| Commitments and Contingencies | 14. Commitments and Contingencies Carlsbad Lease In May 2019, Lineage
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,
Lineage 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 Carlsbad Lease, Lineage provided the landlord with
a security deposit of $17,850. Alameda Lease In December 2015, Lineage
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 is seven years and Lineage has an option to renew the
term for an additional five years. The term of the Alameda Lease commenced effective February 1, 2016 and expires on January 31,
2023, unless the renewal option is exercised. 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 year ended December 31, 2019 for the Alameda Lease. In addition to base rent, Lineage
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, Lineage 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 (see Note 2) and $78,000 is included in deposits and other long-term assets as of
December 31, 2019 (see Note 2). New York Leased Office Space Lineage 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 Lineage
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 Leases 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 (the “Original Cell Cure Lease”). 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 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 year ended December 31, 2019 for the Original Cell Cure Lease and January 2018 Lease
(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 year ended December 31, 2019, for Lineage’s
operating and financing leases, as applicable. Supplemental cash flow
information related to leases was as follows (in thousands):
Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,364
Operating cash flows from financing leases 28
Financing cash flows from financing leases 30
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 738
Financing leases - Supplemental balance sheet information related
to leases was as follows (in thousands, except lease term and discount rate):
December 31, 2019
Operating leases
Right-of-use assets, net $ 4,666
Right-of-use lease liabilities, current $ 1,190
Right-of-use lease liabilities, noncurrent 3,868
Total operating lease liabilities $ 5,058
Financing leases
Property and equipment, gross $ 96
Accumulated depreciation (48 )
Property and equipment, net $ 48
Current liabilities $ 33
Long-term liabilities 77
Total finance lease liabilities $ 110
Weighted average remaining lease term
Operating leases 4.1 years
Finance leases 3.4 years
Weighted average discount rate
Operating leases 9.1 %
Finance leases 10.0 % Future minimum lease commitments are as follows
(in thousands):
Operating Leases Finance Leases
Year Ending December 31,
2020 $ 1,590 $ 43
2021 1,528 36
2022 1,508 36
2023 397 15
2024 308 -
Thereafter 811 -
Total lease payments $ 6,142 $ 130
Less imputed interest (1,084 ) (20 )
Total $ 5,058 $ 110 Research and Option Agreement On January 5, 2019, Lineage
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 Lineage’s ongoing Phase 1/2a 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 Lineage 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 which was 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 1/2a
clinical trial, as specified in the Orbit Agreement. In addition to the access fees, Lineage reimburses 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.
Lineage 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. In July 2019, Lineage
completed the collaborative research activities referred to above and the second $1.25 million payment was made in August 2019.
The Orbit fees of $2.5 million were amortized on a straight-line basis throughout 2019 and included in research and development
expenses. Litigation –
General Lineage is 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 Lineage 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, Lineage will record
a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, Lineage discloses
the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. Lineage 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 On June 3, 2019, defendants
filed demurrers to the Amended Complaint. On August 13, 2019, the parties submitted 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 disclosing
to the court the parties’ agreement to resolve, for $200,000, Plaintiffs’ claim for an award of attorneys’ fees
and expenses in connection with the purported benefit conferred on Asterias stockholders by the Supplemental Disclosures. The court
granted the stipulation and dismissed the action August 14, 2019. Lineage continues to believe that the claims and allegations
in the action lack merit, but believed that it was in Lineage’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. On October 14, 2019,
another putative class action lawsuit was filed challenging the Asterias Merger. This action (captioned Ross v. Lineage Cell
Therapeutics, Inc., et al. Lineage believes the
allegations in the action lack merit and intends to vigorously defend the claims asserted. It is impossible at this time to assess
whether the outcome of this proceeding will have a material adverse effect on Lineage’s consolidated results of operations,
cash flows or financial position. Therefore, in accordance with ASC 450, Contingencies, Employment Contracts Lineage has entered into
employment agreements with certain executive officers. Under the provisions of the agreements, Lineage 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, Lineage may provide indemnifications of varying scope under Lineage’s agreements with other companies or consultants,
typically Lineage’s clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these
agreements, Lineage 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 Lineage’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 Lineage 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 Lineage could be required to make under these indemnification agreements
will generally not be subject to any specified maximum amount. Historically, Lineage has not been subject to any claims or demands
for indemnification. Lineage also maintains various liability insurance policies that limit Lineage’s financial exposure.
As a result, Lineage believes the fair value of these indemnification agreements is minimal. Accordingly, Lineage has not recorded
any liabilities for these agreements as of December 31, 2019 and 2018. Second Amended
and Restated License Agreement On June 15, 2017, Cell
Cure entered into a Second Amended and Restated License Agreement (the “License Agreement”) with Hadasit Medical Research
Services and Development Ltd. (“Hadasit”), the commercial arm and a wholly owned subsidiary of Hadassah Medical Organization.
Pursuant to the License Agreement, Hadasit granted Cell Cure an exclusive, worldwide, royalty bearing license (with the right to
grant sublicenses) in its intellectual property portfolio of materials and technology related to human stem cell derived photoreceptor
cells and retinal pigment epithelial cells (the “Licensed IP”), to use, commercialize and exploit any part thereof,
in any manner whatsoever in the fields of the development and exploitation of (i) human stem cell derived photoreceptor cells,
solely for use in cell therapy for the diagnosis, amelioration, prevention and treatment of eye disorders, and (ii) human stem
cell derived retinal pigment epithelial cells, solely for use in cell therapy for the diagnosis, amelioration, prevention and treatment
of eye disorders. As consideration for
the Licensed IP, Cell Cure will pay a small one-time lump sum payment, a royalty in the mid-single digits of net sales from sales
of Licensed IP by any invoicing entity, and a royalty of 21.5% of sublicensing receipts. In addition, Cell Cure will pay Hadasit
an annual minimal non-refundable royalty, which will become due and payable the first January 1 following the completion of services
to Cell Cure by a research laboratory. Cell Cure will pay Hadasit
non-refundable milestone payments upon the recruitment of the first patient for the first Phase 2b clinical trial, upon the enrollment
of the first patient in the first Phase 3 clinical trials, upon delivery of the report for the first Phase 3 clinical trials, upon
the receipt of an NDA or marketing approval in the European Union, whichever is the first to occur, and upon the first commercial
sale in the United States or European Union, whichever is the first to occur. Such milestones, in the aggregate, may be up to $3.5
million. As of December 31, 2019, Cell Cure had not accrued any milestone payments under the License Agreement. The License Agreement
terminates upon the expiration of Cell Cure’s obligation to pay royalties for all licensed products, unless earlier terminated.
In addition to customary termination rights of both parties, Hadasit may terminate the License Agreement if Cell Cure fails to
continue the clinical development of the Licensed IP or fails to take actions to commercialize or sell the Licensed IP over any
consecutive 12 month period. The License Agreement also contains mutual confidentiality obligations of Cell Cure and Hadasit, and
indemnification obligations of Cell Cure. Royalty obligations
and license fees Lineage 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 Lineage 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, Lineage or the applicable party to the contract
must comply with various conditions including the payment of patent related costs and annual minimum maintenance fees. Prior to
the AgeX Distribution, annual minimum maintenance fees were approximately $135,000 to $150,000 per year. For 2019 and future years,
we now expect annual minimum maintenance fees to be approximately $30,000 to $60,000 per year. License fees and related expenses
under these agreements were $47,000 and $133,000 for the years ended December 31, 2019 and 2018, respectively. 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 ® ® 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. |
