Lineage Cell Therapeutics, Inc. (AMEX:LCTX) Q4 2022 Earnings Call Transcript

Lineage Cell Therapeutics, Inc. (AMEX:LCTX) Q4 2022 Earnings Call Transcript March 9, 2023

Operator: Welcome to the Lineage Cell Therapeutics Fourth Quarter and Full Year 2022 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.Lineage cell.com. This call is subject to copyright and is 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 you to the host for today’s call, Ioana Hone, Head of Investor Relations at Lineage . Ms. Hone, please go ahead.

Ioana Hone: Thanks, Mandeep. Good afternoon and thank you for joining us. A press release reporting our fourth quarter and full year 2022 financial results was issued earlier today, March 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 statement sections in today’s press release and in the company’s SEC filings, including its most recent annual report on Form 10-K. 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: Thanks, Ioana, and good afternoon, everyone. Welcome to our full year 2022 call. We appreciate you joining us today. 2022 was another challenging year for biotech companies, but I think it was an exceptional one for Lineage . We worked successfully alongside Roche and Genentech to prepare OpRegen for its next clinical trial and that trial is now open and enrolling new patients. With the positive tailwinds from the OpRegen program in place, we made bold but financially responsible moves to expand our pipeline, adding a photoreceptor program which capitalizes on our experience and success in ophthalmology and by adding an auditory neuron program, which is the first time we’ve shown that we can not only improve upon existing assets but also create them from scratch in our R&D labs, vastly reducing any third party financial obligations from these in-house product candidates.

2022 also marked a year of important and successful clinic clinical and regulatory execution for the Lineage team as we advanced our clinical programs along the respective developmental pathways. I realize this is a 2022 recap call, but I know a lot of investor attention is presently focused on the dry AMD landscape, so I thought that would be a better way to use my opening remarks. Last month, FDA approved a complement inhibitor to treat dry AMD and with this approval the FDA has set a precedent that anatomical change in the form of photoreceptor preservation is an approvable endpoint in this condition. We believe this is an enormous regulatory decision for us because the data we have collected to date with OpRegen and its ability to improve outer retinal structure and either halt or even reverse the progression of GA is far greater than what has been demonstrated by either of the leading complement inhibitors.

Critics sometimes say that we’ve only shown these results in a small number of patients, but I will remind them that we are seeing changes which do not occur spontaneously and we’re reporting these via multiple independently verified analyses using objectively captured anatomical images. So on this basis we believe these early and exceptional results are likely to be repeated in larger studies. When I look at the error bars surrounding the point estimates on the Phase three trial for the complement inhibitor, which recently gained FDA approval for which only a small reduction in GA growth is provided, I think it’s highly likely that all five OpRegen patients, which Roche and Genentech reported on that the ARVO annual meeting last year have shown greater reductions to the area of GA then all of the more than 1200 patients treated in the clinical trials which supported that drug’s approval.

Furthermore, we have demonstrated not only anatomical changes but also functional improvements to patients vision with an average of 7.6 letters gained among all cohort four patients and increasing to 12.8 letters gained among the five patients who received extensive coverage of OpRegen cells across their GA and who additionally exhibited outer retinal structure improvements measured 12 months following transplant in our Phase 1/2a study recently, a number of outlets have been reporting that a different complement inhibitor can provide functional benefits to vision. The evidence which that company provided was a post hoc exploratory analysis, which is something my former colleague liked to call drawing the target around the arrows after they’re fired.

This selective data cut sought to make the case that patients on treatment were less likely to lose 15 letters at 12 months than patients on placebo. Despite this data, similarly being in a very small number of patients representing only five to 10 patients of all patients treated on that trial, it actually was quite well received by the investment community and for this reason, I will again draw the comparison that OpRegen data which was reported at ARVO by Roche and Genentech showed 25% of patients in cohort four gained at least 15 letters. They didn’t avoid loss, they gained vision So we’re talking about comparisons which are as large as a 30 letter delta between these approaches. Obviously, it’s a huge benefit for patients and the medical community to finally have something which may help some patients with their condition, but it appears to us that there is a tremendous amount of clinical benefit, which could still be provided benefits which monthly injections of complement inhibitors have not shown.

It’s very important for our results to continue being presented at major medical meetings and help the medical and investor communities become aware of the efficacy, safety, and other attributes of our product candidate profile. One of the additional potential advantages of the OpRegen product profile is in dosing and administration. Opregen treatment involves a single 30 minute procedure rather than giving patients an injection every month or two year after year with all the compliance issues which accompany it. For this reason, we often are asked how long our treatment lasts, but we don’t yet know because we haven’t reached a clear terminus or an indication of the benefit tapering. I’ve mentioned on prior calls that we have patient data going out as long as five years in some cases, including our very first patient with structural improvement who after four years has lost 30 letters in her untreated eye, which by the way was her better performing eye at baseline, but she was still three letters higher than her baseline level of visual acuity in her OpRegen treated eye.

Again, that’s data coming four years post-treatment in a disease which is widely viewed as inevitably progressive. Long-term follow up from the Phase 1/2a study is still ongoing, which allows us to continue to monitor evidence of the duration of treatment effect and there may be more to come from deeper imaging analyses as well next month. Some of that data from our Phase 1/2a trial will be made available at the 2023 ARVO annual meeting on April 25th. That’ll be presented by Dr. Al Benin on behalf of Roche and Genentech and as always, data updates are important disclosures and we look forward to this next one happening in just a few weeks. Meanwhile, we’re excited about the ongoing Phase two a study which Roche Genentech has launched to evaluate the safety and activity of OpRegen as well as certain delivery techniques.

It is difficult to predict when that trial will have data available because it has an enrollment range of 30 to 60 patients, but regardless, the primary and secondary outcome measures for that study will all occur at 90 days, so the primary observation period is very brief compared to what we usually expect from dry AMD studies. Genentech has disclosed two enrolling clinical sites so far in Cincinnati and Sacramento, both of whom participated in our Phase 1/2a study. Dr. Christopher Reman, the PI from the Cincinnati Eye Institute is a former Lineage site PI who treated one of the original retinal restoration patients and we appreciate his and Dr. T Land’s continued participation in the operation trials and we expect more sites will be coming online this year.

Moving next to our spinal cord program, you’ll recall that a lot of our work last year focused on activities to support regulatory interactions for OPC one, which we successfully completed as planned. Our response to an RMAT interaction with a comprehensive data package was submitted to FDA to support the use of the new delivery device along with a clinical protocol synopsis for the small safety study we plan to conduct in subacute and chronic patients and which I have discussed previously on several occasions, we have been an active dialogue with FDA and have been responding to additional requests for information following our initial RMAT package submission. We anticipate another formal interaction to occur with FDA in the second quarter, a type B meeting, which we hope will support submission of our planned I&D amendment in the second half of this year.

Assuming the necessary clearances are received, our plan is to initiate the open-label device safety clinical study known as the dosed study in five to 10 patients with either subacute or chronic injuries as soon as we’re able. We also remain in frequent contact with the California Institute for Regenerative Medicine and we continue to plan to apply for a grant to support the device safety study. As most of you are aware, CM guidelines state that an applicant must provide communication from FDA indicating that it’s safe to proceed with a proposed clinical trial protocol, so therefore the timing of the submission of our grant application will be contingent on and subsequent to receipt of FDA clearance to initiate the dosed study. for VAC2, we submitted our pre-Id meeting package as planned actually a little bit earlier than we planned and have already received feedback from FDA.

Our emphasis in the pre-Id package was to understand the FDA’s view of our production process and the analytical methods which we proposed to use to manufacture and characterize our clinical material. Their feedback was generally positive and provided us with a clear and actionable path to an IND submission. Any future IND filing would naturally be expected to include supporting clinical data from the Phase one study of Act two conducted by Cancer Research U.K. We currently are still awaiting those data and we’re recently informed by Cancer Research U.K that is expected to be available during the second quarter of 2023. This data would be an important component of any potential I n d, so we will be in a better position to update you on our back plans at that time.

In the meantime, we will continue to monitor the changing landscape of DC vaccine product candidates and their evolving clinical data. We’ve also continued to engage in manufacturing and preclinical activities for our two new cell transplant programs in hearing loss and vision disorders, both of which were publicly launched last year. Initial preclinical studies from our photoreceptor program are currently ongoing and we hope to be able to present top line preclinical data once the appropriate patent submissions have been made and as data become available. Last month, we also announced the initiation of preclinical testing with our auditory neuron program in collaboration with the University of Michigan with initial preclinical data anticipated to be available later this year.

I’d like to remind everyone that Lineage s hearing loss program didn’t even exist at the beginning of last year, and yet we’ve already started in vivo preclinical studies. Notably, we’ve been able to advance this program to that stage while spending less than a million dollars of our R&D budget. We believe that speed and return on our, on our R&D investment dollars are illustrative of the efficiency and versatility of the Lineage platform. We showed the ability to advance from little more than a product concept, then develop new differentiation methods to generate intellectual property and execute on the manufacturer of a specific cell type then proceed into in vivo testing in less than 12 months and with an investment of less than $1 million.

When we compare the money and time we invested to move a new program from concept into in vivo testing against the industry norms for a small molecule making the same journey. We find striking differences in the return on invested capital and as we continue to improve our capabilities and our homegrown programs advance further, I think it’ll become increasingly apparent that the Lineage platform has tremendous untapped potential. Our goal will be to unlock that value in the months and years ahead, both internally and through partnerships, while still maintaining a prudent financial balance between the exciting progress occurring with OpRegen and our expansion activities with our pipeline. This brings me next to a few comments about our most recent business development transaction.

As you as you know from prior calls, I have said that we are emphasizing business development and that includes in licensing, out licensing and joint development projects. Our most recent deal is an option agreement with Ether Therapeutics, which gives us an affordable way to gain access to several new technologies which fit within our overall strategic approach. These staged investments and technologies are intended to provide us with certain advantages and help set the foundation for the type of company we aim to become; because our confidence in the future success of OPN has increased upon the recent regulatory precedent set by FDA and Dry AMD, we believe this is the right time to apply our technology in other areas. That is where the turn a deal fits into our overall strategy.

It provides us with an opportunity to gain experience in three new areas, Gene Editing, Hypo Immunity and Induced Pluripotent Stem Cells or IPSC. These three complement and are expected to bolster our in-house manufacturing and directed differentiation capabilities. Gene editing offers us an opportunity to modify the behavior and functionality of cells and engineer new features before they are transplanted. This ex vivo editing allows us to fully characterize an edited cell line prior to it being administered to a patient. In some cases, we may look to add genes and thereby add functionality while in other cases we may look to delete genes which may help with the tolerability or the durability of a transplant. Editing also gives us a competitive edge because it makes our products difficult to copy and it may give them better clinical outcomes.

As we explained in the press release announcing the agreement, we will be utilizing a B2M deficient cell line, which is a feature associated with lower chances of transplant rejection. We don’t see hypo immunity as relevant to our existing programs because we’ve never received a report of rejection of our OpRegen or OPC1 cells, and that’s going out as long as 10 years in patients with spinal cord injury or as long as five years in patients with dry AMD, but the eye and spinal cord are known to be tolerant locations for cell transplants. If we want to expand our technology to other areas of the body, we need to consider whether hypo immunity could be beneficial and ensure that all of our product candidates have an appropriate and suitable commercial product profile.

We think hypo immunity could be an interesting feature for potential new product candidates. The third new aspect of this deal is the use of an IPSC line. We already have intellectual property for certain platform inventions and uses of IPSC cells, but exercising this option could lead to our first product candidate built from day one on an IPSC cell line. We know from experience that the quality and performance of IPSC lines can vary widely and we’ll be keen to see how these cells behave in our hands, regardless experience with both IPSC and ES lines is rare and will give Lineage yet another point of differentiation compared to the competition. Overall, we’re very excited about this deal because we believe it provides us with access to multiple new technologies, but with a relatively modest cost structure.

We anticipate providing updates onto this collaboration later this year overall, while many cell therapy and gene editing companies struggled badly last year reducing headcounts and or de-prioritizing programs, we broadened our pipeline and advanced each of our five programs. We made a number of key hires and expanded our research space in both California and Israel, but we did this with very responsible and stepwise investments. To help ensure we have capital to reach additional milestones in important events. I believe the company made exceptional progress in 2022 and our efforts during 2023. We’ll remain focused on the further progression of our all OpRegeneic cell therapy programs making responsible investments in disease settings where we believe we can have a meaningful impact and the continued prioritization of both new and existing collaborations all and each in support of our overall arching vision of building Lineage into a leading cell therapy company.

With that, I’ll now hand the call over to Jill for a discussion of our financials.

Jill Howe: Thanks, Brian, and good afternoon everyone. Beginning with our balance sheet, I believe we continue to be efficient with our spending and our well capitalized to conduct the near term activities, which Brian just outlined. Our reported cash, cash equivalent and marketable securities as of December 31, 2022 totaled $57.9 million, which is expected to support our planned operations into Q3 of ’24. Please note this does not account for any of the Roche Genentech milestones which we may receive, nor for any business development or grant revenues, which we may receive during this same period. Let me start with an overview of our fourth quarter 2022 operating results. Our revenue is generated primarily from licensing fees, collaboration, revenues, royalties, and research grants.

Total revenues for the fourth quarter were approximately $1.9 million, a net increase of $0.7 million as compared to $1.2 million for the same period in 2021, the increases driven by the recognition of deferred collaboration revenues in connection with the Roche agreement, which we entered into in 2021. Operating expenses are comprised of research and development expenses and general and administrative expenses. Total operating expense for the fourth quarter were $8.5 million, a decrease of $20.7 million as compared to $29.2 million for the same period in 2021. The overall decrease was almost entirely driven by a decrease in R&D expense due to the Roche collaboration. R&D expenses for the fourth quarter were $4.1 million, a decrease of $20.7 million as compared to $24.8 million for the same period in 2021.

The decrease was substantially driven by the prior year $21 million accrual for financial obligations payable to the IIA and had a seat in connection with the $50 million upfront payment received in early 2022 under the Roche collaboration. This decrease was partially offset by $0.1 million and $0.2 million in new expenses to support the development of the photo receptor and auditory neuron cell therapy programs respectively. G&A expenses for the fourth quarter were $4.3 million, a decrease of $0.1 million as compared to $4.4 million for the same period in 2021. The decrease was driven by a $0.4 million in legal and litigation expenses. Loss from operations for the fourth quarter were $6.6 million. This is due to a decrease of $21.6 million as compared to $28.2 million with the same period in 2021, principally owing to Roche collaboration related expense accruals of $21 million as I had previously mentioned.

Other income for the fourth quarter was $0.3 million compared to other income of $0.2 million for the same period in 2021. This variance was primarily related to the change in the value of marketable equity securities as well as exchange rate fluctuations related to our international subsidiaries. For the applicable period, the net loss for the fourth quarter was $6.4 million or $0.03 per share compared to a net loss of $29 million or $0.17 per share for the same period in 2021. Now let me move on to our full year 2022 operating results. Revenues for the full year were $14.7 million. This represents an increase of $10.4 million compared to $4.3 million for the same period in 2021. Again, the increases primarily related to revenues recognized from the $50 million upfront payment from the Roche collaboration.

Total operating expense for the year were was $36.5 million, a decrease of $15.6 million as compared to the $52.1 million for the same period in 2021. Total R&D expense for the year was $14 million, a decrease of $19.9 million as compared to $33.9 million for the same period in 2021. The decrease was substantially driven by the prior year. $21 million accrual for financial obligations payable to the IIA and how to see this decrease was partially offset by $0.7 million and $0.5 million in R&D spending on the new auditory neuron and photoreceptor cell therapy programs respectively. Total GNA expenses for the year were $22.5 million. This is an increase of approximately $4.3 million as compared to $18.2 million for the same period in 2021. The increase is primarily attributable to $2.1 million in litigation and legal expenses, $1.3 million in salaries and related benefit fees and $0.9 million in share-based compensation expenses.

Losses from operation for the year were $22.5 million, a decrease of $26.7 million as compared to $49.2 million for the same period in 2021. ther income and expenses for the year netted an expense of $3.3 million compared to other income of $5.9 million for the same period in 2021. The net variance was primarily related to a prior year gain on sale of marketable equity securities as well as exchange rate fluctuations related to our international subsidiaries For the applicable period, the net loss for the year was $26.3 million or $0.15 per share compared to a net loss of $43 million or $0.26 per share for 2021. Overall, we intend to maintain the same spending discipline that we have adhered to for years and which has served us well in the past.

The biotech markets continue to face uncertainty, so we believe that maintaining discipline with their spending will continue to allow us to maintain our plan to reach meaningful milestones 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. Circling back to the beginning of this call, I continue to think that Lineage is doing quite well in an otherwise strained environment for the biotech industry. We have been hitting our milestones and advancing our programs in a responsible and positive way, and I expect Jill and I will continue to apply the same financial discipline to our programs this coming year. Our approach helped us land a valuable collaboration with Roche, and I believe it will continue to be an important attribute during 2023 and further out. As our programs demonstrate success in the clinic or in preclinical testing and potentially attract additional non-dilutive support, I believe we’ll have opportunities to accelerate our work across a number of parallel paths.

Broadly speaking, a few things we’ll be working on this year in which you may want to watch for updates on include additional data from the completed Phase 1/2a trial of OpRegen, which we expect next month, additional regulatory progress with OPC1, which we will conduct during the second quarter of this year, and which will support OPC1 returning to clinical testing and we’ll be doing our part to support the manufacturing. And Phase 1/2a study of OpRegen being conducted by Roche Genentech, the results of which we believe could be a seminal event not only for Lineage , but also for the entire GA field. In addition, we’ve planted a few seeds to prepare for the future, including our new preclinical programs and the internal option deal, which gives us affordable access to new technology, which we can combine with our existing capabilities in the furtherance of our goal of using the transplant of Whole Cells to change the course of disease in new and exciting ways.

And with that Mandeep, we are ready to respond to any analyst questions that there may be.

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Q&A Session

Operator: Our first question comes from the line of Jack Allen from Baird. Please proceed.

Jack Allen: Great. Thank you so much and congratulations with the team on all the progress made over the course of the quarter. Brian, you did a great job laying out some of your thoughts around the, the recent news in geographic atrophy, but I was wondering if you could dive a little bit more deeply into some of the conversations you’d have with your partner Roche on the heels of this announcement. Any sense as to how, how soon we could see data? I know you did make a comment as, as it really said earlier, but I’d love to hear any more feedback on the ground there. And then I have one quick follow up as we’ll?

Brian Culley: Yeah, thanks, Jack for the question. The shortest possible answer is no, nothing to add. The, the biggest challenge I think is the enrollment range. Being 30 to 60 makes it really difficult to say when, where and how the public disclosure of data will occur, whether it’ll come in pieces or, major medical meeting and so forth. But I do suspect that as we get closer to that event or those events that we might be in an opportunity to provide more clarity and expectation around it.

Jack Allen: Great. Great. And then my other question a little bit out of the box here. I’m not sure if you’ve seen the news coming from some of the medical suppliers here, but it’s been hard to get your hands on non-human primates, or at least it, it could become more pressing to get your hands on non-human primates given some of the updates from some of the players in the space. I was wondering if you had any comment as it relates to your preclinical activities and the use of these valuable research assets and, and how you’re factoring that into timelines there?

Brian Culley: It’s a, it’s a great question. Part of the answer is that we do not do any non-human primate testing, so we haven’t we’re not susceptible to a supply challenge, but by chance, I was looking early this morning at a similar company’s slide deck and noticed that they were reporting a lot of data in NHP and it, and it occurred to me, I wonder if that is an issue for them. It’s not for us. I don’t know how others are managing it, but we have, ever since Covid began, we have worked to ensure that our supply chains are in good order and we benefit by being a, a multinational company in that way, but specifically to NHP we don’t have any, any clinical act excuse me, any preclinical activity utilizing that, that particular species.

Operator: Our next question comes from a line of Mayank Mamtani from B Riley Securities. Please proceed.

William Wood: Hey, this is this is William Wood on for Mayank Mamtani today. Congratulations, Brian, to you and the team. Really excited to see all the progress you’ve been making and looking forward to the upcoming work. Couple questions here from us. We’re excited obviously to see that you’ve got the upcoming opportunity to ARVO in April. Would be, I know you’ve touched on this already a little bit, but it’d be great to hear what we might be able to see as far as new or incremental maybe surrounding or, or remind us how your OPC anatomical results tend to correlate with visual acuity given or pretty long follow up that you’ve had now off treatment. And then also to clarify have you or your partner Roche seen the value of, of cutting BCVA data in terms of a, of a rate of vision loss by greater than 15 letters per three lines, any information?

Brian Culley: I appreciate the questions, William. I’m going to hand off to Gary to speak to those. Thank you.