has delayed our origin timeline somewhat. But we've fortunately been able to fund our operations without conducting a sale of Lineage stock. Instead, we have funded our operations by selling additional portions of our OncoCyte, AgeX and Hadasit positions. We also continue to evaluate other non-dilutive options for funding, such as the CIRM grant request we submitted earlier this week. Now let's turn to the statement of operations for the first quarter of 2020. Total revenues for the first quarter were $500,000, a decrease of $400,000 as compared to the same period last year. At this time, revenues are generated primarily from our IIA OpRegen related grants and royalties from the licenses of patents. Our operating expenses include R&D expenses, as well as G&A expenses. Total operating expenses for the first quarter of 2020 were $7.8 million, a decrease of $5.8 million compared to the same period in 2019. R&D expenses for the first quarter were $3.3 million, a decrease of about $1.7 million compared to the same period last year. The overall decrease was related to a reduction of $1.8 million in OpRegen and other ophthalmic application expenses, primarily related to reduced level of manufacturing activity in the first quarter of this year, a $400,000 decrease in Renevia related expenses, both of which were offset by an increase of $500,000 in OPC1 related expenses. As a reminder, we acquired Asterias on March 8, 2019. So last year, we only had a few weeks of OPC1 activity included in our financial statements for the first quarter. This trending of expenses by project is what we expected to see. G&A expenses for the first quarter were $4.5 million, a decrease of about $4.1 million as compared to the same period last year. The decrease was primarily attributable to the following reductions: $3.3 million in the series-related expenses, $900,000 in compensation expenses, $400,000 in accounting expenses, $100,000 in rent expenses, and $100,000 in consulting expenses. These decreases were offset by a $500,000 increase in legal and patent expenses, and a $200,000 increase related to the cessation of shared services reimbursements. While we have already seen a reduction in G&A expenses quarter-over-quarter, our goal is to still bring our expenditures down throughout the year. As an example, we recently hired in-house patent counsel; maintaining our extensive patent portfolio is very expensive. Our new counsel is working to consolidate our patent work with one external law firm and help determine which patents and in what countries are critical and accordingly streamline our expenditures. He will also be flagging non-utilized patents for potential business development opportunities. Our loss from operations for the first quarter of 2020 was $7.4 million, a reduction of $5.4 million as compared to the same period in 2019. Our net loss attributable to Lineage for the first quarter of 2020 was $8.4 million or $0.6 per share as compared to net income of $39.3 million or $0.30 per share for the same period in 2019. The variance in our net loss numbers quarter-over-quarter are significantly impacted by changes in the value of our investments in OncoCyte, AgeX and Hadasit for the applicable periods, as well as foreign currency translation adjustments related to Lineage's international subsidiaries. While we absolutely pay attention to our investments and currency fluctuations, the management team at Lineage tends to utilize loss from operations as a more relevant measure of our performance in regards to moving our clinical programs forward while effectively managing our expenses. From a cash flow perspective, net cash used in operating activities for the first quarter of 2020 was about $5 million. This was in line with our expectations in terms of our 2020 annual net operational spend budget of $16 million. As a result of incremental expenses, we anticipate incurring during the remainder of the year related to the early exercise of our option with Cancer Research U.K., our plans for the development of a vaccine against SARS-CoV-2 and other coronaviruses, and delays caused by COVID-19 to our OpRegen clinical trial, we anticipate that our net operational spend for 2020 will increase modestly. At this time, we feel that we have enough cash, cash equivalents and marketable securities to manage our programs. And that combined with the Juvenescence note receivable due in less than four months now, we are well funded into 2021. With that, I will turn the call back to Brian.

Thanks, Brandi. Our focus this year is really to advance each of our clinical programs, obviously with an emphasis on completing enrollment in the OpRegen study as quickly as safety permits. We also expect 2020 to feature substantial partnering activity, in part because we have now expanded our pipeline of assets and in part because we're making greater efforts to identify and obtain support for our assets, both in the form of direct financial and/or operational support, as well as through strategic partnering, which can help us access new capabilities. We're excited about the new opportunities that we're evaluating with our VAC platform for oncology and infectious diseases, and look forward to sharing more on those and other initiatives in the coming weeks and months. So, thank you for joining us today. And operator, The Lineage team will be ready for analyst questions.

Thank you. Your first question comes from Jason McCarthy with Maxim Group.

I’ll jump right into the obvious. It's great to see progress in the cell therapy space, particularly with your peers focusing on COVID therapeutics and now moving towards vaccines. This is the first time in a long while that there’s a significant attention on cell therapy. Can you explain how a dendritic cell-based vaccine approach is positioned in the race for COVID vaccines? There are currently 123 vaccines in development, with your candidate being the 124th. We know that mRNA vaccines are leading due to various factors, including speed and scalability. How does a dendritic cell-based vaccine fit into this competitive landscape for an effective coronavirus vaccine?

Thank you for your question, Dr. McCarthy. Cell therapy presents unique advantages that other methods may not provide as effectively. For instance, in the context of dry AMD, the industry has struggled to develop small molecule treatments or antibodies since we lack a clear understanding of the underlying issues. In contrast, replacing entire cells offers a viable solution. Another example is the development of the measles vaccine. Recently, I came across a publication categorizing various vaccine strategies, and I was pleased to see that our approach significantly differs from the majority. Given our size and capabilities, we won't be competing head-to-head with companies like Moderna or those utilizing full-length attenuated vaccines. Instead, we have been exploring emerging biological insights, especially related to SARS-CoV-2, where much remains unknown. Data suggests that this virus employs immune evasion tactics, including the impairment of key immune cells like T cells and dendritic cells, which are crucial for initiating adaptive immune responses. If a virus targets these antigen-presenting cells, it undermines the potential for long-lasting immunity, leaving individuals susceptible to reinfection. Our focus isn't merely on addressing current infections but rather on developing a vaccine that promotes a robust Phase 2 immune response and offers multi-year protection. Studies from 2014 and 2015 on SARS indicate that individuals who had experienced prior infection maintained immunity lasting five to six years, which is not solely determined by immediate antibody responses. We aim to tailor our solution for high-risk individuals, particularly those on the frontlines dealing with this and other coronaviruses long-term. We must also consider challenges such as antibody-dependent enhancement, where antibodies can bind to the virus and result in more severe disease later on. We believe our approach is distinct, as many existing strategies are not designed to foster long-term immunological memory. We are focusing on this aspect, accepting longer timelines, and addressing a significant unmet need among the many vaccine candidates. Overall, very few of those 120 options resemble our strategy, which prioritizes lasting immunity rather than just immediate infection response. I hope this clarifies our position.

There is significant enthusiasm and momentum surrounding mRNA vaccines, not only for Moderna but also for BioNTech. As an analyst, it appears to me that the scalability and safety of these vaccines suggest a strong likelihood that the Moderna vaccine will receive emergency use authorization by the end of the year. Regardless of differing opinions on this matter, I am curious about how this development might affect other emerging therapies, potentially lowering barriers and creating opportunities to accelerate their programs.

Yes, it's both advantageous and alarming. The reason I say this is...

Yes.

It's beneficial; we're able to see things like data collection and enrollment and reporting. I mean, publications are going out without peer review. And, in some ways, that is incredible. It shows you the potential of what happens when a community really focuses on an objective. So, I think it's amazing, and it's literally lifesaving, that we are knocking down some of the traditional obstacles that slow things down. But it's horrifying because you end up making highly concentrated bets. There's the old saying about, you know, you can be faster, you can be good, or you can't be both, that sort of thing. I think that is, with tremendous respect for what Moderna is doing, there is a massive bet, being placed on that approach, and the funding is going there, and patients are going there. And if it's unsafe, or if it's not all it's cracked up to be, have we impaired all of the other programs? It's unsettling. A benefit for Lineage in our situation is that we are going to first work on the process development if we're going to be able to treat huge numbers of people, if we're going to be going into a thousand-liter bioreactors to grow these cells. We need to get the fundamental attributes of the product right from the outset, and it's beneficial for us that that kind of work to build the scale of the DCS is going to be applicable to any infectious disease program or any oncology program that we dream up. You could literally come up with billions of different antigens that one could imagine presenting, and in itself, that's going to be a really fun and interesting project. But my point is that the work that we're doing is so applicable to each of these programs, that even if you see a different SARS virus, or you see a mutation of the existing virus, or we have a totally new class of virus, we want to create a platform where you can just drop in the kinds of antigen presentations, and you're dropping it into a delivery vehicle that you're already testing and you're already happy with. It could be a solution for 10, 20, 50 years' worth of vaccine development if we get all the right pieces in place in the right way from the outset. So we're definitely in it for the long road. Long road, meaning individual treatment, individual multi-year protection, also on a societal level, all of the multiple unknowable infections that come. And then we're going to double dip because we're also doing the same work for the aiming oncology platform.

Thank you, Brian.

You bet. Thank you.