| Commitments and Contingencies | 14.
Commitments and Contingencies Real
Property Leases Carlsbad
Lease In
May 2019, Lineage entered into a lease for approximately 8,841 August 1, 2019 October 31, 2022 17,850 Base
rent was abated for months two through five of the lease. Base rent through August 1, 2019 was based upon a deemed rentable area of 7,000 23,959 3 In
addition to base rent, Lineage pays 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. Alameda
Leases and Alameda Sublease In
December 2015, Lineage entered into leases of office and laboratory space located in two
buildings in Alameda, California (the “Alameda
Leases”) comprised of 22,303
square feet (the “1010 Atlantic Premises”)
and 8,492
square feet (the “1020 Atlantic Premises”).
As security for its obligations under the Alameda Leases, Lineage provided the landlord with a security deposit of approximately $ 424,000 ,
which was reduced to $ 78,000
in January 2019 in accordance with the terms
of the Alameda Leases, and which was returned in full to Lineage in March 2021. Base
rent under the Alameda Leases beginning on February 1, 2020 was $ 72,676
per month with annual increases of approximately
3 %.
In addition to base rent, Lineage pays 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. In
April 2020, Lineage subleased 10,000 was $ 28,000 3 in operating expenses, after an abatement period of one year On September 11, 2020, Lineage
entered into an agreement with the landlord pursuant to which the lease for the 1020 Atlantic Premises was terminated effective as of
August 31, 2020, and the lease for the 1010 Atlantic Premises was terminated effective as of September 30, 2020. In connection with the
termination of the Alameda Leases, Lineage entered into a sublease for approximately 2,432 October 1, 2020 January 31, 2023 14,592 3 16,000 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, 2025 , with an option
to extend the lease for five years (the “Original
Cell Cure Lease”). Base monthly rent is NIS 39,776
(approximately $ 12,200
per month). 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. In
January 2018, Cell Cure entered into another lease for an additional 934
square meters (approximately 10,054
square feet) of office space in the same facility
in Jerusalem, Israel that expires on December
31, 2025 , with two
five-year extension options (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 US $ 1.1
million).
The leasehold improvements were completed in December 2018 and the entire allowance was used. Combined base rent and construction allowance
payments are NIS 93,827
per month (approximately $ 26,000
per month). In December 2018, Cell Cure provided
a $ 420,000
security deposit to the landlord to be held as
restricted cash during the term of the January 2018 Lease, which is included in deposits and other long-term assets on the consolidated
balance sheet as of March 31, 2022. In
November 2021, Cell Cure entered into a lease for an additional 133
square meters (approximately 1,432
square feet) of office space in the same facility
in Jerusalem, Israel that expires on December
31, 2025 , with one
five year and one approximate three-year extension
options. This lease commenced on December 1, 2021, with a twelve-month base rent of NIS 11,880
(approximately US $ 3,757 ).
On November 1, 2022, the base monthly rent increases
to NIS 12,494
(approximately US $ 3,951). Supplemental
Information - Leases Supplemental
cash flow information related to leases is as follows (in thousands): Schedule
of Supplemental Cash Flow Information Related to Leases
2022 2021
Three Months Ended March 31,
2022 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 255 $ 208
Operating cash flows from financing leases 5 3
Financing cash flows from financing leases 8 -
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 33 - Supplemental
balance sheet information related to leases was as follows (in thousands, except lease term and discount rate): Schedule
of Supplemental Balance Sheet Information Related to Leases
March 31, 2022 December 31, 2021
Operating leases
Right-of-use assets, net $ 2,155 $ 2,372
Right-of-use lease liabilities, current $ 719 $ 801
Right-of-use lease liabilities, noncurrent 1,781 1,941
Total operating lease liabilities $ 2,500 $ 2,742
Financing leases
Right-of-use assets, net $ 28 $ 36
Lease liabilities, current $ 13 $ 13
Lease liabilities, noncurrent 24 23
Total finance lease liabilities $ 37 $ 36
Other current liabilities $ 18 $ 17
Long-term liabilities 2 7
Total finance lease liabilities $ 20 $ 24
Weighted average remaining lease term
Operating leases 3.4 3.5
Finance leases 2.0 2.2
Weighted average discount rate
Operating leases 7.7 % 7.7 %
Finance leases 5.6 % 5.7 % Future
minimum lease commitments are as follows as of March 31, 2022 (in thousands): Schedule
of Future Minimum Lease Commitments
Operating Leases Finance Leases
Year Ending December 31,
2022 $ 763 $ 24
2023 587 22
2024 556 14
2025 525 -
2026 440 -
Total lease payments $ 2,871 $ 60
Less imputed interest (371 ) (3 )
Total $ 2,500 $ 57 Collaboration
Agreements Roche
Agreement In
December 2021, Lineage, its subsidiary, Cell Cure, and F. Hoffmann-La Roche Ltd and Genentech, Inc., a member of the Roche Group (collectively,
“Roche”) entered into a Collaboration and License Agreement (the “Roche Agreement”), wherein Lineage granted
to Roche exclusive worldwide rights to develop and commercialize RPE cell therapies, including its proprietary cell therapy known as
OpRegen, for the treatment of ocular disorders, including geographic atrophy secondary to age-related macular degeneration. Under
the terms of the Roche Agreement, Roche agreed to pay Lineage a $ 50.0
million upfront payment and Lineage is eligible
to receive up to an additional $ 620.0 million in certain developmental, regulatory and commercialization
milestone payments. Lineage is also eligible to receive tiered double-digit percentage royalties on net sales of OpRegen. All regulatory
and commercial milestone payments, and royalty payments, are subject to the existence of certain intellectual property rights that cover
OpRegen at the time such payments would otherwise become due, and the royalties on net sales of OpRegen are subject to financial offsets
based on the existence of competing products. Roche has assumed responsibility for further clinical development and commercialization
of OpRegen®. Lineage is responsible for completing activities related to the ongoing clinical study, for which enrollment
is complete, and performing certain manufacturing and process development activities. Unless
earlier terminated by either party, the Agreement will expire on a product-by-product and country-by-country basis upon the expiration
of all of Roche’s payment obligations under the Agreement. Roche may terminate the Agreement in its entirety, or on a product-by-product
or country-by-country basis, at any time with advance written notice. Either party may terminate the Agreement in its entirety with written
notice for the other party’s material breach if such party fails to cure the breach. Either party also may terminate the Agreement
in its entirety upon certain insolvency events involving the other party. In
January 2022, Lineage received the $ 50.0 million
upfront payment from Roche. Subsequently, Lineage, via Cell Cure, paid $ 12.1 million
to the Israel Innovation Authority (the “IIA”), and $ 8.9 million
to Hadasit Medical Research Services and Development Ltd. (“Hadasit”). Such payments were made in accordance with
obligations under the Innovation Law and under the terms of Cell Cure’s agreements with Hadasit discussed below. The payment
to Hadasit was reduced by $ 1.9 million
in accordance with the provisions of such agreements discussed below that reduce the sublicensing fee payable to Hadasit for
costs related to Lineage’s performance obligations under the Roche Agreement. To the extent such costs are not incurred within
five years after the execution of the Roche Agreement, Cell Cure will be required to pay Hadasit 21.5 % of
the amount of costs not incurred. ITI
Collaboration Agreement Under
Lineage’s collaborative agreement with ITI, Lineage agreed to perform up to approximately $ 2.2 Agreements
with Hadasit and IIA The
OpRegen program has been supported in part with licenses to technology obtained from Hadasit, the technology transfer company of Hadassah
Medical Center, and through a series of research grants from IIA, an independent agency created to address the needs of global innovation
ecosystems. A subset of the intellectual property underlying OpRegen was originally generated at Hadassah Medical Center and licensed
to Cell Cure for further development. Under
the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744, and the regulations, guidelines, rules,
procedures and benefit tracks thereunder (collectively, the “Innovation Law”), annual research and development programs that
meet specified criteria and were approved by a committee of the IIA were eligible for grants. The grants awarded were typically up to
50 The
terms of the grants under the Innovation Law generally require that the products developed as part of the programs under which the grants
were given be manufactured in Israel. The know-how developed thereunder may not be transferred outside of Israel unless prior written
approval is received from the IIA. Transfer of IIA-funded know-how outside of Israel is subject to approval and payment of a redemption
fee to the IIA calculated according to formulas provided under the Innovation Law. In November 2021, the IIA research committee approved
an application made by Cell Cure with respect to the grant of an exclusive license and transfer of the technological know-how for OpRegen
to Roche. Under the provisions for the redemption fee, Lineage is obligated to pay the IIA approximately 24.3 90.6 Pursuant
to the Second Amended and Restated License Agreement, dated June 15, 2017, between Cell Cure and Hadasit, as amended, and a certain letter
agreement entered into on December 17, 2021, between the parties Hadasit is entitled to a sublicensing fee of 21.5 %
of the upfront payment (subject to certain reductions, including for costs related to Lineage’s performance obligations under the
Roche Agreement) and any milestone payments, and up to 50 %
of all royalty payments (subject to a maximum payment of 5% of net sales of products), Lineage receives under the Roche Agreement. The
letter agreement generally terminates upon the termination of the Roche Agreement. Second
Amendment to Clinical Trial and Option Agreement and License Agreement with Cancer Research UK In
May 2020, Lineage and Asterias entered into a Second Amendment to Clinical Trial and Option Agreement (the “CTOA Amendment”)
with Cancer Research UK (“CRUK”) and Cancer Research Technology Limited (“CRT”), which amends the Clinical Trial
and Option Agreement entered into between Asterias, CRUK and CRT dated September 8, 2014, as amended September 8, 2014. Pursuant to the
CTOA Amendment, Lineage assumed all obligations of Asterias and exercised early its option to acquire data generated in the Phase 1 clinical
trial of VAC2 in non-small cell lung cancer being conducted by CRUK. CRUK will continue conducting the VAC2 study. Lineage
and CRT effectuated the option by simultaneously entering into a license agreement (the “CRT License Agreement”) pursuant
to which Lineage agreed to pay the previously agreed signature fee of £ 1,250,000
(approximately $ 1.6
million). In consideration of Lineage’s
agreement to exercise the option prior to completion of the study, the parties agreed to defer payment of the signature fee as follows:
£ 500,00 0
was payable in September 2020, £ 500,000
was payable in February 2021 and £ 250,000
was payable in April 2021. For the primary licensed
product for the first indication, the CRT License Agreement provides for milestone fees of up to £ 8,000,000
based upon initiation of a Phase 3 clinical trial
and the filing for regulatory approval and up to £ 22,500,000
in sales-based milestones payments. Additional
milestone fees and sales-based milestone payments would be payable for other products or indications, and mid-single-digit royalty payments
are payable on sales of commercial products. Either
party may terminate the CRT License Agreement for the uncured material breach of the other party. CRT may terminate the CRT
License Agreement in the case of Lineage’s insolvency or if Lineage ceases all development and commercialization of all products
under the CRT License Agreement. Litigation
– General From
time to time, we are subject to legal proceedings and claims in the ordinary course of business. While management presently believes
that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash
flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or
outcomes could occur that have individually or in aggregate, a material adverse effect on our business, financial condition or operating
results. Except as described below, we are not currently subject to any pending material litigation, other than ordinary routine litigation
incidental to our business, as described above. Asterias
Merger In
November 2018, Lineage, Asterias Biotherapeutics, Inc. (“Asterias”) and Patrick Merger Sub, Inc., a wholly owned subsidiary
of Lineage, entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby Lineage 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 Lineage and Asterias approved the Merger Agreement. On March 8, 2019, the Asterias Merger closed with Asterias
surviving as a wholly owned subsidiary of Lineage. Lineage issued 24,695,898 58,085 32.4 52.6 In October
2019, a putative class action lawsuit was filed challenging the Asterias Merger. This action (captioned Ross v. Lineage Cell
Therapeutics, Inc., et al. In
April 2022, the parties reached an agreement in principle to settle this litigation, which would result in payment to the putative class
of approximately $ 10.7 3.5 In
accordance with ASC 450-20-25-2, Contingencies Subsequent Events the
agreement in principle to settle the litigation occurred after the balance sheet date. 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 March 31, 2022, and 2021. 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. As
part of the Asterias Merger, Lineage acquired certain royalty revenues for cash flows that were generated under certain specific patent
families that Asterias previously acquired from Geron. Asterias paid Geron a royalty for all royalty revenues received from these contracts.
Lineage continues to make royalty payments to Geron for royalties generated from these patents. |
