Lineage Cell Therapeutics, Inc. (AMEX:LCTX) Q2 2023 Earnings Call Transcript August 10, 2023
Lineage Cell Therapeutics, Inc. beats earnings expectations. Reported EPS is $-0.03, expectations were $-0.04.
Operator: Welcome to the Lineage Cell Therapeutics Second 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, reproduction or transmission of this call without the expressed written consent of Lineage are strictly prohibited. As a reminder, today's call is being recorded. I would now like to introduce your host for today's call, Ioana Hone, Head of Investor Relations at Lineage. Ms. Hone, please go ahead.
Ioana Hone: Thank you, Mandeep. Good afternoon and thank you for joining us. A press release reporting our second quarter 2023 financial results was issued earlier today, August 10, 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 happy to share that I'm feeling very good about how things are going. A lot of the items that I will comment on today reflect a business that continues to be on track with its development plans and has many reasons to be excited about the future. I'm going to kick off as usual with OpRegen. In particular, I want to comment on recent developments in the dry AMD space and how I see those events positively affecting our lead program. As you no doubt are aware, there have been safety issues disclosed recently related to the use of Syfovre, the first FDA-approved agents available to treat geographic atrophy secondary to dry AMD.
I'm not going to speculate on the root cause of these safety issues because the story is still evolving, but I am going to highlight that a rare but serious side effect is exactly the sort of thing that can derail a product when it only offers a small clinical benefit. As we all know, the clinical experience to-date with complement inhibitors shows that at best, if you actually receive all of your monthly or any other monthly shots in a given year, you may see about a 20% reduction in GA growth compared to your expected growth. And in terms of the patient experience, you are unlikely to feel any differently when taking it and you continue to lose your vision, which is why there was so much debate about whether the product would have enough clinical benefit to be approved.
But it did receive marketing authorization and the early signs where there was going to be a very successful launch due, of course, to the absence of other choices, and the high unmet need in this condition. But drugs with small clinical benefits can be highly susceptible to safety issues, whether you're the FDA, a prescriber or an individual patient, the utility of a given drug stems from its benefits and its risks. When the rewards are small and perhaps require years to observe, even rare side effects can be devastating to a product, so while the initial launch of Syfovre was compelling, and highlighted the extraordinary enthusiasm, which exists on the demand side, it's Achilles heel may end up being its limited clinical benefit, which is unable to overcome the risks of catastrophic vision loss.
While this risk appears small on an absolute basis, the use case for a product is not limited to its risk, but rather the benefits, which must outweigh that risk. I think the key takeaway is that both patients and prescribers care incredibly deeply about vision. The hope for preserving even a small bit of vision, even if that takes several years to be achieved is capable of driving enormous demand. But the risk of losing vision is so unacceptable that the market opportunity may remain unfulfilled until a product is approved for which the games are more clearly worth the risks. For investors, that means finding a therapy, which is safer, more effective or ideally both. Overall, I think this most recent chapter in the dry AMD story highlights three things.
First, it has provided prescriber level evidence of an enormous market opportunity. Before the risk of vision loss due to vasculitis was disclosed, the early sales of Syfovre were impressive and helped to validate widely held commercial projections in dry AMD. Second, despite the approvals of Syfovre and now also Izervay, we've heard from prescribers and thought leaders that there continues to be a need for more effective agents to treat dry AMD. These complement inhibitors appear to be temporary and incomplete solutions. More exciting, effective and infrequently dosed candidates are needed. And if you're a regular on these calls, you've heard me talk about the unprecedented clinical benefits, which were achieved by patients in our Phase 1/2a trial who received OpRegen cells across substantially all of the area of GA and with a single surgical administration.
As investors begin to look beyond the recent approval of first-generation agents and into the pipeline of future dry AMD programs, we believe Lineage is ideally positioned with a potential best-in-class and first-in-class product candidate with a proposed treatment profile, which in such patients doesn't merely slow progression, but can, in some cases, stop or even reverse GA and do so with an increase in visual acuity starting in weeks and lasting for years. While every product has its benefits and risks, we believe a commercially approved agent with a significantly larger clinical benefit would more easily tolerate a low frequency risk of adverse events. The third highlight is that this makes us feel even stronger about our partnership with Roche and Genentech.
Roche has extensive clinical experience with complement inhibitors, but the development of those assets were discontinued. Meanwhile, they added a completely new approach to treating GA via the licensing deal we signed for OpRegen. When it comes to treating GA, I believe Roche was right to move on from the complement pathway and embrace agents with larger potential clinical benefits. For reasons I've shared previously, I'm not yet able to provide details about the ongoing Phase 2a trial of OpRegen, but Roche continues to enroll patients. As a reminder, the primary endpoint occurs just 90 days following each transplant. Roche has nearly two quarters of enrollment experience behind them and additional sites are expected to come online this year, which you can follow at clinicaltrials.gov.
I'm not able to guide to when top line data will be available, but we continue to be hopeful that the data will show, that Roche is able to reproduce the clinical benefits, which Lineage reported in the Phase 1/2a trial and that they also will build upon our early success with additional insights into the safest and easiest way to deliver OpRegen. Moving next to OPC1, our Spinal Cord program, as we expected, we recently received a response from FDA to our Type B meeting submission. This submission was conducted to discuss and clarify that the use of a new Spinal Cord Cell Delivery Device. I'm pleased to share with you today, that based on the content of that response, we do not need to conduct additional back-and-forth discussions with the agency on this topic.
Our next step, will be to submit the IND amendment for this new system and through that amendment, we will be permitted to provide some final content and clarifications that were requested in the FDA's response. The agency also said, that the clinical design seems acceptable and technically agreed that no additional non-clinical in-vivo studies would be needed. In light of this feedback on our proposed trial, we remain on track to submit the OPC1 IND amendment in the fourth quarter. Assuming no further comments arrived in the 30 days following that submission that will permit us to proudly bring OPC1 back into clinical testing, by initiating the dose study in subacute and chronic patients. Related to OPC1, I briefly want to provide a follow-up on the first Annual Spinal Cord Injury Investor Symposium, which we created and hosted in June.
The event brought together therapeutic area experts, researchers, corporate representatives, individuals with live experience, caregivers, advocacy organizations, investors, analysts and members of the public and the media and alongside presentations and panel discussions, we heard from people who have participated in SCI Clinical Trials and what they would like to see in future trials. The response to this event has been far beyond our expectations, and we already have begun thinking about, how we can improve it next year, including by inviting representatives from regulatory agencies. Moving next to VAC2, we recently received data on the eight patients with advanced non-small cell lung cancer who were enrolled in the UK-based Phase 1 trial conducted by Cancer Research UK.
The most notable points from those data were that the VAC2 product candidate appeared to be well tolerated in all treated patients and the adverse events we observed were modest and ones which we expect from a therapy designed to generate a robust and durable immune response. Five of eight patients demonstrated the best response of immune-related stable disease; and three, demonstrated immune-related progressive disease. ELISpot assays indicated that two patients had durable responses and two others had transient responses against segments of the telomerase tumor antigen, which has been loaded onto the allogeneic dendritic cells. As a whole, these data provide an important connection between the proposed mechanism and the clinical observations in this trial.
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And while this was a small sample, Three of the eight patients, all of whom had refractory disease reached the two-year survival endpoint. This was an important trial to assess the tolerability and mechanism of VAC2 and the overall safety and efficacy data, which was collected, affirms our belief in the potential for allogeneic cell therapy to address certain types of cancer. We appreciate the patience and the team at Cancer Research UK for their efforts to complete this study. In terms of our path forward, because many different antigens could be employed in our allogeneic dendritic cell system, we believe strategic alliances offer us the best way to advance the VAC platform and our BD team continues to be engaged in exploratory discussions for the development of VAC assets.
While there is no assurance that any partnerships we're exploring will come to fruition, we not encouraging clinical results have recently been reported in the neoantigen vaccine space. So in addition to the BD talks, we intend to continue monitoring this landscape to help inform our corporate strategy and determine the best development path for VAC2 or any other VAC platform programs, which we may pursue. Lastly, we recently received information, which indicates that VAC2 development could be eligible for serum funding and have begun to evaluate that avenue, as well as the others I just mentioned. For ANP1, which is our cell transplant program for hearing loss, preclinical testing is ongoing through a collaboration with the University of Michigan.
Our initial objectives from this collaboration are to evaluate the engraftment of our cells in certain anatomical destinations and assess how lung cells can survive after transplantation to those locations. I don't always do get ahead of myself on this today, but the initial findings from the study have been encouraging and we plan to provide an update on this program later this year. As some of you may have seen, just a few days ago, another hearing loss company was acquired, making that to early-stage gene therapy hearing loss acquisitions in the past year. We believe these recent acquisitions in the hearing loss space serve to validate our decision to expand the Lineage platform into hearing loss. And will provide competitive comparators for the AMP1 program.
And as I've previously said, I think cell therapy can have advantages over certain kinds of gene therapy because 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. So to wrap up this part of the call, I want to mention a few of the ways in which we will be working to create near-term value for Lineage shareholders. I believe one of the questions for investors at the moment is whether Roche will independently reproduce our findings of improved retinal structure. So we will be doing everything we can to help support their efforts to enroll and conduct that study.
In parallel, we will be working closely with Roche and Genentech employees to transfer our production process to them, which will enable them to manufacture OpRegen in-house, which continues to be part of the overall plan for OpRegen development. And thirdly, we expect some additional data updates from the Phase I/IIa study of OpRegen to be presented at medical meetings this year, which is always helpful for increasing awareness of our program and to demonstrate our partners' commitment to it. With respect to our pipeline programs, the most notable item will be getting the IND amendment for OPC1 submitted before the end of the year. We also expect to have updates from other areas of our business, as we always aspire to reach newsworthy milestones from across our portfolio.
And while we do try to make a lot of progress each quarter and reach those milestones, we also try very hard to keep our spending under control. So with that, serving as a transition, I will 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'm pleased to report that we have continued to be smart with our spending and are well capitalized to conduct the near-term activities, which Brian just outlined. Our reported cash, cash equivalents and marketable securities as of June 30, 2023, totaled $45.9 million, which is expected to support our current plant operations into the fourth quarter of 2024. Please note, this cash amount does not account for any of the Roche and Genentech milestone payments for any business development or grant revenues, which we may receive during the same period. Next, we will review our second quarter operating results. Our revenue is generated primarily from licensing fees, royalties, collaboration revenues and research grants.
Total revenues were $3.2 million, a net decrease of $1.4 million as compared to approximately $4.6 million for the same period in 2022. The decrease was 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 $8.1 million, a decrease of $0.5 million as compared to $8.6 million for the same period in 2022. R&D expenses were $3.9 million, a net increase of $0.6 million as compared to $3.3 million for the same period in 2022. And this increase is primarily driven by a $0.4 million in higher OpRegen program-related expenses and $0.3 million in nonclinical related expenses to support the OPC1 program.
G&A expenses were $4.2 million, a net decrease of approximately $1.1 million compared to the $5.3 million for the same period in 2022. This decrease was primarily driven by $0.5 million in lower litigation and legal expenses and overall reduction in costs incurred for services by third parties, consulting costs and stock-based related compensation expenses. Loss from operations was $5 million, an increase of $0.8 million as compared to $4.2 million for the same period in 2022. Other income and expenses included other expenses of $0.2 million compared to other expenses of $2.5 million for the same period in 2022. This 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 $5.2 million or $0.03 per share compared to a net loss of $6.8 million or $0.04 per share for the same period in 2022. Overall, we continue to maintain our same spending discipline as we have adhered to for years and which has served us well in the past. As the biotech markets continue to face uncertainty, we believe that maintaining discipline of their 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: Thanks, Jill. To wrap up, we believe Lineage is pioneering an approach, which has large commercial opportunities, but few analogous competitors. While stem cells were once thought to represent a powerful new kind of therapeutic in and of themselves, the reality may be that the true value from stem cells isn't using them as medicine, but using them as starting material to generate other cell types, including cell types, which can and in certain cases, already have shown the ability to generate clinical efficacy outcomes that do not occur by chance and vastly exceed the best available alternatives. Most of the success stories to-date in cell therapy can be found in oncology or transplant medicine. But data reported recently in non-cancer indications such as Type 1 diabetes and Parkinson's disease, as well as our own achievements in dry AMD with GA suggests that advancements in the tools, understanding and best application of differentiated cells in a replace and restore approach maybe on the cusp of an exciting era.
I continue to believe Lineage is making good decisions in a challenging biotech environment. We've been conservative and disciplined with our spending, and we're advancing our programs in a responsible way. Our collaboration with Genentech and Roche is progressing extremely well. And one of the things we will be particularly excited to work on this year will be continuing to support them in the further clinical development of OpRegen. As always, we sincerely appreciate your support of the company as we look to position Lineage to become the leader in cell therapy and cell transplant medicine. And with that, Mandeep, Jill, Gary and I are ready to take analyst questions.
