Welcome to the Lineage Cell Therapeutics' Third Quarter 2020 Conference Call. [Operator Instructions] An audio webcast of this call is available on the Investors section of Lineage's website at www.lineagecell.com. This call is subject to copyright and is the property of Lineage. Any recordings, reproduction or transmission of this call without the expressed written consent of Lineage are strictly prohibited. As a reminder, today's call is being recorded. I would now like to introduce your host for today's conference, Ioana Hone, Director of Investor Relations at Lineage. Ms. Hone. Please go ahead.

Thank you, Chino. Good afternoon, and thank you for joining us. A press release reporting our third quarter 2020 financial results was issued earlier today, November 4, 2020, and can be found on the Investors section of our website. Please note that today's conference call and webcast will contain forward-looking statements within the meaning of federal securities laws, including statements regarding our strategy, goals, data updates, product candidates, planned regulatory meetings, clinical trials, planned manufacturing improvements, financing and cash management matters. Such statements are subject to significant risks and uncertainties, including those described in our press release issued on November 4, 2020, and our most recent Form 10-K and 10-Q filings. Actual results or performance may differ materially from the expectations indicated by our forward-looking statements due to those risks and uncertainties. We caution you not to place undue reliance on any of the forward-looking statements, which speak only as of today. Joining us today are our Chief Executive Officer, Brian Culley; our Chief Financial Officer, Brandi Robert; and our Senior Vice President of Clinical and Medical Affairs, Gary Hogge. The executives will provide prepared remarks, then take questions from analysts. With that, I'd like to turn the call over to Brian Culley, our CEO.

Thank you, Ioana, and good afternoon, everyone. We definitely appreciate you joining us on our quarterly call today. This was a highly productive quarter for us in which we reached several key milestones. We continued to execute on our overall strategic plan to grow Lineage into the preeminent allogeneic cell therapy company. And this is our mission because we know of no other company that possesses a comparable patent estate in-house cell manufacturing capabilities and is generating promising clinical evidence in 3 separate diseases, which each represent large unmet medical needs with billion-dollar market opportunities. And so far, the safety data and early signs of efficacy that we've seen with each of our 3 product candidates, support advancing them ever closer toward later-stage trials. Along the way, we're working to distinguish ourselves among cell therapy companies by putting into place characteristics and attributes of our assets, which reflect greater maturity and commercial viability, and which will set our programs up for long-term success. For example, we invest not only in generating compelling clinical data, but we also develop important areas like pre-commercial manufacturing and improved delivery devices, which will help our approaches be successful in later-stage trials or attract valuable corporate partnerships. We're also better capitalized than we have been in several years. Our current cash on hand should enable us to reach additional important milestones, which I will discuss today, and which could create significant clinical and shareholder value over the next few quarters and into 2022. As we continue to advance our 3 cell therapy programs and become more widely recognized for our industry-leading position in the transplant of differentiated cells, I believe our shareholders will be rewarded. And today, I will review some of the events which have moved us further along our strategic plan. First, I…

Thank you, Brian. I'll start off with the statement of operations for the third quarter of 2020. Total revenues for the third quarter of 2020 were $600,000, consistent with the same period last year, an increase of $200,000 in royalties from product sales and license fees was offset by a decrease of $100,000 in grant revenues, and a decrease of $100,000 in the sale of research products and services due to the cessation of such sales. Operating expenses are comprised of research and development expenses and general and administrative expenses. Total operating expenses for the third quarter of 2020 were approximately $7.2 million a decrease of $1.7 million as compared to $8.9 million for the same period in 2019. Our R&D expenses for the third quarter of 2020 were $3.6 million, a decrease of $700,000 as compared to $4.3 million for the same period last year. The overall reduction was primarily related to a decrease of $1.5 million in OpRegen and other ophthalmic application expenses, which was primarily related to a reduced level of manufacturing activity in the third quarter of this year as compared to the same period last year. Additionally, there was an $800,000 reduction in OPC1 expenses, primarily related to a return of unspent project funds from a former Asterias service provider, and a $200,000 reduction in Renevia and other related expenses. These reductions were offset by an increase of $1.8 million in VAC program expenses, primarily related to the accrual of the signature fee of $1.6 million related to the Cancer Research UK exercise of our option to acquire data generated in the Phase I clinical trial of VAC2. This signature fee will be paid in several installments through April 2021. Excluding the onetime transactions related to Cancer Research UK, and the return of unspent project…

Great. Thanks, Brandi. So for the remainder of this year, as always, our goal is to advance our clinical programs, and we've got a number of things that you can track and monitor our progress. We plan to present new and accumulated OpRegen data at the AAO annual meeting, November 15. We will be hosting that OpRegen data review call with a therapeutic area expert, MPI, on November 17. We expect to complete not just the Orbit evaluation portion of the clinical trial, but also the overall OpRegen patient enrollment, we expect to complete that by the end of the year. We plan to announce details of manufacturing improvements which we have made to the OPC1 program. That is scheduled for early December. And then early next year, we hope to see Cancer Research UK complete patient enrollment in the ongoing Phase I clinical trial of VAC2. And as Brandi mentioned, you'll also see an increased -- continued increased presence at various events as we engage with the investment communities, media and medical communities through all sorts of different channels. So I think overall, this is a very exciting time to be part of Lineage. We have an opportunity to make a profound impact on millions of people. And if you'd like to understand better what that means on a personal level, we've provided a lot of videos about spinal cord patients and people losing their vision due to dry-AMD. This is an impactful business on many levels, but it is important that we keep in mind that those patients serve as our inspiration each and every day. So with that, I will thank you all for joining us today. And operator, the team is happy to take any analyst questions we may have at this time.

[Operator Instructions] For the first question, we do have Jason McCarthy from Maxim Group.

Brian, I guess I'll save questions around OpRegen for the event next week or about 1.5 weeks from now. Can you talk a little bit about the OPC1 program? And you said you're going to have an update on manufacturing improvements, possibly the next steps forward before the end of this year. Can you give us a little bit more clarity on that? And can you talk from a high level what's been happening in the spinal cord space because we've noticed about a month ago or so, AbbVie has a monoclonal antibody that's got fast tracked. It got orphan for spinal cord injury. We don't really typically see these big companies in this space, which we think bodes well for you. Can you talk a little bit about that? And the third thing as it relates to OPC, and your cell therapies in general, is that there's another vote that seems to be happening, and it's not political, really, in California, and that CIRM's Proposition 14 for its $5.5 billion in funding potentially. And is that something you may seek a portion for OPC?

Wow, yes, Dr. McCarthy. Good questions. The third one is particularly astute. We have been watching the CIRM vote very carefully. I should provide a little bit of background. So there is a ballot measure in California, which is built upon Prop 71, which is about 15 years old, where an entity was formed to support stem cell research, and it's called the California Institute of Regenerative Medicine, or CIRM. That money has all been deployed. And in fact, Lineage has enjoyed receipt of about $14 million from CIRM. And so a ballot measure went before the California voters to establish a new bond measure for a new $5.5 billion. And I think 72% or 78% of the vote has gone in. I watched it all night. And it vacillated between 51% and 52% approval. So we are optimistic that that ballot measure will pass because it's very good for stem cell technologies in general. But in particular, for Lineage, all 3 of our programs could conceivably be eligible for additional grant support if we seek it and if it is granted to us. So the CIRM ballot measure is trending the right way, and that makes us very happy. And we are hopeful that we'll see some closure on that. And that that could provide a new opportunity for non-equity dilutive capital, which obviously is something that Lineage has benefited substantially for with each of our programs. With respect to the update next month. In the past, I have made some fairly generic comments about manufacturing improvements and needing to put into place some improvements to the manufacturing process in areas like purity, scale, control, analytical methods. What I will be doing next month is actually showing you some data. I want to give folks an idea of exactly…

Next one on the queue is Joe Pantginis from H.C. Wainwright.

Actually Brian, without front-running any of the OpRegen data, I wanted to focus on that for a second. And I guess, the question really of, as you're looking at retinal restoration, are there any anecdotes you can share about how the surgeries have been going with regard to placement of the cells and beyond. And secondly, you mentioned today, obviously, you're working with the Orbit SDS system, but you've talked about improvements in delivery, always looking for those things. I was just curious if you have anything particular in mind with regard to these kinds of improvements.

Yes. Thank you, Joe. Also, very good questions. They're related, right? We are exploring the use of the Orbit SDS because we think it may be -- it may be able to provide better placement of cells than the traditional approach. We don't know that for sure because we haven't dosed 100 people to really have that evaluation. But what we have seen, importantly, is that we have seen a complete elimination of the epiretinal membranes, which are formed from the efflux of cells into the vitreal space. And that is what the Orbit SDS was designed to do. It was designed to deliver the cells, call it, underneath the retina rather than coming in from above puncturing the retina and delivering the cells that way. So we're happy that on one axis that we care about that the Orbit SDS has been doing really well. And you're correct that we will have some additional information on the Orbit SDS at the AAO conference. With respect to the surgical procedures that we are conducting in order to demonstrate a second case of retinal restoration, the biggest frustration there is that the disease occurs slowly. These areas of GA, even when they are fast growing, you're talking about a couple of millimeters a year, so it's very frustrating that we have to wait so long to see if there is a change or a benefit. But what I can tell you is that when we evaluated that first patient, and it was discovered that they had such a profound effect, we asked every question of ourselves about what was different, what was unique, how were they special. We really feel strongly that there was nothing genetically unique about that patient. Meaning we feel strongly that we will be able to demonstrate…

Next question comes from Ahu Demir from NOBLE Capital Markets.

So my first question, I think, will refer to Brian. So on the OpRegen data, again, since it's the leading asset and you have a data update coming up. I am curious, Brian, if you come to disclose data from cohorts for follow-up from the patients? Or are you planning to -- are we going to see any data from the new patients?

Well, hello, Ahu, and welcome. We appreciate that you are a new covering analyst for Lineage. Thank you for that. And we intend to provide a comprehensive update. So it will not be selective of just Cohort 4 patients. We'll be able to provide data from across the study as a whole. So you'll have a pretty nice update on what we've seen. But we do make a real emphasis on Cohort 4 patients because those are the patients that more accurately represent what we think are the future customers for this therapy. We don't think that patients with very advanced disease and very large areas of GA that have been completely atrophied really fit and match up well with our therapy compared to someone who's very early in the disease and has a much smaller area of atrophy. That's certainly good from a commercial reason, but also biologically. And so just like in the spinal cord program, we often talk about the last 22 patients. We don't talk a lot about the first 3, because the first 3 got a subclinical dose. They only received 2 million cells, so we don't really expect much. That's why we have the same thing. We have safety data from the first 12. We don't really expect much in efficacy from those first 12 patients. So we make a point of emphasizing patients 13 through X because those are really the patients that we're hoping to be able to help when the program advances into the next study and thereafter.

That sounds great. So my second question will be on the VAC2 program. I know your current focus, at least Cancer UK's focus is lung cancer. As you are doing the assessment, manufacturing capabilities and the right combination. I am also curious, do you plan to go any other direction besides lung cancer as per se less crowded spaces? Or any other combinations that you are thinking of?

Yes, that's a very good question. One of the ironies that I'm not sure people are aware of, but that I certainly take notice of is that Cancer Research UK, as a major charity, they're very interested in areas of -- they don't always have perfect overlap with the commercial interest of their partners. And so non-small cell lung cancer from a biological perspective is not actually the best place for the antigen that we're using in that clinical program. Certainly, there are patients available and the antigen is expressed in many cases in non-small cell lung cancer. But there are other tumor types that actually have higher levels, more consistently high levels of the antigen we're using. And so you can imagine that if a patient does not express high levels -- doesn't react to that antigen, they're probably not going to get a clinical benefit. So they represent noise in that clinical trial. So I suspect that we will find a better place for our next study. But I can't -- and we've done some matrix and heat mapping on this to look at the competitive landscape and kind of anticipate the direction that things are going in. We're definitely not at a point that we would be making announcement because we have the study ongoing right now in non-small cell lung. But one of the things that we've achieved or received by exercising the option was an ability to go into other tumor types. And so we're looking at that quite seriously now to see if there's a better place for the VAC2 program to be deployed.

That's great, too, now. Okay. And my last question I will refer to Brandi. I noticed about $1 million -- less than $1 million increase in R&D expenses. What was the reasons for that, Brandi? Can I get a little bit more color on that?

Sure. Happy to do that. So our R&D expenses were really impacted by those 2 onetime transactions that we had during the quarter. So we had a $1.6 million accrual for our signature fee related to Cancer Research UK and our early option fee to bring VAC2 in-house. So that was all done in Q3. And then that was offset by about $800,000 because we had a return of unspent project funds from a former Asterias service provider on OPC1. So we saw about an $800,000 increase just from those onetime transactions. Otherwise, we're continuing to see reductions quarter-over-quarter based on where we're at right now with the OpRegen program, primarily in the manufacturing side.

Okay. And I am really excited to follow the story, and congrats on the successful quarter.

Thank you, Ahu.

Next one on the queue is Keay Nakae from Chardan.

Brian, are you able to say how many patients in Cohort 4 you have now treated?

I would like to, but we're going to save that for AAO in 2 weeks.

Okay. Well, let me ask you this question. What does the available queue of patients who meet the criteria that you're looking for, how is that looking at this point?

That is an easier question for me to address. It's looking great. I feel very comfortable with today's guidance that we'll finish this study enrollment before the end of the year. And it's attributable to the hard work of the team. I think it might be attributable in part to some of the awareness of the program. So it makes it a little bit easier to say to a prospective patient, "Would you like to try this experimental therapy?" And the patients says, "Well, tell me about it." And the docs or the study coordinators are able to say that it's been in X people now, and here's what's been seen. So I think overall, the program is just moving smoother. And also the sites have been able to implement some COVID-appropriate measures where they're able to still see patients, even elective patients signing up for clinical trials. So I think all those things together have had led to an improvement in the situation, which is notable.

Okay. And then switching to OPC1. Once you meet with the FDA next year, do you have an expectation of when you might look to commence that possible registration study?

It will come, in part, based on what we hear from the agency. And the reason why I say that is a larger study that would be suitable for approval would require opening many more sites than, for example, a 30-patient comparative study or something like that. So until we have crossed a couple more milestones, including notably developing a thaw-and-inject formulation, which we've done before in other cell types. So I think we'll be successful. But that's actually really important because many sites don't have the ability to manipulate the cells the day before they are administered. And so that would limit the number of sites you have open. So very difficult for me to say exactly when we would be able to initiate it. But we will have that information, in part, after we've got the thaw-and-inject formulation developed, and after we're able to speak with the agency about the program.

Okay. Great. And then just a final question for Brandi. I know you had mentioned this, but in terms of the monthly payments to CR-UK for the option, what's the amount through April?

Yes. So we have 3 payments that we'll make to CR-UK. So they're in British pound. And so the first one is being made this month. And then there'll be another 1 in January of GBP 500,000, and then there'll be another one in April for GBP 250,000. So the total is GBP 1.25 million which relates to about USD 1.6 million in total.

And there are no further questions. I will now turn it back to Mr. Brian Culley.

Well, thanks, everyone. I really appreciate you joining us this afternoon. I know there's a lot of stuff going on with elections, and there's hundreds of new companies, so I'm glad you participated in our call today. We're excited about our plans. We appreciate your support. And we look forward to staying in touch with everyone about our progress. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.