Welcome to the Lineage Cell Therapeutics First Quarter 2024 Conference Call. [Operator Instructions] An audio webcast of this call is available on the Investors section of Lineage website at www.lineagecell.com. This call is subject to copyright and is the property of Lineage and recordings, reproductions or transmission of this call without the express 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 call. Ioana Hone, Head of Investor Relations at Lineage. Ms. Hone, please go ahead.

Thank you, John. Good afternoon, and thank you for joining us. A press release reporting our first quarter 2024 financial results was issued earlier today, May 9, 2024, and can be found on the Investors section of our website. Please note that today's remarks and responses to your questions reflect management's views as of today only and will contain forward-looking statements within the meaning of federal securities laws. Statements made during this discussion that are not statements of historical fact should be considered forward-looking statements, which are subject to significant risks and uncertainties. The company's actual risk or performance may differ materially from the expectations indicated by such forward-looking statements. For a discussion of certain factors that could cause the company's results or performance to differ, we refer you to the forward-looking statements section in today's press release and in the company's SEC filings, including its annual report on Form 10-K for the year ended December 31, 2023. We caution you not to place undue reliance on any forward-looking statements, which speak only as of today and are qualified by the cautionary statements and risk factors described in our SEC filings. With us today are Brian Culley, our Chief Executive Officer; and Jill Howe, our Chief Financial Officer. I'll now hand the call over to Brian.

Thank you, Ioana. Good afternoon, everyone. We've had an exciting week and I appreciate you taking the time to join us on this call. We have many positives to cover today, including the news we just shared a few minutes ago, but I want to begin with the recent data update on OpRegen. Data is a major driver of value, and that data was notable for several reasons, and I just want to ensure those points are clear for our new and existing shareholders. Last Friday, on behalf of Roche and Genentech, Dr. David Telander, presented 24-month results from the Phase I/IIa trial of OpRegen for dry AMD. As you know, dry AMD is a degenerative disease that never resolves spontaneously. Dry AMD also currently has no treatment options that can improve vision or even maintain vision in terms of the number of letters read on an eye chart, which is a standard way to assess visual performance in these patients. In fact, according to a recent publication in the Lancet reporting on a clinical trial of more than 1,200 dry AMD patients, sham-treated patients with baseline disease characteristics similar, although not identical, to those OpRegen patients reported by Dr. Telander lost an average of 7 letters of visual acuity after 24 months. Patients who received the best available treatment with an FDA-approved complement inhibitor still experienced a mean loss of vision of 8 or 9 letters over the same 24-month time period. In comparison, among the 24 patients treated in the OpRegen Phase I/IIa study, and we focus on the 12 patients which we call Cohort 4, and these are patients who were not already legally blind at baseline, 10 of those 12 patients had data available at 24 months, which, therefore, somewhat matches those reported in the Lancet…

Thanks, Brian, and good afternoon, everyone. Starting with our balance sheet, I am pleased to announce that we remain sufficiently capitalized to carry out the near-term activities in our current operating plan. Our reported cash, cash equivalents and marketable securities of $43.6 million as of March 31, 2024, is expected to support planned operations into Q3 of 2025. Next, I will review our financial operating results -- our first quarter operating results. Our revenue is generated primarily from collaboration revenues and royalties. Total revenues were approximately $1.4 million a net decrease of $1 million as compared to $2.4 million for the same period in 2023. The decrease is primarily driven by lower collaboration and licensing revenue recognized from deferred revenues under the collaboration and license agreement with Roche. Our operating expenses are primarily comprised of research and development expenses and general and administrative expenses. Total operating expenses were $8.1 million a decrease of $0.9 million as compared to $9 million for the same period in 2023. R&D expenses were $3 million, a net decrease of $1.2 million as compared to $4.2 million for the same period in 2023. The net decrease was primarily driven by $0.4 million for our OPC1 program, $0.3 million for our preclinical programs and $0.2 million for our OpRegen program. Another $0.3 million of the decrease was attributable to other research and development expenses primarily related to reduced manufacturing activities. G&A expenses were $5 million, a net increase of $0.3 million as compared to approximately $4.7 million for the same period in 2023. The increase was primarily driven by $0.2 million in stock-based compensation expenses and an overall increase in costs incurred for consulting services. Our loss from operations were $6.7 million, an increase of $0.1 million as compared to $6.6 million for the same period in 2023. Other income and expenses were comprised of other income of $0.1 million compared to other income of $0.4 million for the same period in 2023. The net decrease was primarily driven by the employee retention credit recognized in the prior year, partially offset by exchange rate fluctuations related to our international subsidiaries. Our net loss was $6.5 million or $0.04 per share compared to a net loss of $4.4 million or $0.03 per share for the same period in 2023. Moving ahead, our aim is to uphold our commitment to fiscal discipline. We are confident that this continued approach will support our plans towards achieving pivotal milestones and generating shareholder value through ongoing investments in our programs. Now I'll hand the call back to Brian.

Thanks, Jill. To summarize 3 key points for today. One, we continue to be extremely happy with our now recently expanded alliance with Roche and Genentech, not only for their commitment to advancing OpRegen through the clinic, but also for enhancing awareness of the program at medical and scientific meetings. Two, we're excited to be putting a second cell transplant program into active enrollment this year in a disease with an enormous unmet need and limited competition. And three, we will continue to look for ways to build value from our early-stage pipeline through thoughtful investments in experimental studies and methods as well as from strategic collaborations, which can help advance our programs and validate our approach. I appreciate your attention and time today. And with that, operator, we are ready to take analyst questions.

The first question comes from the line of Jack Allen from Baird.

Congratulations to the team on all the progress made throughout the quarter. I guess my first question is on the new Roche agreement. It seems like a very interesting investment from a company that's already partnered with you on OpRegen. To what extent can you provide some more color on the scope of the agreement and any financial terms also tied to that agreement as well? And then I have a quick follow-up as well.

Thank you, Jack. I think in an environment where many biotech companies have been struggling, we are delighted to see this agreement, I would say, showcase an increased commitment to the partnership and expand the scope of work and investigation into the OpRegen program. The -- there are some areas of activity that are covered by this agreement. They would include things like extending the follow-up period of the ongoing Phase I/IIa trial that can provide further information about the potential activity of OpRegen beyond 5 years. Genentech is planning to expand to 1 or more sites in Israel. We are uniquely positioned to provide support with that expansion in so far as we have feet on the street in Israel. And I think more generally, Genentech is looking to continue to evaluate the operational needs of the study. So we don't have a lot of detail. We are not disclosing the financial information at this time. We've shared the information we can. But those are examples of some of the scope of work that will be funded by Genentech and will, in their respective ways, contribute back to the ongoing investigation value of the program.

Got it. Great. And then for more of a scientific side, I know we talked quite a bit about the clinical data that was announced, but there was also some preclinical data that your collaborators at Genentech looked at in a pig model, looking at different methods of administration. I'd love to hear, I guess, any thoughts you have as it relates to how high a percentage of patients do you expect could be optimized to gain complete coverage of the GA lesion as we've seen that provides better clinical results. And then one other quick clinical question I had as well was we saw 24-month data last Friday. When might we be able to see 36-month data. I mean it seems like this is durable, but as the data continue to evolve to show great durability, it'd be great to see that data as well.

I'm smiling because I'm just thinking about like the Roman Colosseum, and no matter what you give them, they want more. So let me go in reverse. So 36-month data, to be determined. People know when the study began and when it ended. So I guess I would say probably it would not take another year from now to come up with 36-month data, but it has not been determined by us or -- and together with our partner when that would occur. The pig study that you mentioned, and I didn't put it in the script, not because it's not important, but it reflects another example of Genentech's commitment to the program that they are conducting not just the ongoing clinical trial but also evaluating how OpRegen RPE performs in various animal models. The pig study, the mini pig study and delivery is, I imagine, intended in part to help improve the delivery by testing various techniques. There are a number of models or forums where such studies can be done, of course, in the context of a clinical trial. One can also deliver cells into a cadaveric eye or a pig eye, rat eye. So there are a lot of different ways that you can test out different methods or techniques to ultimately try to drive a wedge between the clinical effect of a therapy and the safety and tolerability of a therapy, and that's what all of us in this field want to do because that is the threshold for obtaining marketing authorization and then having a financially successful product, is the evaluation of the risk reward. So I think about this much in the same way that I think about LASIK surgery which, when I was a young person, sounded very scary and dangerous. But as…

The next question comes from the line of Mayank Mamtani from B. Riley.

This is actually William Wood on for Mayank. I would appreciate you taking our questions, and congrats on a very nice quarter. I want to step back and just play a bit of a devil's advocate here. When looking at the agreement that you have, the new agreement with Roche, should this be looked at potentially negative, where Roche is needing to rely on your services, your experience, your techniques more to get it done because they're having trouble? Or is this really -- that's the wrong way to look at it, and this really is a positive and they're just trying to get to the best outcome?

I feel comfortable saying that I see this solely as a positive. The additional activities are, to Lineage's perspective, beneficial to the program. In some cases, there may be some convenience such as the work in Israel, but we have sort of an additional component. Maybe this is really what you're referring to, which is that this is not a normal license agreement. I think if big pharma does a deal with a company that has a small molecule or a company like Genentech does a deal with an antibody company, there's probably very little that the small company can contribute because the capabilities and the expertise of the big pharma company are so extensive that they don't really need any input. It's not going to probably contribute to the furtherance of the program. But we're doing something very novel. And although you're seeing more examples of it every day, and I spoke about this in the body of my prepared remarks, the reality is that even our work is built upon about 2 decades of experience. So if you ask the question in this way, can Roche and Genentech or any other big pharma benefit by maintaining an ongoing relationship and dialogue and learning additionally from us as the innovator, I think the answer is yes. And we see that as a great positive because it suggests that there are competitive barriers that others will have difficulty surpassing that we get to remain more closely involved in the program. Perhaps it engenders -- I cannot speak for Roche's strategic plan, but perhaps it engenders a sense of interest in additional work or additional campaigns. There are many things about this expanded agreement that go beyond my overt comments that companies are being rigorous about what they invest in and looking for high-impact, high-value programs and some companies are laying people off or killing their programs. And here, we see a very clear sign of additional commitment, that's all positive. But when you wrap it up into a much larger picture, we will never be able to go 50% with the resources that a Genentech can put into this program or a Roche can put into this program. So we still are a minority in terms of the resources that we put into the program compared to them. But we do have some things that we can offer. And we can offer those things not just to the OpRegen program, but to many other programs. And that really speaks to the value of this company in this business. We're today known well for what we have entered into, for the dry AMD program with Roche and Genentech. But in the future, I think the learnings and lessons and advantages that we have from this platform will be applied to additional programs as they mature or as they find their way into partnerships. And now you're talking about the kind of growth that could be incredibly exciting from an investor perspective.

Awesome. I appreciate that answer. That was very nice. Very helpful too. Within -- when we're thinking -- looking at the 24-month data, obviously, we always like to compare it to a control arm. How should we be looking at the patients in your trials with the other eye, the contralateral eye? Do these eyes also have GA maybe so kind of an in-person control? How should we -- is that a direct comparison to other trials that we've seen maybe in complement? And then sticking on the complement, if I can squeeze in one extra question. Is there a point maybe late-stage development where you actually start using your -- the control eye is now injected with, say, a low-dose complement or something of that sort of a standard of care type? Yes, any extra color there would be appreciated.

That's a fantastic question. I have to begin by saying that there are always going to be some differences among data sets. And they sometimes reside in your inclusion/exclusion criteria and they might even more simply just reside within the number of patients that you're looking at and thus the variability. So there is no perfect comparison, but I appreciate what you are asking because it's a normal and appropriate question. And I do think that there are some insights despite the fact that this is a relatively small patient population, one can still identify a handful of insights. The most powerful one, of course, is that the images and the effects that we have discussed and our partner have presented do not happen in the natural course of the disease. So we have a very convincing link between the therapy and those changes that we have observed. And we view that those changes are positive changes. Going beyond that, one does have the ability to start asking questions. So for the contralateral eye or the untreated eye in our patient population, I would explain for everyone's sake that, that is always the eye that has a -- on average, that is a smaller area of atrophy. So the patient's other eye does have dry AMD as a requirement for the study, but it's always the better eye and the difference in visual acuity between the treated eye and the untreated eye is very large. I think if I recall correctly that on average, our patients were somewhere around 20/60 or 20/80 for the untreated eye. So that's a lot better than the treated eye, which could be running upwards of 20/100 or 20/200. So there is a built-in bias that the treated eye is always starting off in a…

The next question comes from the line of Joe Pantginis from H.C. Wainwright.

Brian, I just want to start with a housekeeping question first on the services agreement. Are you disclosing what the duration is or when it could be renewed?

No, we have shared what information we are able to share at this time.

Okay. Now with regard to OpRegen, I think a key point that you've been making here is that Roche is now doing everything independently, presenting the 24-month data independently, doing their own pig study independently. So I guess I would ask the question this way, and I know I'm asking you to speak for Roche so I apologize for that. Since they're basically seeing all of these data and doing these experiments live, do you feel that any of these can impact their own internal program by pressing the brakes or pressing the accelerator on any particular aspects as they've been looking to optimize the program on their own?

Well, you do know that I cannot speak for Roche or Genentech. What I can say is that it was always contemplated from the beginning that there would be a long-term handoff of this program. Partly, that is because the manufacturing process is complex, and you don't just learn that overnight. So we've always anticipated that there would be a transition of both clinical activity, manufacturing activity and ultimately on to commercial activity. But when they entered into the agreement and committed to the upfront payment and the other economics that we are eligible for, they also were able to acquire the discretion to make those choices. Now of course, most license agreements have provisions around things like terminations and clawbacks and commitments to continue to make commercially reasonable efforts and so forth. And most of that is typically redacted in the filed copies. But what I can say is that even those of us at Lineage, to a certain extent, look at external indications for signs of whether we think our partner is accelerating their interest, decelerating their interest or maintaining their interest. And we continue to be very happy and appreciate that Roche and Genentech do go to lengths to talk about this program and share data. And I'm not sure that every company does that with every program and it does not necessarily mean anything. But we presume that, that reflects some enthusiasm. So I think it may be tea-leaf reading or, in this case, perhaps the leaves are palm fronds which are much larger. But ultimately, where the program fits into their pipeline and their strategic value, their urgency or their decisions on budget year-to-year, those are things that they will decide through their own contemplation of their corporate objectives. But there's a reason we wanted to go with this organization. And it's because they understand ophthalmology. They have been exceptionally successful in ophthalmology, and we think that they are as committed to getting this product out and changing lives as we are.

No, that's very helpful. I appreciate that. And then on OPC1, I was wondering if you could walk us through the steps for site activation, specifically when are the physicians trained, have they already had some broad training across the sites already, general device availability? Are they essentially stockpiled, ready to be sent to the sites? So that's the top end of the question. And then financially speaking, can you just remind us where -- because you gave an update at your year-end call where things stand with regard to the CIRM application cycle.

Yes. Thank you, Joe. I'll just say, for CIRM, there really has not been any update that we've received yet. So we continue to wait for the next Board meeting. That Board meeting, I believe, is scheduled for the end of June. And so we would expect that in the end of June, we would have more information that we would be able to share. With respect to onboarding sites, there's a very long list of activities. Of course, the contracting around the schedule of fees, not only with the site, but also with the many vendors that are involved with the clinical trial. Product has been manufactured and is ready to be shipped to site. Site initiation visits, device training, all of these are steps that are required prior to a patient being treated, surgical, manual. What's fortunate for us is that the site that we today think will be the first site to open is a site that had been part of this study several years ago and some of the very same people are involved. And in fact, I would frankly say that, that is something that we found, as we are going out and evaluating different sites, is that people who are involved with this program before were very enthusiastic about wanting to be involved again. So I think that's a good indicator. But I don't think there's anything particularly [indiscernible] with this clinical trial in terms of the operational execution. I would just add for everyone's sake that some of the steps, such as actually soliciting patients, cannot and do not occur until the full clearance has been obtained with FDA or at least your risk of having a clinical hold has been diminished down to a very small level. So there are certain steps that are antecedent to others. But generally speaking, there's a lot that you can do to get ready that you can do in parallel, which makes it economically efficient. But you are still working, in some cases, with academic centers that don't always have the same expectations around turnaround time because of the volume of activity that they -- and the number of sites that -- excuse me, the number of trials that they may support at one time.

The next question comes from the line of Kristen Kluska from Cantor Fitzgerald.

This is Rick Miller on for Kristen. We just have one here. From a big picture market perspective and with the caveat of all the differences between OpRegen and the complement inhibitors, do you have any thoughts on the Apellis market penetration stats for Syfovre showing around 77,000 injections in the first quarter. Specifically, does this tell you anything about the overall market size and appetite for a therapy in the space and maybe appetite for new therapy options in the space?

Thank you, Rick. I do think the Apellis -- excuse me, I do think the Syfovre launch does provide some interesting insights into what's possible in the setting of dry AMD. And specifically, I think their product profile with the safety concerns that are probably well known to everyone on this call, yet they're seeing some fairly good uptake of that product, tells you a lot about demand. It tells you a lot about the opportunity and the eagerness for a new therapy. I concur with your comment and the implication that we have a very different product profile, a onetime therapy that might perhaps be able to restore vision or halt the disease in its tracks or we don't know what the ultimate commercial profile of this product will look like, if any. But I'm encouraged by the fact that even a product that has been clinically shown to have no effect on visual acuity and can only slow the advancement of the disease by approximately 20% a year -- and I recognize I'm generalizing with that because there are multiple products and you can have monthly or every other monthly dosing. But as a general matter, it doesn't seem to me to have much of a clinical benefit. It does have some now well-known risks associated with it. And yet, I think last quarter, they did pretty well. So I think that tells us that all of the predictions around a multibillion-dollar opportunity in the setting of dry AMD is clear. It tells us something great about the demand for new therapies and the rapid uptake of new therapies by both the provider and the patient. What we have not seen perhaps is what the level of compliance and commitment to monthly or every other monthly injections in your eye is going to be in the long run. But I don't care because OpRegen is not administered in that schedule. So we don't have that as a hurdle for our expected product profile. So I think we continue to stand in a very good place with the added benefit that a theoretical commercial opportunity is turning into an actual commercial opportunity in front of our very eyes.

The next question comes from the line of Michael Okunewitch from Maxim Group.

I guess to start off, I do want to ask about, with the dose study gearing to start up in the near future, could you just remind us of how many centers you're targeting and provide any additional color on what you're expecting in terms of the enrollment rate?

Yes. Thank you for that question, Michael, and your time today. We only need to enroll -- or we're only planning to enroll rather 6 to 10 patients. So it will only be presumably a handful of sites, although we initially reached out to more than 10 when we're doing our initial feasibility discussions and evaluations of site capabilities. The harder question is around enrollment rate. There aren't many precedents, but I think we benefit from the fact that unlike the first time that this therapy was administered to patients, and in some cases, it was known to be a subclinical dose. So you're having a conversation with a patient on having an additional surgery, and they are being told they will not benefit from it. And so that would be, to my mind, a pretty significant hurdle to overcome. But the prior sponsor was able to overcome that and was able to enroll such patients. Today, we have the benefit of 30 individuals who have been exposed to this therapy upwards of 5, 7, even now more than 10 years of safety experience. So I think the conversation with patients might be a little bit easier. And we also are going to include approximately half of the patients on the study with chronic conditions. And unlike the subacute patients where you're -- you need to catch them in your net because they have a window 3 to 6 weeks after their injury where you want to treat them, chronic patients could have 1, 2, 4, 5 years old injury and so they are probably going to be easier to identify, although there is the confounding factor of maybe someone who's been living with their injury for 5 years isn't as interested in clinical trials as they may have been when they're first coming to grips with their new life being a person with lived experience in this condition. So I'm not able to make projections not because I don't want to, but because it's very difficult to know what it's going to look like with this particular design. What I would offer is that I have been involved in and successfully completed, to my knowledge, the largest ever clinical trial in a hematological disorder and was running a small company at that time and going head-to-head with Pfizer with a very similar 350-patient study. And my organization and the operational excellence that we brought to bear was able to successfully complete our study faster than Pfizer with all of their resources. So I think we have a great team here. We have some new hires. And I think that, that's going to put us in the best possible position to get that enrollment as quickly as possible and get those answers so that we can move on to what we're more excited about, which is the ultimate question of a controlled study and how much of a benefit do patients get from this treatment?

On that, just given you have the free -- basically a free look now at the thoracic and the chronic patients, which you haven't really previously been exploring. Do you have any idea of what sort of improvement you would want to see to consider developing those indications further?

Yes. And I think the right answer -- and the answer which is informed by many conversations with people with spinal cord injury is anything. I think that the non-lived experience community has this idea in its head that therapies should allow people to throw away wheel chairs and run marathons. And it is unfortunate because when you spend time with people who have spinal cord injuries, you learn that very often they want just the next little thing. And whether that is because a little bit more mobility can provide independence or they can creatively use it to achieve some goal that they have doesn't matter. The consistent message that we hear is that, "Boy, wouldn't I give anything to have just a little bit blank." And that might be bladder control. It might be upper extremity mobility. So I think that if we saw essentially anything in someone who had confirmed plateaued and that we felt that there wasn't [ conflating ] information from, for example, becoming vigorous again on a physical therapy routine that they had previously abandoned. As long as we thought that it was attributable to the cells, I think that, at a minimum, would drive some new investigation into some animal models and perhaps a small pilot study of that larger patient population.

The next question comes from the line of Sean McCutcheon from Raymond James.

Can you speak to the 2 patients that you don't have 24-month data follow-up for within the limited lab coverage subgroup in the Phase I/IIa. And can you give some balance for the variability on the coverage within that subgroup and how much of the target lesion was covered? And then additionally, what's your commentary on the trajectory of the BCVA in the extensive coverage group from month 12 to month 24. It looks like you are starting to see a decrement there maybe in parallel with the fellow eye group.

Thanks, Sean. I appreciate those questions. Those 2 individuals simply elected not to continue in the study. Personal reasons, I suppose. But they were not part of some serious adverse event or something like that. And neither of them was among the 5 "specials" that we have widely discussed. With respect to the BCVA trajectory, I wouldn't put a whole lot of emphasis or analysis behind the movement from 7.6% to 5.5%, although it may reflect a light erosion of treatment effect. And If it does, I actually think that's great because that means that 36 months, they're going to be plus 3 and at 48 months, they're going to be plus 1, right? It kind of would suggest that it's a very slow tail of change in visual acuity. But I think 2 letters probably more accurately reflects noise in the system in a relatively small patient population. I would point similarly to the contralateral eye, which, of course, as I stated before, isn't going to follow a perfect trajectory, but the fact that it was 2 letters under at 24 months, it could just as easily have been 1 letter above or 5 letters below. I think within a small number of letters you can really fairly say it's noise are not conclusive. So I would not have been entirely surprised if at 24 months, it were 9 letters instead of 5 letters I also wouldn't have been surprised if it were 2 letters instead of 5 letters. I think the important takeaway that we're seeing is that 24 months is a pretty long amount of time trying to read into it, just what happens between 12 and 24 reminds me of some of our peers that now have approved therapies that were very cute with some of their subgroup analyses. I'm really trying to take more of a generalized view of what we are seeing compared to the natural course of the disease and say, look, we know that sham-treated or untreated patients essentially are losing a lot more than this. So maybe we lost 2 letters going from 12 to 24. But the patients that we think are the best match have lost 7, 8 or 9 letters over those 24 months. And we think that, that's a 13, 14, 15 letter difference compared to where we are. Now, you're starting to look at numbers that you think probably are not chance but rather attributable to the intervention that we provided.

Got you. And just one quick follow-up on that. You said that the patients at baseline had folveal involvement within the treatment group and that the patients in the fellow eye or the fellow eye, I should say, had better vision. Do you know the proportion of patient -- fellow eyes that had folveal involvement.

I do not. I don't know if the fellow eye was required to have folveal involvement. I know that the treated eye, in all cases, did have folveal involvement, but we would have to circle back with you and provide that, which we're willing to do. I just don't know it off the top of my head. Appreciate that question, Sean. Thank you.

At this time, I will hand the call back to Brian Culley.

Excellent. Well, thanks, everyone. We've done a little more than an hour, so we'll wrap up. I appreciate your time, and thanks for your continued interest in this exciting work. We look forward to our next call.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.