NOTES
TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1.
Organization and Business Overview
BioTime
is a clinical-stage biotechnology company developing novel cell therapies for unmet medical needs. Our current focus is on therapies
for degenerative retinal diseases, neurological conditions associated with demyelination, and aiding the body in detecting and
combating cancer. BioTime’s programs are based on its proprietary cell-based therapy platform and associated development
and manufacturing capabilities. With this platform BioTime develops and manufactures specialized, terminally-differentiated human
cells from its pluripotent and progenitor cell starting materials. These differentiated cells are developed either to replace
or support cells that are dysfunctional or absent due to degenerative disease or traumatic injury, or administered as a means
of helping the body mount an effective immune response to cancer.
BioTime
has three cell therapy programs in clinical development:
|
●
|
OpRegen
®
,
a retinal pigment epithelium cell replacement therapy currently in a Phase I/IIa multicenter clinical trial for the treatment
of advanced dry-age-related macular degeneration (“dry-AMD”) with geographic atrophy. There currently are no therapies
approved by the U.S. Food and Drug Administration (“FDA”) for dry-AMD, which accounts for approximately 85-90%
of all AMD cases and is a leading cause of blindness in people over the age of 65.
|
|
|
|
|
●
|
OPC1
,
an oligodendrocyte progenitor cell therapy currently in a Phase I/IIa multicenter clinical trial for acute spinal cord injuries.
This clinical trial has been partially funded by the California Institute for Regenerative Medicine.
|
|
|
|
|
●
|
VAC2
,
an allogeneic (non-patient-specific or “off-the-shelf”) cancer immunotherapy of antigen-presenting dendritic cells
currently in a Phase I clinical trial in non-small cell lung cancer. This clinical trial is being funded and conducted by
Cancer Research UK, the world’s largest independent cancer research charity.
|
BioTime
also has cell/drug delivery programs that are based upon its proprietary
HyStem
®
cell and drug delivery
matrix technology.
HyStem
was designed to support the formulation, transfer, retention, and engraftment
of cellular therapies.
BioTime
is also enabling early-stage programs in other new technologies through its own research programs.
Asterias
Merger
On
November 7, 2018, BioTime, Asterias and Patrick Merger Sub, Inc., a wholly owned subsidiary of BioTime (“Merger Sub”),
entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby BioTime agreed to acquire all of the
outstanding common stock of Asterias in a stock-for-stock transaction (the “Asterias Merger”).
On
March 7, 2019, the shareholders of each of BioTime and Asterias approved the Merger Agreement. Prior to the consummation of the
Merger Agreement, BioTime owned approximately 38% of Asterias’ issued and outstanding common stock and accounted for Asterias
as an equity method investment.
On
March 8, 2019, the Asterias merger closed with Asterias surviving as a wholly owned subsidiary of BioTime. The former
stockholders of Asterias (other than BioTime) received 0.71 shares of BioTime common stock for every share of Asterias common
stock they owned. BioTime issued 24,695,898 shares of common stock, including 58,085 shares issued in respect of restricted
stock units issued by Asterias that immediately vested in connection with the closing of the Asterias Merger. The aggregate
dollar value of such shares, based on the closing price of BioTime common stock on March 8, 2019, was $32.4 million. BioTime
also assumed warrants to purchase shares of Asterias common stock.
The
Asterias Merger has been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification
(“ASC”) Topic 805,
Business Combinations
, which requires, among other things, that the assets and liabilities
assumed be recognized at their fair values as of the acquisition date.
See
Note 3 for a full discussion of the Asterias Merger.
Investment
in OncoCyte
BioTime
has significant equity holdings in OncoCyte Corporation (“OncoCyte”), a publicly traded company, which BioTime founded
and, in the past, was a majority-owned consolidated subsidiary. OncoCyte (NYSE American: OCX) is developing confirmatory diagnostic
tests for lung cancer utilizing novel liquid biopsy technology. As of June 30, 2019, BioTime owned 14.7 million shares of OncoCyte
common stock, or 28% of its outstanding shares (see Note 16).
2.
Basis of Presentation, Liquidity and Summary of Significant Accounting Policies
The
unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance
with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. In accordance
with those rules and regulations certain information and footnote disclosures normally included in comprehensive consolidated
financial statements have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2018 was derived
from the audited consolidated financial statements at that date, but does not include all the information and footnotes required
by GAAP. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in BioTime’s Annual Report on Form 10-K for the year ended December 31,
2018.
The
accompanying condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of BioTime’s financial condition and results of
operations. The condensed consolidated results of operations are not necessarily indicative of the results to be expected for
any other interim period or for the entire year.
Principles
of consolidation
BioTime’s
condensed consolidated interim financial statements include the accounts of its subsidiaries. The following table reflects BioTime’s
ownership, directly or through one or more subsidiaries, of the outstanding shares of its operating subsidiaries as of June 30,
2019.
Subsidiary
|
|
Field of Business
|
|
BioTime
Ownership
|
|
|
Country
|
Asterias BioTherapeutics, Inc.
|
|
Cell therapy clinical development programs
in spinal cord injury and oncology
|
|
|
100%
|
|
|
USA
|
Cell Cure Neurosciences Ltd. (“Cell Cure”)
|
|
Products to treat age-related macular degeneration
|
|
|
99%
(1)
|
|
|
Israel
|
ES Cell International Pte. Ltd. (“ESI”)
|
|
Stem cell products for research, including clinical grade cell lines produced under cGMP
|
|
|
100%
|
|
|
Singapore
|
OrthoCyte Corporation (“OrthoCyte”)
|
|
Developing bone grafting products for orthopedic diseases and injuries
|
|
|
99.8%
|
|
|
USA
|
(1)
Includes shares owned by BioTime and ESI.
For
the three and six months ended June 30, 2018, BioTime’s unaudited consolidated results include AgeX’s consolidated
results for the full period presented. As a result of the AgeX Deconsolidation, beginning on August 30, 2018 (a) AgeX’s
consolidated financial statements and consolidated results are no longer a part of BioTime’s condensed consolidated interim
financial statements and results, and (b) the fair value of AgeX common stock held by BioTime is now reflected on BioTime’s
condensed consolidated balance sheet and the changes in the fair value of those shares during the applicable reporting period
are reflected as gains or losses in BioTime’s condensed consolidated statements of operations included in other income and
expenses, net.
All
material intercompany accounts and transactions have been eliminated in consolidation. As of June 30, 2019, BioTime
consolidated its direct and indirect wholly owned or majority-owned subsidiaries because BioTime has the ability to control
their operating and financial decisions and policies through its ownership, and the noncontrolling interest is reflected as a
separate element of shareholders’ equity on BioTime’s consolidated balance sheets.
Liquidity
Since
inception, BioTime has incurred significant operating losses and has funded its operations primarily through the issuance of
equity securities, sale of common stock of AgeX, a former subsidiary, receipt of research grants, royalties from product
sales, license revenues and sales of research products. Additionally, BioTime raised $4.2 million in a sale of a
portion of its OncoCyte holdings and $1.2 million in sales of a portion of its Hadasit Bio-Holdings Ltd.
(“Hadasit”) holdings in July 2019 (see Note 16). At June 30, 2019, BioTime had an accumulated deficit of
approximately $252.4 million, working capital of $12.6 million and shareholders’ equity of $131.8 million.
BioTime has evaluated its projected cash flows and believes that its $16.7 million of cash, cash equivalents and marketable
equity securities at June 30, 2019, plus the $4.2 million in net proceeds from the sale of OncoCyte shares of common
stock in July 2019 and the value of its remaining equity investment in OncoCyte (which was approximately $21.7 million
based on the closing price of OncoCyte common stock of $1.75 per share on August 6, 2019), provide sufficient
cash, cash equivalents, and liquidity to carry out BioTime’s current planned operations through at least twelve months
from the issuance date of the consolidated financial statements included herein. If BioTime needs near term working capital
or liquidity to supplement its cash and cash equivalents for its operations, BioTime may sell some, or all, of its
investments, as necessary.
The
AgeX Distribution was completed on November 28, 2018 when AgeX became a publicly traded company (see Note 6). BioTime continues
to hold a minority interest in AgeX that may be a source of additional liquidity to BioTime as a marketable equity security.
If
the promissory note issued by Juvenescence in favor of BioTime discussed in Note 5 is converted into equity securities
of Juvenescence prior to its maturity date, the Juvenescence equity securities may be marketable securities that
BioTime may use to supplement its liquidity, as needed. If such promissory note is not converted, it is payable in cash, plus
accrued interest, at maturity on August 30, 2020.
On
March 8, 2019, with the consummation of the Asterias Merger, Asterias became BioTime’s wholly owned subsidiary.
BioTime began consolidating Asterias’ operations and results with its operations and results beginning on March 8, 2019
(see Note 3). As BioTime integrates Asterias’ operations into its own, BioTime expects to make extensive reductions in
headcount and to reduce non-clinical related spend, in each case, as compared to Asterias’ operations before the
Asterias Merger.
BioTime’s
projected cash flows are subject to various risks and uncertainties, and the unavailability or inadequacy of financing to meet
future capital needs could force BioTime to modify, curtail, delay, or suspend some or all aspects of its planned operations.
BioTime’s determination as to when it will seek new financing and the amount of financing that it will need will be based
on BioTime’s evaluation of the progress it makes in its research and development programs, any changes to the scope and
focus of those programs, any changes in grant funding for certain of those programs, and projection of future costs, revenues,
and rates of expenditure. BioTime may be required to delay, postpone, or cancel clinical trials or limit the number of clinical
trial sites, unless it is able to obtain adequate financing. In addition, BioTime has incurred and expects to continue incurring
significant costs in connection with the acquisition of Asterias and with integrating its operations. BioTime may incur additional
costs to maintain employee morale and to retain key employees. BioTime cannot assure that adequate financing will be available
on favorable terms, if at all. Sales of additional equity securities by BioTime or its subsidiaries and affiliates could result
in the dilution of the interests of current shareholders.
Business
Combinations
BioTime
accounts for business combinations, such as the Asterias Merger completed in March 2019, in accordance with ASC Topic 805, which
requires the purchase price to be measured at fair value. When the purchase consideration consists entirely of shares of BioTime’s
common stock, BioTime calculates the purchase price by determining the fair value, as of the acquisition date, of shares issued
in connection with the closing of the acquisition. BioTime recognizes estimated fair values of the tangible assets and intangible
assets acquired, including in-process research and development (“IPR&D”), and liabilities assumed as of the acquisition
date, and records as goodwill any amount of the fair value of the tangible and intangible assets acquired and liabilities assumed
in excess of the purchase price.
Equity
method investments at fair value
BioTime
uses the equity method of accounting when it has the ability to exercise significant influence, but not control, as determined
in accordance with GAAP, over the operating and financial policies of a company. For equity method investments which BioTime has
elected to measure at fair value, unrealized gains and losses are reported in the consolidated statements of operations in other
income and expenses, net.
As
further discussed in Note 4, BioTime has elected to account for its OncoCyte shares at fair value using the equity method of accounting
because beginning on February 17, 2017, the respective date on which BioTime deconsolidated OncoCyte, BioTime has not had control
of OncoCyte, as defined by GAAP, but continues to exercise significant influence over this company. Under the fair value method,
BioTime’s value in shares of common stock it holds in OncoCyte is marked to market at each balance sheet date using the
closing price of OncoCyte common stock on the NYSE American multiplied by the number of shares of OncoCyte held by BioTime, with
changes in the fair value of the OncoCyte shares included in other income and expenses, net, in the consolidated statements of
operations. The OncoCyte shares are considered level 1 assets as defined by ASC 820,
Fair Value Measurements and Disclosures
.
Prior
to the Asterias Merger completed on March 8, 2019 discussed in Note 3, BioTime accounted for its Asterias shares held at fair
value, using the equity method of accounting.
Revenue
Recognition
During
the first quarter of 2018, BioTime adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”)
ASU 2014-09, Revenues from Contracts with Customers (Topic 606)
, which created a single, principle-based
revenue recognition model that supersedes and replaces nearly all existing U.S. GAAP revenue recognition guidance. BioTime adopted
ASU 2014-09 using the modified retrospective transition method applied to those contracts which were not completed as of the adoption
date. Results for reporting periods beginning on January 1, 2018 and thereafter are presented under Topic 606, while prior period
amounts are not adjusted and continue to be reported in accordance with BioTime’s historical revenue recognition accounting
under Topic 605.
BioTime
recognizes revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount
of the consideration it is entitled to receive in exchange for such product or service. In doing so, BioTime follows a five-step
approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine
the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or
as) the customer obtains control of the product or service. BioTime considers the terms of a contract and all relevant facts and
circumstances when applying the revenue recognition standard. BioTime applies the revenue recognition standard, including the
use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.
BioTime’s
largest source of revenue is currently related to government grants. In applying the provisions of ASU 2014-09, BioTime has determined
that government grants are out of the scope of ASU 2014-09 because the government entities do not meet the definition of a “customer”,
as defined by ASU 2014-09, as there is not considered to be a transfer of control of good or services to the government entities
funding the grant. BioTime has, and will continue to, account for grants received to perform research and development services
in accordance with ASC 730-20,
Research and Development Arrangements
, which requires an assessment, at the inception of
the grant, of whether the grant is a liability or a contract to perform research and development services for others. If BioTime
or a subsidiary receiving the grant is obligated to repay the grant funds to the grantor regardless of the outcome of the research
and development activities, then BioTime is required to estimate and recognize that liability. Alternatively, if BioTime or a
subsidiary receiving the grant is not required to repay, or if it is required to repay the grant funds only if the research and
development activities are successful, then the grant agreement is accounted for as a contract to perform research and development
services for others, in which case, grant revenue is recognized when the related research and development expenses are incurred
(see Note 15).
Deferred
grant revenues represent grant funds received from the governmental funding agencies for which the allowable expenses have not
yet been incurred as of the balance sheet date reported. As of June 30, 2019, deferred grant revenue was immaterial.
Basic
and diluted net income (loss) per share attributable to common shareholders
Basic
earnings per share is calculated by dividing net income or loss attributable to BioTime common shareholders by the weighted average
number of common shares outstanding, net of unvested restricted stock or restricted stock units, subject to repurchase by BioTime,
if any, during the period. Diluted earnings per share is calculated by dividing the net income or loss attributable to BioTime
common shareholders by the weighted average number of common shares outstanding, adjusted for the effects of potentially dilutive
common shares issuable under outstanding stock options and warrants, using the treasury-stock method, convertible preferred stock,
if any, using the if-converted method, and treasury stock held by subsidiaries, if any.
For
the three months ended June 30, 2019, and for the three and six months ended June 30, 2018, BioTime reported a net loss attributable
to common shareholders, and therefore, all potentially dilutive common stock was considered antidilutive for those periods. For
the six months ended June 30, 2019, BioTime reported net income attributable to common shareholders, and therefore, performed
an analysis of common share equivalents to determine their impact on diluted net income, and determined that none of the common
share equivalents were dilutive.
The
following weighted average common share equivalents were excluded from the computation of diluted net income (loss) per common
share for the periods presented because including them would have been antidilutive (in thousands):
|
|
Three Months Ended
June 30,
(unaudited)
|
|
|
Six Months Ended
June 30,
(unaudited)
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
|
15,374
|
|
|
|
8,990
|
|
|
|
15,103
|
|
|
|
8,990
|
|
Warrants
(1)
|
|
|
-
|
|
|
|
8,795
|
|
|
|
-
|
|
|
|
8,795
|
|
BioTime Warrants
(2)
(Note 3)
|
|
|
1,296
|
|
|
|
-
|
|
|
|
917
|
|
|
|
-
|
|
Restricted stock units
|
|
|
271
|
|
|
|
535
|
|
|
|
275
|
|
|
|
535
|
|
(1)
|
The
warrants expired on October 1, 2018.
|
(2)
|
Although
the BioTime Warrants are classified as liabilities, these warrants are considered for dilutive earnings per share calculations
in accordance with ASC 260,
Earnings Per Share
, and determined to be anti-dilutive for the period presented.
|
Lease
accounting and impact of adoption of the new lease standard
On
January 1, 2019, BioTime adopted ASU 2016-02,
Leases
(Topic 842, “ASC 842”) and its subsequent amendments affecting
BioTime: (i) ASU 2018-10,
Codification Improvements to Topic 842, Leases,
and (ii) ASU 2018-11,
Leases (Topic 842):
Targeted improvements,
using the modified retrospective method (see Note 15).
BioTime
management determines if an arrangement is a lease at inception. Leases are classified as either financing or operating, with
classification affecting the pattern of expense recognition in the consolidated statements of operations. When determining whether
a lease is a finance lease or an operating lease, ASC 842 does not specifically define criteria to determine “major part
of remaining economic life of the underlying asset” and “substantially all of the fair value of the underlying asset.”
For lease classification determination, BioTime continues to use (i) greater to or equal to 75% to determine whether the lease
term is a major part of the remaining economic life of the underlying asset and (ii) greater to or equal to 90% to determine whether
the present value of the sum of lease payments is substantially the fair value of the underlying asset. Under the available practical
expedients, BioTime accounts for the lease and non-lease components as a single lease component. BioTime recognizes right-of-use
(“ROU”) assets and lease liabilities for leases with terms greater than twelve months in the condensed consolidated
balance sheet.
ROU
assets represent BioTime’s right to use an underlying asset during the lease term and lease liabilities represent BioTime’s
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement
date based on the present value of lease payments over the lease term. As most of BioTime’s leases do not provide an implicit
rate, BioTime uses its incremental borrowing rate based on the information available at commencement date in determining the present
value of lease payments. BioTime uses the implicit rate when readily determinable. The operating lease ROU asset also includes
any lease payments made and excludes lease incentives. BioTime’s lease terms may include options to extend or terminate
the lease when it is reasonably certain that BioTime will exercise that option. Lease expense for lease payments is recognized
on a straight-line basis over the lease term.
Operating
leases are included as right-of-use assets in property and equipment (see Note 15), and ROU lease liabilities, current and long-term,
in the condensed consolidated balance sheets. Financing leases are included in property and equipment, and in financing lease
liabilities, current and long-term, in BioTime’s condensed consolidated balance sheets.
In
connection with the adoption on ASC 842 on January 1, 2019, BioTime derecognized net book value of leasehold improvements and
corresponding lease liabilities of $1.9 million and $2.0 million, respectively, which was the carrying value of certain operating
leases as of December 31, 2018, included in property and equipment and lease liabilities, respectively, recorded pursuant to build
to suit lease accounting under the previous ASC 840 lease standard. The derecognition of these amounts from the superseded ASC
840 lease standard was offset by a cumulative effect adjustment of $0.1 million as a reduction of BioTime’s accumulated
deficit on January 1, 2019. These build to suit leases were primarily related to the Alameda and the Cell Cure Leases described
in Note 15. ASC 842 requires build to suit leases recognized on BioTime’s consolidated balance sheets as of December 31,
2018 to be derecognized upon the adoption of the new lease standard and be recognized in accordance with the new standard on January
1, 2019.
The
adoption of ASC 842 had a material impact in BioTime’s consolidated balance sheets, with the most significant impact resulting
from the recognition of ROU assets and lease liabilities for operating leases with remaining terms greater than twelve months
on the adoption date (see Note 15). BioTime’s accounting for financing leases (previously referred to as “capital
leases”) remained substantially unchanged.
Other
recently adopted accounting pronouncements
Adoption
of ASU 2016-18
,
Statement of Cash Flows (Topic 230)
- On January 1, 2018, BioTime adopted ASU 2016-18,
Statement
of Cash Flows (Topic 230): Restricted Cash
, which requires that the statement of cash flows explain the change during the
period in the total of cash, cash equivalents and restricted cash, and that restricted cash be included with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash
flows. The adoption of ASU 2016-18 did not have a material effect on BioTime’s condensed consolidated financial statements.
However, prior period restricted cash balances included in prepaid expenses and other current assets, and in deposits and other
long-term assets, on the condensed consolidated balance sheets was added to the beginning-of-period and end-of-period total consolidated
cash and cash equivalents in the condensed consolidated statements of cash flows to conform to the current presentation shown
below.
The
following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated
balance sheet dates that comprise the total of the same such amounts shown in the condensed consolidated statements of cash flows
for all periods presented herein and effected by the adoption of ASU 2016-18 (in thousands):
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,210
|
|
|
$
|
23,587
|
|
|
$
|
27,207
|
|
|
$
|
36,838
|
|
Restricted cash included in prepaid expenses and other current assets (see Note 15)
|
|
|
-
|
|
|
|
346
|
|
|
|
346
|
|
|
|
-
|
|
Restricted cash included in deposits and other long-term assets (see Note 15)
|
|
|
586
|
|
|
|
466
|
|
|
|
78
|
|
|
|
847
|
|
Total cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows
|
|
$
|
8,796
|
|
|
$
|
24,399
|
|
|
$
|
27,631
|
|
|
$
|
37,685
|
|
Adoption
of ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting -
In June 2018, the FASB issued ASU 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting
, which simplifies the accounting for non-employee share-based payment transactions. The new standard expands
the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07
is effective for fiscal years beginning after December 15, 2018 (including interim periods within that fiscal year). BioTime adopted
ASU 2018-07 on January 1, 2019. As BioTime does not have a significant number of nonemployee share-based awards, the application
of the new standard did not have a material impact on its consolidated financial statements.
Recently
Issued Accounting Pronouncements Not Yet Adopted
- The recently issued accounting pronouncements applicable to BioTime that
are not yet effective should be read in conjunction with the recently issued accounting pronouncements, as applicable and disclosed
in BioTime’s Annual Report on Form 10-K for the year ended December 31, 2018.
In
August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement
, which modifies certain disclosure requirements for reporting fair value measurements.
ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early
adoption is permitted. BioTime will adopt this standard on January 1, 2020 and is currently evaluating the disclosure requirements
and its effect on the consolidated financial statements.
In June 2016,
the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments
. ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the
expected credit losses on financial instruments and other commitments and requires consideration of a broader range of
reasonable and supportable information to inform credit loss estimates. This standard will be effective for interim and
annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early
adoption permitted for annual periods beginning after December 15, 2018. BioTime has not yet completed its assessment of the
impact of the new standard on its consolidated financial statements.
3.
Asterias Merger
On
March 8, 2019, the Asterias Merger closed with Asterias surviving as a wholly owned subsidiary of BioTime. The former
stockholders of Asterias (other than BioTime) received 0.71 shares of BioTime common stock (the “Merger
Consideration”) for every share of Asterias common stock they owned (the “Merger Exchange Ratio”). BioTime
issued 24,695,898 shares of common stock, including 58,085 shares issued in respect of restricted stock units issued by
Asterias that immediately vested in connection with the closing of the Asterias Merger. The fair value of such shares, based
on the closing price of BioTime common stock on March 8, 2019, was $32.4 million.
In
connection with the closing of the Asterias Merger, BioTime assumed outstanding warrants to purchase shares of Asterias common
stock, as further discussed below and in Note 11, and assumed sponsorship of the Asterias 2013 Equity Incentive Plan (see Note
12). All stock options to purchase shares of Asterias common stock outstanding immediately prior to the closing of the Asterias
Merger were canceled at the closing for no consideration.
As
of June 30, 2019, the assets and liabilities of Asterias have been included in the condensed consolidated balance sheet of BioTime.
The results of operations of Asterias from March 8, 2019 through June 30, 2019 have been included in the condensed consolidated
statement of operations of BioTime for the six months ended June 30, 2019.
Calculation
of the purchase price
The
calculation of the purchase price for the Asterias Merger and the Merger Consideration transferred on March 8, 2019 was as follows
(in thousands, except for share and per share amounts):
|
|
BioTime
(38% ownership
interest)
|
|
|
Shareholders
other than
BioTime
(approximate
62% ownership
interest)
|
|
|
Total
|
|
Outstanding Asterias common stock as of March 8, 2019
|
|
|
21,747,569
|
|
|
|
34,783,333
|
(1)
|
|
|
56,530,902
|
(1)
|
Exchange ratio
|
|
|
0.710
|
|
|
|
0.710
|
|
|
|
0.710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BioTime common stock issuable
|
|
|
15,440,774
|
(2)
|
|
|
24,695,898
|
(3)
|
|
|
40,136,672
|
|
Per share price of BioTime common stock as of March 8, 2019
|
|
$
|
1.31
|
|
|
$
|
1.31
|
|
|
$
|
1.31
|
|
Purchase price (in $000s)
|
|
$
|
20,227
|
(2)
|
|
$
|
32,353
|
|
|
$
|
52,580
|
|
(1)
|
Includes
81,810 shares of Asterias restricted stock unit awards that immediately vested on March 8, 2019 and converted into the right
to receive shares of BioTime common stock based on the Merger Exchange Ratio, resulting in 58,085 shares of BioTime common
stock issued on March 8, 2019 as part of the Merger Consideration. These restricted stock units were principally attributable
to pre-combination services and included as part of the purchase price in accordance with ASC 805. See Note 12 for Asterias
restricted stock units that vested on the closing of the Asterias Merger attributable to post-combination services that were
recorded outside of the purchase price as an immediate charge to stock-based compensation expense.
|
(2)
|
Estimated
fair value for BioTime’s previously held 38% ownership interest in Asterias common stock is part of the total purchase
price of Asterias for purposes of the purchase price allocation under ASC 805 and for BioTime’s adjustment of its 38%
interest to fair value at the effective date of the Asterias Merger and immediately preceding the consolidation of Asterias’
results with BioTime. No actual shares of BioTime common stock were issued to BioTime in connection with the Asterias Merger.
|
(3)
|
Net
of a de minimis number of fractional shares which were paid in cash.
|
Estimated
purchase price allocation
BioTime
allocated the acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based
on their estimated fair values as of the acquisition date. The fair value of the acquired tangible and identifiable intangible
assets were determined based on inputs that are unobservable and significant to the overall fair value measurement. It is also
based on estimates and assumptions made by management at the time of the acquisition. As such, this was classified as Level 3
fair value hierarchy measurements and disclosures.
The
Merger Consideration allocation below is preliminary and as additional information becomes available, BioTime may further revise
the preliminary acquisition consideration allocation. BioTime expects to finalize the acquisition consideration allocation by
the end of 2019. Any such revisions or changes may be material.
The
following table sets forth a preliminary allocation of the purchase price to Asterias’ tangible and identifiable intangible
assets acquired and liabilities assumed on the closing of the Asterias Merger, with the excess recorded as goodwill (in thousands):
Assets acquired:
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,117
|
|
Prepaid expenses and other assets, current and noncurrent
|
|
|
660
|
|
Machinery and equipment
|
|
|
369
|
|
Long-lived intangible assets - royalty contracts
|
|
|
650
|
|
Acquired in-process research and development (“IPR&D”)
|
|
|
46,540
|
|
|
|
|
|
|
Total assets acquired
|
|
|
51,336
|
|
Liabilities assumed:
|
|
|
|
Accrued liabilities and accounts payable
|
|
|
1,136
|
|
Liability classified warrants
|
|
|
867
|
|
Deferred license revenue
|
|
|
200
|
|
Long-term deferred income tax liability
|
|
|
12,965
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
15,168
|
|
|
|
|
|
|
Net assets acquired, excluding goodwill (a)
|
|
|
36,168
|
|
|
|
|
|
|
Fair value of BioTime common stock held by Asterias (b)
|
|
|
3,435
|
|
|
|
|
|
|
Total purchase price (c)
|
|
|
52,580
|
|
|
|
|
|
|
Estimated goodwill (c-a-b)
|
|
$
|
12,977
|
|
The
valuation of identifiable intangible assets and their estimated useful lives are as follows (in thousands, except for useful life):
|
|
Preliminary
Estimated Asset Fair Value
|
|
|
Useful
Life
(Years)
|
|
|
|
(in
thousands, except for useful life)
|
|
In
process research and development (“IPR&D”)
|
|
$
|
46,540
|
|
|
|
n/a
|
|
Royalty
contracts
|
|
|
650
|
|
|
|
5
|
|
|
|
$
|
47,190
|
|
|
|
|
|
The
following is a discussion of the valuation methods used to determine the fair value of Asterias’ significant assets and
liabilities in connection with the Asterias Merger:
Acquired
In-Process Research and Development (“IPR&D”) and Deferred Income Tax Liability
- The fair value of identifiable
acquired in-process research and development intangible assets consisting of $31.7 million pertaining to the AST-OPC1 program
that is currently in a Phase 1/2a clinical trial for spinal cord injuries (“SCI”), which has been partially funded
by the California Institute for Regenerative Medicine and $14.8 million pertaining to the AST-VAC2 program, which is a non-patient-specific
(“off-the-shelf”) cancer immunotherapy derived from pluripotent stem cells for which a clinical trial in non-small
cell lung cancer is being funded and sponsored by Cancer Research UK. The identification of these intangible assets are based
on consideration of historical experience and a market participant’s view further discussed below; collectively, the AST-OPC1
and the AST-VAC2 are referred to as the “AST-Clinical Programs”. These intangible assets are valued primarily through
the use of a probability weighted discounted cash flow method under the income approach further discussed below. BioTime considered
the AST-VAC1 program, an autologous product candidate, manufactured from cells that come from the patient, and due to significant
risks, substantial costs and limited opportunities in its current state associated with the AST-VAC1 program, BioTime management
considered this program to have de minimis value.
BioTime
determined that the estimated aggregate fair value of the AST-Clinical programs was $46.5 million as of the acquisition date using
a probability weighted discounted cash flow method for each respective program. This approach estimates the probability of the
AST-Clinical Programs achieving successful completion of remaining clinical trials and related approvals into the valuation technique.
To
calculate fair value of the AST-Clinical programs under the discounted cash flow method, BioTime used probability-weighted, projected
cash flows discounted at a rate considered appropriate given the significant inherent risks associated with cell therapy development
by clinical-stage companies. Cash flows were calculated based on estimated projections of revenues and expenses related to each
respective program. Cash flows were assumed to extend through a seven-year market exclusivity period for the AST-OPC1 program
from the date of market launch. Revenues from commercialization of the AST-Clinical Programs were based on estimated market potential
for the indication of each program. The resultant cash flows were then discounted to present value using a weighted-average cost
of capital for companies with profiles substantially similar to that of BioTime, which BioTime believes represents the rate that
market participants would use to value the assets. BioTime compensated for the phase of development of the program by applying
a probability factor to its estimation of the expected future cash flows. The projected cash flows were based on significant assumptions,
including the indications in which BioTime will pursue development of the AST-Clinical programs, the time and resources needed
to complete the development and regulatory approval, estimates of revenue and operating profit related to the program considering
its stage of development, the life of the potential commercialized product, market penetration and competition, and risks associated
with achieving commercialization, including delay or failure to obtain regulatory approvals to conduct clinical studies, failure
of clinical studies, delay or failure to obtain required market clearances, and intellectual property litigation.
These
IPR&D assets are indefinite-lived intangible assets until the completion or abandonment of the associated research and development
(“R&D”) efforts. Once the R&D efforts are completed or abandoned, the IPR&D will either be amortized over
the asset life as a finite-lived intangible asset or be impaired, respectively, in accordance with ASC 350,
Intangibles - Goodwill
and Other
. In accordance with ASC 350, goodwill and acquired IPR&D are determined to have indefinite lives and, therefore,
are not amortized. Instead, they are tested for impairment at least annually and between annual tests if BioTime becomes aware
of an event or a change in circumstances that would indicate the asset may be impaired.
Because
the IPR&D (prior to completion or abandonment of the R&D) is considered an indefinite-lived asset for accounting purposes,
the fair value of the IPR&D on the acquisition date creates a deferred income tax liability (“DTL”) in accordance
with ASC 740,
Income Taxes
(see Note 13). This DTL is computed using the fair value of the IPR&D assets on the acquisition
date multiplied by BioTime’s federal and state income tax rates. While this DTL would reverse on impairment or sale or commencement
of amortization of the related intangible assets, those events are not anticipated under ASC 740 for purposes of predicting reversal
of a temporary difference to support the realization of deferred tax assets, except for certain deferred tax assets and credit
carryforwards that are also indefinite in nature as of the closing of the Asterias Merger, which may be considered for reversal
under ASC 740 as further discussed in Note 13.
Royalty
contracts
- Asterias has certain royalty revenues for “research only use” culture media for pre-clinical research
applications under certain, specific patent families under contracts which preclude the customers to sell for commercial use or
for clinical trials. These royalty cash flows are generated under certain specific patent families which Asterias previously acquired
from Geron Corporation (“Geron”). Asterias pays Geron a royalty for all royalty revenues received from these contracts.
Because these patents are a subset of the clinical programs discussed above, are expected to continue to generate revenues for
Asterias and are not to be used in the AST-OPC1 or the AST-VAC2 programs, these patents are considered to be separate long-lived
intangible assets under ASC 805. These intangible assets are also valued primarily through the use of the discounted cash flow
method under the income approach, and will be amortized over their useful life, estimated to be 5 years. The discounted cash flow
method estimated the amount of net royalty income that can be expected under the contracts in future years. The amounts were based
on observed historical trends in the growth of these revenue streams, and were estimated to terminate in approximately five years,
when the key patents under these contracts will begin to expire. The resulting cash flows were discounted to the valuation date
based on a rate of return that recognizes a lower level of risk associated with these assets as compared to the AST-Clinical programs
discussed above.
Deferred
license revenue -
In September 2018, Asterias and Novo Nordisk A/S (“Novo Nordisk”) entered into an option for
Novo Nordisk or its designated U.S. affiliate to license, on a non-exclusive basis, certain intellectual property related to culturing
pluripotent stem cells, such as hES cells, in suspension. Under the terms of the option, Asterias received a one-time upfront
payment of $1.0 million, in exchange for a 24-month period option to negotiate a non-exclusive license during which time Asterias
has agreed to not grant any exclusive licenses inconsistent with the Novo Nordisk option. This option is considered a performance
obligation as it provides Novo Nordisk with a material right that it would not receive without entering into the contract.
For
business combination purposes under ASC 805, the fair value of this performance obligation to BioTime, from a market participant
perspective, is the estimated costs BioTime may incur, plus a normal profit margin for the level of effort required to perform
under the contract after the acquisition date, assuming Novo Nordisk exercised its option, including, but not limited to, negotiation
costs, legal fees, arbitration, if any, and other related costs. Management has estimated those costs, plus a normal profit margin,
to be approximately $200,000 in the estimated purchase price allocation.
Liability
classified warrants -
On May 13, 2016, in connection with a common stock offering, Asterias issued warrants to purchase 2,959,559
shares of Asterias common stock (the “Asterias Warrants”) with an exercise price of $4.37 per share that expire in
five years from the issuance date, or May 13, 2021. As of the closing of the Asterias Merger, there were 2,813,159 Asterias Warrants
outstanding. The Asterias Warrants contain certain provisions in the event of a Fundamental Transaction, as defined in the warrant
agreement governing the Asterias Warrants (“Warrant Agreement”), that Asterias or any successor entity will be required
to purchase, at a holder’s option, exercisable at any time concurrently with or within thirty days after the consummation
of the fundamental transaction, the Asterias Warrants for cash in an amount equal to the calculated value of the unexercised portion
of such holder’s warrants, determined in accordance with the Black-Scholes option pricing model with significant inputs
as specified in the Warrant Agreement. The Asterias Merger was a Fundamental Transaction for purposes of the Asterias Warrants.
The
fair value of the Asterias Warrants was determined by using Black-Scholes option pricing models which take into consideration
the probability of the fundamental transaction, which for purposes of the above valuation was assumed to be at 100% and net cash
settlement occurring, using the contractual remaining term of the warrants. In applying these models, these inputs included key
assumptions including the per share closing price of BioTime common stock on March 8, 2019, volatility computed in accordance
with the provisions of the Warrant Agreement and, to a large extent, assumptions based on discussions with a majority of the holders
of the Asterias Warrants since the closing of the Asterias Merger to settle the Asterias Warrants in cash or in shares of BioTime
common stock. Based on such discussions, BioTime believes the fair value of the Asterias Warrants as of the closing of the Asterias
Merger is not subject to change significantly, however, to the extent any Asterias Warrants that were not settled in cash or in
BioTime common stock discussed below, were automatically converted to BioTime warrants 30 days after the closing of the Asterias
Merger. In April 2019, Asterias Warrants representing approximately $372,000 in fair value were settled: $332,000 in fair value
was settled in exchange for 251,835 shares of BioTime common stock, and $40,000 in fair value was settled in exchange for cash.
The Asterias Warrants settled in exchange for shares of BioTime common stock were held by Broadwood Partners, L.P., an Asterias
and BioTime shareholder. The Asterias Warrants settled in exchange for cash were held by other parties. The remaining Asterias
Warrants (representing approximately $495,000 in fair value as of March 31, 2019) were converted into warrants to purchase shares
of BioTime common stock using the Merger Exchange Ratio (the “BioTime Warrants”).
As
of June 30, 2019, the total number of shares of BioTime common stock subject to warrants that were assumed by BioTime in connection
with the Asterias Merger was 1,089,900, with similar terms and conditions retained under the BioTime Warrants as per the original
Warrant Agreements. The BioTime Warrants have an exercise price of $6.15 per warrant share and expire on May 13, 2021. BioTime
is accounting for the outstanding BioTime Warrants as a liability at fair value, with subsequent changes to the fair value of
the BioTime Warrants at each reporting period thereafter included in the consolidated statement of operations (see Note 11).
Fair
value of BioTime common stock held by Asterias
- As of March 8, 2019, Asterias held 2,621,811 shares of BioTime common stock
as marketable securities on its standalone financial statements. The fair value of those shares acquired by BioTime from Asterias
is determined based on the $1.31 per share closing price of BioTime common stock on March 8, 2019. Although treasury shares are
not considered an asset and were retired upon BioTime’s acquisition of Asterias, the fair value of those shares is a part
of the purchase price allocation shown in the tables above. These BioTime shares were retired at the completion of the Asterias
Merger.
Goodwill
-
Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred
and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment
at least annually, or more frequently if circumstances indicate potential impairment.
Depending
on the structure of a particular acquisition, goodwill and identifiable intangible assets may not be deductible for tax purposes.
Goodwill recorded in the Asterias Merger is not expected to be deductible for tax purposes (see Note 13).
During
the three and six months ended June 30, 2019, BioTime incurred $0.9 million and $4.4 million, respectively, in acquisition
related costs which were recorded in general and administrative expenses in the accompanying condensed consolidated statements
of operations.
Prior
to the Asterias Merger being consummated in March 2019, BioTime elected to account for its 21.7 million shares of Asterias common
stock at fair value using the equity method of accounting. The fair value of the Asterias shares was approximately $20.2 million
as of March 8, 2019, the closing date of the Asterias Merger, based on $0.93 per share, which was calculated by multiplying (a)
$1.31, the closing price of BioTime common stock on such date by (b) the Merger Exchange Ratio. The fair value of the Asterias
shares was approximately $13.5 million as of December 31, 2018, based on the closing price of Asterias common stock of $0.62 per
share on such date. Accordingly, BioTime recorded an unrealized gain of $6.7 million for the six months ended June 30, 2019, representing
the change in fair value of Asterias common stock from December 31, 2018 to March 8, 2019. For the six months ended June 30, 2018,
BioTime recorded an unrealized loss of $19.6 million on the Asterias shares due to the decrease in Asterias’ stock price
from December 31, 2017 to June 30, 2018 from $2.25 per share to $1.35 per share. All share prices were determined based on the
closing price of BioTime or Asterias common stock on the NYSE American on the applicable dates.
Asterias
Merger Related Litigation -
See Note 15 Commitments and Contingencies for discussion regarding litigation related to the Asterias
Merger.
4.
Equity Method Accounting for Common Stock of OncoCyte, at Fair Value
BioTime
elected to account for its 14.7 million shares of OncoCyte common stock at fair value using the equity method of accounting beginning
on February 17, 2017, the date of the OncoCyte Deconsolidation. The OncoCyte shares had a fair value of $36.5 million as of June
30, 2019 and a fair value of $20.3 million as of December 31, 2018, based on the closing price of OncoCyte of $2.49 per share
and $1.38 per share on those respective dates.
For
the three months ended June 30, 2019, BioTime recorded an unrealized loss of $21.4 million due to the decrease in OncoCyte’s
stock price from $3.95 per share at March 31, 2019 to $2.49 per share at June 30, 2019. For the three months ended
June 30, 2018, BioTime recorded an unrealized gain of $6.6 million due to the increase in OncoCyte’s stock price from $2.10
per share at March 31, 2018 to $2.55 per share at June 30, 2018.
For
the six months ended June 30, 2019, BioTime recorded an unrealized gain of $16.3 million due to the increase in OncoCyte’s
stock price from $1.38 per share at December 31, 2018 to $2.49 per share at June 30, 2019. For the six months
ended June 30, 2018, BioTime recorded an unrealized loss of $30.8 million due to the decrease in OncoCyte’s stock price
from $4.65 per share at December 31, 2017 to $2.55 per share at June 30, 2018.
All
share prices are determined based on the closing price of OncoCyte common stock on the NYSE American on the applicable dates,
or the last day of trading of the applicable quarter, if the last day of a quarter fell on a weekend.
OncoCyte’s
unaudited condensed results of operations for the periods presented are summarized below (in thousands):
|
|
Three Months Ended June 30, (unaudited)
|
|
|
Six Months Ended June 30,
(unaudited)
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Condensed Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
|
$
|
1,508
|
|
|
$
|
2,322
|
|
|
$
|
2,851
|
|
|
$
|
3,784
|
|
General and administrative expense
|
|
|
3,636
|
|
|
|
1,335
|
|
|
|
6,085
|
|
|
|
3,122
|
|
Sales and marketing expense
|
|
|
318
|
|
|
|
569
|
|
|
|
523
|
|
|
|
1,227
|
|
Loss from operations
|
|
|
(5,462
|
)
|
|
|
(4,226
|
)
|
|
|
(9,459
|
)
|
|
|
(8,133
|
)
|
Net loss
|
|
$
|
(5,384
|
)
|
|
$
|
(4,505
|
)
|
|
$
|
(9,248
|
)
|
|
$
|
(8,284
|
)
|
5.
Sale of Significant Ownership Interest in AgeX to Juvenescence Limited
On
August 30, 2018, BioTime entered into a Stock Purchase Agreement with Juvenescence Limited and AgeX, pursuant to which BioTime
sold 14.4 million shares of common stock of AgeX to Juvenescence for $3.00 per share, or an aggregate purchase price of $43.2
million (the “Purchase Price”). Juvenescence paid $10.8 million of the Purchase Price at closing, issued an unsecured
convertible promissory note dated August 30, 2018 in favor of BioTime for $21.6 million (the “Promissory Note”), and
paid $10.8 million on November 2, 2018. The Stock Purchase Agreement contains customary representations, warranties and indemnities
from BioTime relating to the business of AgeX, including an indemnity cap of $4.3 million, which is subject to certain exceptions.
The transactions contemplated by the Stock Purchase Agreement are referred to as the Juvenescence Transaction in this Report.
The
Promissory Note bears interest at 7% per annum, with principal and accrued interest payable at maturity on August 30, 2020. The
Promissory Note cannot be prepaid prior to maturity or conversion. On the maturity date, if a “Qualified Financing”
(as defined below) has not occurred, BioTime will have the right, but not the obligation, to convert the principal balance of
the Promissory Note and accrued interest then due into Series A preferred shares of Juvenescence at a conversion price
of $15.60. Upon the occurrence of a Qualified Financing on or before the maturity date, the principal balance of the Promissory
Note and accrued interest will automatically convert into a number of shares of the class of equity securities of Juvenescence
sold in the Qualified Financing, at the price per share at which the Juvenescence securities are sold in the Qualified Financing;
and, if AgeX common stock is listed on a national securities exchange in the U.S., the number of shares of the class of equity
securities issuable upon conversion may be increased depending on the market price of AgeX common stock. A Qualified Financing
is generally defined as an underwritten initial public offering of Juvenescence equity securities in which gross proceeds are
not less than $50.0 million. The Promissory Note is not transferable, except in connection with a change of control of BioTime.
For
the three and six months ended June 30, 2019, BioTime recognized $378,000 and $756,000, respectively, in interest income on the
Promissory Note. As of June 30, 2019, the principal and accrued interest balance of the Promissory Note was $22.9 million.
Shareholder
Agreement
BioTime
and Juvenescence entered into a Shareholder Agreement, dated August 30, 2018, setting forth the governance, approval and voting
rights of the parties with respect to their holdings of AgeX common stock, including rights of representation on the AgeX Board
of Directors, approval rights, preemptive rights, rights of first refusal and co-sale and drag-along and tag-along rights for
so long as either BioTime or Juvenescence continue to own at least 15% of the outstanding shares of AgeX common stock. Under the
Shareholder Agreement, Juvenescence and BioTime each had the right to designate two persons to a six-member AgeX Board of Directors,
with the remaining two individuals to be independent of Juvenescence and BioTime. Following Juvenescence’s payment of $10.8
million on November 2, 2018 under the Stock Purchase Agreement, Juvenescence had the right to designate an additional member of
the AgeX Board of Directors. As of July 30, 2019, Juvenescence has not exercised such right. Immediately following the AgeX Distribution
on November 28, 2018 (see Note 6), BioTime owned 1.7 million shares of AgeX common stock, representing 4.8% of AgeX’s then
issued and outstanding shares of common stock. Accordingly, in accordance with the Shareholder Agreement, as of November 28, 2018,
BioTime had no right to designate any member to the AgeX Board of Directors.
In
connection with the Juvenescence Transaction, the termination provision of the Shared Facilities Agreement (see Note 10) entitling
AgeX or BioTime to terminate the agreement upon six months advance written notice was amended. Pursuant to the amendment, following
the deconsolidation of AgeX from BioTime’s consolidated financial statements on August 30, 2018 (see Notes 6 and 10), each
party retains the right to terminate the Shared Facilities Agreement at any time by giving the other party six months advance
written notice, but BioTime may not do so prior to September 1, 2020.
On
May 7, 2019, AgeX provided written notice that it will terminate its use of BioTime’s office and laboratory facilities as
of July 31, 2019. On July 3, 2019, AgeX provided written notice that the remaining shared services would terminate as of September
30, 2019.
6.
Deconsolidation and Distribution of AgeX
Deconsolidation
of AgeX
On
August 30, 2018, BioTime sold 14.4 million shares of the common stock of AgeX to Juvenescence (see Note 5). Immediately before
that sale, BioTime and Juvenescence owned 80.4% and 5.6%, respectively, of AgeX’s outstanding common stock. Immediately
following that sale, BioTime and Juvenescence owned 40.2% and 45.8%, respectively, of AgeX’s outstanding common stock. As
a result, on August 30, 2018, AgeX was no longer a subsidiary of BioTime and, as of that date, BioTime experienced a “loss
of control” of AgeX, as defined by GAAP. Loss of control is deemed to have occurred when, among other things, a parent company
owns less than a majority of the outstanding common stock of a subsidiary, lacks a controlling financial interest in the subsidiary,
and is unable to unilaterally control the subsidiary through other means such as having, or being able to obtain, the power to
elect a majority of the subsidiary’s Board of Directors based solely on contractual rights or ownership of shares representing
a majority of the voting power of the subsidiary’s voting securities. All of these loss-of-control factors were present
with respect to BioTime’s ownership interest in AgeX as of August 30, 2018. Accordingly, BioTime deconsolidated AgeX’s
consolidated financial statements and consolidated results from BioTime’s unaudited condensed consolidated financial statements
and consolidated results effective on August 30, 2018, in accordance with ASC, 810-10-40-4(c).
In
connection with the Juvenescence Transaction discussed in Note 5 and the AgeX Deconsolidation on August 30, 2018, in accordance
with ASC 810-10-40-5, BioTime recorded a gain on deconsolidation of $78.5 million, which includes a financial reporting gain on
the sale of the AgeX shares of $39.2 million, during the year ended December 31, 2018, included in other income and expenses,
net, in the consolidated statements of operations.
Distribution
of AgeX Shares
On
November 28, 2018, BioTime distributed 12.7 million shares of AgeX common stock owned by BioTime to holders of BioTime common
stock, on a pro rata basis, in the ratio of one share of AgeX common stock for every 10 shares of BioTime common stock owned.
The AgeX Distribution was accounted for at fair value as a dividend-in-kind in the aggregate amount of $34.4 million, which was
determined by multiplying (a) the 12.7 million shares distributed to BioTime shareholders by (b) $2.71, the closing price of AgeX
common stock on the NYSE American on November 29, 2018, the first trading day of AgeX common stock.
Because
BioTime has an accumulated deficit in its consolidated shareholders’ equity, the entire fair value of the AgeX Distribution
was charged against common stock equity included in the consolidated statements of changes in shareholders’ equity for the
year ended December 31, 2018.
Immediately
following the AgeX Distribution, BioTime owned 1.7 million shares of AgeX common stock, all of which it still owns, and which
represents approximately 4.6% of AgeX’s outstanding common stock as of June 30, 2019 and which shares BioTime holds as marketable
equity securities.
7.
Property and Equipment, Net
At
June 30, 2019 and December 31, 2018, property and equipment was comprised of the following (in thousands):
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(unaudited)
|
|
|
|
|
Equipment, furniture and fixtures
|
|
$
|
4,563
|
|
|
$
|
3,842
|
|
Leasehold improvements
|
|
|
2,790
|
|
|
|
3,910
|
|
Right-of-use assets
(1)
|
|
|
5,065
|
|
|
|
-
|
|
Accumulated depreciation and amortization
|
|
|
(3,698
|
)
|
|
|
(3,185
|
)
|
Property and equipment, net
|
|
|
8,720
|
|
|
|
4,567
|
|
Construction in progress
|
|
|
-
|
|
|
|
1,268
|
|
Property and equipment, net, and construction in progress
|
|
$
|
8,720
|
|
|
$
|
5,835
|
|
(1)
|
BioTime
adopted ASC 842 on January 1, 2019. For additional information on this standard and right-of-use assets and liabilities see
Notes 2 and 15.
|
Property
and equipment at both June 30, 2019 and December 31, 2018 includes $146,000 in financing leases. Depreciation and amortization
expense amounted to $244,000 and $279,000 for the three months ended June 30, 2019 and 2018, and $513,000 and $560,000 for the
six months ended June 30, 2019 and 2018, respectively.
Construction
in progress
Construction
in progress of $1.3 million as of December 31, 2018 entirely relates to the leasehold improvements made at Cell Cure’s leased
facilities in Jerusalem, Israel, primarily financed by the landlord. The leasehold improvements were substantially completed
in December 2018 and the assets placed in service in January 2019 (see adoption of ASC 842 impact discussed in Notes 2 and 15).
8.
Goodwill and Intangible Assets, Net
At
June 30, 2019 and December 31, 2018, goodwill and intangible assets, net consisted of the following (in thousands):
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(unaudited)
|
|
|
|
|
Goodwill
(1)
|
|
$
|
12,977
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Acquired IPR&D - OPC1 (from the Asterias Merger)
(2)
|
|
$
|
31,700
|
|
|
$
|
-
|
|
Acquired IPR&D - VAC2 (from the Asterias Merger)
(2)
|
|
|
14,840
|
|
|
|
-
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Acquired patents
|
|
|
19,010
|
|
|
|
19,010
|
|
Acquired royalty contracts
(2)
|
|
|
650
|
|
|
|
|
|
Other
|
|
|
10
|
|
|
|
10
|
|
Total intangible assets
|
|
|
66,210
|
|
|
|
19,020
|
|
Accumulated amortization
|
|
|
(16,889
|
)
|
|
|
(15,895
|
)
|
Intangible assets, net
|
|
$
|
49,321
|
|
|
$
|
3,125
|
|
(1)
|
Goodwill
represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired
and liabilities assumed in the Asterias Merger (see Note 3).
|
|
|
(2)
|
See
Note 3 for information on the Asterias Merger which was consummated on March 8, 2019.
|
BioTime
recognized in research and development expenses $475,000 and $581,000 of amortization expense in the three months ended June 30,
2019 and 2018, and $949,000 and $1.2 million in the six months ended June 30, 2019 and 2018, respectively.
9.
Accounts Payable and Accrued Liabilities
At
June 30, 2019 and December 31, 2018, accounts payable and accrued liabilities consisted of the following (in thousands):
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
|
(unaudited)
|
|
|
|
|
Accounts payable
(1)
|
|
$
|
2,778
|
|
|
$
|
2,359
|
|
Accrued compensation
(2)
|
|
|
1,970
|
|
|
|
2,456
|
|
Accrued liabilities
(3)
|
|
|
2,035
|
|
|
|
1,639
|
|
Other current liabilities
|
|
|
76
|
|
|
|
9
|
|
Total
|
|
$
|
6,859
|
|
|
$
|
6,463
|
|
(1)
|
Includes
$0.8 million of transaction costs related to the Asterias Merger (see Note 3) recorded outside of the business combination.
|
(2)
|
Includes
$0.3 million of change of control and related transaction costs related to the Asterias Merger (see Note 3) recorded outside
of the business combination.
|
(3)
|
Includes
$0.3 million of transaction costs related to the Asterias Merger (see Note 3) recorded outside of the business combination.
|
In
connection with the Asterias Merger, several Asterias employees were terminated as of the Asterias Merger date. Three of these
employees had employment agreements with Asterias which entitled them to change in control and separation payments in the aggregate
of $2.0 million, which such conditions were met on the Asterias Merger date. Accordingly, $2.0 million was accrued and recorded
in general and administrative expenses on the merger date and paid in April 2019.
Additionally,
BioTime entered into a plan of termination with substantially all other previous employees of Asterias with potential separation
payments in the aggregate of $0.5 million. Termination dates for these individuals ranged from May 31, 2019 to June 28,
2019. These employees were required to provide services related to the transition and be an employee of the combined company
as of their date of termination in order to receive separation benefits. Since the employees were required to render future
services after the merger date, BioTime recorded the aggregate liability ratably over their respective service periods
from the Asterias Merger date through the above termination dates, in accordance with ASC 420,
Exit or Disposal Cost Obligations
.
As of June 30, 2019, a total of $0.3 million was accrued for these separation payments which represents the portion of the payments
earned through June 30, 2019. This amount was paid in July 2019.
In
connection with the planned relocation of BioTime’s corporate headquarters to Carlsbad, California, discussed in Note 15,
in June 2019, BioTime entered into a plan of termination with certain BioTime employees with potential separation payments in
the aggregate of $0.5 million. Termination dates for these individuals range from August 9, 2019 to September 30, 2019. These
employees must provide services related to the transition of services and activities in connection with the relocation and be
an employee of BioTime as of their date of termination in order to receive separation benefits. BioTime will record the aggregate liability ratably over their respective service
periods from June through the above termination dates, in accordance with ASC 420.
As
of June 30, 2019, a total of $0.2 million was accrued for these BioTime employee separation payments which represents the portion
of the payments earned through June 30, 2019.
10.
Related Party Transactions
Shared
Facilities and Service Agreements with Affiliates
The
receivables from affiliates shown on the condensed consolidated balance sheet as of December 31, 2018, primarily represent amounts
owed to BioTime by OncoCyte and AgeX under separate Shared Facilities and Service Agreements (each a “Shared Facilities
Agreement”), with amounts owed by OncoCyte comprising most of that amount. These outstanding amounts were paid in full in
the first quarter of 2019. Under the terms of the Shared Facilities Agreements, BioTime allows OncoCyte and AgeX to use BioTime’s
premises and equipment located at BioTime’s headquarters in Alameda, California for the purpose of conducting business.
BioTime also provides accounting, billing, bookkeeping, payroll, treasury, payment of accounts payable, and other similar administrative
services to OncoCyte and AgeX. BioTime may also provide the services of attorneys, accountants, and other professionals who may
provide professional services to BioTime and its other subsidiaries. BioTime also has provided OncoCyte and AgeX with the services
of laboratory and research personnel, including BioTime employees and contractors, for the performance of research and development
work for OncoCyte and AgeX at the premises.
BioTime
charges OncoCyte and AgeX a “Use Fee” for services provided and for use of BioTime facilities, equipment, and supplies.
For each billing period, BioTime prorates and allocates to OncoCyte and AgeX costs incurred, including costs for services of BioTime
employees and use of equipment, insurance, leased space, professional services, software licenses, supplies and utilities. The
allocation of costs depends on key cost drivers, including actual documented use, square footage of facilities used, time spent,
costs incurred by BioTime for OncoCyte and AgeX, or upon proportionate usage by BioTime, OncoCyte and AgeX, as reasonably estimated
by BioTime. BioTime, at its discretion, has the right to charge OncoCyte and AgeX a 5% markup on such allocated costs. The allocated
cost of BioTime employees and contractors who provide services is based upon the number of hours or estimated percentage of efforts
of such personnel devoted to the performance of services.
The
Use Fee is determined and invoiced to OncoCyte and AgeX on a regular basis, generally monthly or quarterly. Each invoice is payable
in full within 30 days after receipt. Any invoice, or portion thereof, not paid in full when due will bear interest at the rate
of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment by BioTime.
Through June 30, 2019, BioTime has not charged OncoCyte or AgeX any interest.
In
addition to the Use Fee, OncoCyte and AgeX reimburse BioTime for any out of pocket costs incurred by BioTime for the purchase
of office supplies, laboratory supplies, and other goods and materials and services for the account or use of OncoCyte or AgeX.
BioTime is not obligated to purchase or acquire any office supplies or other goods and materials or any services for OncoCyte
or AgeX, and if any such supplies, goods, materials or services are obtained, BioTime may arrange for the suppliers to invoice
OncoCyte or AgeX directly.
The
Shared Facilities Agreements remain in effect until a party gives the other party written notice that the Shared Facilities Agreement
will terminate on December 31 of that year, or unless it is otherwise terminated under another provision of the agreement. In
addition, BioTime and AgeX may each terminate their Shared Facilities Agreement prior to December 31 of the year by giving the
other party written six months’ notice to terminate, but BioTime may not do so prior to September 1, 2020.
On
May 7, 2019, AgeX provided written notice that it will terminate its use of BioTime’s office and laboratory facilities
as of July 31, 2019. On July 3, 2019, AgeX provided written notice that the remaining shared services would terminate as of
September 30, 2019. On July 30, 2019, OncoCyte provided written notice that it planned to terminate shared services
effective as of September 30, 2019, except for the use of shared facilities, which remains in force.
In
the aggregate, BioTime charged Use Fees to OncoCyte and AgeX as follows (in thousands):
|
|
Three Months Ended
June 30, (unaudited)
|
|
|
Six
Months Ended
June 30, (unaudited)
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
491
|
|
|
$
|
217
|
|
|
$
|
984
|
|
|
$
|
437
|
|
General and administrative
|
|
|
179
|
|
|
|
175
|
|
|
|
411
|
|
|
|
346
|
|
Total use fees
|
|
$
|
670
|
|
|
$
|
392
|
|
|
$
|
1,395
|
|
|
$
|
783
|
|
The
Use Fees charged to OncoCyte and AgeX shown above are not reflected in revenues, but instead BioTime’s general and administrative
expenses and research and development expenses are shown net of those charges in the condensed consolidated statements of operations.
BioTime
accounts for receivables from affiliates, net of payables to affiliates, if any, for similar shared services and other transactions
BioTime’s consolidated subsidiaries may enter into with nonconsolidated affiliates. BioTime and the affiliates record those
receivables and payables on a net basis since BioTime and the affiliates intend to exercise a right of offset of the receivable
and the payable and to settle the balances net by having the party that owes the other party pay the net balance owed.
Transactions
with Ascendance Biotechnology, Inc.
On
March 21, 2018, AgeX and Ascendance Biotechnology, Inc. (“Ascendance”), an equity method investee of AgeX and former
equity method investee of BioTime, entered into an Asset Purchase Agreement (the “Asset Agreement”) in which AgeX
purchased for $800,000 in cash certain assets consisting primarily of in-process research and development assets related to stem
cell derived cardiomyocytes (heart muscle cells) to be developed by AgeX. The transaction was considered an asset acquisition
rather than a business combination in accordance with ASC 805. Accordingly, the $800,000 purchase price was expensed on the acquisition
date as acquired in-process research and development as those assets have no alternative future use. Also, on March 21, 2018,
BioTime received $0.2 million from Ascendance as settlement of its accounts receivable from Ascendance.
Disposition
of ownership interest in Ascendance
On
March 23, 2018, Ascendance was acquired by a third party in a merger through which AgeX received approximately $3.2 million in
cash for its shares of Ascendance common stock. AgeX recognized a $3.2 million gain on the sale of its equity method investment
in Ascendance, which is included in other income and expenses, net, for the six months ended June 30, 2018.
Other
related party transactions
In
February 2018, Alfred D. Kingsley, the Chairman of BioTime’s Board of Directors and a former officer and director of AgeX,
purchased AgeX stock purchase warrants entitling him to purchase 248,600 shares of AgeX common stock at an exercise price of $2.50
per share. AgeX received $124,300, or $0.50 per warrant, from Mr. Kingsley. The warrants were sold to Mr. Kingsley on the same
terms as other warrants were sold by AgeX to other unaffiliated investors.
BioTime
currently pays $5,050 per month for the use of approximately 900 square feet of office space in New York City, which is made available
to BioTime on a month-by-month basis by one of its directors at an amount that approximates his cost (see Note 15).
In
April 2019, BioTime issued 251,835 shares of BioTime common stock to Broadwood Partners, L.P., an Asterias and BioTime shareholder,
in exchange for the settlement of Asterias Warrants in connection with the Asterias Merger (see Note 3).
In
connection with the putative shareholder class action lawsuit filed in February 2019 challenging the Asterias Merger (see Note
15), BioTime has agreed to pay for the legal defense of Neal Bradsher, director, and Broadwood Partners, L.P., a shareholder of
BioTime, and Broadwood Capital, Inc., which manages Broadwood Partners, L.P., all of which were named in the lawsuit. Through
June 30, 2019, BioTime has incurred a total of $140,000 in legal expenses on behalf of the director, shareholder, and
the manager of the shareholder.
11.
Shareholders’ Equity
Preferred
Shares
BioTime
is authorized to issue 2,000,000 preferred shares. The preferred shares may be issued in one or more series as the board of directors
may determine by resolution. The board of directors is authorized to fix the number of shares of any series of preferred shares
and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed on the preferred shares
as a class, or upon any wholly unissued series of any preferred shares. The board of directors may, by resolution, increase or
decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of preferred
shares subsequent to the issue of shares of that series. There are no preferred shares issued and outstanding.
Common
Shares
At
June 30, 2019, BioTime was authorized to issue 250,000,000 common shares, no par value. As of June 30, 2019, and December 31,
2018, BioTime had 149,642,861 and 127,135,774 issued and outstanding common shares, respectively.
In
April 2017, BioTime entered into a Controlled Equity Offering
SM
Sales Agreement (the “Sales Agreement”)
with Cantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which BioTime may offer and sell,
from time to time, through Cantor Fitzgerald, shares of BioTime common stock having an aggregate offering price of up to $25,000,000.
BioTime is not obligated to sell any shares under the Sales Agreement. Subject to the terms and conditions of the Sales Agreement,
Cantor Fitzgerald will use commercially reasonable efforts, consistent with its normal trading and sales practices, applicable
state and federal law, rules and regulations, and the rules of the NYSE American, to sell the shares from time to time based upon
BioTime’s instructions, including any price, time or size limits specified by BioTime. Under the Sales Agreement, Cantor
Fitzgerald may sell the shares by any method deemed to be an “at-the-market” offering as defined in Rule 415(a)(4)
under the Securities Act of 1933, as amended, or by any other method permitted by law, including in privately negotiated transactions.
Cantor Fitzgerald’s obligations to sell the shares under the Sales Agreement are subject to satisfaction of certain conditions,
including the continued effectiveness of BioTime’s Registration Statement on Form S-3, which became effective on May 5,
2017. As of June 30, 2019, $24.2 million remained available for sale through the Sales Agreement.
BioTime
agreed to pay Cantor Fitzgerald a commission of 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal
fees and disbursements and provide Cantor Fitzgerald with customary indemnification and contribution rights. The Sales Agreement
may be terminated by Cantor Fitzgerald or BioTime at any time upon notice to the other party, or by Cantor Fitzgerald at any time
in certain circumstances, including the occurrence of a material and adverse change in BioTime’s business or financial condition
that makes it impractical or inadvisable to market the shares or to enforce contracts for the sale of the shares.
Reconciliation
of Changes in Shareholders’ Equity
The
following table documents the changes in shareholders’ equity for the three and six months ended June 30, 2019 (unaudited
and in thousands):
|
|
Preferred Shares
|
|
|
Common Shares
|
|
|
|
|
|
Noncontrolling
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Accumulated
Deficit
|
|
|
Interest/
(Deficit)
|
|
|
Comprehensive
Income
|
|
|
Shareholders’
Equity
|
|
BALANCE AT DECEMBER 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
127,136
|
|
|
$
|
354,270
|
|
|
$
|
(261,856
|
)
|
|
$
|
(1,594
|
)
|
|
$
|
1,426
|
|
|
$
|
92,246
|
|
Shares issued in connection with the Asterias Merger
|
|
|
-
|
|
|
|
-
|
|
|
|
24,696
|
|
|
|
32,353
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,353
|
|
Shares retired in connection with the Asterias Merger
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,622
|
)
|
|
|
(3,435
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,435
|
)
|
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
118
|
|
|
|
(75
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(75
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,361
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,361
|
|
Stock-based compensation for shares issued upon vesting of Asterias restricted stock units attributable to post combination services
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
|
|
79
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
Adjustment upon adoption of leasing standard
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(732
|
)
|
|
|
(732
|
)
|
NET INCOME/(LOSS)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,310
|
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
39,296
|
|
BALANCE AT MARCH 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
149,388
|
|
|
$
|
384,553
|
|
|
$
|
(222,403
|
)
|
|
$
|
(1,608
|
)
|
|
$
|
694
|
|
|
$
|
161,236
|
|
Shares issued for settlement of BioTime Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
252
|
|
|
|
302
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
762
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
762
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(487
|
)
|
|
|
(487
|
)
|
NET LOSS
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,032
|
)
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
(30,052
|
)
|
BALANCE AT JUNE 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
149,643
|
|
|
$
|
385,615
|
|
|
$
|
(252,435
|
)
|
|
$
|
(1,628
|
)
|
|
$
|
207
|
|
|
$
|
131,759
|
|
The
following table documents the changes in shareholders’ equity for the three and six months ended June 30, 2018 (unaudited
and in thousands):
|
|
Preferred Shares
|
|
|
Common Shares
|
|
|
|
|
|
Noncontrolling
|
|
|
Accumulated Other
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Accumulated
Deficit
|
|
|
Interest/
(Deficit)
|
|
|
Comprehensive
Income
|
|
|
Shareholders’
Equity
|
|
BALANCE AT DECEMBER 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
126,866
|
|
|
$
|
378,487
|
|
|
$
|
(216,297
|
)
|
|
$
|
1,622
|
|
|
$
|
451
|
|
|
$
|
164,263
|
|
Cumulative-effect adjustment for adoption of ASU 2016-01 on January 1, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
328
|
|
|
|
-
|
|
|
|
(328
|
)
|
|
|
-
|
|
Cumulative-effect adjustment for adoption of Accounting Standard Codification, Topic 606, on January 1, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
809
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
809
|
|
Stock-based compensation in subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
|
|
-
|
|
|
|
175
|
|
Sale of subsidiary warrants in AgeX
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
737
|
|
|
|
-
|
|
|
|
737
|
|
Subsidiary financing transactions with noncontrolling interests - AgeX
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
103
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75
|
|
|
|
75
|
|
NET LOSS
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,548
|
)
|
|
|
(150
|
)
|
|
|
-
|
|
|
|
(63,698
|
)
|
BALANCE AT MARCH 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
126,869
|
|
|
$
|
379,186
|
|
|
$
|
(279,416
|
)
|
|
$
|
2,487
|
|
|
$
|
198
|
|
|
$
|
102,455
|
|
Shares issued upon vesting of restricted stock units, net of shares retired to pay employees’ taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
825
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
825
|
|
Stock-based compensation of subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
278
|
|
|
|
-
|
|
|
|
278
|
|
Additional adjustment for ASC Topic 606
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Sale of subsidiary shares in AgeX
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
Subsidiary financing transactions with noncontrolling interests - AgeX
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,634
|
|
|
|
-
|
|
|
|
(3,634
|
)
|
|
|
-
|
|
|
|
-
|
|
Subsidiary financing and other transactions with noncontrolling interests – Cell Cure
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(111
|
)
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
(41
|
)
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
884
|
|
|
|
884
|
|
NET LOSS
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,215
|
)
|
|
|
(431
|
)
|
|
|
-
|
|
|
|
(4,646
|
)
|
BALANCE AT JUNE 30, 2018
|
|
|
|
|
|
|
|
|
|
|
126,874
|
|
|
|
383,529
|
|
|
$
|
(283,630
|
)
|
|
$
|
3,770
|
|
|
$
|
1,082
|
|
|
$
|
104,751
|
|
Warrants
BioTime
(previously Asterias) Warrants - Liability Classified
In
March 2019, in connection with the closing of the Asterias Merger, BioTime assumed outstanding Asterias Warrants. As of June 30,
2019, the total number of shares of BioTime common stock subject to warrants that were assumed by BioTime in connection with the
Asterias Merger was 1,089,900 (representing approximately $289,000 in fair value as of June 30, 2019), which were converted to
BioTime Warrants 30 days after the closing of the Asterias Merger, with similar terms and conditions retained under the BioTime
Warrants as per the original Warrant Agreements. The BioTime Warrants have an exercise price of $6.15 per warrant share and expire
on May 13, 2021. BioTime is accounting for the outstanding BioTime Warrants as a liability at fair value, with subsequent changes
to the fair value of the BioTime Warrants at each reporting period thereafter included in the consolidated statement of operations
(see Note 3).
For
the three and six months ended months ended June 30, 2019, BioTime recorded an unrealized gain of $0.2 million due to the decline
in the fair value of the BioTime Warrants from the Asterias Merger date through June 30, 2019. As of June 30, 2019, the fair value
of the BioTime Warrants was $0.3 million included in long-term liabilities on the condensed consolidated balance sheets.
Cell
Cure Warrants - Liability Classified
Cell
Cure has two sets of issued warrants. Warrants to purchase 24,566 Cell Cure ordinary shares at an exercise price of $40.5359 were
issued to Hadasit in July 2017. These warrants expire in July 2022. Warrants to purchase 13,738 Cell Cure ordinary
shares at exercise prices ranging from $32.02 to $40.00 per share have been issued to consultants. These warrants expire in October
2020 and January 2024.
ASC
815 requires freestanding financial instruments, such as warrants, with exercise prices denominated in currencies other than the
functional currency of the issuer to be accounted for as liabilities at fair value, with all subsequent changes in fair value
after the issuance date to be recorded as gains or losses in the consolidated statements of operations.
As
of June 30, 2019 and December 31, 2018, the total value of all warrants issued by Cell Cure was $0.3 million and $0.4 million,
respectively. Such warrants are classified as long-term liabilities on the condensed consolidated balance sheets.
12.
Stock-Based Awards
Equity
Incentive Plan Awards
BioTime
adopted a 2012 Equity Incentive Plan (the “2012 Plan”) for the grant of stock options, restricted stock, restricted
stock units and stock appreciation rights. As of June 30, 2019, a maximum of 16,000,000 common shares were available for grant;
this amount was increased to 24,000,000 common shares on July 30, 2019 when shareholder approval was obtained.
A
summary of BioTime’s 2012 Plan activity and other stock option awards granted outside of the 2012 Plan related information
is as follows (in thousands, except per share amounts):
|
|
Shares
Available
for Grant
|
|
|
Number
of Options
Outstanding
|
|
|
Number
of RSUs
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
December 31, 2018
|
|
|
1,885
|
|
|
|
13,867
|
|
|
|
402
|
|
|
$
|
2.44
|
|
AgeX distribution adjustment
|
|
|
117
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
-
|
|
Restricted stock units vested
|
|
|
-
|
|
|
|
-
|
|
|
|
(135
|
)
|
|
|
-
|
|
Options granted
|
|
|
(2,337
|
)
|
|
|
2,337
|
|
|
|
-
|
|
|
|
1.14
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options expired/forfeited/cancelled
|
|
|
1,264
|
|
|
|
(1,264
|
)
|
|
|
-
|
|
|
|
2.09
|
|
June 30, 2019
|
|
|
929
|
|
|
|
14,938
|
|
|
|
270
|
|
|
$
|
2.27
|
|
Options exercisable at June 30, 2019
|
|
|
|
|
|
|
9,213
|
|
|
|
|
|
|
$
|
2.59
|
|
At
the effective time of the Asterias Merger, BioTime assumed sponsorship of the Asterias 2013 Equity Incentive Plan (the “Asterias
Equity Plan”), with references to Asterias and Asterias common stock therein to be deemed references to BioTime and BioTime
common stock. There were 7,309,184 shares available under the Asterias Equity Plan immediately before the closing of the
Asterias Merger, which became 5,189,520 shares immediately following the Asterias Merger. The shares available under the Asterias
Equity Plan will be for awards granted to those former Asterias employees who continued as BioTime employees upon consummation
of the Asterias Merger. A summary of activity under the Asterias Equity Plan from the closing date of the Asterias Merger through
June 30, 2019 is as follows (in thousands, except per share amounts):
|
|
Shares
Available
for Grant
|
|
|
Number
of Options
Outstanding
|
|
|
Number
of RSUs
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
March 8, 2019
|
|
|
5,190
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Options granted
|
|
|
(490
|
)
|
|
|
490
|
|
|
|
-
|
|
|
|
1.59
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options forfeited
|
|
|
105
|
|
|
|
(105
|
)
|
|
|
-
|
|
|
|
1.63
|
|
June 30, 2019
|
|
|
4,805
|
|
|
|
385
|
|
|
|
-
|
|
|
|
1.58
|
|
Options exercisable at June 30, 2019
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
$
|
-
|
|
Stock-based
compensation expense
The
fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model applying the weighted-average
assumptions noted in the following table:
|
|
Six Months Ended
June 30, (unaudited)
|
|
|
|
2019
|
|
|
2018
|
|
Expected life (in years)
|
|
|
6.06
|
|
|
|
5.87
|
|
Risk-free interest rates
|
|
|
2.5
|
%
|
|
|
2.6
|
%
|
Volatility
|
|
|
60.2
|
%
|
|
|
56.1
|
%
|
Dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Operating
expenses include stock-based compensation expense as follows (in thousands):
|
|
Three Months Ended June 30, (unaudited)
|
|
|
Six Months Ended June 30,
(unaudited)
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
161
|
|
|
$
|
188
|
|
|
$
|
283
|
|
|
$
|
381
|
|
General and administrative
|
|
|
601
|
|
|
|
915
|
|
|
|
1,919
|
|
|
|
1,706
|
|
Total stock-based compensation expense
|
|
$
|
762
|
|
|
$
|
1,103
|
|
|
$
|
2,202
|
|
|
$
|
2,087
|
|
The
expense related to 84,940 shares of Asterias restricted stock unit awards that immediately vested on the closing of the Asterias
Merger and converted into the right to receive shares of BioTime common stock based on the Merger Exchange Ratio, resulting in
60,304 shares of BioTime common stock issued on March 8, 2019, which were included in stock-based compensation expense for the
six months ended June 30, 2019. The expense was not included as part of the purchase price of the Asterias Merger because these
awards were principally attributable to post-combination services.
13.
Income Taxes
The
provision for income taxes for interim periods is generally determined using an estimated annual effective tax rate as prescribed
by ASC 740-270,
Income Taxes, Interim Reporting
. The effective tax rate may be subject to fluctuations during the year
as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors
such as valuation allowances and changes in valuation allowances against deferred tax assets, the recognition or de-recognition
of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions
where BioTime conducts business. ASC 740-270 also states that if an entity is unable to reliably estimate some or a part of its
ordinary income or loss, the income tax provision or benefit applicable to the item that cannot be estimated shall be reported
in the interim period in which the item is reported.
For
items that BioTime cannot reliably estimate on an annual basis (principally unrealized gains or losses generated by changes in
the market prices of the OncoCyte, and AgeX shares of common stock BioTime holds, and prior to March 8, 2019, Asterias shares
BioTime held), BioTime uses the actual year to date effective tax rate rather than an estimated annual effective tax rate to determine
the tax effect of each item, including the use of all available net operating losses and other credits or deferred tax assets.
Although
the deconsolidation of OncoCyte was not a taxable transaction to BioTime and did not create a current income tax payment obligation
to BioTime, the market value of the shares of OncoCyte common stock BioTime holds creates a deferred tax liability to BioTime
based on the closing prices of the shares, less BioTime’s tax basis in the shares. The deferred tax liability generated
by the OncoCyte shares that BioTime holds as of June 30, 2019, is a source of future taxable income to BioTime, as prescribed
by ASC 740-10-30-17, that will more likely than not result in the realization of its deferred tax assets to the extent of the
deferred tax liability. This deferred tax liability is determined based on the closing prices of the OncoCyte shares as of June
30, 2019. Due to the inherent unpredictability of future prices of those shares, BioTime cannot reliably estimate or project those
deferred tax liabilities on an annual basis. Therefore, the deferred tax liability pertaining to OncoCyte shares, determined based
on the actual closing prices on the last stock market trading day of the applicable accounting period, and the related impacts
to the valuation allowance and deferred tax asset changes, are recorded in the accounting period in which they occur.
Prior
to the Asterias Merger discussed in Note 3, the Asterias shares of common stock BioTime held generated similar deferred tax
liabilities to BioTime as the OncoCyte shares discussed above. As of the Asterias Merger date and due to Asterias becoming a
wholly owned subsidiary of BioTime, the Asterias deferred tax liabilities were eliminated with a corresponding adjustment to
BioTime’s valuation allowance, resulting in no tax provision or benefit from this adjustment.
On
March 23, 2018, Ascendance was acquired by a third party in a merger through which AgeX received approximately $3.2 million in
cash for its shares of Ascendance common stock. For financial reporting purposes, AgeX recognized a $3.2 million gain as a sale
of its equity method investment in Ascendance. The sale was a taxable transaction to AgeX generating a taxable gain of approximately
$2.2 million. BioTime had sufficient losses from operations to offset the entire gain resulting in no income taxes due.
The
income tax consequences of the AgeX Deconsolidation are discussed below.
The
Juvenescence Transaction discussed in Note 5 was a taxable event for BioTime that resulted in a gross taxable gain of approximately
$29.4 million, which BioTime fully offset with available net operating losses (“NOL”) and NOL carryforwards, resulting
in no net income taxes due. Although the AgeX Deconsolidation on August 30, 2018 was not a taxable transaction to BioTime and
did not result in a current tax payment obligation, the unrealized financial reporting gain (see Note 6) on the AgeX Deconsolidation
generated a deferred tax liability in accordance with ASC 740, primarily representing BioTime’s difference between book
and tax basis of AgeX common stock on the AgeX Deconsolidation date. This deferred tax liability was fully offset by a corresponding
release of BioTime’s valuation allowance on deferred tax assets, resulting in no income tax provision or benefit from the
AgeX Deconsolidation. The deferred tax liabilities on BioTime’s investments in OncoCyte, Asterias and AgeX are considered
to be sources of taxable income as prescribed by ASC 740-10-30-17 that will more likely than not result in the realization of
its deferred tax assets to the extent of those deferred tax liabilities, thereby reducing the need for a valuation allowance.
The
distribution of AgeX shares of common stock to BioTime shareholders (see Note 6) on November 28, 2018 was a taxable event for
BioTime that resulted in a gross taxable gain of approximately $26.4 million, which was fully offset by NOL carryforwards, resulting
in no income taxes due.
In
connection with the Asterias Merger, a deferred tax liability of $13.0 million was recorded as part of the acquisition accounting
(see Note 3). The deferred tax liability (“DTL”) is related to fair value adjustments for the assets and liabilities
acquired in the Asterias Merger, principally consisting of IPR&D. This estimate of deferred taxes was determined based on
the excess of the estimated fair values of the acquired assets and liabilities over the tax basis of the assets and liabilities
acquired. The statutory tax rate was applied, as appropriate, to the adjustment based on the jurisdiction in which the adjustment
is expected to occur. This estimate of deferred income tax liabilities is preliminary and is subject to change based upon BioTime’s
final determination of the fair value of assets acquired and liabilities assumed. Because the IPR&D (prior to completion or
abandonment of the R&D) is considered an indefinite-lived asset for accounting purposes, the fair value of the IPR&D on
the acquisition date creates a deferred income tax liability in accordance with ASC 740. This DTL is computed using the fair value
of the IPR&D assets on the acquisition date multiplied by BioTime’s respective federal and state income tax rates. While
this DTL would reverse on impairment or sale or commencement of amortization of the related intangible assets, those events are
not anticipated under ASC 740 for purposes of predicting reversal of a temporary difference to support the realization of deferred
tax assets, except for certain deferred tax assets and credit carryforwards that are also indefinite in nature as of the Asterias
Merger date, which may be considered for reversal under ASC 740 as further discussed below.
A
valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized.
For federal and state income tax purposes, as a result of the deconsolidation of AgeX, Asterias and OncoCyte and the deferred
tax liabilities generated from the market values of AgeX, Asterias and OncoCyte shares from the respective deconsolidation dates,
including the changes to those deferred tax liabilities due to changes in the AgeX, Asterias and OncoCyte stock prices, BioTime’s
deferred tax assets exceeded its deferred tax liabilities as of December 31, 2018. As a result, BioTime established a full valuation
allowance as of December 31, 2018 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards
and other deferred tax assets.
For
the three and six months ended June 30, 2019, BioTime reversed a portion of its valuation allowance. The partial reversal of the
historical valuation allowance is related to BioTime’s deferred tax assets and credit carryforwards and is due to the acquired
taxable temporary differences, primarily consisting of the acquired IPR&D discussed above and in Notes 3 and 8. ASC 740 allows
for deferred tax assets and credit carryforwards, that are both available and indefinite in nature, to be used against similar
deferred tax liabilities as a source of income to support the realization of those deferred tax assets and credit carryforwards.
Any benefit recognized from such a reversal of the valuation allowance is recorded outside of the acquisition accounting. Accordingly,
the $1.2 million and $5.6 million valuation allowance release and the corresponding tax benefits were primarily
related to state research and development credits, including current year federal net operating losses generated for the three
and six months ended June 30, 2019, respectively, both of which are available and indefinite in nature.
BioTime
did not record any provision or benefit for income taxes for the three and six months ended June 30, 2018 as BioTime had a full
valuation allowance for the periods presented.
14.
Supplemental Cash Flow Information
Non-cash
investing and financing transactions presented separately from the condensed consolidated statements of cash flows for the six
months ended June 30, 2019 and 2018 are as follows (in thousands):
|
|
Six Months Ended
June 30, (unaudited)
|
|
|
|
2019
|
|
|
2018
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
|
Issuance of common stock for the Asterias Merger (Note 3)
|
|
$
|
32,353
|
|
|
$
|
-
|
|
Assumption of liabilities in the Asterias Merger (Note 3)
|
|
|
1,136
|
|
|
|
-
|
|
Assumptions of warrants in the Asterias Merger (Note 3)
|
|
|
867
|
|
|
|
-
|
|
15.
Commitments and Contingencies
Alameda
Lease
In
December 2015, BioTime entered into a lease for approximately 30,795 square feet of rentable space in two buildings located in
an office park in Alameda, California (the “Alameda Lease”). The term of the Alameda Lease commenced effective February
1, 2016 and expires on January 31, 2023, unless BioTime exercises its option to renew the lease for an additional five years.
Base
rent under the Alameda Lease beginning on February 1, 2019 is $70,521 per month and will increase by approximately 3% annually
on every February 1 thereafter during the lease term.
Prior
to the adoption of ASC 842 on January 1, 2019 (see Note 2), the lease payments allocated to the lease liability for leasehold
improvements reimbursed by the landlord were amortized as debt service on that liability using the effective interest method over
the lease term.
See
Note 2 for discussion of the impact of adoption of ASC 842 on January 1, 2019, and below for the ROU assets and liabilities
recorded in connection with the adoption of ASC 842 as of, and during the six months ended June 30, 2019 for the Alameda Lease.
In
addition to base rent, BioTime will pay a pro rata portion of increases in certain expenses, including real property taxes, utilities
(to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those
expenses incurred by the landlord. As security for the performance of its obligations under the Alameda Lease, BioTime provided
the landlord with a security deposit of approximately $424,000, which was reduced to $78,000 on January 24, 2019 in accordance
with the terms of the lease. The security deposit amount is considered restricted cash and $78,000 is included in deposits and
other long-term assets as of June 30, 2019 (see Note 2).
Carlsbad
Lease
In
May 2019, BioTime entered into a lease for approximately 8,841 square feet of rentable space in an office park in Carlsbad, California
(the “Carlsbad Lease”). The term of the Carlsbad Lease commenced on August 1, 2019 and expires on October 31, 2022.
Base
rent under the Carlsbad Lease beginning on August 1, 2019 is $17,850 per month and will increase by 3% annually on every August
1 thereafter during the lease term. Base rent for the first twenty-four months of the lease is based upon a deemed rentable area
of 7,000 square feet. Base rent is abated for months two through five of the lease.
In
addition to base rent, BioTime will pay a pro rata portion of increases in certain expenses, including real property taxes, utilities
(to the extent not separately metered to the leased space) and the landlord’s operating expenses, over the amounts of those
expenses incurred by the landlord. As security for the performance of its obligations under the Alameda Lease, BioTime provided
the landlord with a security deposit of approximately $17,850.
New
York Leased Office Space
BioTime
currently pays $5,050 per month for the use of approximately 900 square feet of office space in New York City, which is made available
to BioTime for use in conducting meetings and other business affairs, on a month-by-month basis, by one of its directors at an
amount that approximates his cost. This lease was not in the scope of ASC 842 because it is a month to month lease (see Note 2).
Cell
Cure Lease
Cell
Cure leases 728.5 square meters (approximately 7,842 square feet) of office and laboratory space in Jerusalem, Israel under a
lease that expires December 31, 2020, with two options to extend the lease for 5 years each. Base monthly rent is NIS 37,882 (approximately
US $11,000 per month using the December 31, 2018 exchange rate). In addition to base rent, Cell Cure pays a pro rata share of
real property taxes and certain costs related to the operation and maintenance of the building in which the leased premises are
located.
On
January 28, 2018, Cell Cure entered into another lease agreement for an additional 934 square meters (approximately 10,054 square
feet) of office space in the same facility in Jerusalem, Israel under a lease that expires on December 31, 2025, with two options
to extend the lease for 5 years each (the “January 2018 Lease”). The January 2018 Lease commenced on April 1, 2018
and included a leasehold improvement construction allowance of up to NIS 4,000,000 (approximately up to $1.1 million using the
December 31, 2018 exchange rate) from the landlord. The leasehold improvements were completed in December 2018 and the entire
allowance was used. Beginning on January 1, 2019, combined base rent and construction allowance payments for the January 2018
Lease are NIS 93,827 per month (approximately $26,000 per month).
Prior
to the adoption of ASC 842 on January 1, 2019, Cell Cure was considered the owner of the tenant improvements under construction
under ASC 840-40-55 as Cell Cure, among other things, had the primary obligation to pay for construction costs and Cell Cure retains
exclusive use of the leased facilities for its office, research and cGMP manufacturing facility requirements after construction
was completed (“build to suit” lease). In accordance with the ASC 840 guidance, amounts expended by Cell Cure for
construction was reported as construction in progress, and the proceeds received from the landlord, if any, are reported as a
lease liability. As of December 31, 2018, approximately $1.1 million under the January 2018 Lease was incurred and recorded as
leasehold improvement construction in progress (see Note 7), with a corresponding amount included in long term lease liability
representing the full amount utilized from the landlord’s leasehold improvement construction allowance. By March 2019, the
landlord paid the complete leasehold improvement construction allowance and the property was placed in service.
See
Note 2 discussion of the impact of adoption of ASC 842 on January 1, 2019, and below for the ROU assets and liabilities recorded
in connection with the adoption of ASC 842 as of, and during the six months ended June 30, 2019 for the Cell Cure and January
2018 Leases above (the “Cell Cure Leases”).
In
December 2018, Cell Cure made a $388,000 deposit required under the January 2018 Lease, which amount is included in deposits and
other long-term assets on the consolidated balance sheet as of December 31, 2018, to be held as restricted cash during the term
of the January 2018 Lease.
Adoption
of ASC 842
The
below tables provide the amounts recorded in connection with the adoption of ASC 842 as of, and during the six months ended June
30, 2019, for BioTime’s operating and financing leases, as applicable.
Supplemental
cash flow information related to leases was as follows (in thousands):
|
|
Six Months Ended
June 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
670
|
|
Operating cash flows from financing leases
|
|
|
17
|
|
Financing cash flows from financing leases
|
|
|
14
|
|
|
|
|
|
|
Right of use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
|
89
|
|
Financing leases
|
|
|
-
|
|
Supplemental
balance sheet information related to leases was as follows (in thousands, except lease term and discount rate):
|
|
June 30, 2019
|
|
Operating leases
|
|
|
|
|
Right-of-use assets, net
|
|
$
|
4,554
|
|
|
|
|
|
|
Right-of-use lease liabilities, current
|
|
|
923
|
|
Right-of-use lease liabilities, noncurrent
|
|
|
3,825
|
|
Total operating lease liabilities
|
|
$
|
4,748
|
|
|
|
|
|
|
Financing leases
|
|
|
|
|
Property and equipment, gross
|
|
$
|
146
|
|
Accumulated depreciation
|
|
|
(35
|
)
|
Property and equipment, net
|
|
$
|
111
|
|
|
|
|
|
|
Current liabilities
|
|
|
33
|
|
Long-term liabilities
|
|
|
93
|
|
Total finance lease liabilities
|
|
$
|
126
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
Operating leases
|
|
|
4.7
years
|
|
Finance leases
|
|
|
3.9 years
|
|
Weighted average discount rate
|
|
|
|
|
Operating leases
|
|
|
9.0
|
%
|
Finance leases
|
|
|
10.0
|
%
|
Future
minimum lease commitments are as follows (in thousands):
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Year Ending December 31,
|
|
|
|
|
|
|
|
|
2019
|
|
$
|
720
|
|
|
$
|
22
|
|
2020
|
|
|
1,459
|
|
|
|
43
|
|
2021
|
|
|
1,365
|
|
|
|
36
|
|
2022
|
|
|
1,268
|
|
|
|
36
|
|
2023
|
|
|
393
|
|
|
|
15
|
|
Thereafter
|
|
|
1,015
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total lease payments
|
|
$
|
6,220
|
|
|
$
|
152
|
|
Less imputed interest
|
|
|
(1,472
|
)
|
|
|
(26
|
)
|
Total
|
|
$
|
4,748
|
|
|
$
|
126
|
|
Research
and Option Agreement
On
January 5, 2019, BioTime and Orbit Biomedical Limited (“Orbit”) entered into a Research and Option Agreement (the
“Orbit Agreement”) for an exclusive partnership to assess Orbit’s vitrectomy-free subretinal injection device
as a means of delivering OpRegen in BioTime’s ongoing Phase I/IIa clinical trial. The term of the Orbit Agreement is for
one year unless certain research activities and related data specified in the Orbit Agreement is obtained sooner. The access fees
payable by BioTime to Orbit for its technology and the injection device are $2.5 million in the aggregate, of which $1.25 million
was paid in January 2019 upon execution of the Orbit Agreement and the remaining $1.25 million payment is due on the earlier of
(i) six months from the Orbit Agreement date or, (ii) upon completion of certain collaborative research activities using the Orbit
technology for the OpRegen Phase I/IIa clinical trial, as specified in the Orbit Agreement. In addition to the access fees, BioTime
will pay Orbit for costs of consumables, training services, travel costs and other out of pocket expenses incurred by Orbit for
performing services under the Orbit Agreement. BioTime has exclusive rights to the Orbit technology and its injection device for
the treatment of dry-AMD during the term of the Orbit Agreement and may extend the term for an additional three months by paying
Orbit a cash fee of $500,000. For the three and six months ended June 30, 2019, BioTime amortized $0.6 million and $1.25 million
of the upfront payment fee included in research and development expenses. As of June 30, 2019, BioTime had not incurred the remaining
$1.25 million access fee. In July 2019, BioTime completed the collaborative research activities referred to above and the second
$1.25 million payment will be made in August 2019.
Litigation
BioTime
will be subject to various claims and contingencies in the ordinary course of its business, including those related to litigation,
business transactions, employee-related matters, and others. When BioTime is aware of a claim or potential claim, it assesses
the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably
estimated, BioTime will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably
estimated, BioTime will disclose the claim if the likelihood of a potential loss is reasonably possible and the amount involved
could be material. BioTime is not aware of any claims likely to have a material adverse effect on its financial condition or results
of operations.
On
February 19, 2019, a putative shareholder class action lawsuit was filed (captioned
Lampe v. Asterias Biotherapeutics, Inc.
et al
., Case No. RG19007391) in the Superior Court of the State of California, County of Alameda challenging the Asterias
Merger. On March 1, 2019, Asterias made certain amendments and supplements to its public disclosures regarding the Asterias Merger
(the “Supplemental Disclosures”). On May 3, 2019, an amended class action complaint (the “Amended Complaint”)
was filed. The Amended Complaint names BioTime, Patrick Merger Sub, Inc., the Asterias board of directors, one member of BioTime’s
board of directors, and certain stockholders of both BioTime and Asterias. The action was brought by two purported stockholders
of Asterias, on behalf of a putative class of Asterias stockholders, and asserts breach of fiduciary duty and aiding and abetting
claims under Delaware law. The Amended Complaint alleges, among other things, that the process leading up to the Asterias Merger
was conflicted and inadequate, and that the proxy statement filed by Asterias with the Securities and Exchange Commission omitted
certain material information, which allegedly rendered the information disclosed materially misleading. The Amended Complaint
seeks, among other things, that a class be certified, the recovery of monetary damages, and attorneys’ fees and costs.
On
June 3, 2019, defendants filed demurrers to the Amended Complaint. Plaintiffs’ counsel subsequently indicated that,
after reviewing the demurrers and analyzing certain documents produced by defendants, Plaintiffs wished to voluntarily
dismiss the action with prejudice as to themselves, and without prejudice as to the unnamed putative class members.
Plaintiffs’ counsel also indicated that, independent of their decision to voluntarily dismiss the action, Plaintiffs
believe they have a claim for attorneys’ fees and expenses in connection with the purported benefit conferred on
Asterias stockholders by the Supplemental Disclosures (the “Fee Claim”). On July 26, 2019, the parties entered
into a stipulation to stay the briefing schedule on the demurrers and to take the hearing on the demurrers off calendar so
that the parties could discuss the Fee Claim (the “Stipulation”). On July 29, 2019, the Court entered the
Stipulation as an order, took the demurrer hearing off calendar, and set a case management conference for September 17, 2019.
Thereafter, the parties began negotiating the Fee Claim and, on August 5, 2019, agreed in principle to resolve the Fee Claim
for $200,000. The parties intend to submit a stipulation to the Court seeking dismissal of the action with prejudice as to
the named Plaintiffs and without prejudice as to the unnamed putative class members, and seeking approval of the negotiated
Fee Claim. BioTime continues to believe that the claims and allegations in the action lack merit, but believes that it is in
BioTime’s shareholders’ best interest for the action to be dismissed and to resolve the Fee Claim in a timely
manner without additional costly litigation expenses.
Employment
contracts
BioTime
has entered into employment agreements with certain executive officers. Under the provisions of the agreements, BioTime may be
required to incur severance obligations for matters relating to changes in control, as defined in the agreements, and involuntary
terminations.
Indemnification
In
the normal course of business, BioTime may provide indemnifications of varying scope under BioTime’s agreements with other
companies or consultants, typically BioTime’s clinical research organizations, investigators, clinical sites, suppliers
and others. Pursuant to these agreements, BioTime will generally agree to indemnify, hold harmless, and reimburse the indemnified
parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection
with the use or testing of BioTime’s products and services. Indemnification provisions could also cover third party infringement
claims with respect to patent rights, copyrights, or other intellectual property pertaining to BioTime products and services.
The term of these indemnification agreements will generally continue in effect after the termination or expiration of the particular
research, development, services, or license agreement to which they relate. The potential future payments BioTime could be required
to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, BioTime
has not been subject to any claims or demands for indemnification. BioTime also maintains various liability insurance policies
that provide BioTime with insurance against claims or demands for indemnification in specified circumstances. As a result, BioTime
believes the fair value of these indemnification agreements is minimal. Accordingly, BioTime has not recorded any liabilities
for these agreements as of June 30, 2019 and December 31, 2018.
Royalty
obligations and license fees
BioTime
and its subsidiaries or affiliates are parties to certain licensing agreements with research institutions, universities and other
parties for the rights to use those licenses and other intellectual property in conducting research and development activities.
These licensing agreements provide for the payment of royalties by BioTime or the applicable party to the agreement on future
product sales, if any. In addition, in order to maintain these licenses and other rights during the product development, BioTime
or the applicable party to the contract must comply with various conditions including the payment of patent related costs and
annual minimum maintenance fees. Annual minimum maintenance fees are approximately $135,000 to $150,000 per year. The research
and development risk for these products is significant. License fees and related expenses under these agreements were immaterial
for the periods presented in the condensed consolidated interim financial statements provided herein.
Grants
Under
the terms of the grant agreement between Cell Cure and Israel Innovation Authority (“IIA”) (formerly the Office of
the Chief Scientist of Israel) of the Ministry of Economy and Industry, for the development of OpRegen
®
,
Cell Cure will be required to pay royalties on future product sales, if any, up to the amounts received from the IIA, plus interest
indexed to LIBOR. Cell Cure’s research and product development activities under the grant are subject to substantial risks
and uncertainties and performed on a best efforts basis. As a result, Cell Cure is not required to make any payments under the
grant agreement unless it successfully commercializes OpRegen. Accordingly, pursuant to ASC 730-20, the grant is considered
a contract to perform research and development services for others and grant revenue is recognized as the related research and
development expenses are incurred (see Note 2).
Israeli
law pertaining to such government grants contain various conditions, including substantial penalties and restrictions on the transfer
of intellectual property, or the manufacture, or both, of products developed under the grant outside of Israel, as defined by
the IIA.
16.
Subsequent Events
In
July 2019, BioTime sold 2,250,000 shares of common stock of OncoCyte for net proceeds of $4.2 million and recorded a realized
loss on sale of $1.4 million, including commissions and fees. Following the completion of the sale, BioTime owns approximately
23.9% or 12.4 million shares of OncoCyte’s outstanding common stock.
In
July 2019, BioTime sold 647,397 shares of common stock of Hadasit for net proceeds of
approximately $1.2 million and recorded a realized gain on sale of $0.3 million, including commissions and fees. Following the
completion of the sale, BioTime owns approximately 8.1% or 0.9 million shares of Hadasit’s outstanding common stock.
On
July 30, 2019, BioTime conducted its annual shareholder meeting and received shareholder approval to increase the maximum
common shares available for grant under the 2012 Equity Incentive Plan from 16,000,000 common shares to 24,000,000 common
shares.