Lineage Cell Therapeutics, Inc. - Annual Report: 2011 (Form 10-K)

California		94-3127919
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

 

 

 

 

---

---

 

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

 

 

 

			Page Number
Part I.	Financial Information
	Item 1 -	Business	4
	Item 1A	Risk Factors	48
	Item 1B	Unresolved Staff Comments	57
	Item 2 -	Properties	57
	Item 3 -	Legal Proceedings	57
	Item 4 -	Mine Safety Disclosures	57
Part II.	Other Information
	Item 5 -	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	58
	Item 6 -	Selected Financial Data	62
	Item 7 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	64
	Item 7A -	Quantitative and Qualitative Disclosures about Market Risk	76
	Item 8 -	Financial Statements and Supplementary Data	78
	Item 9 -	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	109
	Item 9A-	Controls and Procedures	109
	Item 9B	Other Information	110
Part III.	Item 10 -	Directors, Executive Officers, and Corporate Governance	111
	Item 11 -	Executive Compensation	111
	Item 12 -	Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters	111
	Item 13 -	Certain Relationships and Related Transactions, and Director Independence	111
	Item 14 -	Principal Accounting Fees and Services	111
Part IV	Item 15 -	Exhibits, Financial Statement Schedules	112
Signatures			117

 

 

 

 

 

 

 

 

 

 

Subsidiary	Field of Business	BioTime Ownership	Country
ES Cell International Pte. Ltd.	Stem cell products for research, including clinical grade cell lines produced produced under cGMP	100%	Singapore
OncoCyte Corporation	Diagnosis and treatment of cancer	75.3%	USA
OrthoCyte Corporation	Orthopedic diseases, including osteoarthritis	100%	USA
Cell Cure Neurosciences, Ltd.	Age-related macular degeneration   Multiple sclerosis   Parkinson’s disease	53.6%	Israel
ReCyte Therapeutics, Inc. (formerly Embryome Sciences, Inc.)	Blood and vascular diseases including coronary artery disease   Endothelial progenitor cells and iPS cell banking	95.15%	USA
BioTime Asia, Ltd.	Ophthalmologic, skin, musculo-skeletal system, and hematologic diseases for Asian markets.   Stem cell products for research	81%	Hong Kong
LifeMap Sciences, Inc.	Stem cell data base	100%	USA
LifeMap Sciences, Ltd.	Stem cell data base	100% (1)	Israel

 

 

 

 

 

 

 

●

Commercial Distribution of ACTCellerate™ hEPC lines.

 

●

CIRM Grant TR-1276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

●

Retinal cell therapies OpRegen™ and OpRegen-Plus™ are Cell Cure Neurosciences’ proprietary formulations of embryonic stem cell-derived retinal pigmented epithelial (“RPE”) cells developed to address the high, unmet medical needs of people suffering from age-related macular degeneration (“dry AMD”).  OpRegen-Plus™ is a formulation of RPE cells bound to a membrane.

 

●

Cell therapy products for neurodegenerative diseases.  Cell Cure Neurosciences is developing neural progenitor cells designed to replace the dopamine producing cells destroyed in Parkinson’s disease, and NeurArrest™, neural cells that target     and modulate the immune system’s self-destruction of the myelin coating of nerve cells in multiple sclerosis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

●

the use of reprogramming cells that over-express RNAs for the genes OCT4 , SOX2 , NANOG , and MYC , and other factors known to be useful in iPS technology;

●

methods of resetting cell lifespan by extending the length of telomeres;

●

the use of the cytoplasm of undifferentiated cells to reprogram human cells;

●

the use of a cell bank of hemizygous O-cells;

●

methods of screening for differentiation agents; and

●

the use of modified stem cell-derived endothelial cells to disrupt tumor angiogenesis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		% of Total Revenues for the Year Ending December 31,
Licensee		2011			2010			2009
Hospira		63%			68%			73%
CJ		15%			20%			17%
Summit		14%			12%			10%
Betalogics		8%			-			-

 

		Revenues for Year Ending December 31,
Geographic Area		2011				2010				2009
Domestic		$	719,958			$	839,740			$	996,681
Asia			300,680				398,625				376,102
Total Revenues		$	1,020,638			$	1,238,365			$	1,372,783

 

 

 

 

 

 

 

●

the claims of any patents that are issued may not provide meaningful protection, may not provide a basis for commercially viable products or may not provide us with any competitive advantages;

●

our patents may be challenged by third parties;

●

others may have patents that relate to our technology or business that may prevent us from marketing our product candidates unless we are able to obtain a license to those patents;

●

the pending patent applications to which we have rights may not result in issued patents;

●

we may not be successful in developing additional proprietary technologies that are patentable

 

 

 

 

 

 

 

 

 

●

listed on the National Institutes of Health Human Embryonic Stem Cell Registry; or

●

deposited in the United Kingdom Stem Cell Bank; or

●

derived by, or approved for use by, a licensee of the United Kingdom Human Fertilisation and Embryology Authority; or

●

derived in accordance with the Canadian Institutes of Health Research Guidelines for Human Stem Cell Research under an application approved by the National Stem Cell Oversight Committee; or

●

derived under the following conditions:

 

 

●

a registry of all human stem cell research conducted, and the source(s) of funding for this research; and

 

●

a registry of human pluripotent stem cell lines derived or imported, to include, but not necessarily limited to:

 

●

We are attempting to develop new medical products and technologies.

 

●

Many of our experimental products and technologies have not been applied in human medicine and have only been used in laboratory studies in vitro or in animals.  These new products and technologies might not prove to be safe and efficacious in the human medical applications for which they were developed.

 

●

The experimentation we are doing is costly, time consuming, and uncertain as to its results.  We incurred research and development expenses amounting to $13,699,691, $8,191,314, and $3,181,729 during the fiscal years ended December 31, 2011, 2010, and 2009, respectively.

 

●

If we are successful in developing a new technology or product, refinement of the new technology or product and definition of the practical applications and limitations of the technology or product may take years and require the expenditure of large sums of money.

 

●

Future clinical trials of new therapeutic products, particularly those products that are regulated as drugs or biological, will be very expensive and will take years to complete.  We may not have the financial resources to fund clinical trials on our own and we may have to enter into licensing or collaborative arrangements with larger, well-capitalized pharmaceutical companies in order to bear the cost.  Any such arrangements may be dilutive to our ownership or economic interest in the products we develop, and we might have to accept a royalty payment on the sale of the product rather than receiving the gross revenues from product sales.

 

 

●

The success of our business of selling products for use in stem cell research depends on the growth of stem cell research, without which there may be no market or only a very small market for our research products and technology.  The likelihood that stem cell research will grow depends upon the successful development of stem cell products that can be used to treat disease or injuries in people or that can be used to facilitate the development of other pharmaceutical products.  The growth in stem cell research also depends upon the availability of funding through private investment and government research grants.

●

There can be no assurance that any safe and efficacious human medical applications will be developed using stem cells or related technology.

●

Government-imposed restrictions and religious, moral, and ethical concerns with respect to use of embryos or human embryonic stem (hES) cells in research and development could have a material adverse effect on the growth of the stem cell industry, even if research proves that useful medical products can be developed using human embryonic stem cells.

 

●

Hextend® is presently the only plasma expander product that we have on the market, and it is being sold only in the U.S. and South Korea.  The royalty revenues that we have received from sales of Hextend® have not been sufficient to pay our operating expenses.  This means that we need to successfully develop and market or license additional products and earn additional revenues in sufficient amounts to meet our operating expenses.

 

●

We will receive additional license fees and royalties if our licensees are successful in marketing Hextend® and PentaLyte® in Japan, Taiwan, and China, but they have not yet obtained the regulatory approvals required to begin selling those products.

●

We are also beginning to bring our first stem cell research products to the market, but there is no assurance that we will succeed in generating significant revenues from the sale of those products.

●

Sales of Hextend® have already been adversely impacted by the availability of other products that are commonly used in surgery and trauma care and sell at low prices.

●

In order to compete with other products, particularly those that sell at lower prices, our products will have to provide medically significant advantages.

●

Physicians and hospitals may be reluctant to try a new product due to the high degree of risk associated with the application of new technologies and products in the field of human medicine.

 

●

Competing products are being manufactured and marketed by established pharmaceutical companies.  For example, B. Braun/McGaw presently markets Hespan®, an artificial plasma volume expander, and Hospira and Baxter International, Inc. manufacture and sell a generic equivalent of Hespan®.  Hospira also markets Voluven®, a plasma volume expander containing a 6% low molecular weight hydroxyethyl starch in saline solution.

●

Competing products for the diagnosis and treatment of cancer are being manufactured and marketed by established pharmaceutical companies, and more cancer diagnostics and therapeutics are being developed by those companies and by other smaller biotechnology companies.  Other companies, both large and small, are also working on the development of stem cell based therapies for the same diseases and disorders that are the focus of the research and development programs of our subsidiaries.

●

There also is a risk that our competitors may succeed at developing safer or more effective products that could render our products and technologies obsolete or noncompetitive.

●

We plan to continue to incur substantial research and product development expenses, largely through our subsidiaries, and we and our subsidiaries will need to raise additional capital to pay operating expenses until we are able to generate sufficient revenues from product sales, royalties, and license fees.

●

It is likely that additional sales of equity or debt securities will be required to meet our short-term capital needs, unless we receive substantial revenues from the sale of our new products or we are successful at licensing or sublicensing the technology that we develop or acquire from others and we receive substantial licensing fees and royalties.

●

Sales of additional equity securities by us or our subsidiaries could result in the dilution of the interests of present shareholders.

●

At December 31, 2011, we had $22,211,897 of cash and cash equivalents on hand.  There can be no assurance that we or our subsidiaries will be able to raise additional funds on favorable terms or at all, or that any funds raised will be sufficient to permit us or our subsidiaries to develop and market our products and technology.  Unless we and our subsidiaries are able to generate sufficient revenue or raise additional funds when needed, it is likely that we will be unable to continue our planned activities, even if we make progress in our research and development projects.

●

We have already curtailed the pace and scope of our plasma volume expander development efforts due to the limited amount of funds available, and we may have to postpone other laboratory research and development work unless our cash resources increase through a growth in revenues or additional equity investment or borrowing.

 

 

 

 

 

 

●

We will have to conduct expensive and time-consuming clinical trials of new products.  The full cost of conducting and completing clinical trials necessary to obtain FDA approval of a new product cannot be presently determined, but could exceed our current financial resources.

●

Clinical trials and the regulatory approval process for a pharmaceutical product can take several years to complete.  As a result, we will incur the expense and delay inherent in seeking FDA and foreign regulatory approval of new products, even if the results of clinical trials are favorable.

 

●

Data obtained from preclinical and clinical studies is susceptible to varying interpretations that could delay, limit, or prevent regulatory agency approvals.  Delays in the regulatory approval process or rejections of NDAs may be encountered as a result of changes in regulatory agency policy.

●

Because the therapeutic products we are developing with hES and iPS technology involve the application of new technologies and approaches to medicine, the FDA or foreign regulatory agencies may subject those products to additional or more stringent review than drugs or biologicals derived from other technologies.

●

A product that is approved may be subject to restrictions on use.

●

The FDA can recall or withdraw approval of a product if problems arise.

●

We will face similar regulatory issues in foreign countries.

●

Government-imposed restrictions with respect to the use of embryos or hES cells in research and development could limit our ability to conduct research and develop new products.

●

Government-imposed restrictions on the use of embryos or hES cells in the U.S. and abroad could generally constrain stem cell research, thereby limiting the market and demand for our products.  During March 2009, President Obama lifted certain restrictions on federal funding of research involving the use of hES cells, and in accordance with President Obama’s Executive Order, the NIH has adopted new guidelines for determining the eligibility of hES cell lines for use in federally funded research.  The central focus of the proposed guidelines is to assure that hES cells used in federally funded research were derived from human embryos that were created for reproductive purposes, were no longer needed for this purpose, and were voluntarily donated for research purposes with the informed written consent of the donors.  The hES cells that were derived from embryos created for research purposes rather than reproductive purposes, and other hES cells that were not derived in compliance with the guidelines, are not eligible for use in federally funded research.  A lawsuit, Sherley v. Sebelius, is now pending, challenging the legality of the new NIH guidelines.  In that litigation, a U.S. District Court issued a temporary injunction against the implementation of the new NIH guidelines, but the District Court’s ruling was vacated by the U.S. Court of Appeals, and upon remand, on July 27, 2011 the District Court ruled in favor of the NIH, declining to invalidate the NIH guidelines.  However, the plaintiffs in the case have filed a notice of appeal.  The ultimate resolution of that lawsuit could determine whether the federal government may fund research using hES cells, unless new legislation is passed expressly permitting or prohibiting such funding.

●

California law requires that stem cell research be conducted under the oversight of a SCRO committee.  Many kinds of stem cell research, including the derivation of new hES cell lines, may only be conducted in California with the prior written approval of the SCRO.  A SCRO could prohibit or impose restrictions on the research that we plan to do.

●

The use of hES cells gives rise to religious, moral, and ethical issues regarding the appropriate means of obtaining the cells and the appropriate use and disposal of the cells.  These considerations could lead to more restrictive government regulations or could generally constrain stem cell research, thereby limiting the market and demand for our products.

 

●

Our success will depend in part on our ability to obtain and enforce patents and maintain trade secrets in the U.S. and in other countries.  If we are unsuccessful at obtaining and enforcing patents, our competitors could use our technology and create products that compete with our products, without paying license fees or royalties to us.

●

The preparation, filing, and prosecution of patent applications can be costly and time consuming.  Our limited financial resources may not permit us to pursue patent protection of all of our technology and products throughout the world.

●

Even if we are able to obtain issued patents covering our technology or products, we may have to incur substantial legal fees and other expenses to enforce our patent rights in order to protect our technology and products from infringing uses.  We may not have the financial resources to finance the litigation required to preserve our patent and trade secret rights.

●

We have filed patent applications for technology that we have developed, and we have obtained licenses for a number of patent applications covering technology developed by others, that we believe will be useful in producing new products, and which we believe may be of commercial interest to other companies that may be willing to sublicense the technology for fees or royalty payments.  In the future, we may also file additional new patent applications seeking patent protection for new technology or products that we develop ourselves or jointly with others.  However, there is no assurance that any of our licensed patent applications, or any patent applications that we have filed or that we may file in the future covering our own technology, either in the U.S. or abroad, will result in the issuance of patents.

●

In Europe, the European Patent Convention prohibits the granting of European patents for inventions that concern “uses of human embryos for industrial or commercial purposes.”  The European Patent Office is presently interpreting this prohibition broadly, and is applying it to reject patent claims that pertain to hES cells.  However, this broad interpretation is being challenged through the European Patent Office appeals system.  As a result, we do not yet know whether or to what extent we will be able to obtain patent protection for our hES cell technologies in Europe.

●

The preparation and filing of patent applications, and the maintenance of patents that are issued, may require substantial time and money.

●

A patent interference proceeding may be instituted with the PTO when more than one person files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent.  At the completion of the interference proceeding, the PTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid.  Patent interference proceedings are complex, highly contested legal proceedings, and the PTO’s decision is subject to appeal.  This means that if an interference proceeding arises with respect to any of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us, the patent could be issued to a competitor rather than to us.

●

Oppositions to the issuance of patents may be filed under European patent law and the patent laws of certain other countries.  As with the PTO interference proceedings, these foreign proceedings can be very expensive to contest and can result in significant delays in obtaining a patent or can result in a denial of a patent application.

 

●

We might not be able to obtain any additional patents, and any patents that we do obtain might not be comprehensive enough to provide us with meaningful patent protection.

●

There will always be a risk that our competitors might be able to successfully challenge the validity or enforceability of any patent issued to us.

●

In addition to interference proceedings, the PTO can re-examine issued patents at the request of a third party seeking to have the patent invalidated.  This means that patents owned or licensed by us may be subject to re-examination and may be lost if the outcome of the re-examination is unfavorable to us.

 

 

 

 

 

 

●

The market price of our shares, like that of the shares of many biotechnology companies, has been highly volatile.

●

The price of our shares may rise rapidly in response to certain events, such as the commencement of clinical trials of an experimental new therapy or medical device, even though the outcome of those trials and the likelihood of ultimate FDA or foreign regulatory approval remain uncertain.

●

Similarly, prices of our shares may fall rapidly in response to certain events such as unfavorable results of clinical trials or a delay or failure to obtain FDA or foreign regulatory approval.

●

The failure of our earnings to meet analysts’ expectations could result in a significant rapid decline in the market price of our common shares.

 

 

 

 

 

 

 

 

Quarter Ended		High				Low
March 31, 2010			8.42				4.27
June 30, 2010			8.20				5.25
September 30, 2010			6.50				4.02
December 31, 2010			9.94				4.73
March 31, 2011			9.53				6.08
June 30, 2011			7.92				4.11
September 30, 2011			5.94				4.01
December 31, 2011			6.20				3.55

 

Plan Category		Number of Shares to be Issued upon Exercise of Outstanding Options, Warrants, and Rights				Weighted Average Exercise Price of the Outstanding Options, Warrants, and Rights				Number of Shares Remaining Available for Future Issuance under Equity Compensation Plans
BioTime Equity Compensation Plans Approved by Shareholders			3,408,905			$	2.18				1,303,193
BioTime Equity Compensation Plans Not Approved by Shareholders*			130,000			$	5.76				-

 

Plan Category		Number of Shares to be Issued upon Exercise of Outstanding Options, Warrants, and Rights				Weighted Average Exercise Price of the Outstanding Options, Warrants, and Rights				Number of Shares Remaining Available for Future Issuance under Equity Compensation Plans
OrthoCyte Equity Compensation Plans Approved by Shareholders**			2,355,000			$	0.08				1,645,000
OncoCyte Equity Compensation Plans Approved by Shareholders**			2,730,000			$	0.75				1,270,000
ReCyte Therapeutics Equity Compensation Plans Approved by Shareholders**			1,050,000			$	2.05				2,950,000
BioTime Asia Equity Compensation Plans Approved by Shareholders**			400			$	.01				1,200
Cell Cure Neurosciences Compensation Plans Approved by Shareholders**			23,978			$	27.94				1,860
LifeMap Equity Compensation Plans Approved by Shareholders**			2,650,000			$	0.08				5,350,000

 

 

 

 

 

 

 

 

 

 

		Year Ended December 31,
		2011				2010				2009				2008				2007
Consolidated Statements of Operations Data:
REVENUES:
License fees		$	263,757			$	292,904			$	292,832			$	277,999			$	255,549
Royalty from product sales			756,881				945,461				1,079,951				1,203,453				776,679
Grant income			2,767,181				2,336,325				546,795				-				13,893
Sales of research products			566,943				105,610				5,590				22,340				-
Total revenues			4,354,762				3,680,300				1,925,168				1,503,792				1,046,121
EXPENSES:
Research and development			(13,699,691	)			(8,191,314	)			(3,181,729	)			(1,895,241	)			(1,071,068	)
General and administrative			(9,341,502	)			(5,341,119	)			(2,263,705	)			(2,431,183	)			(1,197,426	)
Total expenses			(23,041,193	)			(13,532,433	)			(5,445,434	)			(4,326,424	)			(2,268,494	)
Loss from operations			(18,686,431	)			(9,852,133	)			(3,520,266	)			(2,822,632	)			(1,222,373	)
OTHER INCOME (EXPENSES):
Interest income/(expense)			29,727				(124,300	)			(1,653,755	)			(965,781	)			(232,779	)
Gain/(loss) on sale of fixed assets			(6,246	)			-				-				-				-
Modification cost of warrants			-				(2,142,201	)			-				-				-
Other income/(expense), net			219,067				(68,573	)			30,112				7,518				16,926
Total other income/(expenses), net			242,548				(2,335,074	)			(1,623,643	)			(958,263	)			(215,853	)
NET LOSS			(18,443,883	)			(12,187,207	)			(5,143,909	)			(3,780,895	)		$	(1,438,226	)
Net loss/(income) attributable to the noncontrolling interest			1,928,383				1,002,589				(590	)			-				-
Net loss attributable to BioTime, Inc.			(16,515,500	)			(11,184,618	)			(5,144,499	)			(3,780,895	)			(1,438,226	)
Foreign currency translation (loss)/gain			(1,020,087)				897,338				-				-				-
COMPREHENSIVE NET LOSS		$	(17,535,587	)		$	(10,287,280	)		$	(5,144,499	)		$	(3,780,895	)		$	(1,438,226	)
BASIC AND DILUTED LOSS PER COMMON SHARE		$	(0.35	)		$	(0.28	)		$	(0.18	)		$	(0.16	)		$	(0.06	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:BASIC AND DILUTED			47,486,941				40,266,311				29,295,608				23,749,933				22,853,278