Lineage Cell Therapeutics, Inc. - 10-K filing on 2022-03-10

Shareholders’ Equity	12 Months Ended
Dec. 31, 2021
Equity [Abstract]
Shareholders’ Equity	11. Shareholders’ Equity Preferred Shares Lineage is authorized to issue 2,000,000 shares of preferred stock. The preferred shares may be issued in one or more series as the board of directors may by resolution determine. 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. As of December 31, 2021, no shares of preferred stock were issued or outstanding. Common Shares At December 31, 2021, Lineage was authorized to issue 250,000,000 common shares, no par value. As of December 31, 2021 and 2020, Lineage had 169,477,347 and 153,095,883 issued and outstanding common shares, respectively. During the years ended December 31, 2021 and 2020, Lineage issued 40,000 and 47,000 common shares, net of shares withheld and retired for employee taxes paid, respectively, for vested restricted stock units (see Note 12). At-the-Market (“ATM”) Offering On May 1, 2020, Lineage entered into the Sales Agreement, pursuant to which Lineage may offer and sell, from time to time, through Cantor Fitzgerald, common shares of Lineage (“ATM Shares”) having an aggregate offering price of up to $25.0 million. Lineage is not obligated to sell any ATM Shares. 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 ATM Shares from time to time based upon Lineage’s instructions, including any price, time or size limits specified by Lineage. Under the Sales Agreement, Cantor Fitzgerald may sell the ATM 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 ATM Shares are subject to satisfaction of certain conditions, including the continued effectiveness of Lineage’s Registration Statement on Form S-3 (File No. 333-237975), which was filed with the Commission on May 1, 2020 and was declared effective on May 8, 2020. The Sales Agreement replaced the previous sales agreement with Cantor that had been entered into in April 2017. On March 5, 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of an additional $25.0 million of common shares under the Sales Agreement increasing the total offering to $50.0 million. As of December 21, 2021, $14.1 million remained available for sale under the Sales Agreement. On December 21, 2021, Lineage filed a prospectus supplement with the SEC in connection with the New Sales Agreement, with Cantor Fitzgerald as the sales agent, and no additional sales will be made under the Sales Agreement. The $64.1 million under the New Sales Agreement which may be issued are registered pursuant to the May 2020 Registration Statement, and Lineage’s effective shelf registration statement on Form S-3 (File No. 333-254167), which was filed with the SEC on March 5, 2021 and declared effective on March 19, 2021. As of December 31, 2021, under the Sales Agreement, Lineage had issued 14,908,735 common shares at a weighted-average price per share of $2.41 for gross proceeds of $35.9 million. As of December 31, 2021, under the New Sales Agreement, Lineage had issued 108,200 common shares at a weighted-average price per share of $2.55 for gross proceeds of $0.3 million (which includes $0.2 million of cash in transit related to a 2021 transaction that settled in early 2022). As a result, as of December 31, 2021, $63.9 million remained available for issuance under the New Sales Agreement. Lineage 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 Lineage 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 Lineage’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. Warrants Lineage (previously Asterias) Warrants – Liability Classified In March 2019, in connection with the closing of the Asterias Merger, Lineage assumed outstanding Asterias Warrants. The total number of common shares of Lineage subject to warrants that were assumed by Lineage in connection with the Asterias Merger was 1,089,900, which were converted to Lineage Warrants 30 days after the closing of the Asterias Merger, with similar terms and conditions retained under the Lineage Warrants as per the original Warrant Agreements. The Lineage Warrants had an exercise price of $6.15 per warrant share and expired on May 13, 2021. Cell Cure Warrants – Liability Classified Cell Cure has two sets of issued warrants (the “Cell Cure Warrants”). Warrants to purchase 24,566 Cell Cure ordinary shares at an exercise price of $40.5359 were issued to HBL 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 were issued to consultants. 11,738 of these warrants were cashless exercised in October 2020. The expense related to the cashless exercise was approximately $44,000 and it was recorded as other income/(expense), net on the statements of operations. The remaining 2,000 warrants have an exercise price of $40.00 and expire in 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. Because the exercise price of the Cell Cure Warrants is U.S. dollar-denominated and settlement is not expected to occur in the next twelve months, Cell Cure classified the Cell Cure Warrants as a long-term liability in accordance with ASC 815. The fair value of the Cell Cure Warrants at the time of issuance was determined by using the Black-Scholes option pricing model using the respective contractual term of the warrants. In applying this model, the fair value is determined by applying Level 3 inputs, as defined by ASC 820; these inputs are based on certain key assumptions including the fair value of the Cell Cure ordinary shares, adjusted for lack of marketability, as appropriate, and the expected stock price volatility over the term of the Cell Cure Warrants. The fair value of the Cell Cure ordinary shares is determined by Cell Cure’s Board of Directors, which may engage a valuation specialist to assist it in estimating the fair value, or may use recent transactions in Cell Cure shares, if any, as a reasonable approximation of fair value, or may apply other reasonable methods to determining the fair value, including a discount for lack of marketability. In connection with the cashless exercise in October 2020, Cell Cure had an independent third-party update the fair value of the Cell Cure shares. Lineage determines the stock price volatility using historical prices of comparable public company common stock for a period equal to the remaining term of the Cell Cure Warrants. The Cell Cure Warrants are revalued each reporting period using the same methodology described above, with changes in fair value included as gains or losses in other income and expenses, net, in the consolidated statements of operations. For the years ended December 31, 2021 and 2020, Lineage recorded a noncash gain of $0.2 million and a noncash loss of $0.2 million, respectively, for the increase/decrease in the fair value of the Cell Cure Warrants included in other income and expenses, net for each period. The decrease in the fair value of the Cell Cure Warrants was mainly attributable to the time premium amortization, due to the shorter duration of the warrants. As of December 31, 2021 and 2020, the Cell Cure Warrants, valued at $0.2 million and $0.4 million, respectively, were included in current and long-term liabilities on the consolidated balance sheets.

Shareholders’ Equity

12 Months Ended

Dec. 31, 2021

11. Shareholders’ Equity

Preferred Shares

Lineage is authorized to issue 2,000,000 shares of preferred stock. The preferred shares may be issued in one or more series as the board of directors may by resolution determine. 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. As of December 31, 2021, no shares of preferred stock were issued or outstanding.

Common Shares

At December 31, 2021, Lineage was authorized to issue 250,000,000 common shares, no par value. As of December 31, 2021 and 2020, Lineage had 169,477,347 and 153,095,883 issued and outstanding common shares, respectively.

During the years ended December 31, 2021 and 2020, Lineage issued 40,000 and 47,000 common shares, net of shares withheld and retired for employee taxes paid, respectively, for vested restricted stock units (see Note 12).

At-the-Market (“ATM”) Offering

On May 1, 2020, Lineage entered into the Sales Agreement, pursuant to which Lineage may offer and sell, from time to time, through Cantor Fitzgerald, common shares of Lineage (“ATM Shares”) having an aggregate offering price of up to $25.0 million. Lineage is not obligated to sell any ATM Shares. 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 ATM Shares from time to time based upon Lineage’s instructions, including any price, time or size limits specified by Lineage. Under the Sales Agreement, Cantor Fitzgerald may sell the ATM 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 ATM Shares are subject to satisfaction of certain conditions, including the continued effectiveness of Lineage’s Registration Statement on Form S-3 (File No. 333-237975), which was filed with the Commission on May 1, 2020 and was declared effective on May 8, 2020. The Sales Agreement replaced the previous sales agreement with Cantor that had been entered into in April 2017.

On March 5, 2021, Lineage filed a prospectus supplement with the SEC in connection with the offer and sale of an additional $25.0 million of common shares under the Sales Agreement increasing the total offering to $50.0 million. As of December 21, 2021, $14.1 million remained available for sale under the Sales Agreement. On December 21, 2021, Lineage filed a prospectus supplement with the SEC in connection with the New Sales Agreement, with Cantor Fitzgerald as the sales agent, and no additional sales will be made under the Sales Agreement. The $64.1 million under the New Sales Agreement which may be issued are registered pursuant to the May 2020 Registration Statement, and Lineage’s effective shelf registration statement on Form S-3 (File No. 333-254167), which was filed with the SEC on March 5, 2021 and declared effective on March 19, 2021. As of December 31, 2021, under the Sales Agreement, Lineage had issued 14,908,735 common shares at a weighted-average price per share of $2.41 for gross proceeds of $35.9 million. As of December 31, 2021, under the New Sales Agreement, Lineage had issued 108,200 common shares at a weighted-average price per share of $2.55 for gross proceeds of $0.3 million (which includes $0.2 million of cash in transit related to a 2021 transaction that settled in early 2022). As a result, as of December 31, 2021, $63.9 million remained available for issuance under the New Sales Agreement.

Lineage 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 Lineage 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 Lineage’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.

Warrants

Lineage (previously Asterias) Warrants – Liability Classified

In March 2019, in connection with the closing of the Asterias Merger, Lineage assumed outstanding Asterias Warrants. The total number of common shares of Lineage subject to warrants that were assumed by Lineage in connection with the Asterias Merger was 1,089,900, which were converted to Lineage Warrants 30 days after the closing of the Asterias Merger, with similar terms and conditions retained under the Lineage Warrants as per the original Warrant Agreements. The Lineage Warrants had an exercise price of $6.15 per warrant share and expired on May 13, 2021.

Cell Cure Warrants – Liability Classified

Cell Cure has two sets of issued warrants (the “Cell Cure Warrants”). Warrants to purchase 24,566 Cell Cure ordinary shares at an exercise price of $40.5359 were issued to HBL 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 were issued to consultants. 11,738 of these warrants were cashless exercised in October 2020. The expense related to the cashless exercise was approximately $44,000 and it was recorded as other income/(expense), net on the statements of operations. The remaining 2,000 warrants have an exercise price of $40.00 and expire in 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. Because the exercise price of the Cell Cure Warrants is U.S. dollar-denominated and settlement is not expected to occur in the next twelve months, Cell Cure classified the Cell Cure Warrants as a long-term liability in accordance with ASC 815.

The fair value of the Cell Cure Warrants at the time of issuance was determined by using the Black-Scholes option pricing model using the respective contractual term of the warrants. In applying this model, the fair value is determined by applying Level 3 inputs, as defined by ASC 820; these inputs are based on certain key assumptions including the fair value of the Cell Cure ordinary shares, adjusted for lack of marketability, as appropriate, and the expected stock price volatility over the term of the Cell Cure Warrants. The fair value of the Cell Cure ordinary shares is determined by Cell Cure’s Board of Directors, which may engage a valuation specialist to assist it in estimating the fair value, or may use recent transactions in Cell Cure shares, if any, as a reasonable approximation of fair value, or may apply other reasonable methods to determining the fair value, including a discount for lack of marketability. In connection with the cashless exercise in October 2020, Cell Cure had an independent third-party update the fair value of the Cell Cure shares. Lineage determines the stock price volatility using historical prices of comparable public company common stock for a period equal to the remaining term of the Cell Cure Warrants. The Cell Cure Warrants are revalued each reporting period using the same methodology described above, with changes in fair value included as gains or losses in other income and expenses, net, in the consolidated statements of operations.

For the years ended December 31, 2021 and 2020, Lineage recorded a noncash gain of $0.2 million and a noncash loss of $0.2 million, respectively, for the increase/decrease in the fair value of the Cell Cure Warrants included in other income and expenses, net for each period. The decrease in the fair value of the Cell Cure Warrants was mainly attributable to the time premium amortization, due to the shorter duration of the warrants. As of December 31, 2021 and 2020, the Cell Cure Warrants, valued at $0.2 million and $0.4 million, respectively, were included in current and long-term liabilities on the consolidated balance sheets.