Lineage Cell Therapeutics, Inc. Q3 FY2024 Earnings Call

Welcome to the Lineage Cell Therapeutics Third Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. An audio webcast of this call is available on the Investors section of Lineage website at www.Lineagecell.com. This call is subject to copyright and is the property of Lineage, and recordings, 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, Head of Investor Relations at Lineage. Ms. Hone, please go ahead.

Thank you. Good afternoon and thank you for joining us. A press release reporting our third quarter 2024 financial results was issued earlier today, November 14, 2024, and can be found on the Investors section of our website. Please note that today's remarks and responses to your questions reflect management's views as of today only and will contain forward-looking statements within the meaning of Federal Securities Laws. 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. The company's actual results or performance may differ materially from the expectations indicated by such forward-looking statements. For a discussion of certain factors that could cause the company's results or performance to differ, we refer you to the forward-looking statement sections in today's press release and in the company's SEC filings, including its most recent annual report on Form 10-K and its subsequent quarterly reports on Form 10-Q. 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 described in our SEC filings. With us today are Brian Culley, our Chief Executive Officer, and Jill Howe, our Chief Financial Officer. I'll now hand the call over to Brian.

Thank you, Ioana. Good afternoon, everyone. We appreciate you taking the time to join us on this call. As I normally do, I'll provide an update on OpRegen today along with some comments about our pipeline, but I want to begin by highlighting that we have updated the guidance for our cash runway, which we now expect to support our planned operations into Q1 of 2026. An extension of our runway into 2026 may be unexpected for many of you because it indicates a longer runway than we guided to last quarter. The pickup is partly attributable to our fiscal discipline, but also as a result of the additional interactions we had with the FDA regarding the startup of the DOSED study for OPC1. It's been a very long review process, but I'm pleased to share today that we held a meeting with FDA reviewers just two days ago, and during that meeting, which I attended, we believe we obtained a clear and straightforward path to commencing enrollment in the DOSED study. I'll provide some details on that later in the call, but the main takeaway is that we completed many of the startup activities while waiting for FDA's input, which has provided us with more cash than we previously expected at this point. Moving now to our lead program, OpRegen for the treatment of dry-AMD. I assume everyone on this call is acutely aware of the ongoing Phase 2a study which our partner Genentech is currently conducting at five sites in the US and one site in Israel. The primary and secondary endpoints for this open-label study occurred three months after treatment and Genentech treated its first patient more than 18 months ago. Therefore, while we are not aware of any efficacy analyses they may have conducted, we believe it is reasonable to assume that some amount of preliminary efficacy data from this open-label study has been collected by the Genentech team. I want to be clear that Genentech does not have any such interim data, and we do not know when or where interim data or full data will be made available to us. But there are several public disclosures from Roche and Genentech which occurred this year, which we believe are consistent with the Phase 2a trial, looking promising and at the least appears supportive and explanatory of their increased investment in the OpRegen program. I want to briefly review four reasons for our optimism, but before doing so I just want to emphasize that what we're providing today is management's perspective of the current situation based on our assumptions, experience, and Genentech or Roche's publicly available actions and statements, which we believe in the aggregate are consistent with positive progress happening with the OpRegen program. So first, Roche conducted a pipeline prioritization process early this year; they terminated approximately 20% of their developmental programs in order to enrich for what they describe as first-in-class and best-in-class assets. They refer to these as 'High Impact Programs'. Not only was OpRegen maintained, but after Roche terminated a competing anti-complement program, OpRegen has become, to our knowledge, the only clinical stage GA program in Roche's pipeline. We believe this is meaningful given Roche's longstanding commitment to ophthalmology. Second, in May, Genentech entered into a new and additional services agreement with Lineage to provide certain activities for the benefit of the OpRegen program. To be clear, we did not reopen or renegotiate our original agreement. This was a separate agreement that provided capital to support activities like additional training of their staff, opening more clinical sites in the Phase 2a study, and following patients in Lineage’s Phase 1/2a study for an additional five years. These are medium and long-term actions which we believe are consistent with Roche's ongoing commitment to OpRegen. Third, the current study began only at clinical sites which had prior experience with OpRegen. Starting off with a smaller number of sites can help reduce variability, which may be particularly important for smaller early-stage studies and especially for assessing novel surgical techniques. Ultimately, what we should care most about is having these studies provide useful data and the highest probability of success for OpRegen. We believe Roche's clinical strategy supports that goal, and we're pleased to welcome the two clinical sites which came on board earlier this year. We also believe there may be additional sites being added to the ongoing trial. Given the effort required to open and train a site, we believe expanding the study to additional sites this far into a trial and broadening surgeon's experience with the product could be a signal that things are going well. Fourth, we noted that during Roche's recent Pharma Day, our partner spoke about OpRegen's potential, and they highlighted that they had recently obtained RMAT designation for the program. RMAT designation provides a number of potential regulatory benefits which I encourage everyone to be familiar with, as it may provide insights into Roche's plans. I won't cover those benefits today, but again, we find it encouraging that more than a year and a half into the ongoing open-label Phase 2 trial, Roche was marshaling regulatory and medical resources to successfully obtain this designation. We believe those four indicators I just described may signal how OpRegen is faring, but there are additional smaller items which further contribute to our view of how things are going. Even things like just a few weeks ago, giving the ongoing trial a name seems encouraging to us. By the way, the trial is now known by Roche and Genentech as the GAlette Study, and they told us that that is how it will be referred to by them when it is brought to scientific podiums in the future. I should mention that Lineage having incomplete information is a completely normal arrangement for a pharma partnership. What is perhaps slightly different in our case is that we continue for now to be the manufacturer of the product, so we spend a lot of time with our partner. And overall, we believe that Roche and Genentech continue to be fully committed to the development of OpRegen and we're encouraged by the public actions and statements made by them to date. I now want to shift gears and talk about something we've been working on, which I think can highlight the unique capabilities of this company. Specifically, I want to address the topic of commercially viable manufacturing. Investors naturally get excited about clinical data, but cell therapy experts understand that commercial success can only occur if it is accompanied by affordable manufacturing. And to be clear, I'm not talking about products which expand donor cells to tens, hundreds, or even thousands of doses because those approaches still need to solve for donor variability and product consistency and inefficient cost. And I'm certainly not talking about individual treatments that require a unique donor for each dose, because from a cost and comparability perspective, those manufacturing chains more closely resemble autologous therapy. I'm talking about capitalizing on the consistency and cost advantages of a bona fide off-the-shelf solution, which can provide millions or tens of millions of therapeutic doses all from a single starting cell line. The reason I emphasize this topic is that the advantages of a clinically proven allogeneic cell therapy can only convert to high-margin revenues if you make a consistent product at commercial scale at low cost. And the milestone of reducing to practice, not just promising or predicting future production levels, but actually manufacturing and releasing GMP material from a stable working cell bank, which itself was derived from a stable master cell bank, and thus credibly demonstrating a commercially scalable manufacturing process from start to finish is a massive undertaking. So, I like to listen carefully to what other companies are saying about this topic. As one recent example, I listened to a talk on this subject given at a Goldman Sachs conference last month by the CEO of a large, well-funded cell therapy company. That CEO described four challenges of developing an allogeneic therapy which his company faces. He highlighted the requirement for one, a stable master cell bank; two, material to support Phase 1 studies; three, overcoming rejection; and four, having the purity, potency, and yield needed to support commercial scale manufacturing. And he explained that even foundational step one, establishing a stable master cell bank, took a few years and that it wasn't yet guaranteed they had one. His overall message when talking about what lies ahead, and I'll use his words, was that their investors were ‘probably going to be frustrated for a long time’. And by the way, this view comes from a company which raised almost $700 million in their IPO. Now, I agree with that CEO about those four major challenges, and I admire his honesty to define the technical hurdles he faces. But I want to make it clear to our investors that the Lineage manufacturing team is working right now not on the first three hurdles, but on the fourth and final hurdle, ensuring purity, potency, and yield necessary to support commercial scale manufacturing. We're not aware of any company which has demonstrably completed these steps with an off-the-shelf allogeneic product, but we believe we are on track to accomplish this milestone next year. My point is this. Lineage has the experience necessary for succeeding in this new field. I believe that manufacturing expertise is a massive barrier to entry in cell therapy, too often mistakenly shoved into the background by the optimism of new capital, which perhaps finally is beginning to accept and understand production expertise as necessary, but difficult table stakes for this field. All of that, if true, would seem to favor the experience of Lineage, and so it makes sense for me to highlight this point of view from time to time. If we can reduce the practice, what every allogeneic cell therapy company is promising, and if the clinical data being generated by Genentech supports further development of OpRegen, we'll be well positioned for late-stage trials and can apply the success to our other programs as well. I'll now transition to the remainder of our pipeline. I highlighted at the beginning of the call that Genentech has obtained RMAT designation for OpRegen. So as an example of how that designation can be helpful to sponsors, we took advantage of the RMAT designation we obtained for OPC1, our cell transplant for spinal cord injury, to hold an informal call with the FDA to try and help them complete their review of the OPC1 IND amendment. That call was held two days ago and went very well. The call included reviewers for both CBER and CDRH divisions with the purpose of aligning on any items which would need to be completed prior to us being able to initiate the DOSED study. We already reached alignment with the agency on the clinical aspects of the DOSED study, so this meeting was focused on the novel delivery device which we intend to test. During that meeting, which I attended, we believe we reached alignment on the final user tests which the agency requested. Those tests have been completed and we previewed their findings on the call, so we have no additional lab work to perform, just preparing and submitting the data which we expect should be completed in a few weeks. More importantly, the FDA also indicated at this meeting that they do not expect to send us additional requests for information. Therefore, we currently anticipate that the agency will complete its review of this amendment in Q1 of 2025, and we currently plan to commence enrolling patients in the DOSED study as soon as feasible after submitting these updates. As a reminder, once the IND Amendment Review is complete, that means we can submit our CIRM grant application for approximately 60% financial support of the DOSED study. We continue to be very excited about the possibility of significantly reducing the cost of this trial via a CIRM CLIN2 grant. However, the CIRM grant portal is currently closed. CIRM indicated they expect the portal to reopen in the spring, so that timing works well from our perspective. Based on this week's call with the FDA, we can continue our site activation process while the agency finalizes their review of our submission in parallel. And because the CIRM grant portal doesn't open until spring, we aren't spending significant capital on things which otherwise could be reimbursed through a grant. And we have the benefit of additional prep time to work with the planned sites. Now for the sake of time, I'll just provide a brief mention of ReSonance, also known as ANP1, our cell transplant program, to address sensorineural hearing loss. In September, we presented preclinical data at the 59th Annual Ear Biology Workshop Conference, showing successful administration and survival of ReSonance into multiple locations of the inner ear. In parallel with generating that data, our team successfully manufactured resonance via a proprietary process which we developed in-house at Phase 1 clinical scale and with relevant in vitro functional activity. We also generated a cryopreserved ready to administer thaw and inject formulation at a clinically testable dose, a formulation which supported successful engraftment and survival in the pre-hearing loss model. I've already explained that we see manufacturing excellence as equally important as clinical evidence, but this work is additionally important because it shows how we are able to rapidly and successfully apply the technical achievements we made with OpRegen onto our other pipeline programs. What we've done with ReSonance really captures our overall approach to running this business. We intend for the success and future value of the OpRegen program to help support our efforts to advance multiple cell transplants in areas of high unmet need and where we have even more favorable economics. We believe OpRegen data has the potential to validate our technology and our business plan, but we continue to remain mindful of macro and sector factors which affect our outlook. Overall, we may move faster or slower in any given quarter, but the progress we've made during the past few years is exciting. And if OpRegen proves itself in the ongoing study, we believe we'll be able to move even faster and with greater confidence than ever before. And with that, I'll turn things over to Jill for a review of our financials.

Thanks, Brian, and good afternoon, everyone. Our reported cash, cash equivalents, and marketable securities of $32.7 million as of September 30th, 2024, is expected to support planned operations into Q1, 2026. As Brian mentioned, our expected runway is a quarter longer than we reported last quarter and is a result of not only managing our spend as it relates to OPC1 development but also a reflection of our ability to be flexible in how we manage our cash resources to support the achievement of important milestones. Potential milestones include things like future payments under the Roche and Genentech collaboration, program grants, business development transactions, or new outside investments. We take a long view of creating value and seek to be mindful of striking a balance among our costs and investment of capital. Now, I will review our third quarter operating results. Our revenue is generated primarily from collaboration revenues, royalties, and other revenues. Total revenues were $3.8 million, a net increase of $2.5 million, as compared to $1.2 million for the same period in 2023. The increase is primarily driven by more collaboration revenue recognized from deferred revenues under the Collaboration and License Agreement with Roche. Our operating expenses are comprised of research and development expenses and general and administrative expenses, and total operating expenses were $7.6 million, a decrease of $0.3 million as compared to $7.9 million for the same period in 2023. R&D expenses were $3.2 million, a net decrease of $0.6 million as compared to $3.7 million for the same period in 2023. The net decrease was primarily driven by $0.6 million for our OPC1 program, $0.4 million for our preclinical program, and partially offset by $0.5 million for our OpRegen program. G&A expenses were $4.4 million, a net increase of $0.4 million, as compared to $4 million for the same period in 2023. The net increase was primarily driven by $0.3 million for personnel costs and $0.1 million for stock-based compensation expenses. Loss from operations were $3.8 million, a decrease of $2.9 million as compared to $6.7 million for the same period in 2023. Other income and expenses reflected other income of $0.8 million compared to other expenses of $0.4 million for the same period in 2023. The change was primarily driven by exchange rate fluctuations related to our international subsidiaries. Our net loss was $3 million or $0.02 per share compared to a net loss of $7.1 million or $0.04 per share for the same period in 2023. Now, Brian, I'll hand the call back to you.

Yes, thanks, Jill. So I'll summarize today's call in just three points. First, we interpret Roche and Genentech's recent actions as potential indicators that things are proceeding well for OpRegen. As that trial continues to collect data, we will continue to monitor the information landscape and share insights as we are able. Second, we finally appear to have a clear path to initiating enrollment in DOSED, where we will be testing a new delivery system for OPC1. Because DOSED is an open-label study, we likely will have preliminary safety data reading out after commencement, which will be exciting for everyone to watch for. And third, the manufacturing work we've quietly been performing behind the scenes is progressing nicely. We hope to be in a position to highlight some technical and production milestones for you in the first half of next year. As we bring those milestones forward, we believe they will help position Lineage as a pioneer in allogeneic product development, which ultimately is a path we believe will lead to new therapies for patients and greater awareness for our efforts. I really appreciate your attention today. With that, operator, we're ready to take analyst questions.

Thank you. Ladies and gentlemen, we will now begin the Q&A session. Thank you. Our first question comes from Mayank Mamtani with B. Riley. Please go ahead.

Hi, this is William Wood on from Mayank Mamtani. I appreciate you taking our questions and congrats on a very nice quarter. Just two from us, I think. Just a little bit unclear on the timeline on your OPC1 getting that running. It says you just went through it and said submitting or the amendment review will be completed in the first quarter of 2025, and then you submit, and then they have to wait for another review. Maybe walk me through that timeline on when we can actually expect this back into the clinic. Apologies.

Yes, I'm happy to do so. Thank you for the question. The meeting that we had, we presented some top-line information from the use of the device. The agency's evaluation of that was that it appeared to be sufficient, but of course, as is normal, they would want to see the full data. That's sort of part one. Part 2 was we asked the question directly, is there anything else that you've got questions about, should we expect any further comments or requests for information? The normal answer that you would expect, the best possible answer is no, but send us the full data so that we can evaluate it. So there's always a caveat built into anything that is yet to be delivered to FDA. However, we did share the takeaways from those studies and we have no reason to believe they will not be acceptable because that was essentially the message that we heard. Now I will remind you and everyone else that we do have an open IND. So we are not prohibited from proceeding, but what we want to do is strike a balance between startup activities that we conduct somewhat at risk and actually dosing a patient. So the way that I would expect the events to unfurl from here is we will summarize and compile and present and submit the data that I just described to FDA, and we have no reason to expect that that cannot be completed in the next few weeks. So that will be done before the end of the year. Members of the government are going to have a normal holiday schedule and then they presumably would be picking it up in earnest early next year. Typically, the agency might take 30 to 60 days to review information. During that time, we still could be advancing the initiation activities of the study. We wouldn't dose a patient in that window, but we can get our sites all geared up. We probably can conduct activities like training. And then after that period has cleared, it would be hopefully as little time as possible before we do actually identify the first patient for the study and are able to treat that individual with the new device. So there's some overlapping activities that are in there, but generally speaking, I can narrow the guidance to say I would expect that the agency would be able to complete this. It won't be a very large information package, and they've already reviewed substantially all of the remainder of it over the last year. So I think that we are fully expecting that there will be no surprises or new requests for information because that was conveyed to us. But again, until we actually get to that point, we just remain mindful that everything is always subject to the information and content in the submission. But again, we're quite confident, and the reason why we're sharing it so explicitly is we think that what I just described is exactly how things will go.

I appreciate the additional information. I have one more question regarding your ReSonance ANP1 program. Considering what you've learned from OpRegen about the importance of having the cells fully covered rather than just partially or along the edges, and referring to your preclinical studies, what gives you confidence in applying these insights as you move toward the clinic? Ensuring these cells are fully covered in the cochlea presents different challenges compared to the eye. Thank you.

Thank you. That is a spectacular question. We haven't been asked that before. One of the surprising findings from the preclinical study was that the transplanted cells, which we were able to track their location, did appear to migrate through and around some of the curves of the cochlea. Perhaps that shouldn't be surprising because we do know that OPC1 can migrate a little bit so if you deliver the cells into the modiolus and you get some spread beyond that, what does that tell you about percent coverage? I don't think it will be quite as defined as it is in dry-AMD where we could really look at the images and say we've got 100% coverage of the area of atrophy or maybe just 5% or 10% coverage of the area of atrophy. I think in the setting of the eye, we have the benefit of high-resolution imaging technology which allows us to track the cells. And I think in the spinal cord we've got the advantages of MRI to help us locate the transplanted cells. With respect to the inner ear, it is very much unknown at this point what percent coverage and really what the target area looks like in contrast to dry-AMD. So I don't think we can answer it, but I am encouraged by the fact that even as early as we are, we already saw a migration of transplanted cells in and around some of the curves of the cochlea. And we would presume that that would be beneficial because otherwise trying to spray paint around corners would be considerably difficult. Thank you.

Our next question comes from the line of Joe Pantginis with HC Wainwright. Please go ahead.

Hello everyone. Good afternoon. I appreciate you taking the time to ask questions. Brian, you shared some valuable insights and observations regarding Genentech’s progress and efforts with OpRegen. To build on that, could you provide some details about your activities under the services agreement with them? Do you think these activities, or potentially an increase in them, might reflect Genentech’s advancements?

Thank you, Joe. I believe there are some insights we can gather while staying within the scope of public information. One significant takeaway is that we will continue to monitor the patients in the Lineage Phase 1/2a trial for an additional five years. It seems logical to follow these patients, especially if they have experienced anatomical and/or functional benefits for as long as five years in some instances. It wouldn’t make sense not to continue this monitoring. If the belief was that the effect diminished after two years and patients returned to baseline or worsened by year five, there would be little reason to extend the follow-up by five more years. While there are safety questions that could be addressed over the long term, this follow-up is not mandated by the FDA. We are being cautious not to focus solely on the optimistic interpretations of any activities. Instead, we are considering a range of decisions, requests, actions, and statements from our partner, which together are more likely to indicate supportive progress than otherwise.

No, that's helpful, thanks. And then with regard to OPC1, like you alluded to, I mean the FDA can always come up with surprises, but it just seems that the amendment is almost locked in there, just pending, like you said, the data and then just completing the package. But as the study moves forward and you start to see safety and then potential efficacy what are your current views with regard to business development around the program?

That's a really good question. I think every asset has an optimal point for attracting a partner. It makes logical sense: if you approach it too early, you won’t be compensated well enough, and if you wait too long, you risk failure. Companies need to carefully consider the timing and manner of forming partnerships. Regarding OPC1, my view is that having the option to partner is more valuable than being obligated to do so. We felt some obligation to partner on dry-AMD due to its significance, but we might see things differently with spinal cord. A smaller company can create a tailored field force for a smaller product, but having the option to partner is beneficial, especially for companies with a platform that can generate multiple opportunities. To achieve the best value, it often makes sense to invest modestly to reach important milestones. For OPC1, had we pursued partnering over the past year, we likely wouldn’t have received favorable economics because we would burden a partner with fixing cell production, ensuring delivery, and designing the study. These tasks, compared to clinical trials, are relatively affordable. The work we've done and the capital we've invested to enhance the commercial viability of delivery and the product, along with our experience in study design, should ultimately create a partnership package that yields better economic returns than if we sought a partner merely for additional capital now. It’s a complex question without a simple answer, as it involves not just the asset’s intrinsic value but also the environment, partner interest, and many other factors. From our perspective, maintaining the option for partnership while aiming to invest minimally for maximum return is the best strategy for these programs.

It's great to hear about the optionality surrounding HHS. I have another question regarding the ANP1 program. Recently, you made significant progress with your manufacturing initiatives. I'm curious if you can share any upcoming milestones that will lead to IND status. Also, you've previously mentioned this, but it's worth reiterating given the focus in recent years on takeouts and the advancements in mutation-specific gene therapy for hearing loss. How does ANP1 stand out in terms of targeting potential populations?

I believe I've taken on three questions, and I'll attempt to address them all. We intend to arrange a pre-IND meeting to clarify the FDA's expectations for an investigational new drug application. One consideration is animal models. Using human cells, many animal models may not be relevant. A small molecule can be tested across various species, but incorporating human cells into other species complicates the application of similar models. We experienced this when developing an immunosuppressive regimen for a porcine model. Our goal is to gather sufficient data to confidently approach the agency for initial communication regarding IND expectations. This ties into your second question about the hearing loss field. Several companies with promising starts haven't progressed significantly, possibly due to their focus on single pathways. These conventional molecular methods for treating hearing loss may not suffice because they don't replace the essential cell type that is lost. Similarly, while anti-complement therapy can yield observable benefits in dry AMD by targeting one pathway, it still leaves much clinical benefit unrealized. We are well-positioned to explore failures of small molecules or antibodies in hearing loss. You also mentioned a company regarding gene therapy targeting hearing loss. While it's encouraging that gene therapy can modify diseases, it tends to focus on a single gene, which limits its scope. While we may hear about successful treatments in specific cases, the actual number of patients with a particular otopherrin deficiency, along with the necessary investment and market size, may not present a very promising picture. On the other hand, cell transplantation might provide a broader patient base since we don't need to identify the broken gene; we can deliver new auditory neurons that function properly. This embodies one of the main advantages of cell therapy. Our challenge is to identify the most promising opportunities, as we won't pursue 210 different cell types. For instance, we've examined NK cells, but auditory neurons meet enough of our criteria to excite us, and the competitive landscape remains relatively sparse. Currently, I'm only aware of one other company using this method. Thus, we are enthusiastic about the limited competitive threats and the significant opportunity for success using a more robust intervention.

Great, really appreciate the details Brian, thanks a lot.

Thank you, Joe.

Our next question comes from the line of Jack Allen with Baird. Please go ahead.

Great. Thanks for taking the questions and congrats to the team on the progress. I have a couple to start on OpRegen and then a follow-up on the ANP1 program. I guess, first on OpRegen, any color you can provide as it relates to what data was shared with the FDA surrounding the RMAT designation that your partner was able to ascertain? Was that the Phase 1/2 data or was there any data from the Phase 2a study shared? Do you know? And then another one on OpRegen about when we may have three-year follow-up in that data set. I know we had two-year data presented this spring. Do you have any context around when three-year data from the Phase 1/2 study could be available?

I admire the thoughtfulness of the questions and I feel handcuffed with my ability to respond. We have some information with respect to the RMAT content, but I am unable to comment on it and certainly unable to comment in the form that I think you would like me to be, the openness and clarity you'd like. And similarly with respect to 36-month data, all I can say is that Roche and Genentech seem very comfortable doing 24-month data. In fact, that is some of the most significant data that we have seen to date, patients gaining and retaining vision for two years and having increased layers of retinal tissue. We cannot guide at this time as to when 36-month data could become available if ever because that is under the control of Roche and Genentech, those disclosures, publication strategies, conference selection, etc.

Got it. Got it. And then just one more to round it out on OpRegen. Has your partner Roche given you any more indication as it relates to what the next steps forward for the program could be? Or I guess, how should we be thinking about future disclosures? And then briefly on the AMP1 program, very interesting approach here. I wanted to ask if you've seen any kind of examples of hearing regeneration in nature or natural models maybe outside of those used in the lab? I think there are some species of animals that do regenerate their hearing. I think that would be interesting proof of concept for the basic science you're looking to pursue here.

The regulatory question is up to them to decide. I am very encouraged that in the United States, the approval standard in dry-AMD was a reduction in anatomical progression, specifically a 20% decrease in the growth of geographic atrophy. As you know, at 12 months we demonstrated that the geographic atrophy remained unchanged. I appreciate that there is a regulatory precedent for this. Additionally, it's notable that a small number of our patients are showing improvement in vision over a two-year period, which is unexpected given the seven, eight, or nine letters of vision loss typically associated with therapy. This may also explain why anti-complement treatments have not yet received approval in Europe. There are several potential paths forward. I'm particularly inspired by the precedent established by Averik, which was acquired for about $5 billion or $6 billion by Stellis. Averik conducted a large Phase 2b study that was accepted by the agency as the first of two Phase 3 studies to support approval. If we had kept the asset, I would have aimed to conduct a larger Phase 2b to gain FDA agreement to designate it as the first of two registrational studies. Typically, the event rate on the control arm won’t be close to that of the treatment arm, as retinas don't spontaneously regrow. There’s a significant opportunity to provide strong statistical evidence for a treatment effect that could lead to approval based solely on that in the U.S., alongside secondary endpoints. These could include metrics such as no vision loss or gains in letters of vision, which would allow us to market this product as the only one that has proven the ability to improve vision in patients, even if that isn't the primary endpoint. It’s a strategy worth considering on a global scale, particularly for the U.S. and Europe. Regarding ANP1, there are indeed interesting parallels. Nature offers intriguing examples of regeneration, like certain species of starfish or planaria, and even some birds show the ability to regenerate hearing. These abilities relate to genetic expression and evolutionary traits. Our core technology is centered on controlling the differentiation and expression of cells. Currently, we’re merely beginning to explore options like cell editing. There is merit in considering which animal representation we should adopt, especially if our hearing loss program advances. The axolotl is popular among companies due to its appeal. It's true that humans have lost regenerative capabilities to prevent rapid cancer development, but that capacity still exists. If we could reactivate it, it would represent a major breakthrough in in vivo reprogramming, which is still in early stages. I do not perceive it as a threat at this time; rather, everything we discuss is compelling science, and there are precedents, possibly even in humans, that we are yet to uncover.

Yes, definitely. Thanks so much for all the color, Brian.

You bet. Thank you, Jack.

Our next question comes from the line of Kristen Kluska with Cantor Fitzgerald. Please go ahead.

Hi, this is Ayan on the line for Kristen. Thank you so much for taking our questions. Congratulations on the RMAT designation. Has your partner at all shared how they might utilize this to get in front of the FDA more often? And if so, what topics of discussion are most important to them to align with?

Thank you, Ayan. I can't say for sure how they plan to use it, but I can assume they didn't pursue this just to add it to their resume. RMAT designation provides several benefits, including the opportunity to have discussions about endpoints that may not be immediately evident. There are various ways to leverage RMAT designation, such as having additional meetings. We found it useful in our informal meeting, which proved to be incredibly valuable and helped speed up our process that had previously stalled. While I can't comment on how Genentech and Roche will specifically use RMAT designation for OpRegen, we definitely see it as a positive asset, and we're eager to understand their plans as soon as we can.

Thank you for that. And my second question is we understand that specific timelines are not disclosed, but are you able to share if the company could receive any potential milestones upon completion or the waiting out of the Phase 2a study? Thank you.

Thank you for the question. We are eligible for all $620 million in milestones, both developmental and commercial. However, we cannot disclose what these are tied to or the specific amounts. To be conservative, we do not factor these into our runway guidance, and we won't until we actually receive them or it's highly likely we'll receive them. You'll just have to wait until the funds are secured, and then they will appear in our filings. This is a standard practice, as Roche and Genentech likely wouldn't want to use our deal as leverage for negotiations with someone else. I appreciate your question, and while we wish we could share more, we are unable to do so.

Thank you again for taking our questions.

My pleasure. Thank you.

Our next question comes from the line of Michael Okunewitch with Maxim Group. Please go ahead.

Hey guys, thank you for taking my questions today and congrats on the progress this quarter. I guess with regards to the CIRM grant, right, if at all you're expecting to be open up in spring, but you're approved to proceed with the study, the dose study before that, would you expect to start ahead of receiving approval on that grant, and then would you be able to get reimbursed for any expenses prior to the actual date of the agreement?

Yeah, it's a very insightful question and it really speaks to being thoughtful and careful with your cash management. So there are definitely things that we can do and we should do prior to applying for a CIRM grant and prior to the trigger event that allows us to get reimbursed. What we do not want to do is we don't want to open the fire hydrant fully without better clarity as to where we are with that. What we do want to do is ensure we are not sitting passively and burning capital and burning clock time when we have a reason to believe and confidence that we will ultimately get a significant amount of capital through that grant process. So Jill is tasked with balancing these trade-offs and understanding which kinds of expenses are collectible and when. And we factor in external factors as well. We think about where we are on the macro factors, where we are in the sector, how comfortable we are with alternate sources of capital, as Jill mentioned, business development, other grants that we don't talk about quite as often. There are a lot of different things that go into it, but as a general matter, what we are trying to do is solve for the optimal solution and balancing the ability to move forward at risk, while not spending at a rate that makes us feel a little bit uncomfortable if there's additional offset of that capital in the future, if all of that hopefully makes sense.

Thank you for the additional information. I'm curious if there's an expectation that the testing process for the in-house developed candidates could be quicker than for those you've acquired, given that you can design them with the optimization features you've learned from developing OpRegen.

Absolutely, I'm really proud of how the team was able to go from the day that we decided to commit to auditory neurons. We do market analytics, we do background work, and then we decide we're going to do this program. Within 12 months, we were in animal testing with the material that I described, right? A process that we developed, this is a program we own. And so I absolutely see this company going through this acceleration where in the earliest programs like OpRegen where you might have to say to someone, hey these cells have never been in a human being before, we have no idea what's going to happen, do you mind if we implant them into your eyeball? You're going to have a lot of screen failures. People might be scared to do that. Now we're at the point where maybe that's not quite a problem that it was when the prior sponsor first started. Similarly, when looking at the spinal cord program, we didn't like their process. We acquired this from Astellas. We were not happy with their process. We didn't think it was commercially viable, so we had to change it. But going forward, programs like ANP1, we take those lessons, and my goodness, can we move so much faster now? Now, not every cell type is going to be amenable to cell transplantation, but there probably are a number of them that we've not talked about, some of which are pursued by other companies, which doesn't scare us, and some of which we think might represent isolated territory where we could really break ground. But in all cases, being able a priori to engineer in the features and the control measures and the knowledge and know-how that we've developed over 20 years is absolutely a massive and underappreciated advantage. And I think ANP1 is a really good example of applying that technology to be able to move quicker.

All right, thank you very much for taking my questions today, Brian.

Thank you, Michael.

Our next question comes from the line of Albert Lowe with Craig-Hallum. Please go ahead.

Hi guys. Thanks for taking my questions. It was really great to have the discussion about how your existing experience and platform helped this rapid development for this auditory program. I was wondering if perhaps this pre-clinical work for your photoreceptor program is ongoing and whether we might be able to hear about this story sometime in the near future.

Thank you for your question, Albert. I appreciate you joining us. The photoreceptor program is quite interesting. We have intentionally created some distance from an innovator to increase our ownership stake in it. There is another innovative company that recently made progress with their own photoreceptor program. Currently, photoreceptors are not receiving significant funding from us as it is one of our lower priority projects. However, we have dedicated a considerable amount of time to refining a strong process. One challenge we continue to face is determining the best delivery method and conditions for using photoreceptors. Some experts suggest that photoreceptors work best in conjunction with RPE cells. However, we are unable to pursue that approach since we have already committed $50 million upfront and have granted commercial rights to our RPE program, which includes hundreds of millions in potential royalties. Nonetheless, we are exploring the possibility of developing photoreceptors as an independent asset or revisiting collaboration with the same company to see if they are interested in integrating photoreceptors or other concepts. While we are somewhat limited in capital and can't allocate as much investment to photoreceptors right now, we have recently taken steps to enhance the value of this program by clarifying our position. We eliminated some original licenses that we deemed unnecessary, which significantly improved our economic interest in the program. In the future, you may hear more about this, and it's certainly an area to keep in mind.

Thank you. I have another question. Can you provide more details about the exploratory endpoints that will be used in the dose study, particularly any new ones compared to the previous trial, and which of those might be the most informative for the clinically meaningful endpoints in the larger trial you have planned?

This is a fascinating development as we initially approached this with the sole aim of gathering safety data. Our plan was to evaluate six to ten patients to obtain safety information on the device, paving the way for a larger comparative study that would address more compelling issues beyond just the safety of delivery using the same needle and location. However, the FDA made it clear that we also need to gather crucial functional measures, quality of life metrics, and efficacy data from these patients. We are proceeding with that. Although all of these are exploratory since the study is fundamentally about safety, it’s exciting that we will collect efficacy data, and the FDA has agreed to include patients with older injuries, which will include some chronic injury patients rather than just subacute ones. For us, subacute is defined as three to six weeks, while chronic can range from one to five years. We will provide the details once the protocol is available on clinicaltrials.gov, or possibly we’ll share it even sooner. I prefer to hold off a bit because, despite having what seems like a clear agreement with the FDA regarding the protocol, it's always good to be cautious. If everyone can bear with us a little longer, we will share the protocol details showing what we will be measuring. It's exciting that the FDA wants to see efficacy metrics from what is primarily regarded as a straightforward safety trial, and these insights could be very telling. It raises interesting possibilities, especially if a chronic injury patient, after plateauing for three years, suddenly improves their capabilities in some way. That could significantly change our understanding of what is achievable in chronic spinal cord injury cases.

Great, thanks. Yes, that's really exciting. Looking forward to seeing some of those data. So if I could squeeze in one last one, I know that you mentioned you'd be able to support commercial scale manufacturing at some point next year. I guess I just want to clarify, is that maybe within your own internal facilities or with Roche's preparations?

Yeah, what I'm describing is something that is entirely performed by us in our own facility. And what I'm really trying to emphasize in that part of the call is that many companies talk about what they plan to do, what they think they can do. But I'm not aware of any company that has actually reduced to practice, that they can take a master bank, that they can develop a working cell bank, and that they can then make their product. And the reason why that's a big deal is that the multiplication in scale is extraordinary when you go through that, right? You might have 100 vials of a master bank. If you make 100 vials of a working bank from that, that's 100 times 100. And then if you make 1,000 vials of product from that, right, you get into really silly numbers. And allogeneic companies, and I mean in this case off-the-shelf, ready-to-use allogeneic, again I can't stress enough, I don't mean someone that takes a source, divides the cells, and can make a hundred doses and then has to go get a new source. I mean a single source that is permanent forever for the life of your product, to be able to scale to many tens or even hundreds of millions of doses is something that once someone reduces it to practice, I really think that they have achieved something notable in this field. So I don't want to say that we've done that yet, but I do want to say that we feel we're getting very close. And this is something that we aim to do over and over. The challenge of doing that with ANP1 or resonance in hearing loss is going to be vastly lower because as somebody asked earlier, we're already building in the right formulation and growing the cells and bioreactors instead of plates and all these other features that we've already worked out. We've even had people approach us to try to license some of the little extra property that we developed for some of these technologies. So it's absolutely the case that it's a big threshold. And if we're going to claim that we're a leader in cell therapy and cell transplantation, these are the kinds of things that we need to show people. And I think it puts the burden on everyone else. Because if I can get Lineage to do this and I can show analysts and investors, here's what we've actually done, then I want them to take it to the other places where people are deploying capital and say, hey, can you do this? And I think that's just one of our many strategies with respect to investor relations and managing the business.

Okay, yes. I understand. Thanks for that explanation. I can see what you mean really going from start to finish in the whole process here.

It’s a great way of describing it and thank you, Albert, appreciate it.

Our next question comes from the line of Sean McCutcheon with Raymond James, please go ahead.

Hey guys. Thanks for slotting me in. Just a couple for me. What gives you the confidence this time around that the FDA, that you have a clean line of sight on that IND amendment for OPC1 for the dose study versus the prior communications you've had with them that led you to believe that you would be able to start the study in the second quarter of this year. Were these user tests a sticking point previously discussed with the FDA? And then the second question is, what are your expectations and plans for what you'll need for a comparability study for OPC1 with the newly manufactured product? Thanks.

Thank you, Sean. That's a good question. My confidence comes from two main sources. First, I attended the meeting, so I have firsthand knowledge of the discussions that took place. I'm comfortable supporting my earlier statements regarding our readiness to initiate this study. Additionally, it's worth noting that we had several representatives from CDRH at the meeting, not just CBER, which is where our cells are being assessed. In the past, CDRH was not involved early on, which limited our ability to predict their requirements and expectations. This led to delays due to the complex communication chain linking us to the sponsor, then to our project manager and CBER, and finally to those facilitating interactions between divisions. Consequently, time was lost, and urgency diminished the further we got from the sponsor. I didn’t find anything unusual or surprising about the user tests; rather, it was just the unfortunate experience of progressing through the CBER process and then needing to start afresh with CDRH. We hope we’re nearing completion on that front. Regarding your second question about the comparability of the cells, we have conducted the studies we believe are adequate. We are currently performing additional bioinformatics work, which is supplemental and reinforces our position. We have strong evidence showing that the new cells we are producing compare favorably to the previous cells in terms of appearance and performance. Interestingly, I wouldn't want the new cells to be too different, as they could be seen as overly potent, which would prompt FDA to require more extensive studies. We believe we've made significant advancements, increasing scale by more than tenfold and improving purity, and we've tested the new cells in the same models as before with comparable or improved results. This supports a robust comparability package. However, we have not submitted this data to the FDA yet because we've prioritized the device and ensuring the dose study proceeds. Once that study is underway, we will prepare our documentation and request a meeting with the FDA. While we can't introduce the new cells immediately, as we've committed to using older cells for this study, we're looking forward to integrating them. It's reasonable to believe that they might perform even better. We're excited about having a nearly complete data package, but we also want to avoid overwhelming the agency with too many submissions at once.

Got it. Thanks, Brian.

You bet. Thank you, Sean.

And that does conclude the Q&A session for today. I would like to turn the call back over to Brian Culley for any closing remarks.

It was excellent. We had so many questions. Thank you, everybody, for attending the call. And really glad about what we're doing, and we look forward to being in touch. Thank you.

That concludes the meeting. Thank you for your participation. You may now disconnect.