Lineage Cell Therapeutics, Inc. Q3 FY2020 Earnings Call

Welcome to the Lineage Cell Therapeutics' Third Quarter 2020 Conference Call. An audio webcast of this call is available on the Investors section of Lineage's website at www.lineagecell.com. This call is subject to copyright and is the property of Lineage. Any recordings, reproduction, or transmission of this call without the expressed written consent of Lineage are strictly prohibited. As a reminder, today's call is being recorded. I would now like to introduce your host for today's conference, Ioana Hone, Director of Investor Relations at Lineage. Ms. Hone, please go ahead.

Thank you, Chino. Good afternoon, and thank you for joining us. A press release reporting our third quarter 2020 financial results was issued earlier today, November 4, 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, data updates, product candidates, planned regulatory meetings, clinical trials, planned manufacturing improvements, financing and cash management matters. Such statements are subject to significant risks and uncertainties, including those described in our press release issued on November 4, 2020, and our most recent Form 10-K and 10-Q filings. 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 our Senior Vice President of Clinical and Medical Affairs, Gary Hogge. The executives will provide prepared remarks, then take questions from analysts. With that, I'd like to turn the call over to Brian Culley, our CEO.

Thank you, Ioana, and good afternoon, everyone. We definitely appreciate you joining us on our quarterly call today. This was a highly productive quarter for us in which we reached several key milestones. We continued to execute our overall strategic plan to grow Lineage into the preeminent allogeneic cell therapy company. And this is our mission because we know of no other company that possesses a comparable patent estate in-house cell manufacturing capabilities and is generating promising clinical evidence in 3 separate diseases, which each represent large unmet medical needs with billion-dollar market opportunities. And so far, the safety data and early signs of efficacy that we've seen with each of our 3 product candidates support advancing them ever closer toward later-stage trials. Along the way, we're working to distinguish ourselves among cell therapy companies by putting into place characteristics and attributes of our assets, which reflect greater maturity and commercial viability, and which will set our programs up for long-term success. For example, we invest not only in generating compelling clinical data, but we also develop important areas like pre-commercial manufacturing and improved delivery devices, which will help our approaches be successful in later-stage trials or attract valuable corporate partnerships. We're also better capitalized than we have been in several years. Our current cash on hand should enable us to reach additional important milestones, which I will discuss today, and which could create significant clinical and shareholder value over the next few quarters and into 2022. As we continue to advance our 3 cell therapy programs and become more widely recognized for our industry-leading position in the transplant of differentiated cells, I believe our shareholders will be rewarded. And today, I will review some of the events which have moved us further along our strategic plan. First, I will outline some of the milestones we reached recently with our clinical programs and provide a status update on each program. Second, I'll describe some of the future milestones and events that you can look forward to, such as our OpRegen data release in just 2 weeks and our OPC1 program update early next month. Third, Brandi will review our financials. And thereafter, we will open up the line for analyst questions. As a reminder, our 3 programs are opportune for dry age-related macular degeneration with geographic atrophy, or dry-AMD with GA; OPC1 to improve recovery following an acute spinal cord injury; and VAC2 for non-small cell lung cancer. All 3 of these programs are novel cell therapy treatments. They are not traditional drugs, and they rely on allogeneic or off-the-shelf delivery of cells to the patient. All 3 product candidates have been well tolerated to date with no unexpected adverse events observed. And in some cases, we have indications of unprecedented activity in conditions where there are no FDA approved treatments. We think the data so far supports our view that Lineage's cell therapy technology platform has substantial clinical and commercial potential. We will begin with OpRegen, our product candidate intended to treat dry-AMD with geographic atrophy. Dry-AMD with GA is one of the leading causes of vision loss in the world. We estimate there are nearly 2 million people in the U.S. suffering from the advanced form of the disease, which is exactly the form we hope to treat. The disease is caused by the progressive loss of retinal cells. And our approach is to grow and transplant brand-new retina cells to replace the ones that are dysfunctional or have died off. And by doing so, we believe we may be able to not only slow the disease process, but also potentially halt or reverse it. Based on the large number of people with dry-AMD, and based on the fact, additionally, that there are no FDA-approved treatments for it and the substantial revenue that has been generated by treatments for wet-AMD, which is far less common than dry-AMD, we believe commercial opportunity for OpRegen is at least several billion dollars. We also believe that OpRegen, which may be a one-time treatment performed in about 30 minutes, has a substantial advantage over the potential competitors which require monthly or semi-monthly injections. To our knowledge, those treatments also have not shown much evidence in clinical trials to date that they can improve a patient's vision. We believe OpRegen can provide this benefit and are collecting data in support of that claim. The OpRegen program is currently enrolling patients in a Phase I/IIa clinical trial at clinical centers in the U.S. and in Israel. As you will recall, in June, we reported evidence of what we believe was the first known finding of anatomical restoration of retinal tissue in a patient who received a transplant of our OpRegen retinal pigmented epithelium cells, or RPE cells. This is an unprecedented finding because humans lack the ability to regrow or repair retinal tissue. That's the reason why most of our competitors are attempting to simply slow the rate of disease progression. They can't realistically expect their small molecules or their antibodies can rescue affected tissues. However, data from our cell transplant approach supports the hypothesis that OpRegen RPE cells may be able to reverse dry-AMD and potentially rescue tissue in earlier stage patients. In particular, the patient we treated with our OpRegen cells had end-stage disease yet showed substantial restoration of retinal tissue within the area of GA, leading to a 25% reduction in GA area at 9 months compared to baseline. We didn't see this phenomenon in any of the first 12 patients we treated, but those patients had such advanced disease that they were all legally blind, so it's pretty reasonable to assume their disease was too advanced to expect any recovery. But we've more recently moved into patients with less advanced disease and better baseline vision, which is the setting in which we observed this restoration effect in this patient. We've also hypothesized that this particular patient may have done better than others due to more complete placement of cells over their area of GA. And for this reason, we have sought to replicate this finding in additional patients by delivering the cells more aggressively across the GA. We will be monitoring these more recently treated patients to see if we can replicate this finding, which we believe could disrupt the overall therapeutic landscape in this disease. In the meantime, please keep in mind that we found this first case of restoration just a few months ago, and it probably takes between 6 and 12 months before you can detect it, depending on how quickly a patient's GA is growing. So we wouldn't have expected to see it this soon in any of the more recently treated patients. However, this does make the coming months very exciting because those more recently treated patients will be reaching the same time frame in which the case of restoration was identified and confirmed by our experts. In addition to the retinal restoration discovery, we also have observed additional benefits in some of our other patients, including increases in visual acuity, reductions in the growth rate of GA and increases in reading speed. These are additive to the improvements we've previously reported in retinal architecture, drusen reduction and the multi-year durability of this transplant. Notably, we have not observed a single case of acute or delayed transplant rejection, despite eliminating immunosuppressive therapy a few weeks to a few months after treatment. At one time, it was thought that patients receiving allogeneic cells would require lifetime immunosuppression. But our initial patients were taken off immunosuppressive therapy after 1 year without rejection. And patients treated more recently have been taken off immunosuppressive therapy just a few months post treatment. We believe the body of evidence we are collecting increasingly supports a new paradigm for what is possible in the treatment of dry-AMD and is refuting some of the early concerns about tolerance, safety and rejection. It is our primary objective to show that directed differentiation and transplant of OpRegen RPE cells can provide clinically meaningful outcomes in this disease, and do so in the context of a clinical trial, which can serve as the basis for an approval. We also are exploring ways in which we might improve the delivery of cells as well as the overall surgical experience and ease of use for physicians. To that end, we continue to evaluate the Gyroscope Orbit SDS device as an enhanced way to deliver cells to the subretinal space. As a reminder, this device helps the surgeon place the cells across the area of GA without puncturing the retina. We're interested in this device because it should reduce the incidence of epiretinal membrane formation, or ERMs. And in fact, we've seen the rate of ERM formation drop to 0 in patients we've treated to date with this FDA-approved device. That's clearly an excellent start, and we intend to continue to evaluate this device, and we plan to have an update on this as well as on OpRegen at the American Academy of Ophthalmology Annual Conference, also known as AAO, which will be held in approximately 2 weeks. Now speaking of AAO, the reason I'm unable to say much more about our OpRegen data today is that we will have an overall study update at the AAO virtual conference on November 13 and 15. Dr. Allen Ho, one of our investigators from Wills Eye in Philadelphia is including OpRegen data in his talk on the 13th; and Dr. Christopher Riemann, another one of our principal investigators, he's from Cincinnati Eye Institute. He'll be presenting a summary of our updated data on the 15th. And as a follow-up, we are planning separately to host a call with Dr. Riemann on Tuesday, the 17th at 1:00 p.m. Pacific to provide a forum for more in-depth discussion and to take questions from analysts. This KOL event will be open to everyone. We hope you'll find time to join because it has been some time since we provided a data update on OpRegen, and we know everyone is looking forward to hearing how that program has been doing lately, especially with the COVID-related restrictions. Moving next now to OPC1, our clinical stage program for spinal cord injury. OPC1 treatment involves manufacturing and transplanting a specific type of glial cell called an oligodendrocyte progenitor, and transplanting those cells directly into the site of a spinal cord injury in order to provide greater mobility and function to patients after a paralyzing injury. We took over this program through the acquisition of Asterias, a company which had generated compelling clinical data but was never actually able to manufacture the cells in the way which is required to move into subsequent clinical trials. Part of the rationale for buying Asterias was that we were confident that our manufacturing team at Lineage, which has been wildly successful at manufacturing retina cells, can figure out how to replicate their success with oligodendrocytes. That means our manufacturing team was asked to make improvements to the production process in areas like scale, purity, reproducibility and other attributes, which the FDA requires and which are needed for the commercial viability of a product. The team also needs to develop a thaw-and-inject formulation, just like they did for OpRegen, to eliminate the need to manipulate cells 1 day prior to their administration, which is an excessive burden for a product seeking approval. All of this work will create a more compelling product profile and lead us to an RMAT meeting with the FDA, which we expect will occur during the first half of next year, and at which we will discuss these improvements we're making to the OPC1 program. Once that meeting is complete, the manufacturing side of the OPC1 program will have caught up with the impressive clinical data generated to date and open the door to later-stage clinical testing. And to that point, we believe that the next study of OPC1 can be positioned as a registrational study, and we will seek to gain agreement from the agency on this path. Now manufacturing sometimes seems like a black box, and there often isn't much attention placed on that particular aspect of a development program. But I'd like you to keep in mind that we're working with whole cells, not small molecules or antibodies. And some of the things we have been doing behind the scenes during this year are pioneering the field of cell therapy in valuable and proprietary ways. So it's not always in our best interest to advertise them. But with that said, I'm pleased to share today that we plan to provide an update on the OPC1 program in early December with an emphasis on our recent manufacturing achievements. And we think that update will help garner new and positive interest not only in what we're doing in the area of spinal cord injury but also contribute to the growing body of evidence that the obstacles to widespread adoption of cell therapy are continuing to fall as companies like Lineage bring forward modern solutions to historic limitations. Moving next to VAC2 for which we recently announced some interim clinical data. This is our off-the-shelf dendritic cell cancer vaccine. Dendritic cells are the most potent antigen-presenting cells in the body. And we harness their activity to deliver handpicked antigens, an approach which is reemerging as an attractive therapeutic modality based on the consistent safety profile and increased knowledge of how to deploy dendritic cells in a clinical setting. VAC2 is comprised of mature dendritic cells, which we manufacture from proprietary established cell banks and load with tumor-specific targets or antigens to instruct the body's immune system about which cells it should attack and eliminate. And by using dendritic cells to educate T cells to seek out and destroy cancer cells, VAC2 acts like a highly trained booster for your immune system. Now during the third quarter, we announced encouraging preliminary results from our ongoing Phase I study of VAC2 in patients with non-small cell lung cancer, and specifically, VAC2 demonstrated potent induction of immune responses in all 4 patients tested to date, providing us with mechanistic validation and reinforcing the data obtained in the VAC1 clinical trials. Antigen-reactive pentamer staining induced by VAC2 and supported by ELISPOT data suggested that our vaccine is highly potent, inducing significantly higher levels of antigen-specific T cells compared with the levels invoked by alternative approaches such as DNA- and RNA-based vaccines. A particular note, 1 of the 4 patients experienced a radiological response following chemotherapy subsequent to VAC2 treatment, which the primary investigator was highly enthusiastic about. While this clinical response was anecdotal and occurred after the patient had completed the VAC2 study, responses in this setting are rare and clearly support further investigation. So on the basis of these early findings and following completion of the ongoing clinical study, we believe the best path ahead for VAC2 may be to evaluate it in combination with therapies considered biologically synergistic to a dendritic cell vaccine, such as chemotherapy or the immune cell protectant properties offered by anti-PD-1 checkpoint inhibitors. As you probably know, several pharmaceutical companies are generating billions of dollars of revenue from anti-PD-1 checkpoint inhibitors but nonetheless, are still running combination trials of their drugs, along with other treatments to try to obtain higher efficacy because not all patients benefit from checkpoint inhibitors alone. We believe VAC2 could be an attractive option in a combination trial of this kind because of its expected high level of tolerability, and its potential to increase efficacy by elevating the patient's immune response after the cancer has been made susceptible by checkpoint inhibitors. While the VAC2 program continues to enroll in its ongoing clinical trial in non-small cell lung cancer, we have a number of improvements and modernizations we'd like to make on the manufacturing side, which can help prepare VAC2 for later-stage trials and provide competitive advantages for any future VAC programs we may design. For this reason, we have directed the manufacturing team to begin working on production enhancements to increase the commercial appeal and utility of the VAC platform. Although our partner, Cancer Research UK, collected some valuable clinical data, just like Asterias did with OPC1 for spinal cord injury, Cancer Research UK did not have the process development expertise to develop the necessary improvements to the program. A process development is a core competency for Lineage. So in order to fully exploit the potential of the VAC platform, we intend to modernize its manufacturing profile just as we did with our OpRegen program and just as we are doing now with our OPC1 program as I discussed earlier. As part of this manufacturing enhancement, we also aim to enhance the flexibility of the VAC platform because you could theoretically insert any number of antigenic molecules into the dendritic cells. That means the VAC platform is capable of producing nearly a limitless number of product candidates, each one distinguished only by the specific antigen which the dendritic cells are carrying. You could select those antigens using artificial intelligence, you could select them empirically from animal studies or you can use combinations of multiple antigens from across different tumor types. So conceptually, this approach also opens up a large number of potential corporate partnerships by allowing us to use our dendritic cells as carriers for other companies' antigens, while simultaneously retaining the option to advance our own carefully selected antigens. This platform approach could permit us to generate a pipeline of different product candidates targeting many different types of cancer. And we feel this product platform nature of VAC will enable us to become a much more prominent player in the immuno-oncology field in the coming years, especially as we validate and mature the production process, scale and other important commercial attributes of VAC, while awaiting further clinical data from the ongoing Phase I trial, which is currently being conducted by Cancer Research UK. So as we've said, all 3 of our clinical programs are seeking to address high unmet medical needs, representing large market opportunities. Patients currently have few or no approved treatments available to them for these severe conditions, so we're very excited about the clinical data we have been able to generate so far. Our additional focus on enhancing and modernizing our manufacturing processes serves as an additional barrier to competition and makes us capable of advancing these products more quickly through later-stage trials. Modernizing the production processes also opens the door to potential collaborations with larger corporate partners. And this total development approach is part of the mission we took on 2 years ago and have been working toward it ever since. The reason for our focused investment in cell transplant therapy is that we believe the ultimate safety profile of our approach, and our unique efficacy observations such as retinal restoration and reducing cavitation after spinal cord injury, provide better chances for success in late-stage clinical settings than do traditional approaches. And as a reminder, we make no genetic modifications to our cells, and we focus in areas of low immunogenicity, such as the eye and spinal cord, which may avoid outdated concerns about these treatments. We always look for ways to move faster, but at least over the last 2 years, this team has consistently produced positive news, and we'll strive to continue this record as we advance these programs. So turning now to upcoming milestones and events, which we think you will want to keep an eye on. First, we will be providing new interim data from the OpRegen clinical trial at the AAO conference in just 2 weeks. There are 2 presentations at AAO which will include OpRegen data. That data update will be followed by a publicly available KOL call on the 17th with one of our principal investigators. And we hope that interested investors will tune into that call, which we think will be helpful to further understand the promise of the OpRegen program. Second, in the first week of December, we plan to provide an update on manufacturing improvements, which we've made to the OPC1 program, which should facilitate its commercial utility and regulatory path. Third, we expect to complete enrollment of the fourth and final patient cohort in the OpRegen study before the end of the year. And then finally, early in 2021, we expect that Cancer Research UK will be able to treat the final 2 patients in the VAC2 study and complete enrollment in that trial. So we have a considerable amount of value-creating news coming up, and I think this will help us set up for a very successful 2021. We believe further that we've been demonstrating with each quarterly report that Lineage is making excellent progress with its 3 cell therapy programs, basically converting what was once an academic science into compelling and rigorous clinical data. And I'm also pleased that we've been able to make this progress over the past several years without diluting our shareholders with capital raises at unattractive valuations. And as Brandi will discuss in just a moment, we're still well capitalized into 2022. As we continue to advance our programs through their current trials and prepare them to enter later-stage clinical trials, we think Lineage is on the right path to create enormous value for patients and for shareholders. So with that, I will hand things over to Brandi to review our financials and discuss some additional plans we have for this year.

Thank you, Brian. I'll start off with the statement of operations for the third quarter of 2020. Total revenues for the third quarter of 2020 were $600,000, consistent with the same period last year, an increase of $200,000 in royalties from product sales and license fees was offset by a decrease of $100,000 in grant revenues, and a decrease of $100,000 in the sale of research products and services due to the cessation of such sales. Operating expenses are comprised of research and development expenses and general and administrative expenses. Total operating expenses for the third quarter of 2020 were approximately $7.2 million, a decrease of $1.7 million as compared to $8.9 million for the same period in 2019. Our R&D expenses for the third quarter of 2020 were $3.6 million, a decrease of $700,000 as compared to $4.3 million for the same period last year. The overall reduction was primarily related to a decrease of $1.5 million in OpRegen and other ophthalmic application expenses, which was primarily related to a reduced level of manufacturing activity in the third quarter of this year as compared to the same period last year. Additionally, there was an $800,000 reduction in OPC1 expenses, primarily related to a return of unspent project funds from a former Asterias service provider, and a $200,000 reduction in Renevia and other related expenses. These reductions were offset by an increase of $1.8 million in VAC program expenses, primarily related to the accrual of the signature fee of $1.6 million related to the Cancer Research UK exercise of our option to acquire data generated in the Phase I clinical trial of VAC2. This signature fee will be paid in several installments through April 2021. Excluding the one-time transactions related to Cancer Research UK, and the return of unspent project funds for OPC1, R&D expenses for the third quarter of 2020 would have been $2.7 million, a decrease of $1.6 million from the same period in 2019. G&A expenses for the third quarter of 2020 were $3.6 million, a decrease of $1 million as compared to $4.6 million for the same period last year. The decrease was primarily attributable to the following reductions: $900,000 in compensation expenses; $200,000 in Asterias merger-related expenses; and $100,000 in each of these expenses, travel, accounting and office-related expenses. These decreases were offset by a $300,000 increase in patent and legal expenses; and a $200,000 increase related to the cessation of shared services reimbursements. Our loss from operations for the third quarter of 2020 was $6.7 million, a reduction of $1.7 million as compared to $8.4 million for the same period in 2019. Other expense net for the third quarter of 2020 reflected other expense net of $1.2 million compared to other expense net of $9.1 million for the same period in 2019. Note that the variances in this area are primarily related to changes in the values of our marketable equity securities, gains on sales of our marketable securities as well as foreign currency translation adjustments related to our international subsidiaries. The values of our marketable securities can go up and down from period to period, and for the third quarter of 2020, we had an unrealized loss of $2 million. In the same period for 2019, there were unrealized losses of $12.7 million. Those losses were offset by $2.1 million in gains on the sales of marketable securities. Our net loss attributable to Lineage for the third quarter of 2020 was $7.8 million or $0.05 per share as compared to a net loss attributable to Lineage of $16.5 million or $0.11 per share for the same period in 2019. I'll focus my next remarks around cash management. As of September 30, 2020, cash, cash equivalents and marketable securities totaled $38 million. I'm happy to report that on August 28, we added $24.6 million to that cash balance with the receipt of our final payment from Juvenescence for our AgeX shares that were sold back in 2018. We believe that our cash puts us in a good position to fund our operations well into 2022, and this will help us fund several of the value-creating milestones Brian discussed earlier. We continue to focus on efficient spending while making good progress on our clinical programs. Our net cash used in operating activities for the third quarter of 2020 was $4.8 million, a $2.6 million or a 35% reduction versus the third quarter of 2019. Our net cash used in operating activities for the first 9 months of 2020 was $14.1 million, a $12.3 million or 47% reduction over the same period in 2019. In general, our third quarter cash activity was in line with our expectations. We have been able to keep our 2020 quarterly burn between $4 million to $5 million due to our significant cost reduction efforts over the last year. We expect our fourth quarter burn to be in a similar range, maybe a bit more due to our first payment of roughly $650,000 to Cancer Research UK for the early exercise of VAC2. Even though we have made tremendous cost reductions already, we continue to identify additional ways to streamline our operations. In September, we terminated our leases in the San Francisco area and signed a sublease for a much smaller portion of one of our buildings. This will enable us to save over $780,000 in facility costs over the next 2 years or so. We proudly note that it's been over 3 years since Lineage has done a traditional equity financing. We have been able to successfully fund the transition of this company into an emerging leader in the cell therapy space, not through dilutive financings but instead with a combination of smart but aggressive expense reductions and timely sales of our marketable securities. I'll note that we continue to hold approximately 3.6 million shares of OncoCyte stock that are valued at $5.6 million as of November 3, 2020. For completeness, I also will add that in addition to the more substantial milestones we reached this quarter, we also have been productive with our business development and grant activity, including expanding a license agreement we have with a Korean partner for a legacy product, and receiving a new grant for more than $500,000 of support for the development of a novel bio retinal patch to treat certain retinal diseases. We are committed to demonstrating the power of our cell technology to treat various diseases and conditions. During the past 2 quarters and moving forward, Brian and I have significantly expanded and will continue to grow the breadth of our investor, media and analyst outreach. Following our next OpRegen data release at AAO in mid-November, we expect to advance the partnering discussions we've already been having with leading pharmaceutical companies and explore our options for funding the next clinical trial. With only a few patients to enroll in our current study, now is the time to get more people interested in our story. We're excited about the future, not only for OpRegen, but also for OPC1 and the VAC platform as well. All 3 of these therapies are designed to address severe unmet medical needs, all with potential market opportunities that could exceed $1 billion. This is an exciting time for Lineage and the patients who desperately need treatment options. With that, I will turn the call back over to Brian.

Great. Thanks, Brandi. So for the remainder of this year, as always, our goal is to advance our clinical programs, and we've got a number of things that you can track and monitor our progress. We plan to present new and accumulated OpRegen data at the AAO annual meeting, November 15. We will be hosting that OpRegen data review call with a therapeutic area expert, MPI, on November 17. We expect to complete not just the Orbit evaluation portion of the clinical trial, but also the overall OpRegen patient enrollment. We expect to complete that by the end of the year. We plan to announce details of manufacturing improvements which we have made to the OPC1 program. That is scheduled for early December. And then early next year, we hope to see Cancer Research UK complete patient enrollment in the ongoing Phase I clinical trial of VAC2. And as Brandi mentioned, you'll also see an increased continued presence at various events as we engage with the investment communities, media and medical communities through all sorts of different channels. So I think overall, this is a very exciting time to be part of Lineage. We have an opportunity to make a profound impact on millions of people. And if you'd like to understand better what that means on a personal level, we've provided a lot of videos about spinal cord patients and people losing their vision due to dry-AMD. This is an impactful business on many levels, but it is important that we keep in mind that those patients serve as our inspiration each and every day. So with that, I will thank you all for joining us today. And operator, the team is happy to take any analyst questions we may have at this time.

For the first question, we have Jason McCarthy from Maxim Group.

Brian, I guess I'll save questions around OpRegen for the event next week or about 1.5 weeks from now. Can you talk a little bit about the OPC1 program? And you said you're going to have an update on manufacturing improvements, possibly the next steps forward before the end of this year. Can you give us a little bit more clarity on that? And can you talk from a high level what's been happening in the spinal cord space because we've noticed about a month ago or so, AbbVie has a monoclonal antibody that's got fast tracked. It got orphan for spinal cord injury. We don't really typically see these big companies in this space, which we think bodes well for you. Can you talk a little bit about that? And the third thing as it relates to OPC and your cell therapies in general, is that there's another vote that seems to be happening, and it's not political, really, in California, and that CIRM's Proposition 14 for its $5.5 billion in funding potentially. And is that something you may seek a portion for OPC?

Thank you for your questions, Dr. McCarthy. The third question is particularly insightful. We have been closely monitoring the CIRM vote. To provide some context, there is a ballot measure in California based on a 15-year-old proposition, Prop 71, which established the California Institute of Regenerative Medicine, or CIRM, to support stem cell research. The funding from that initiative has already been fully utilized, and Lineage has received approximately $14 million from CIRM. A new measure has been put forth to voters to create a new bond of $5.5 billion, and the voting has shown strong preliminary support, fluctuating between 51% and 52% approval. We are optimistic about its passage, as it would benefit stem cell technologies broadly and specifically support all three of our programs in potentially obtaining additional grant funding. The CIRM ballot measure appears to be moving in a positive direction, which we find encouraging. This could lead to new opportunities for non-dilutive capital, something Lineage has significantly benefited from across our programs. Regarding next month’s update, I have previously discussed our ongoing enhancements in manufacturing, particularly in areas like purity and scale. Next month, I will present specific data to illustrate our progress in these areas, marking a shift from general comments to concrete examples. We believe this is an opportune moment to show how much we have advanced, as these improvements have impacted the asset's value. We plan to have a forum in the first week of December to provide these details, making it accessible for those who are more technically inclined. On the topic of larger companies like AbbVie, they recently received orphan drug designation for their spinal cord injury program, which we see as a strong validation for our field. We welcome the investment of major companies in this area. While I acknowledge the competitive landscape, particularly from various approaches that can promote axon growth, I remain untroubled. Many of these methods may demonstrate axon growth but lack the essential myelin, which is crucial for nerve functionality. Our oligodendrocytes produce myelin and are integral to restoring functional connections after spinal cord injury. Although competing growth factors may be beneficial as adjuncts, they do not replace the foundational need for myelin-producing cells. We are excited by the competition, as it signals increasing interest in spinal cord injury treatment, but we believe our head start gives us a strong advantage, particularly in applying cell therapy effectively in this context.

Next one on the queue is Joe Pantginis from H.C. Wainwright.

Actually Brian, without front-running any of the OpRegen data, I wanted to focus on that for a second. And I guess, the question really of, as you're looking at retinal restoration, are there any anecdotes you can share about how the surgeries have been going with regard to placement of the cells and beyond? And secondly, you mentioned today, obviously, you're working with the Orbit SDS system, but you've talked about improvements in delivery, always looking for those things. I was just curious if you have anything particular in mind with regard to these kinds of improvements.

Yes. Thank you, Joe. Also, very good questions. They're related, right? We are exploring the use of the Orbit SDS because we think it may be able to provide better placement of cells than the traditional approach. We don't know that for sure because we haven't dosed 100 people to really have that evaluation. But what we have seen, importantly, is that we have seen a complete elimination of the epiretinal membranes, which are formed from the efflux of cells into the vitreal space. And that is what the Orbit SDS was designed to do. It was designed to deliver the cells, call it, underneath the retina rather than coming in from above puncturing the retina and delivering the cells that way. So we're happy that on one axis that we care about that the Orbit SDS has been doing really well. And you're correct that we will have some additional information on the Orbit SDS at the AAO conference. With respect to the surgical procedures that we are conducting in order to demonstrate a second case of retinal restoration, the biggest frustration there is that the disease occurs slowly. These areas of GA, even when they are fast growing, you're talking about a couple of millimeters a year, so it's very frustrating that we have to wait so long to see if there is a change or a benefit. But what I can tell you is that when we evaluated that first patient, and it was discovered that they had such a profound effect, we asked every question of ourselves about what was different, what was unique, how were they special. We really feel strongly that there was nothing genetically unique about that patient. Meaning we feel strongly that we will be able to demonstrate additional cases of this. We just need to copy it. We need to learn more about how to administer the cells. And we think that more complete coverage is beneficial. We think it will be easier to see the effect with more aggressive placement of the cells. So when we have gone and spoken with physicians about that, we asked the question right after the surgery, how did it go? Do you think you covered the area? Do you think you got partial coverage? Do you think you were adjacent? And without saying too much, I can tell you that I just learned this morning that yesterday's surgery, that the physician reported that you had near-complete coverage, and he did use the Orbit device. So there's a good example of a patient who, right now, their clock may have begun ticking on being able to be that second case. Or maybe that patient, that second patient has already been treated and isn't follow-up. Or maybe it will be someone that we treat later this week. It remains to be seen, but we definitely are trying to be more aggressive and learn from what we observed in that 1 special patient so that we can demonstrate that it was not a one-time event. And I think that a second event would really validate it. Even though it was convincing to the therapeutic experts that they believe quite wholly that there was evidence of restoration of tissue. Everyone wants to know if you can repeat it because that tells you that it wasn't somehow unique to that 1 patient.

Next question comes from Ahu Demir from NOBLE Capital Markets.

My first question is for Brian regarding the OpRegen data, since it's your leading asset and a data update is coming. Brian, will you be able to share data from the cohorts during patient follow-ups? Additionally, can we expect to see any data from the new patients? My second question is about the VAC2 program. I understand that your current focus is on lung cancer, but as you assess manufacturing capabilities and combinations, do you have any plans to explore other directions beyond lung cancer, particularly in less crowded areas? Are there other combinations you are considering?

Yes, that's a very good question. One of the ironies that I notice is that Cancer Research UK, as a major charity, is very interested in areas that don't always perfectly align with the commercial interests of their partners. From a biological standpoint, non-small cell lung cancer is not the ideal application for the antigen we are utilizing in that clinical program. There are certainly patients available, and the antigen is expressed in many cases of non-small cell lung cancer. However, there are other tumor types that consistently exhibit higher levels of the antigen we are using. Therefore, if a patient does not express high levels or does not respond to that antigen, they are unlikely to benefit clinically. This creates noise in the clinical trial. I believe we will identify a more suitable focus for our next study. We have performed some analysis to evaluate the competitive landscape and anticipate future directions. However, we are not at a stage where we will be making announcements since we are currently conducting the study in non-small cell lung cancer. One of the benefits of exercising our option was the opportunity to explore other tumor types, which we are now seriously considering to determine if there is a better application for the VAC2 program.

That's great to hear. I have one last question for Brandi. I saw that there was an increase of almost $1 million in R&D expenses. Can you explain the reasons for that, Brandi? I'd appreciate some more details.

Sure. Happy to do that. So our R&D expenses were really impacted by those two one-time transactions that we had during the quarter. So we had a $1.6 million accrual for our signature fee related to Cancer Research UK and our early option fee to bring VAC2 in-house. So that was all done in Q3. And then that was offset by about $800,000 because we had a return of unspent project funds from a former Asterias service provider on OPC1. So we saw about an $800,000 increase just from those one-time transactions. Otherwise, we're continuing to see reductions quarter-over-quarter based on where we're at right now with the OpRegen program, primarily in the manufacturing side.

Okay. And I am really excited to follow the story, and congrats on the successful quarter.

Thank you, Ahu.

Next one on the queue is Keay Nakae from Chardan.

Brian, are you able to say how many patients in Cohort 4 you have now treated?

I would like to, but we're going to save that for AAO in 2 weeks.

Okay. Well, let me ask you this question. What does the available queue of patients who meet the criteria that you're looking for, how is that looking at this point?

That is an easier question for me to address. It's looking great. I feel very comfortable with today's guidance that we'll finish this study enrollment before the end of the year. And it's attributable to the hard work of the team. I think it might be attributable in part to some of the awareness of the program. So it makes it a little bit easier to say to a prospective patient, "Would you like to try this experimental therapy?" And the patient says, "Well, tell me about it." And the docs or the study coordinators are able to say that it's been in X people now, and here's what's been seen. So I think overall, the program is just moving smoother. And also the sites have been able to implement some COVID-appropriate measures where they're able to still see patients, even elective patients signing up for clinical trials. So I think all those things together have led to an improvement in the situation, which is notable.

Okay. And then switching to OPC1. Once you meet with the FDA next year, do you have an expectation of when you might look to commence that possible registration study?

It will come, in part, based on what we hear from the agency. And the reason why I say that is a larger study that would be suitable for approval would require opening many more sites than, for example, a 30-patient comparative study or something like that. So until we have crossed a couple more milestones, including notably developing a thaw-and-inject formulation, which we've done before in other cell types. So I think we'll be successful. But that's actually really important because many sites don't have the ability to manipulate the cells the day before they are administered. And so that would limit the number of sites you have open. So very difficult for me to say exactly when we would be able to initiate it. But we will have that information, in part, after we've got the thaw-and-inject formulation developed, and after we're able to speak with the agency about the program.

Okay. Great. And then just a final question for Brandi. I know you had mentioned this, but in terms of the monthly payments to CR-UK for the option, what's the amount through April?

Yes. So we have 3 payments that we'll make to CR-UK. So they're in British pounds. And so the first one is being made this month. And then there'll be another 1 in January of GBP 500,000, and then there'll be another one in April for GBP 250,000. So the total is GBP 1.25 million which relates to about USD 1.6 million in total.

And there are no further questions. I will now turn it back to Mr. Brian Culley.

Well, thanks, everyone. I really appreciate you joining us this afternoon. I know there's a lot of stuff going on with elections, and there's hundreds of new companies, so I'm glad you participated in our call today. We're excited about our plans. We appreciate your support, and we look forward to staying in touch with everyone about our progress. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.