| Commitments and Contingencies | 15.
Commitments and Contingencies Carlsbad
Lease In
May 2019, Lineage entered into a lease for approximately 8,841 August 1, 2019 October 31, 2022 Base
rent under the Carlsbad Lease beginning on August 1, 2019 is $ 17,850 3 7,000 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
Leases and Alameda Sublease In
December 2015, Lineage entered into leases of office and laboratory space located in two
buildings 22,303 8,492 72,676 3 In
addition to base rent, Lineage paid 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. 424,000 78,000 In
April 2020, Lineage entered into a sublease with Industrial Microbes, Inc. (“Industrial Microbes”) for the use of
10,000 was $ 28,000 3 On
September 11, 2020, Lineage entered into a Lease Termination Agreement with the landlord terminating the Alameda Leases effective
as of August 31, 2020 for the 1020 Atlantic Premises and September 30, 2020 for the 1010 Atlantic Premises. In
consideration for the termination of the leases, Lineage paid a termination fee of $ 130,000
and other
amounts due under the terms of the Alameda Leases through the applicable effective termination dates, except that no rent was
due with respect to the 1020 Atlantic Premises after July 31, 2020. Lineage’s
security deposit is expected to be returned to Lineage by January 2021. Lineage paid a separate
termination fee of $ 30,000
to Industrial
Microbes in connection with the termination of the Industrial Microbes Sublease and returned the
$ 56,000
security deposit paid by Industrial Microbes.
For the period of sublease from mid-April 2020 through September 2020, Lineage received $119,000 in rental income from Industrial
Microbes. Lineage
will continue to occupy approximately 2,432
square feet of
the 1010 Atlantic Premises under a new sublease agreement (the “Alameda Sublease”). The
term of the Alameda Sublease is from October
1, 2020 through January
31, 2023 . Base rent under the Alameda
Sublease is $ 14,592
per month with annual increases of 3 %
each October 1 thereafter during the lease term. Base rent for the first month was abated. Lineage paid a security deposit of
$ 16,000
under the Alameda Sublease; this amount
is considered restricted cash and is included in deposits and other long-term assets as of September 30, 2020 (see Note
2). Based
on the smaller footprint, and after taking into consideration the fees disclosed above, Lineage has reduced its contractual obligations
by approximately $ 780,000 New
York Leased Office Space Lineage
currently pays $ 5,050 900 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 five years each (the “Original Cell Cure Lease”). Negotiations are currently ongoing for a lease extension. 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 10,054 December 31, 2025 five years 4,000,000 1.1 93,827 26,000 In
December 2018, Cell Cure made a $ 388,000 The
below table provides supplemental cash flow information related to leases as follows (in thousands): Schedule of Supplemental Cash Flow Information Related to Leases
Nine Months Ended September 30,
2020 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,157 $ 1,026
Operating cash flows from financing leases 19 24
Financing cash flows from financing leases 24 20
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 29 89
Financing leases - - Supplemental
balance sheet information related to leases is as follows (in thousands, except lease term and discount rate): Schedule of Supplemental Balance Sheet Information Related to Leases
September
30, 2020 December 31, 2019
Operating leases
Right-of-use assets, net $ 1,982 $ 4,666
Right-of-use lease liabilities, current 473 1,190
Right-of-use lease liabilities, noncurrent 1,800 3,868
Total operating lease liabilities $ 2,273 $ 5,058
Financing leases
Property and equipment, gross $ 80 $ 96
Accumulated depreciation (62 ) (48 )
Property and equipment, net $ 18 $ 48
Current liabilities $ 15 $ 33
Long-term liabilities 29 77
Total finance lease liabilities $ 44 $ 110
Weighted average remaining lease term
Operating leases 4.4 4.1
Finance leases 2.7 3.4
Weighted average discount rate
Operating leases 9.1 % 9.1 %
Finance leases 10.0 % 10.0 % Future
minimum lease commitments are as follows as of September 30, 2020 (in thousands): Schedule of Future Minimum Lease Commitments
Operating Leases Finance Leases
Year Ending December 31,
2020 $ 181 $ 5
2021 635 19
2022 585 19
2023 319 8
2024 308 -
Thereafter 796 -
Total lease payments $ 2,824 $ 51
Less imputed interest (551 ) (7 )
Total $ 2,273 $ 44 The
Alameda Sublease is not included in the table above as it does not commence until October 1, 2020. Future minimum payments under
the Alameda Sublease are as follows: $ 29,000 176,000 182,000 16,000 Research
and Option Agreement On
January 5, 2019, Lineage and Orbit Biomedical Limited (“Orbit”) entered into a Research and Option Agreement, which
was assigned by Orbit to Gyroscope Therapeutics, Limited (“Gyroscope”) and amended on May 7, 2019, January 30, 2020,
May 1, 2020 and September 4, 2020 (the “Gyroscope Agreement”). As amended, the Gyroscope Agreement provides Lineage
access to Gyroscope’s vitrectomy-free subretinal injection device (the “Orbit Device”) as a means of delivering
OpRegen in Lineage’s ongoing Phase 1/2a clinical trial through the earlier of: (i) December 1, 2020; or (ii) or treatment
of three additional patients with the Orbit Device between September 4, 2020 and December 1, 2020 (the “Access Period”).
Pursuant to the terms of the Gyroscope Agreement, Lineage paid access fees totaling $ 2.5
million: (i) $ 1.25
million in January 2019 upon execution
of the Gyroscope Agreement; and (ii) $ 1.25
million in August 2019 upon completion
of certain collaborative research activities using the Gyroscope technology for the OpRegen Phase 1/2a clinical trial. These access
fees of $ 2.5 million
were amortized on a straight-line basis throughout 2019 and included in research and development expenses. Lineage also agreed
to reimburse Gyroscope for costs of consumables, training services, travel costs and other out of pocket expenses incurred by
Gyroscope for performing services under the Gyroscope Agreement. In January 2020, Lineage agreed to pay an additional $ 0.5
million to extend the Access Period to
July 5, 2020, $ 0.2
million of which was paid on January 30,
2020 and $ 0.3
million of which will be paid in November
2020. The Access Period was subsequently extended at no cost as described above. Lineage
has exclusive rights to the Gyroscope technology and its injection device for the delivery of retinal pigment epithelium cells
for the treatment of dry AMD during the term of the Gyroscope Agreement. Litigation 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 will disclose 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 On
October 15, 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 provide Lineage with insurance against claims or demands for indemnification in specified circumstances. 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 September 30, 2020 and December 31, 2019. Second
Amendment to Clinical Trial and Option Agreement and License Agreement with Cancer Research UK On
May 6, 2020, Lineage and its wholly owned subsidiary 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 “License Agreement”) pursuant
to which Lineage agreed to pay the previously agreed signature fee of £ 1,250,000 1.6 500,000 500,000 250,000 8,000,000 22,500,000 Either
party may terminate the License Agreement for the uncured material breach of the other party. CRT may terminate the License Agreement
in the case of Lineage’s insolvency or if Lineage ceases all development and commercialization of all products under the
License Agreement. 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 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 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. Annual minimum maintenance fees are expected to be approximately $ 30,000 60,000 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. |
