Lineage Cell Therapeutics, Inc. Q4 FY2021 Earnings Call

Welcome to the Lineage Cell Therapeutics Fourth Quarter and Full Year 2021 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’s website at www.lineagecell.com. This call is subject to copyright and is the property of Lineage. And recordings, reproductions, or transmissions 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 introduce your host for today’s call, Ioana Hone, Director of Investor Relations at Lineage. Ms. Hone, please go ahead.

Thank you, Drew. Good afternoon, and thank you for joining us. A press release reporting our fourth quarter and full year 2021 financial results was issued earlier today, March 10, 2022, and can be found on the Investors section of our website. Please note that today’s discussion will contain forward-looking statements, within the meaning of federal securities laws, including statements regarding our strategy, plans, aims, objectives, thoughts, beliefs, development programs, product candidates and platform and pipeline and their potential therapy applications and commercial potential, the timing of the announcement of additional product candidates, clinical trial data updates, future payments, transfer of expenditures and activities under the collaboration with Roche-Genentech, anticipated benefits and opportunities from our existing and potential future collaborations, the achievements of milestones and anticipated regulatory meetings and interactions, planned manufacturing improvements, financing, cash management and runway, and anticipated growth and commercial opportunities. Statements made during this discussion that are not statements of historical fact should be considered forward-looking statements, which are subject to significant risks and uncertainties. Actual results or performance may differ materially from the expectations indicated by our forward-looking statements due to known and unknown risks and uncertainties. We caution you not to place undue reliance on any forward-looking statements which speak only as of today and are qualified by the cautionary statements and risk factors in our filings with the SEC, including in our annual report on Form 10-K, filed today, March 10, 2022. With us today are Brian Culley, our Chief Executive Officer; and Kevin Cook, our Chief Financial Officer. Brian and Kevin will provide some prepared remarks and then will be available for questions from analysts. With that, I’d like to turn the call over to Brian.

Thanks, Ioana, and good afternoon, everyone. I realize there are a lot of companies reporting today, so we really appreciate you choosing to join us. This is actually the first time that I am speaking directly to you this year. And rather than providing the usual program updates, I decided to frame our discussion a little bit differently, especially given the overall market conditions we’re experiencing. My main objectives today are to provide some broader context around the partnering of our lead program, as well as a top-line view of how we plan to evolve and grow our business going forward. So, we’ve heard from many investors who are surprised or frustrated by the current share price, especially considering the transformative deal which we entered into with Roche last year, a deal which we believe validates what many of us thought for years, that being that in the right setting, cell transplants may be able to deliver clinical outcomes beyond the reach of traditional small molecule approaches. I think this disconnect is being driven primarily by macro factors which are negatively affecting the overall biotech sector, but without diminishing the importance of share price. I also want to make sure that everyone understands how we believe the Roche collaboration created value for the company in other areas, and how we can continue to do so for years to come. We believe this first worldwide partnership unlocked a whole new set of opportunities for Lineage. And there are many reasons for optimism over the short, medium and long-term timeframes, which I aim to describe for you today. 2021 was a successful year for our company in many respects, obviously capped off by the Roche partnership, which we announced in December. We believe that deal provides tangible and independent evidence of the potential for our approach to address multibillion-dollar market opportunities. A commitment of this size by our global pharmaceutical company also provides an indication that cell therapy applications outside of oncology are reaching an important inflection point as a new branch of medicine. And we believe it also provides a testament to Lineage’s specific capabilities in this field. Our accumulated, directed cell differentiation knowhow contributed to this collaboration. And we believe that experience and success can be applied to other therapeutic areas, which we’re working in. We therefore are eager to transfer that knowhow to our other programs in the months and years ahead. We also now have the strongest balance sheet in our company’s history. This is the result of the combination of the Roche upfront payment, capital which we raised in 2021, when the share price was significantly higher, and our continued approach to careful spending. We take pride in the efficiency we believe we create in terms of product development progress per dollar spent, and we invite you to compare that metric with other biotech companies of our size and scope. We also made significant progress during 2021 with the development of our other programs, progress that we expect will allow us to move toward additional clinical trials of those products during 2022. Because all of our programs are based on the same core technology, and because we have learned a great deal through the development of OpRegen, we are increasingly optimistic about our ability to have similar success with additional products over time. And that success could arise in the form of additional partnerships with major pharmaceutical companies or we may elect to develop one or more of our product candidates ourselves, eventually becoming a company which collects revenue from our own product sales, if doing so is in the best interest of our shareholders. Now, I’d like to take just a moment to review the OpRegen partnership. You already know that Roche is one of the largest pharmaceutical companies in the world, and their products include some of the most widely prescribed ophthalmic therapies. But outside of oncology, only a small number of cell therapy companies have successfully attracted a big pharma partnership. And to our knowledge, this was the largest license agreement ever signed for a non-oncology cell therapy product candidate. In addition to the $50 million upfront payment which we received, we’re eligible for up to $620 million of additional cash payments to be achieved as the various developmental, regulatory and commercial milestones, and we also are eligible for tiered double-digit royalties, which could reach very large amounts in light of our expectation that dry AMD represents a multibillion-dollar commercial opportunity. In addition to all of these potential payments, Roche-Genentech is now leading all OpRegen programs globally. That includes critical development, regulatory interactions, and of course, commercialization. That means Lineage also will be offsetting the majority of its future OpRegen clinical and commercialization expenses. Lineage still maintains responsibility for activities related to the ongoing Phase 1/2a clinical study, which you may recall completed enrollment about a year ago, as well as certain manufacturing commitments. We also have a pathway to provide input via multiple joint advisory committees. And if it’s determined to be beneficial for the program, at some point during the collaboration, Lineage could take on responsibility for later stage manufacturing, but that would be subject to a separate and additional economic arrangement. We are extremely pleased with the financials of this deal, but I realize that some people may feel frustrated that they no longer will receive the frequent updates which they enjoyed while OpRegen was under development by Lineage. But this is a common trade-off for getting this program into the hands of such a capable partner, one with the resources to elevate its probability of success. That being said, future public visibility into this program still will be available through channels that are required to be made public by sponsors or through disclosures made directly by Roche or Genentech. And as one example, at a virtual event following the Angiogenesis 2022 meeting in February, a Roche representative mentioned OpRegen as one of their therapeutics in development for geographic atrophy that has the potential to restore retinal structure and improve vision. OpRegen also is now listed among Roche’s product development pipeline as RG6501. And investors who are interested in learning more from this event can access the information directly from the Roche website. We certainly look forward to being able to share information on things like the timing of the next clinical trial when those details become publicly available. And we also expect that scientific papers, presentations and any milestone payments which we receive along the way will become publicly available at various times during the development process. So, if you are now wondering how our stock could have gone down after such a transformative deal, a deal that not only underlined the value of our technology, but also greatly strengthened our balance sheet and provided the potential for years of substantial cash flows, well, you’re not alone. It’s clear that the biotech sector is currently in the grip of a very bad bear market, which by some measures is among the worst in the 40-year history of the modern biotech industry. And in this context, Lineage appears to have suffered alongside the vast majority of other small biotech companies, which nonetheless is frustrating. However, in my experience and in the opinion of many experts, biotech companies that are well financed and which continue to make clinical progress without necessarily needing to raise additional capital tend to be well-positioned when world events settle down and investment returns to such promising biotech companies. So, I think that where we are today puts us in a great position relative to many other companies with respect to our ability to weather the current biotech storm. To support my optimism, I’ll note that we have been successful in outperforming our peers in both good markets like 2020, and in bad ones, like 2021. Whether the world next experiences a rebound or a recession in 2022, I think that it’ll be a very exciting time to be involved with Lineage. In the past, you may have thought of Lineage as just a dry R&D company. And that is understandable, since recently we mostly discussed OpRegen and didn’t emphasize our other clinical-stage products or the broad potential of our technology. But Lineage has far more to offer than just OpRegen. We believe we are a leader among the growing number of regenerative medicine companies, advancing an entirely new branch of medicine. With our newfound validation and capital, we have the potential to broaden and accelerate our work. OpRegen is our first product candidate to gain prominence, principally due to the restoration data we generated with our whole cell transplant approach, but there are dozens of other cell types that we have been evaluating as potential development projects and which have the potential to address huge unmet medical needs, most often related to diseases of aging or diminished health span. Importantly, for such big picture thinking, we have learned a great deal from developing OpRegen. Some of these new opportunities share important parallels with our RPE program. I anticipate that our future product development may be faster, cheaper and easier than what we’ve accomplished already. Our team is excitedly applying the knowledge we have gained from the OpRegen program to our work on other products. Significantly, we are working to get two of those products to initiate their next clinical trials by the end of this year. Those products are OPC1 for spinal cord injury and VAC2, our cancer therapy. These product candidates have demonstrated promising safety and efficacy data in their initial clinical trials, but each of them required additional work to be ready for their next stage of development. The work needed to go from these early trials to later ones, which includes things like production efficiency and precise cell delivery can be among the less glamorous steps in drug development. These are also among the most important, because these are the fundamental characteristics necessary to enable a cell therapy product candidate to move from an interesting idea to becoming a bona fide competitor, with a clear line of sight to a global partnership or independent commercial success. These areas of focus are also anticipated to provide an attractive return on investment, as they facilitate the movement of these assets onto later stages of development, yielding greater investor visibility. To that point, the pace of development of our OPC1 and VAC programs is accelerating, and I expect it will continue to do so as the transition of OpRegen from Lineage to Roche continues to free up resources for our other assets. We’re working diligently to try and get both of these product candidates to initiate their next clinical trials this year. For OPC1, our efforts will be focused on initiating a clinical trial involving a new delivery device, as well as multiple interactions with the FDA to discuss cell manufacturing improvements which we’ve made, in addition to our proposed design of a late-stage clinical trial in spinal cord injury. For VAC, our current focus is on making improvements and modernizations to the manufacturing process, which we believe will help prepare VAC2 for further clinical trials and provide competitive advantages to the program. This year, we also look forward soon to the completion of the ongoing Phase 1 clinical trial of VAC2, which is being conducted and funded by Cancer Research UK, as well as conducting internal efforts to support the filing of an IND for further clinical testing, which would occur under Lineage’s direction in the U.S. So far, all of the products that I’ve mentioned today are products that you have heard of before. But with what we have learned from the development of OpRegen and the overall development of our technology across all three clinical stage products, we’ve been evaluating dozens of other product opportunities that are possible using our technology. These are different cell types that could treat major medical needs that in many cases represent multibillion-dollar market opportunities. Out of those dozens, we have narrowed our focus to a small number, which appear to be the most attractive to us in terms of features like the total addressable market, the competitive landscape, the commercial production viability, and other important factors. I’m excited to announce that later this month, we are planning to reveal the first of these new indications, an entirely new product opportunity based on our in-house efforts. Although I’m not planning to discuss the specific application today, I can share with you that we very recently put appropriate intellectual property protections in place for this new initiative. Notably, we didn’t have to spend a single dollar to acquire any third-party rights or buy someone else’s assets. This is a homegrown program, first of its kind for Lineage. In just a couple of weeks, I plan to share the details of this new program, why we’re excited about it, and how we were able to generate new pipeline programs so quickly and efficiently. Overall, I believe that the combination of a valuable big pharma deal, continuing to advance our current clinical programs, and then later this month providing a first example of how our platform can rapidly and economically generate new internally owned assets will significantly elevate awareness and drive shareholder value for years to come. To conclude this overview, our objective is to be a leader in the field of cell therapy by continuing to provide evidence that off-the-shelf cells like ours can generate compelling safety and efficacy data in large commercial opportunities, and in some cases deliver outcomes beyond the reach of traditional approaches like small molecules or antibodies. During 2022, we will be singularly focused on the continued advancement of our current pipeline, as well as strategic expansion of our novel approach in settings where we believe we can make a significant impact on the human condition by capitalizing on what we accomplished with OpRegen and working to demonstrate additional examples of our replace and restore therapies. With that, I’m happy now to turn the call over to Kevin for a financial update.

Thank you, Brian. And good afternoon, everyone. I’ll briefly review our recent financial results. But just a quick preamble before I dive into specifics. The accounting for the Roche collaboration strictly adheres to current GAAP standards. But it isn’t necessarily intuitive, nor is it a perfect match to the timing of our actual cash flows. From a practical standpoint, we completed the transaction in December, and in January, we received the $50 million upfront payment from Genentech, from which we then paid out approximately $21 million to satisfy our downstream obligations related to the licensing. Meaning we added $29 million to our balance sheet in Q1. But for GAAP accounting purposes, we approved all of the downstream expenses immediately upon signing of the deal in December, and we put those under R&D expenses, as dictated by accounting guidelines. The $50 million upfront payment, however, was logged as deferred revenue and will be amortized over a longer period as we fulfill our obligations to Genentech. Because of this GAAP treatment, our financial statements and our earnings release reflect a big operating loss and net loss as a result of the timing mismatch of booking all of the expenses, but only a small portion of the revenue in the current period. The important takeaway is twofold. Number one, our operating cash flow for 2021 was negative $23.5 million, which is right in line with the guidance we provided, and that is a testament to our diligent focus on disciplined use of capital, as Brian mentioned earlier. This is one of our core operating principles. But that $23.5 million of actual spend in 2021 is very different from our $49 million loss from operations that again is a result of the revenue expense mismatch via GAAP. The second important takeaway is that our cash balance as of January is $83 million, which reflects receipt of the $50 million upfront payment and payment of the downstream obligations. Okay. So, that’s my preamble. Now, let’s spend a couple of minutes on the recorded results. Total revenues for the fourth quarter were approximately $1.2 million and a $0.8 million increase from the same period in 2020. The increase was due primarily to increased royalties and licensing fees in connection with collaboration agreements. Total operating expenses for the fourth quarter were approximately $29.2 million, an increase of approximately $23.1 million as compared to the same period of 2020. But again, this was substantially driven by the $21 million in accruals for the downstream obligations related to the Roche deal. As a result, our loss from operations for the fourth quarter was approximately $28.2 million, an increase of $22.3 million as compared to the same period in 2020. Again, a result of the mismatch of deferring the majority of revenues but taking all of the expenses in the current period. The net loss attributable to Lineage for the fourth quarter of 2021 was $29 million, or $0.17 per share, as compared to a $2 million net loss or a $0.01 per share for the same period in 2020. Turning to the full year results. Total revenues for 2021 were approximately $4.3 million, an increase of $2.5 million as compared to 2020. The increase was due primarily to increased royalties and licensing fees. Total operating expenses for 2021 were approximately $52.1 million, an increase of approximately $24.2 million as compared to 2020, again driven by the $21 million in accruals for the downstream obligations related to the Roche deal. As a result, our 2021 loss from operations was approximately $49.2 million, an increase of $22.8 million as compared to the same period in 2020, once again a result of the mismatch of deferring the majority of the revenues but taking all of the expenses in the current period. The net loss to Lineage for 2021 was $43 million or $0.26 per share, as compared to a $20.6 million net loss or $0.14 per share for 2020. Turning to the balance sheet, we reported cash and equivalents of $55.7 million as of year-end 2021. The cash and cash equivalent number as of the end of January 2022 was approximately $83 million, since it incorporates receipt of our share of the $50 million upfront payment from Genentech. Accordingly, we continue to feel that our financial position provides us with sufficient capital to reach multiple value-creating milestones in 2022 and beyond. As we work towards these milestones, we intend to continue our efficient and disciplined spending. We are proud to have made considerable progress in the past two years while maintaining a net spend level below $25 million per year, a level which we believe is meaningfully lower than that of most companies with similar stage pipelines as Lineage. Looking ahead to this year, we likely will see an increase in our net spending, because our plan is to create value by advancing two programs toward our next clinical trials, and we still have certain obligations under the Roche agreement. Nevertheless, we expect to have capital resources well into 2024 and potentially further, subject to payments we may receive for future development milestones available under our Roche and/or ITI agreements, and further depending on variables like grant money we might receive from entities like CIRM, opportunistic financings or additional business development arrangements we might enter into in the future. So, that wraps up the financial section. Thank you for your time, and I will now turn the call back over to Brian.

Great. Thanks, Kevin. I next will wrap up with a summary of the events and milestones anticipated by Lineage in 2022, and then we’ll go to questions. Later this month, as I explained, we will announce the first area of internal expansion of our regenerative medicine cell therapy pipeline. We aim to complete GMP production of OPC1 by an improved and larger scale manufacturing process and with a new thaw-and-inject formulation which we have developed. We will continue to provide updates from the ongoing VAC2 Phase 1 non-small cell lung cancer study. We intend to meet with the FDA to discuss recent manufacturing improvements we’ve made to OPC1. We are collecting data to support an IND amendment which we expect will permit us to initiate a clinical study of a new delivery device for OPC1. We’re moving ahead on plans for an IND submission for a VAC2 clinical study to be conducted in the U.S. We’ll continue the development of a VAC-based therapeutic for glioblastoma with our strategic partner Immunomic Therapeutics. We will evaluate business development opportunities as both licensors and licensees throughout 2022. And as always, we’ll seek to broaden the awareness of our work through participation in a large number of investor and partnering meetings, medical and industry conferences and other communication channels. Our core principles are to advance an emerging technology ever closer to patients and physicians by providing the product attributes and rigorous clinical testing necessary to achieve commercially successful cell therapy products. To that end, we’ve made significant investments in areas like production, scale, purity, and delivery of ourselves. The objective from these steps is to create best-in-class products for end users, and strong competitive advantages to protect our products over the long term. There’s a lot to anticipate from Lineage in the coming weeks, months, and year. We sincerely appreciate your support as we position Lineage to become a leader in cell therapy and cell transplant medicine. And with that, operator, we are ready to respond and take any analyst questions that may have come in.

Thank you. Your first question comes from the line of Kristen Kluska from Cantor Fitzgerald.

Hi, everyone. Good afternoon. Thanks for taking my questions. I’m looking forward to the update later this month. I wanted to ask a question on OPC1. I know that some of the changes made were based on longer-term strategies in mind, including manufacturing and physician ease. But as you look to start your next trial this year, how are you going to specifically think about measuring the level of success that comes with these updates?

Thank you, Kristen. That’s a good question. The next trial for OPC1 is really about validating the new delivery device. That is something we obtained through a license agreement with a company called Neurgain. The advantages of that device include more precise delivery control, and it’s more suitable for our thaw-and-inject formulation because it has an engineering design that allows the dose to be administered to the patient while the patient’s respirator is still connected. There are safety and convenience components involved with that. This next trial is really just a safety study. We are going to collect some of the conventional efficacy metrics, but it actually has a very short observation period for its primary objective, which is to show that this new SPD can deliver our cells to the right location in a safe manner. That’s a little bit different than demonstrating efficacy in a larger study, as you will understand. We have not yet made a final determination as to which datasets we will collect in a larger comparative study of OPC1. But, that is a very important initiative for us this year because it speaks directly to one’s probability of success in that setting.

Okay. Thanks. And I have a two-part, big picture question, without trying to ask about specific indications here. So, the first is just big picture, when you think about new opportunities or indications, do you think that the cells that are transplanted and the outcomes could differ based on whether the effect was due to cell loss from aging, injury, or disease? And then, the second part of that question is with OpRegen and OPC1 experience, one finding you learned was about the best time of intervention and best chance of success? So, do you think that those strategies are going to follow on, no matter which indication you choose? So, perhaps at a certain time, it may be too late to intervene?

Yes. Those are very good questions. The answer to both is yes. We know that different cell lines behave differently. That’s within manufacturing the same type of cells. It is very safe to assume that different indications are unique; they’ll have their own sort of tolerance with respect to how variable the cells that one manufactures will be. So, I do think that from a big picture perspective, although there is much that you can learn, this kind of pipeline expansion is not carbon copy. The way to approach this is to take the lessons in various categories and think about how each of those might be applicable to a new setting. For example, there are certainly some parallels between RPE cells for dry AMD and oligodendrocyte progenitor for spinal cord injury. They obviously have significant differences as well. It is certainly correct that there will be an indication-specific set of subtleties that will need to be worked through, not only for Lineage but for any company pursuing this transparent approach. I think it goes further into your second question, that yes, I do expect that there’s much to learn from timing, just as we learned a lot about timing and placement of cells in the setting of dry AMD. Those same kinds of lessons can be applicable to other conditions. Spinal cord injury is another nice parallel. Data generated from animal studies indicated that a window of three to six weeks post-injury was the optimal window, but it’s possible that might get refined further as more human data is collected. Likewise, there’s a whole host of cell therapy or whole cell applications that share many of those same challenges. It’s really important to let the data speak and to interpret it in an objective manner. Doing so may reveal wonderful surprises as we did with delivering RPE cells across the whole area of atrophy and dry AMD, leading to much better outcomes than when those cells were delivered farther away from the area of atrophy. Is that helpful to answer the question?

Yes, very helpful. Thanks. I’ll squeeze one last question, if I may. You mentioned a lot about evaluating partnerships for the short, medium, long-term focus of the Company. Do you think for opportunities that you are going to potentially look to out-license, should we expect something similar along the lines of OpRegen where you look to have some proof-of-concept in-house first in order to get more favorable economics or a deal size related to the one you had with Roche-Genentech, for example, or do you anticipate these might be some earlier, or is it going to be a mix?

Well, in terms of the economics, setting aside partner capabilities and credibility and all that, just focusing on the economics, more is always better. It is always sort of a fun exercise to think about what is the right time in a product’s lifecycle to seek and hopefully enter into a corporate partnership. One has to consider your risk tolerance. Do you want to offset that risk or are you comfortable with that level of risk? The partnership that we entered into for OpRegen provides us with the ability to advance our programs farther so that we can enjoy better economics, provided the products continue to advance and generate compelling data. It’s entirely possible that we could retain any product that could be commercialized by a smaller company for longer. There’s an ongoing question where a company or a sponsor can ask itself whether it’s the right time to partner. We try to develop products that have attributes that can lead us to being in a position where we have the option to enter into those larger kinds of deals. Spinal cord injury, as an example, is a rare disease, an orphan condition. So, being able to hold on to an asset like that for longer because it would not require a large registrational study allows for more value-creational opportunities. When we do enter into a partnership, presumably it could be on the scale of something that we did with OpRegen just off the Phase 1 data.

Your next question comes from the line of Mayank Mamtani from B. Riley Securities.

This is actually William Wood on for Mayank Mamtani. Thank you for taking our question today. Really great to get updates from you all today. So, just one question I had, when looking at your past earnings and this earnings, it looks like that both your OPC1 program and your meetings with the FDA, as well as your VAC program, have been pushed back at least one to two quarters. I’m just curious if there’s any justification or reasoning behind those push-backs, and if that’s now been alleviated?

Yes. That’s a good question. Thank you for including some B. Riley presence on our call today. There are several reasons; I think the biggest one would be the attention that we put into completing the Roche agreements. There are a lot of activities that are required in order to launch that initiative. The commitment and resources available we’ve put into that work has had an impact on our ability to maintain the same pace with other programs. Are there other factors like COVID and things like that? Sure. Overall, what’s important to us is doing things correctly and well. I can sort of joke that if we had spent the money to maintain those timelines without any slowdown, I’d be on this call with questions about how much our cash is available and how much our spending went up. So, I wish that those timelines had not been delayed. But, they largely were delayed because we allocated resources to getting the Roche agreement for OpRegen in place and making sure that is launched in a good way within their organization. If that meant I had to pull people off of that and OPC1, that was a reasonable thing to do at that time. As I shared earlier in the call, I believe that those programs and their development will now accelerate as resources shift back from OpRegen onto those two clinical programs.

And then, also, one last question on your OPC1 program. I believe in the past, your clinical trials have targeted the upper mid-cervical region. I was curious if this has the potential to target all regions of spinal cord injuries, including thoracic and lumbar?

Yes. I think the answer is yes. To be clear, you said potential, so it’s easy for me to say yes. The reason that we focus on cervical level 4 through 7 is that’s typically where you’re wiring out to your upper extremities. Keeping in mind that we cannot address a large area of trauma, the injuries need to be smaller; they’re not complete destruction of a spinal cord over a large area. By focusing on those smaller areas of injury where they wire to the upper extremities, we’re trying to help individuals control their phones, wheelchairs, and self-feed. There’s a reason why we have focus there. I do believe it would be normal and expected that a product that had an effect in that area could be applied to other areas as part of an overall lifecycle development. Mechanistically, it would make sense. It would require careful thinking about what it is you’re measuring and how you collect it to link the therapeutics to the outcomes that have some social benefit for the patient.

Your next question comes from the line of Joe Pantginis from H.C. Wainwright.

Brian, I got two questions. The first one, it’s a serious question, but I’m going to ask it somewhat facetiously. You guys are in a very supply-intensive environment right now on the manufacturing front. Obviously, it’s a decent part of your burn. When you consider, in this day and age and all the problems with supply chains, are you getting everything you need in a timely basis? And I guess, the facetious aspect is, are any of these supplies laying on train tracks strewn across in Los Angeles?

I know I can always count on you for good questions like that. Aside from a personal delay for a door, I’m not aware of any Lineage related supply issues. Our manufacturing facility is located in Israel. We have global acquisition capabilities, meaning if we need a particular reagent, it’s possible for us to obtain that through U.S. channels and ship it to Israel, or obtain it directly in Israel. We also spent considerable money pre-purchasing certain critical reagents in anticipation of continued delays and problems associated with COVID and associated with supply chains. We did not anticipate what’s happening in Eastern Europe. I am not aware of any supply interruptions or slowdown of work at our manufacturing facility thus far. However, that is something we will need to continue to monitor as it is a big concern. One of the things that has been interesting is that it has become more difficult to get your contract slots for animal studies, which has been frustrating for many companies. You cannot quite move as quickly as you would like, meaning you have to plan a little bit earlier and anticipate these things.

That’s actually very helpful and good to hear on the planning side of things. I want to switch gears to discuss the totality of the VAC program. You have a platform there hopefully looking for some nice expansion over the coming years. How should we look at it right now regarding bringing VAC2 in-house? More specifically, do you envision that you might do some internal VAC programs, even outside of oncology potentially versus the ratio of having more business development at the moment?

Well, I might be saying too much, but let me tell you where I would love to see VAC go from a big picture perspective. I refer you to some of these mega-deals that get done based on platform technologies. From earlier in my career, when target discovery and validation was really hot, you would see large oncology companies do 10, 20, or even 50 asset deals. These were big deals around clusters of potential targets coming from platform technologies. One reason I talk about us introducing manufacturing enhancements and improvements into the VAC program is that I want the VAC platform to become so robust and flexible that it will open the door for a mega-deal where a company comes in and says they have more antigens that they know what to do with. Lineage, how would you like to do a deal for 10 antigens using your VAC platform? Such a deal could fund an internally owned program, whether for an antigen that we have, an antigen that may be of interest, or an antigen we haven’t even discovered yet. Our efforts today are to continue to generate data and validate that the VAC platform can be powerful while delivering significant large T cell responses, doing that with the current antigen turret, and also ensuring that the platform as a whole, from the RNA portion, the electroporation, the manufacturing efficiency and yield, is robust, so we might have an opportunity to enter into deals that can help fund our own internal development.

Your next question comes from the line of David Wang from SMBC.

So, I had two, one on the pipeline, and then a financial question. Starting with the pipeline, in terms of OPC1 in spinal cord injury, recognizing it’s still early days, I’m just trying to think down the line a little bit in terms of adoption uptake. Do you have any sense of how many centers you would like to see this product administered and be available at to achieve commercial success? Given you have a device and then the need to administer cells? Is that something that you think Lineage would be able to commercialize yourself without a partner?

Let me go through it backwards. Yes. I think spinal cord injury, 80,000 per year is a size of scope that a Lineage— not Lineage in current form, obviously today, but a company like Lineage could handle the commercialization of a product like that. In anticipating that one of the things that we have done is create a thaw-and-inject formulation, which eliminates the dose prep steps. That is really important, because that allows you to open a larger number of centers and conduct a larger clinical trial. We are also working on this new device which essentially sits directly on the patient. You’d say, well, is that really novel? Yes. Do you have any idea how many different size beds there are at trauma centers? You cannot use this giant contraption, all the scaffolding we used in the past, because it’s not turnkey. You have to make it bespoke for every facility, which fights against commercial utility. We are investing in those less glamorous attributes of product development. These provide a good return on investment, because a partner or an investor will be driven by product profile, and how easily or difficult it is to deploy that product into the field. It’s exciting that the dollar opportunity is very high because there’s a huge unmet need from a patient perspective. I should add that we have much better third-party economics associated with OPC1 than we heard with OpRegen, giving us more reasons to hold onto it longer.

Thanks a lot for that. That’s really helpful. And then, just my second question. I did see you mentioned you had some downstream commitments with the upfront payment from Roche on OpRegen. Just wondering, does that split extend to future milestones, development, regulatory, and then royalties? Should we expect a similar split in terms of the commitment regarding how much you book and another third party would receive?

Yes. Go ahead, Gary.

Yes. This is Gary Hogge jumping in here. The short answer is yes. The long answer is there are a few changes that might happen from milestone to milestone, but it’s basically in the same range. Once we get to royalties, there’s a different formula. I think that’s filled out in the contract. But, between now and the lifetime of our milestones, it’s roughly in line with what you’re seeing here.

Your next question comes from the line of Michael Okunewitch from Maxim Group.

I’d like to start off with a big picture question. With the Roche deal coming, it seems like a really opportune time where you have OPC1 essentially at the same place OpRegen gained steam, and now VAC advancing. How should we look at Lineage going forward? Should we think about OPC and VAC as the new main focuses? Given the strength of your balance sheet and the new candidate to be announced, should we expect a broader approach to cell therapy at Lineage going forward?

Thanks for your question, Michael. The deal we did for OpRegen allows me to share that the answer is both. We can more rapidly advance our VAC and OPC1 programs, and we can expand the scope of what we do. One of the nice things about new programs is that initiating them is very inexpensive. There are huge economies we enjoy in our manufacturing effort because if you ask me where the most time is spent, it's waiting for cells to grow. We expand the cells in number and differentiate them in type, which takes many weeks. If you hire someone to manufacture RPE cells, they spend a lot of time watching cells grow. If that person can work on other programs, you get a wonderful economy in your manufacturing business. Therefore, it is very efficient and economical to launch new programs now and, simultaneously, continue to advance our other two related programs, OPC1 and VAC. OpRegen faced challenges but we overcame those, and similar work is ongoing with OPC1 and VAC. We will have attractive assets at the other side of that bridge.

Thank you, Brian. I’d like to see if you could provide a bit more color on some of the areas you are looking at regarding aging and aging-related diseases. Without revealing anything you can’t, this space is interesting and you’re seeing a lot of Silicon Valley money pouring in with Altos and Calico. Is your platform equipped to address aging? Would this be largely looking at cell replacement for age-damaged tissues?

That’s a really interesting question. I don’t know where the distinction lies between what we are doing, which I’ll characterize as cell replacement, and what aging companies are doing. Where does manufacturing a replacement cell tissue organ cross over to addressing aging? I’m not sure that there is a clear distinction. I think it’s a continuum. Aging companies have appropriately focused on improving health span, not necessarily on living longer but living well longer. I feel like we are closer to that goal because if I live to 120, I want replacement RPE cells, and there are applications that we could go through. We might want to improve parts of the body like the liver. There is not much distinction because all companies, outside of pure live longer initiatives, are focused on making people live better, whether tied to overall survival or not is unclear. I don’t know if anyone shares this view, but I feel we are more advanced as an aging company than many new companies that have been launched.

Thank you very much, Brian. I appreciate the answers and I’m looking forward to the update this month.

Your last question comes from the line of Robert LeBoyer from Noble Capital.

First, let me say that I’m planning to live to 120, and I’m going to be relying on you for my replacement RPE cells. My question has to do with the FDA and some of the timelines laid out for the FDA and the manufacturing, filing an IND. Could you give some expected timeframes for those milestones? Given the FDA’s situation and all of the changes in the last year or two, could you share how the agency has changed timeframes and whether it’s on the same kind of schedule as before?

The answer I can give is we are working to initiate the next clinical trial of OPC1 and VAC this year. I would like to narrow that, but the interactions you have with the FDA define how long your timelines will be. For example, if the agency wants to see three batches of material instead of two, your timeline gets longer. I don’t like to provide guidance that I can’t meet, but what I’m comfortable saying is that we are trying to have those two trials initiated this year. With respect to the agency, I think they are getting better in the area of cell and gene therapy. There is a massive surge of new clinical programs in cell and gene therapy. The agency has been working very hard to keep pace with respect to that flow of guidance and expectations. There’s also a patient focus seminar specifically around cell and gene therapy. The guideline of asking the agency what you need to do and then just going to do it stands higher now than it used to. We will try to commit to being open about our interactions and provide accurate guidance as we can, especially as we get further into this year.

Okay, great. Thank you very much.

I appreciate it, Rob. We’ll work on your healthy lifespan as well.

There are no further questions at this time. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.