Lineage Cell Therapeutics, Inc. (AMEX:LCTX) Q3 2023 Earnings Call Transcript

Lineage Cell Therapeutics, Inc. (AMEX:LCTX) Q3 2023 Earnings Call Transcript November 9, 2023

Lineage Cell Therapeutics, Inc. beats earnings expectations. Reported EPS is $-0.04, expectations were $-0.05.

Operator: Welcome to the Lineage Cell Therapeutics Third Quarter 2023 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 expressed written consent of Lineage are strictly prohibited. As a reminder, today’s call is being recorded. I would now like to introduce your host for today’s call, Ioana Hone, Head of Investor Relations at Lineage. Ms. Hone, please go ahead.

Ioana Hone: Thank you, Jordan. Good afternoon and thank you for joining us. A press release reporting our third quarter 2023 financial results was issued earlier today, November 9, 2023, 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 statements section 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; Jill Howe, our Chief Financial Officer; and Gary Hogge, our Senior Vice President of Clinical and Medical Affairs. With that, I’d like to turn the call over to Brian.

Brian Culley: Thank you, Ioana, and good afternoon, everyone. We appreciate you taking the time to join us today. I’m pleased to report that everything remains on track with our most important development plans and we continue to have many reasons to be excited about the future. For example, we recently reached a milestone with the ANP1 program for hearing loss, which I look forward to describing further today. But first, I want to start off by talking about our manufacturing subsidiary because it is located in Israel. And the work performed by that group is very important to us. We have more than 50 employees in Israel and naturally, the safety and well being of that team is our top priority. Fortunately, there has been almost no impact on our operations due to the Israel-Hamas war.

Our facility itself is located in a suburban area approximately 30 minutes outside of Jerusalem, and it has not been directly impacted by the ongoing conflict. We have an extremely capable and dedicated team. And while a small number of employees or spouses were called up for reserve duty, the team has continued to maintain their high level of output, in particular by completing the final validation work for OPC1 and continuing manufacturing activities for OpRegen. As additional support for our employees, we have made supplemental employee services available as may be needed. And in the meantime, we will continue to monitor the situation closely. And if needed, we will adjust our operations accordingly. But we expect we will be able to continue to operate our business as normal in both Israel and the U.S. Moving on to OpRegen.

We were pleased to present last week at the Eyecelerator conference in San Francisco in a session called Mapping the Future of Geographic Atrophy. There were more than 40 ophthalmology companies showcasing their innovations. But we were one of just four companies selected to share the main stage with Apellis and Iveric Astellas in front of a large audience of retinal specialists, investors and other interested parties. It was wonderful to be recognized among the most promising approaches in the GA space, and I hope the replay from that presentation will be available soon for your review. As an additional part of our ongoing efforts to broaden awareness of the OpRegen program, Roche and Genentech electively reported data last month from our Phase 1/2a clinical study at the 23rd EURETINA Congress.

These latest results which were independently generated and reported by our partners focused on the rapid time to onset of retinal structure improvements in OpRegen treated patients, which are vastly faster than anti-complement approaches. You may have noticed that there has been a lot of attention recently drawn to the effects of complement inhibition during its third consecutive year of treatment, or as I prefer to call it after 18 to 36 injections. Meanwhile, our data show that after just a single administration of OpRegen, improvements to retinal structure were detectable in some cases just days later, and always within three months. As a reminder, all five patients who had extensive coverage of the GA lesion with the surgical bleb containing a suspension of OpRegen demonstrated evidence of improvement in outer retinal structure and visual acuity gains at 12 months.

Additionally, maintenance or greater improvements in retinal structure were observed over time. These data continue to give us confidence in our lead asset, and we look forward to additional future clinical data updates on the OpRegen program from our partners Roche and Genentech for both the fully enrolled Phase 1/2a study which we conducted, as well as from Roche’s Phase 2a study which is currently enrolling. In parallel with these additional data announcements, we have continued inventing and patenting new process development methods to support long periods of exclusivity for our pipeline of cell transplant programs, including OpRegen. In September, the USPTO issued a patent entitled Large Scale Production of Retinal Pigment Epithelial Cells.

This patent, which has been exclusively licensed to Lineage has an expected expiration date of July 28, 2036, and we believe further enhances the value of the OpRegen program. For reasons I’ve shared previously on several occasions, I’m unfortunately not yet able to provide any details about the results from the ongoing Phase 2a trial of OpRegen. But patient enrollment continues, data are being collected and additional sites are expected to come online, which you can follow at clinicaltrials.gov. And while I’m not able to speak to when or where top line data will be available, we understand that investors are eager to learn whether Roche can reproduce the clinical observations, which Lineage reported from our Phase 1/2a study, and we aim to provide that information at our first possible opportunity.

Moving next to OPC1, our spinal cord program, we remain on track to submit the IND amendment for the new delivery device before year end. The work we have been conducting recently is necessary to submit the IND amendment, which itself is a requirement to initiate our planned clinical safety study of the new spinal cord delivery device, which we licensed from Neurgain Technologies. Assuming submission of the IND before year end as we’ve planned, and if no FDA comments are received in the 30 days following that submission, that will permit us to bring OPC1 back into clinical testing by opening our first site and initiating the small safety study in sub-acute and chronic patients with either thoracic or cervical spinal cord injuries presumably in Q1 of next year.

In parallel with this work, we continue to be in contact with the California Institute for Regenerative Medicine regarding potential financial support for the OPC1 program, and specifically for this anticipated clinical trial. As I’ve shared before, we intend to apply for financial support for this study after we complete the 30-day waiting period, or address any further requirements for our IND amendment as is consistent with CIRM guidelines. Moving next to ANP1, we committed to providing an update before year end, and I’m happy to provide that update today. As a reminder, ANP1 is our cell transplant program being developed to address hearing loss. And we have been conducting preclinical testing of our ANP1 cells through a collaboration with the University of Michigan.

Our initial objectives from this collaboration were to evaluate the delivery of our cells into specific target areas using standard surgical tools to monitor initial engraftment of ourselves into certain anatomical destinations and to assess whether our cells survive after transplantation. We also wanted to see whether the cells migrated and if they were expressing certain markers of neuronal identity. The outcomes from this initial proof of concept work were both positive and encouraging. And we consider the results sufficient to advance this program into its next phase of preclinical development, which is to evaluate our ANP1 cells in a functional model of hearing loss. Two reasons why we’re excited about reaching this milestone and proceeding into functional assessments are first, the recent deal activity in the hearing loss space, which includes early stage assets.

And second, clinical reports from gene therapy approaches to treat certain kinds of hearing loss. We believe cell therapy may have advantages over certain kinds of gene therapy insofar as replacing the entire cell, means you don’t have to select for patients who carry a specific genetic defect. We think this offers cell therapy larger addressable markets, while matching the advantages of the one and done treatment schedule of gene therapy. And if we’re able to demonstrate a functional signal in an animal model, that may create opportunities for business development or partnering of ANP1 if we determine that’s the preferred path for us to pursue. I am also excited about the ANP1 program because it represents our flagship example of the speed and return on R&D investment, which is possible with the Lineage platform.

We advanced from little more than a product concept into preclinical testing in less than 12 months and with an initial investment of less than $1 million. That is possible largely because the pluripotent cell lines which we start with are by definition capable of differentiating into every cell type of the human body. Once we figure out how to make the desired cell and can do so in a reproducible and scalable manner, we have essentially created a new pipeline asset. While clearly this is an environment where capital raising is not cooperating with opportunities for rapid expansion, we will continue to try to find clever and affordable ways to extend our capabilities and unlock value in the months and years ahead. As a second example of our efforts to create significant long-term value without large capital commitments, during this past quarter, we initiated certain development activities under our partnership with Eterna Therapeutics.

This collaboration with Eterna is an example of our strategy of capitalizing on our extensive and proprietary process development capabilities by combining them with externally access cell engineering and cell editing technologies, all for the purpose of creating novel and potentially superior product candidates. In this specific case of Eterna, we finalized the selection of edits for the initial iPSC cell lines being developed to reduce the immunogenicity of certain product candidates. And we additionally selected a particular edit intended to confer clinical differentiation and a competitive advantage in its applicable indication. And while we believe it is premature to disclose this program at this time, if we do reach predefined developmental milestones next year, we will look forward to sharing more details on this initiative with you.

To wrap up, the biotech environment continues to be extraordinarily challenging. The sector is experiencing historic underperformance and in some cases, even what appears to be positive news isn’t being rewarded. But regardless, I believe Lineage continues to be well positioned to advance our business. Our commitment to financial discipline has helped us remain relatively stable for the past two years. And do I wish we could move faster? Of course, but capital comes with a cost and sometimes it’s better to reduce your pace of investment, such as when we made the strategic decision to divert the VAC2 program to more of a BD project instead of initiating a clinical study on our own. But the most important thing overall is that we’ve been able to keep moving forward in these difficult times.

And I think our progress is demonstrated in our frequent business updates. And with our lead asset being advanced by Roche and Genentech, we believe Lineage can offer shareholders an opportunity to reset expectations about what is possible in the treatment of geographic atrophy, which continues to represent an unmet need, despite recent marketing authorizations from competing agents. So to summarize the three key points for today; one, the events in Israel have not had a material impact on our business. Two, we continue to be extremely happy with the relationship we have with Roche and Genentech including their commitment to advancing OpRegen. And three, we are eager to complete the final steps for the OPC1 IND amendment this year, so that we can have a second cell transplant program in active clinical development.

And with that, I will hand the call to Jill for a discussion of our financials.

Jill Howe: Thanks, Brian, and good afternoon, everyone. Beginning with our balance sheet, I’m pleased to report that we continue to be well capitalized to conduct the near-term activities, which Brian just outlined. Our reported cash, cash equivalents and marketable securities as of September 30, 2023 totaled 41.3 million, which is expected to support our current planned operations into the first quarter of 2025. This is one quarter further than some of you may have expected and it’s due to efficiencies and opportunities to extend our runway which we have identified during the quarter in which we will continue to look forward going forward. Next, we will review our third quarter operating results. Our revenue is generated primarily from licensing fees, royalties, collaboration revenues and research grants.

Total revenues were 1.2 million, a net decrease of 1.8 million, as compared to approximately 3 million for the same period in 2022. The decrease is primarily driven by lower collaboration and licensing revenue recognized from deferred revenues from the Roche agreement. Operating expenses are comprised of research and development expenses and general and administrative expenses. Total operating expenses were 7.8 million, a decrease of 0.2 million as compared to 8 million for the same period in 2022. R&D expenses were 3.7 million, a net increase of 0.1 million as compared to 3.6 million for the same period in 2022. The net increase is primarily driven by 0.2 million in higher OPC1 program-related expenses and 0.5 million in expenses to support preclinical and other research and development programs.

These increases were primarily offset by a 0.5 million decrease on our VAC program, primarily related to reduce manufacturing activities. G&A expenses were 4 million, a net decrease of approximately 0.4 million as compared to 4.4 million for the same period in 2022. The decrease is primarily due to an overall reduction in costs incurred for services by third parties, consulting costs, and recruiting-related expenses. Loss from operations were 6.7 million, an increase of 1.5 million as compared to 5.2 million for the same period in 2022. As a reminder, this loss was driven by a non-cash expense primarily due to revenue recognition associated with the Roche agreement. Other income and expenses included other expenses of 0.4 million compared to other expenses of 0.3 million for the same period in 2022.

The change was primarily driven by exchange rate fluctuations related to our international subsidiaries, fair market value changes in marketable equity securities and interest income from our marketable debt securities. The net loss was 7.1 million or $0.04 per share compared to a net loss of 6.1 million or $0.04 per share for the same period in 2022. Overall, we have maintained our same spending discipline, which continues to serve us well. As the uncertainty impacting the biotech markets continues, we believe that maintaining discipline in our spending will continue to allow us to maintain our plan to reach meaningful milestones, make important progress and create value for shareholders from our investments in our programs. Now let me hand the call back to Brian.

Brian Culley: Great. Thanks, Jill. As I said at the Eyecelerator conference last week, cell therapy has revolutionized the oncology world. Cell therapy stands alongside chemotherapy and surgery as one of the pillars of cancer therapy. And we believe that cell therapy and the cell therapy revolution will extend beyond oncology into other areas, including ophthalmology, and we’ll continue to strive to apply differentiated cells in a replace and restore approach to help achieve that end. A key piece of that journey and presumably one of the biggest questions for potential Lineage investors is whether Roche will be able to independently reproduce our findings of improved retinal structure and function with OpRegen. So we’ll be doing everything we can to support their efforts to conduct the ongoing study, while also working closely with them to transfer our production process to their manufacturing facility in the U.S., which will help support any further development and commercialization activities, which are pursued.

I appreciate your attention today. With that, operator, we are ready to take analysts’ questions.

Operator: Thank you. Your first question comes from the line of Joseph Pantginis from H.C. Wainwright. Your line is live.

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Q&A Session

Joseph Pantginis: Hi, everybody. Good afternoon. Thanks for taking the question. So, Brian, I’m going to ask about the OpRegen Phase 2a anyway, but I’m going to ask it this way. Based on the totality of the data and especially the recent imaging data, do you have any sort of anecdotal comments how this may have impacted positively the conduct of the study and being able to say bring on principal investigator — I’m sorry, investigators or additional sites quicker?

Brian Culley: Thank you for the question, Joe. My response won’t have any specific anecdotal references. What I will reference is a previous statement I made on a call like this, where I said that I felt that the first, I don’t know, let’s say dozen or so people who underwent this therapy were incredibly courageous and brave. They were the first in the world. Now that we have been able to show the kinds of clinical outcomes which are possible, my presumption is that the conversation between the investigative site and the patient could be easier because they can point to some of the same data, which Roche and Genentech has been presenting through their channels, or which Lineage previously presented through its own channels. But I do want to emphasize that that is no specific statement over the conduct of the ongoing Phase 2, that’s entirely under the control of Roche and Genentech.

I just think that the fear factor could be mitigated in part by some of the wonderful outcomes that we have described previously.

Joseph Pantginis: That’s totally fair. I appreciate that. And then if we just go down a little earlier into the pipeline, you made some ANP1 comments today, whether it’s that asset or others, when do you think we might be able to see, say, preclinical data in a poster or some other fashion? And separately as part of the earlier stage assets, how would you describe the current interest with regard to the VAC platform? Thanks a lot.

Brian Culley: Yes. Thank you also for that question. My mind turns to what I described a moment ago, which is a functional preclinical model with ANP1. I don’t think that I would want to wait for some sort of research conference if we generated encouraging data in that setting. Because while the initial proof of concept work that we did around delivery, migration, expression of identity factors, that’s important and even necessary, I think the true inflection point, the early stage inflection point for a program like ANP1 is some sort of indication of functional effect in an animal model, because that has been largely elusive to different approaches to date. So we — as I described, we are designing that next phase of preclinical development right now.

We intend to conduct that through the alliance we already established with the University of Michigan, but these studies do take a month to conduct and quality check and so forth. So certainly a 2024 event, not a 2023 event. But I think that would be the one that I think would be quite exciting, in part because of the considerable addressable market for hearing loss as well as some of what I referenced earlier, which are the BD activity in hearing loss has been quite substantial, even for early stage assets.

Joseph Pantginis: And VAC platform interest?

Brian Culley: VAC is continuing to be a project for the business development team rather than an internal clinical development program, again, in part due to some, let’s say, partial rationalization of the biotech environment, and then also because of the nature of the VAC program, i.e. the different antigens could be presented through the dendritic cell, and it’s impossible to think that we could exhaust all of the different product profiles that one could contemplate using that. So we very much see that more as a mini platform, which is more well suited to try to develop through partnership activity rather than with our own current capital on hand.

Joseph Pantginis: Thank you.

Brian Culley: Thank you, Joe.