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Edited Transcript of BTX earnings conference call or presentation 12-Nov-19 9:30pm GMT

Q3 2019 Lineage Cell Therapeutics Inc Earnings Call

ALAMEDA Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Lineage Cell Therapeutics Inc earnings conference call or presentation Tuesday, November 12, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brandi L. Roberts

Lineage Cell Therapeutics, Inc. - CFO

* Brian M. Culley

Lineage Cell Therapeutics, Inc. - CEO, President & Director

* Gary S. Hogge

Lineage Cell Therapeutics, Inc. - SVP of Clinical & Medical Affairs

* Ioana C. Hone

Lineage Cell Therapeutics, Inc. - Director of IR

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Conference Call Participants

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* Jason Howard Kolbert

Dawson James Securities, Inc., Research Division - Director of Research

* Joanne Lee

Maxim Group LLC, Research Division - Equity Research Associate

* Keay Thomas Nakae

Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics

* Pasquale Sansone

H.C. Wainwright & Co, LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to the Lineage Cell Therapeutics Third Quarter 2019 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. 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. Mrs. Hone, please go ahead.

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Ioana C. Hone, Lineage Cell Therapeutics, Inc. - Director of IR [2]

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Thank you, Sarah. Good afternoon, and thank you for joining us. A press release reporting our third quarter 2019 financial results was issued earlier today, November 12, 2019, 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, product candidates and clinical trials and financing and cost savings matters. Such statements are subject to significant risks and uncertainties, including those described in our press release issued on November 12, 2019, and our recent SEC filings on Form 8-K, Form 10-K and Form 10-Q. 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 Roberts; our Chief Medical Officer, Ed Wirth; and our Senior Vice President of Clinical and Medical Affairs, Gary Hogge. The executives will provide prepared remarks then take questions from analysts and institutional holders.

With that, I'd like to turn the call over to Brian Culley, our CEO.

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [3]

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Thanks, Ioana. Good afternoon, everyone. Thanks to a productive quarter, we have a good call planned for you today. I'm mostly going to speak about Renevia and OpRegen, followed by some brief remarks on OPC1 and VAC2 before handing things off to Brandi. Brandi will review our financing activities for the third quarter and discuss our plans for further significant reductions in our cash spending, which will occur in 2020, and which will strengthen our financial position even as we advance multiple product candidates with large commercial potential.

Starting off. We've recently announced that our facial aesthetics product, Renevia, was granted a CE Mark. Very proud of the Lineage team successfully develop this product, conducted a controlled multicenter clinical trial that produced excellent safety and efficacy results and now has received approval of that product in a major market territory. Many small companies have never achieved this milestone, so I believe it reflects well upon the team's skills and performance. Importantly, this regulatory clearance for commercial sale comes with an intended use of Renevia for the delivery of autologous adipose tissue or fat to restore or augment facial volume for the treatment of facial lipoatrophy. And if you follow this program for a while, you already know that facial lipoatrophy is often associated with treatment of chronic diseases like HIV, which is the patient population from which our clinical data was generated.

But lipoatrophy has many causes, and it's actually a feature of the normal aging process, so we believe Renevia may address a much broader population than just HIV patients and therefore represents an attractive market opportunity. In particular, we believe using Renevia, in combination with the patient's own fat to augment facial volume, may be a more appealing option for medium or even large-volume procedures. The reason we believe this is that facial aesthetics is a highly -- is a field with a lot of qualitative feedback. And the data which we collected from the Renevia clinical trial includes descriptions of a more natural filling material than would be expected from dermal fillers and a longer-lasting treatment effect that would be expected from fat transplant alone.

So we envision the full commercial opportunity for Renevia may not reside simply within the HIV lipoatrophy market but is a substitute for fat transfers more generally and is a higher-end option than currently available dermal fillers.

Consumers spend billions of dollars in a wide range of aesthetics medicine treatment to look younger, and providing new and better treatments to these individuals can be very attractive to physicians for whom the cash pay aspect of these procedures is an important economic advantage for their practices.

Although Renevia has an attractive market opportunity, marketing it effectively as I just described will require resources and time. So in order to be efficient with the use of our own capital, our plan to reach this market is to identify a partner with both the aesthetics experience and the capabilities to establish Renevia as a procedure of choice in these settings. Specifically, we have engaged a European-based life science advisory firm to identify an external commercialization partner to launch Renevia on our behalf and further develop it in the European aesthetics market. That process is now underway, and our target list includes more than 100 potential partners.

A deal likely would not happen until next year, but we are presenting these partners with an asset, which is already approved to be marketed throughout the region. So the risk of product approval is not an issue, and our objective will be to attract multiple bidders and select the best partner from there. And as we make progress with this effort, we will provide additional information regarding the commercial plans for this newly approved asset.

Moving next to OpRegen, our dry-AMD program. We made excellent progress this year to rapidly identify and deploy the Orbit Subretinal Delivery System into the clinic. Orbit is a novel FDA-cleared device, which we option from Gyroscope, a U.K.-based company. In July, we reported that the first use in a clinical trial with the Orbit SDS system went well. We thereafter reported that the first patient treated with the Orbit device had experienced improved vision of 13 letters at just 3 months as assessed by an Early Treatment Diabetic Retinopathy Scale or ETDRS. At the same time, we also introduced a new Thaw-and-Inject formulation of OpRegen, which completely eliminates the need for a day of preparation of the RPE cells prior to treatment. It now takes a surgeon less than 10 minutes to get the cells ready to inject. The Thaw-and-Inject formulation allows us to open clinical trial sites which did not have dose prep capabilities, and so we're now in the process of opening additional sites.

We've taken steps to introduce these 2 additional competitive advantages into the OpRegen program, those being Thaw-and-Inject and the Orbit device, because we believe that the combination of having the best cells, the best production process and the best delivery system will position us as the frontrunner in the race to address the enormous and unmet dry-AMD market. We are not limiting our efforts to simply demonstrating the safety and efficacy of OpRegen. We're building important features into the commercial characteristics of this program to anticipate widespread use, such as large-scale production and ease of administration.

By incorporating these considerations early in our development process, we raised the value of our products to potential corporate partners in the near term and their likely eventual revenue potential once commercialized. Lastly, we believe that our large patent estate provides us with valuable protection with respect to this and other markets.

In terms of recent clinical data, last month, we are pleased to present additional positive data from our OpRegen study at the American Academy of Ophthalmology or AAO annual meeting. Treatment with OpRegen continued to be well tolerated, and at the furthest time point available to us, all 4 Cohort 4 patients reported improved visual acuity on an ETDRS.

I just want to take a brief moment to explain how the ETDRS works. The ETDRS is an eye chart which displays 14 lines of different letters with each line containing 5 letters. Each line is printed in a descending font size, and the number of letters you can read is a measure of your visual acuity.

To help understand how these visual acuity measurements translate into daily living activities like reading or driving or avoiding falling down a flight of stairs, I'd encourage everyone to do a quick Internet search for the ETDRS and see for themselves the difference between reading an additional 10 or even 20 letters.

The reason it's important to understand the ETDRS scale more fully is that in the data presented at AAO, all 4 Cohort 4 patients reported an improvement in visual acuity on the scale in the treated eye with a range of 10 to 19 letters gained. And in fact, the largest increase recorded at any single time point in Cohort 4 patients was 22 letters. These are notable differences in the before and after measurements.

As you may further recall, the Cohort 4 patients were the first patients treated in this trial who had less advanced disease and still retained meaningful vision. Therefore, these patients have greater potential for vision improvement and more accurately reflected the patient population we intend to target commercially.

The fact that all 4 patients had improvement was quite important. Additionally, previously reported structural improvements in the retina, decreases in drusen density and asymmetrical growth in areas of geographic atrophy receiving OpRegen, which had been observed in some patients, were maintained. And there's evidence of the continued presence of transplanted cells persisting now for more than 3 years following administration, in some cases.

The second Cohort 4 patient has completed their 15-month posttreatment assessment and continues to show visual improvement, increasing again now from 8 letters at 12 months to 10 letters at 15 months.

That means all 4 Cohort 4 patients have gained at least 10 letters as of their last recorded time point. And additionally, that first Cohort 4 patient has demonstrated improved reading speed following OpRegen treatment.

Overall, we are encouraged by the direction of these data and the increasing body of evidence we're gathering which supports our hypothesis that our fully differentiated RPE cells can provide a clinically meaningful benefit to patients with dry-AMD. Dry-AMD is enormous unmet need with millions of patients in developed countries losing their eyesight. But because dry-AMD involves the depth of functioning cells, pharmaceutical approaches to treating dry-AMD, such as small molecules and antibodies, have failed thus far and may never succeed, while our approach of replacing lost cells holds great promise.

Looking ahead, we have already scheduled the surgery date for our next Orbit patient and, pending a preplanned meeting with our independent Data Safety Monitoring Board in which we will seek to remove the current protocol-mandated treatment stagger, we expect to complete enrollment of all 6 Orbit patients in the first quarter of next year.

I'd like to emphasize that this is probably earlier than some of you expected, but we believe enrollment of the final 4 Orbit patients will go significantly faster than historic rates due to 3 factors. Those factors are the ability to include patients with better baseline vision and less advanced disease; an increase in the number of eligible and Orbit-trained study sites, which are opening or have opened; and most importantly, removing the current protocol-mandated treatment stagger. Overall, we believe the OpRegen data are encouraging, and we look forward to providing you with further clinical updates on this program as they become available as well as at formal scientific conferences such as at ARVO, the Association for Research in Vision and Ophthalmology, 2020 annual meeting, which will be held in Baltimore next May.

We've also continued to make progress with our vision restoration program, which is a separate product initiative from OpRegen. Last month, we presented preclinical data from this program at the Society for Neuroscience annual meeting. The preclinical data provided evidence that retinal tissue produced in Lineage's laboratory from a human pluripotent stem cell line was able to engraft safely in rat models used to study severe retinal degeneration that has survived for 6 months or longer in the subretinal space and importantly that it showed evidence of functional improvement. Moreover, the implanted retinal tissue produced photoreceptors carrying mature markers, including rhodopsin and developed many synaptic boutons, evidence of synaptic connections with the host recipient inner nuclear layers and ganglion cell layers. Our vision restoration program has received a total of $2.3 million to date in the form of an SBIR grant from NIH, and we continue to apply for external grants to support this initiative.

Moving next to our OPC1 program for spinal cord injury. We have completely transferred the manufacturing of this program to our facility in Israel. As we all know, this program generated extremely promising clinical data, which clearly supports further development. But the manufacturing process we obtained this year from the Asterias acquisition is not as advanced as we would like in order to initiate a late-stage clinical trial or support future commercialization. So just as with OpRegen, we are focused on making sure that OPC1 has all the characteristics that will prepare it for broad commercial use and which will make it more attractive to potential corporate partners. Therefore, we are now working to introduce valuable improvements to the production process so that things like the scale, purity and reproducibility of OPC1 is as robust, controlled and commercially viable as we enjoy with our OpRegen program. For example, we want to develop a Thaw-and-Inject formulation so we can eliminate the need for dose preparation and make more clinical sites eligible, thus reducing the time needed to complete the next study.

These steps obviously will take some time, but our in-house cell manufacturing staff are highly experienced and have already shown an ability to manufacture nearly 5 billion OpRegen cells from a single batch. So we are confident in our team and their ability to introduce these improvements to the OPC1 program without sacrificing quality.

And while we do already have input from FDA on our next trial design, we want to generate data from manufacturing steps I just described before committing to a firm initiation date or a detailed protocol for that trial. In the meantime, we will continue to provide updates from time to time to reinforce our confidence in the program for you and to recognize meaningful milestones as we make progress toward the commercial -- excuse me, toward the manufacturing of GMP material to support our next trial.

Overall, this work is part of a broader staggered development plan, which we believe will set up the OPC1 program for long-term success. And by chance, this may also create better timing for future interactions with CIRM, the California stem cell agency, which has been a valuable and long-standing partner in this exciting area.

It's worth remembering that spinal cord injury patients are in dire need of treatment options and that an effective therapy for them could save millions of dollars of lifetime health care costs for patients.

Importantly, we will be providing another data update from our SCiStar clinical study of OPC1 on November 15 when we host therapeutic area experts at the Solebury Trout event for analysts and investors. This update will include 2-year results from MRI and functional performance. Soon thereafter, we expect to complete the SCiStar final study report and publish these results in a major medical journal.

Moving next to VAC2, our dendritic cell cancer vaccine. As a reminder, this is an allogeneic or off-the-shelf product candidate based in part on an earlier autologous product, which showed impressive survival results in a small trial of cancer patients. Our newer allogeneic approach addresses many of the limitations of an autologous treatment. Cancer Research UK is currently conducting the clinical trial of VAC2 in patients with non-small cell lung cancer. This study is largely intended to demonstrate safety and tolerability of our treatment, but an important question we are asking in parallel is whether patients develop an immune response to our antigen. If we are able to instruct the patient's T-cells to mount an elevated and specific immune response to our antigen, we believe we will have a compelling argument to combine our dendritic cell vaccine with checkpoint inhibitors and observe superior outcomes compared to either treatment used alone.

In support of this approach, recently published data suggest that it may make sense to attack cancer from 2 sides. The immune checkpoint inhibitor makes cancer cells more susceptible to destruction by T-cells, while our dendritic vaccine would enhance T-cell activity against those tumor cells. CR-UK are currently screening patients for this study, and we're hopeful to receive the first set of immunogenicity data before year-end. Under the terms of the CR-UK agreement, we don't currently have the right to share these data publicly. But if there's anything exciting in these data, we like to share it with our stockholders so we are speaking with CR-UK about relaxing the permissions with respect to data disclosure.

And with that, I will now hand things over to Brandi to review our updated financials and discuss some of our additional plans for this year.

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Brandi L. Roberts, Lineage Cell Therapeutics, Inc. - CFO [4]

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Thank you, Brian. I'd like to start the financial discussion off with an update on our cash position. We ended the third quarter with $35.7 million in cash, cash equivalents and marketable securities. We previously outlined a larger corporate financial plan to raise operating capital from time to time to support our clinical stage programs through sources other than Lineage common stock, and we have continued to execute against this strategy.

In the third quarter, we sold 6.25 million shares of OncoCyte common stock for net proceeds of $10.7 million. Additionally, we sold a little over 650,000 shares of AgeX common stock for net proceeds of $1.6 million and a little less than 650,000 shares of Hadasit stock for net proceeds of $1.2 million. Accordingly, all of our remaining investment positions are now less than 20% of those companies' outstanding shares and therefore are accounted for in our financial statement as marketable equity securities. Remember, all of these positions are the result of the value created by our research programs over the years.

Recently, we have been effectively monetizing net value as we focus our own spending on developing our clinical programs, including Renevia, OpRegen, OPC1 and VAC2.

Now we'll talk a bit about the statement of operations for the third quarter of 2019. I'll start by reminding everyone that beginning on August 30, 2018, Lineage ceased recognizing revenues and expenses related to AgeX and its subsidiaries due to the AgeX deconsolidation on that date. Accordingly, our 2019 results do not include AgeX activity while a portion of the third quarter of 2018 does.

Total revenues for the third quarter of 2019 were $600,000, a decrease of $400,000 as compared to the same period in 2018. The decrease was primarily related to a decrease in grant revenues, which is based on the timing of our grant-related activities. Operating expenses include R&D expenses as well as G&A expenses. Total operating expenses for the third quarter of 2019 were $8.9 million, a decrease of $2.4 million compared to the same period in 2018. The decrease was comprised of a $600,000 decrease in R&D expenses and a $1.8 million decrease in G&A expenses.

Our loss from operations for the third quarter of 2019 was $8.4 million, a reduction of $2 million as compared to the same period in 2018. Other income or expenses net for the third quarter of 2019 reflected other expense net of $9.1 million compared to other income net of $76.9 million for the same period in 2018. The variance was primarily related to the gain on the deconsolidation of AgeX in 2018 and the changes in the value of our equity investments for the applicable period, which flow through the income statement. These items do not affect our cash usage.

Those are our reported results. But of course, what interest many of our investors is our actual cash usage and the cash and marketable securities that we have available to fund our business. We are happy to report that our operating expenses have continued to decrease. As we have laid out previously, Brian, I and the entire management team have been focused on bringing corporate spend down by simplifying what we do at Lineage.

It took us about 9 months to get there, but we completed a lot of these simplification activities in the third quarter. For example, we closed down our Fremont, California facility when the tech transfer process to our Jerusalem facility was completed at the end of August. We also moved our corporate headquarters to Carlsbad in August and eliminated a majority of our shared services with OncoCyte and AgeX as of September 30. Reductions in head count related to these activities were completed in August and September. We now have a new baseline to move forward with as a part of our new cost-efficient business model.

However, in light of sector weakness, we think it's prudent to take another step. We think it makes sense to further reduce our cost and extend our cash runway as far as possible. As I mentioned, we have $35.7 million of cash, cash equivalents and marketable securities as of September 30, and we think our fourth quarter burn will be roughly $6 million. We have worked on our 2020 operational plans to bring our net operational spend down to about $16 million while still advancing our program. Additionally, the note from Juvenescence is due to us in about 10 months. This payment is for $21.6 million plus $3 million in interest. Our new plan should enable us to get pretty deep into 2021 without needing to raise capital through issuances of Lineage common stock. And by then, we will know a lot more about OpRegen, OPC1 and VAC2 as well as the commercialization of Renevia.

This plan also provides us with additional flexibility so that we don't have to sell our investment positions in OncoCyte or AgeX if we don't think it's the right time to do so.

We went through a rigorous process to reduce our burn. We will have additional staff reductions this quarter to enable us to meet our new operational goals, but we think this is in the best interest of our shareholders. Our main focus will be on completing enrollment in the Phase I/IIa clinical study of OpRegen and to gather the follow-up data to guide our late-stage study design and partnership discussions and ensuring we have a commercialization partner for Renevia in the EU, which may provide additional nondilutive capital in 2020.

We also will continue working on manufacturing enhancements for OPC1 in preparation of initiating a randomized clinical study in 2021. And we will continue our dialogue with CR-UK and evaluate VAC2 data as it becomes available.

With that, I will turn the call back to Brian.

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [5]

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All right. Thank you, Brandi.

We've taken steps in the past year to restructure the business, substantially reduce our expenses and focus on our brand, on cell therapy, on our most promising near-term assets. Our inspiration, of course, comes from the patients we aim to serve, and we continue to be very excited about our cell therapy programs and how they may benefit those affected by the serious medical conditions we focus on.

We also are excited to receive a new product approval and will be moving towards commercialization of our first product in Europe, and we'll continue to focus on the efficient use of resources to support the optimal clinical development of our cell therapy programs, which we believe will help maximize near-term stockholder value.

Some of the near-term milestones which our investors can expect to see include: the completion of patient enrollment in the U.S., using the Thaw-and-Inject and the Orbit SDS device in the OpRegen study, that's expected in Q1 2020; VAC2 initial immunogenicity data from the ongoing Phase I study in non-small cell lung cancer, which is expected around year-end; new OpRegen data from the ongoing study, which will be presented at ARVO in May 2020; continued advancements of the OPC1 program with those manufacturing improvements I explained, which will be ongoing throughout 2020; we plan to meet with the FDA to discuss the clinical development of OPC1, which is planned for the middle of 2020; we said a lot about identifying an external partner for commercialization of Renevia in Europe, that work has already begun and is targeted for the first half of 2020; and as always, we aim to maintain a high level of engagement with the investment, medical communities through participation in industry conferences and strengthening of existing partnerships with entities such as the NIH, IIA, CIRM and CR-UK.

Lastly, we're very excited to be hosting Lineage's first KOL day with renowned therapeutic area experts in ophthalmology and spinal cord injury in New York at the end of this week. Dr. Allen Ho is a retinal surgeon and Director of Retina Research at the Wills Eye Hospital. Dr. Ho is the current President of the Retina Society and has been study chair, steering committee member or principal investigator on over 50 clinical trials. Dr. Ho has direct experience with the Orbit SDS as he helped to develop and refine the device when it was initially developed by the Janssen biotech unit of Johnson & Johnson. Dr. Ho will be leading the discussion of our OpRegen program this week. He will provide an overview of the Orbit SDS device and as well discuss the dry-AMD landscape.

Dr. John Steeves, Emeritus Principal Investigator at ICORD and Professor in the Department of Neuroscience at the University of British Columbia, is a spinal cord injury expert. Dr. Steeves' current research focuses on arm-and-hand rehabilitation after spinal cord injuries. His goal is to improve rehabilitation strategies by using assistant robots and virtual-reality training. Dr. Steeves works on developing better criteria for enrolling participants in SCI clinical trials and on improving outcome measures of the electrical properties of the body and the nervous system. Dr. Steeves' will lead the discussion of our OPC1 program, he'll provide an update on the ongoing SCiStar study and discuss the spinal cord injury clinical trial landscape.

This event will be an interactive day where presentations from the 2 gentlemen I just described will be followed by a Q&A session between the experts and attending institutional investors and sell-side analysts. The day also will be webcast, and so we invite you to listen in and hear from additional voices about our promising programs.

Thank you all for joining us today. With that, Sarah, the team here is ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Joe Pantginis with H.C. Wainwright.

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Pasquale Sansone, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [2]

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This is Pasquale Sansone on the line for Joe. Congrats on the progress. So a few questions on my hand, so the first one, for your Renevia program, are you looking for specific geographies to start with?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [3]

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So thank you for the question, send our regards to Joe. With respect to the geography, the CE Mark covers a broad number of regions, essentially, that overlaps with the European Union. So nowadays, it's less important where a potential partner is domiciled, it's more important that they have the capabilities to be able to reach prospective subjects. And there are differential levels of enthusiasm for products like this. Some regions have great interest and excitement in aesthetics, others less so. So we envision this process as being one in which we evaluate a constellation of different factors, the capabilities of a potential partner and the prospective revenues ultimately that they believe that they can reach. And that will help us define whether a greater emphasis is in one area within the European Union or another area in the European Union. But in all cases, our focus will be in territories where the CE Mark is applicable and recognized.

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Pasquale Sansone, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [4]

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All right. A few other questions for me. So what kind of OPC1 manufacturing enhancements are you focusing on?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [5]

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And so I think it's premature to prescribe what the future press release would be. But generally speaking, our objective here is to enhance the overall characteristics. We want the product to be easier to make, easier to use. I use an example of -- with OpRegen, we were able to introduce a simple Thaw-and-Inject formulation. Currently, we do not have a simple Thaw-and-Inject formulation for OPC1, so it requires extensive dose preparation the day before. So that's one example that we would look to as being indicative of the kind of features that we want to have in place and locked before we initiate a larger comparative and randomized trial.

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Pasquale Sansone, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [6]

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That's helpful. What kind of clinical and/or business update should we expect for the VAC2 program?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [7]

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So for VAC2, as I -- I'll make the caveat a second time that we don't actually have the right at this time to disclose the data. We have to get the permission from CR-UK. But the data that we are most interested in obtaining, and then hopefully soon after sharing, would be on the immunogenicity. Dendritic cancer cell vaccines, generally speaking, are well tolerated. So I don't think we're expecting to see issues with respect to the tolerance. Although because you're engendering an immune response, it wouldn't be that unusual to see side effects such as flu-like symptoms or injection-site reactions. Those would be consistent with a mechanism of action for a dendritic cell vaccine. But our interest is really on being able to identify a specific immune response to our antigen. We need to tie together the stimulus we put in and how the body responds to that.

Now at the same time, if we also enjoy any sort of indications of response, whether it's complete or partial, we certainly want to report on that. But the numbers are still quite small so there wouldn't be statistical significance. But it would be additive to an overall story that we would want to see unfolding that a patient that has some sort of a response to our therapy would also have evidence that they have a high level of immunoreactivity to our antigen.

So it's not so much around safety, I would say the priority is the immunogenicity because if you don't have evidence that mechanistically it makes sense, then anything else that you're reporting can be called into question. So the primary interest, the primary response for us would be around the immunogenicity data.

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Pasquale Sansone, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [8]

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I see. That's very helpful. And do you have any guidance for when you're going to release this data?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [9]

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With respect to the VAC2 program?

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Pasquale Sansone, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [10]

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Yes.

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [11]

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So we believe that we will be able to have the initial immunogenicity data collected at the end of this year. We would hope to be able to be afforded the ability to share that. But again, that will be CR-UK's decision. And we would just hope that they would, like us, feel compelled to share information if it's promising and of interest. Naturally, being the entity that they are, they are principally concerned with developing new therapies but also their publication and wanting to not undermine any publication. So it's a negotiation. It's a discussion. But hopefully, they understand that if there's something encouraging, that the world will want to know about that.

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Pasquale Sansone, H.C. Wainwright & Co, LLC, Research Division - Research Analyst [12]

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I see. Okay. My last question, so for the OpRegen program, how many additional patients are you dosing in Cohort #4?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [13]

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So we have an additional 5 subjects that are planned to be dosed with the Orbit SDS. The protocol has room for 8 additional subjects. The protocol as drafted anticipates 10 of 24 subjects. One of the questions that we will take up later in the year and earlier next year is whether we would want to end the protocol after the 6 Orbit subjects are dosed. And the reason for that consideration is that if the Orbit SDS is performing very well, that would be the route of administration that we would anticipate we would go forward with. And there wouldn't be a reasonable -- there wouldn't be a reason for us to go back to the old way of administering the cells. So it's possible that we would end the study a little early after the Orbit section. We could also think about maybe adding additional patients if we needed to or wanted to. But I can tell you that the protocol calls for 8 additional subjects, but the Orbit portion of it calls only 4 of the next 5 additional subjects.

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Operator [14]

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Our next question comes from the line of Keay Nakae with Chardan.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [15]

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Brian, with respect to OpRegen, the ability to move from the staggered to parallel enrollment, is that conditioned on just a quick review of safety for the second patient?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [16]

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Keay, you know what I'll do? I'll just throw that to Gary Hogge who runs the program, and he can tell you about the staggered and how we hope to remove it.

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Gary S. Hogge, Lineage Cell Therapeutics, Inc. - SVP of Clinical & Medical Affairs [17]

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Yes, Keay, so the answer to your question is yes. It's been, on the second patient, going well. Certainly, the DSMB is obviously keenly interested in the better-vision patients being safety treated. And so they want to make sure that those go well. So assuming the second surgery goes well, it is our anticipation that they'll remove all staggered for the subsequent patients.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [18]

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And I know you're optimistic about the first patient using Orbit. But was there anything else you learned from that patient that will be helpful going forward?

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Gary S. Hogge, Lineage Cell Therapeutics, Inc. - SVP of Clinical & Medical Affairs [19]

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Well, it's the first 2 first-in-humans. It was the first Thaw-and-Inject formulation of OpRegen. It was the first use of the Orbit 2.0 device that was the 510(k) device that is approved. So it was a learning experience to do that procedure alone, and so the subsequent procedures will build on that. So we anticipate that each subsequent procedure will go better than the previous one.

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [20]

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Keay, I'm going to add also that I don't think that we were lucky that the first Orbit subject went well. I think that the device was very well designed. Maybe the primary area of risk is that because it's a new device, anytime a surgeon is using it, it's typically their first time using it in an active surgical environment. They are able to practice on animal eyes or cadaver eyes, but there is risk associated with the new set of hands using it for the first time in a clinical setting.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [21]

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Okay. Great. And then just one for Brandi, in thinking about the cost reductions for next year, how should we think about the split between R&D and G&A?

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Brandi L. Roberts, Lineage Cell Therapeutics, Inc. - CFO [22]

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Yes. So I think we've obviously been working to reduce our expenses in both of those areas. I would say for 2020, I would think if you looked at our quarter-to-date for this period, we were roughly half-and-half, that probably makes sense going forward as well.

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [23]

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Okay. Thank you for the question about cash projections. I hope people don't miss a very significant reduction in our budget for 2020. I mean that is a really major point that I think we made. And just the way these things are structured, it ends up coming in the middle of the presentation. But our anticipated cash needs next year compared to what we had previously guided is a massive reduction, and we're very proud of that without any meaningful slowdown in our rate of progress. So thanks for the question about cash projections.

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Operator [24]

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Our next question comes from the line of Jason Kolbert with Dawson James.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [25]

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Let's just stay on the topic of cash projections. So if I look at what the anticipated burn rate for the full year 2019 is, it was pretty high. On a percentage basis, how much lower do you think it's really going to be in 2020? Is it 25% lower? Is it 40% lower?

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Brandi L. Roberts, Lineage Cell Therapeutics, Inc. - CFO [26]

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Yes. It's actually -- it's pretty big, Jason. So when you look at our -- what we've already spent to date in 2019 and what we forecast for the fourth quarter, that's roughly about $34 million, and we're saying we expect our net operational spend to be about $16 million. So that's less than half of what we've spent in 2019. And of course, we had the merger with Asterias this year, so we had lots of expenses related to bringing that company in and getting the synergies completed so that we can run the company on a much lower burn going forward.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [27]

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Yes. I'm willing to bet to that most analysts like me have not caught up with these changes so -- they're pretty significant changes.

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Brandi L. Roberts, Lineage Cell Therapeutics, Inc. - CFO [28]

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Yes, appreciate you taking a look at that and making sure those are updated.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [29]

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Yes. Exactly. And the other part though is how much cash is locked up in all your holdings? Just without kind of holding you to a specific number, and I'm going to go through the balance sheet and go through the quarter and kind of come to my own conclusions, but when you look at your holdings today, how much cash is kind of locked in there?

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Brandi L. Roberts, Lineage Cell Therapeutics, Inc. - CFO [30]

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Yes. So not a problem. So we just filed the 10-Q as well, so you'll be able to see all the information there. But we showed cash of about $14.4 million as of the end of the third quarter and a little over $21 million of marketable securities, so that's how you get to the total of $35.7 million. So you can see how that cash will flow. So we don't really need to make any decisions in the near term about whether we're going to sell any of those marketable securities. And as you also know, we have that Juvenescence note coming due to us in just about 10 months. So just by reducing our expenses, it really gives us a lot more flexibility in terms of when we need to sell those assets or look at that.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [31]

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Right. So remind me of the value of that note and also the value of your remaining equity holdings in the other companies.

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Brandi L. Roberts, Lineage Cell Therapeutics, Inc. - CFO [32]

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Sure. So as of 9/30, the equity securities was about $21.3 million. And then in terms of -- I'm sorry, remind me of your first question.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [33]

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I was just trying to get a handle on -- what is the value of the remaining Juvenescence note in addition?

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Brandi L. Roberts, Lineage Cell Therapeutics, Inc. - CFO [34]

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Sure. Yes. The face value of the Juvenescence note is $21.6 million. On the balance sheet to date, it's $23.2 million with the accrued interest. And at maturity, we would expect that to be $24.6 million.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [35]

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Nice. Okay. Yes. So you have plenty of cash. It's really -- you guys are in a great spot. So now I'm going to ask you -- to me, it's just a very obvious question, but I think it will be helpful to a lot of people having lived through this before with other companies like StemCells, Inc., some of the parallels are striking. But some of the differences are striking too, like the emphasis on manufacturing. So Brian, can you talk just a little bit about what's involved in the tech transfer to make manufacturing happen in Israel? And then help me understand when you look at macular degeneration versus spine, how you're going to prioritize their programs and how you're going to avoid some of the pitfalls that maybe undid the StemCells, Inc. which, fair enough, it's a different product, but they were going after the same things with the same concepts, right?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [36]

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Yes, certainly. So I think the one thing that is perhaps not well understood across the investment community at large, right, so outside of your specialist, is that growing and manufacturing cells is completely different than making small chemicals. If you do a nucleophilic acyl substitution reaction in the chemistry lab, your results are going to look essentially the same every single time because it's physics, so it's bounded by the laws of physics.

Cells behave with a lot more variability. When you grow cells -- if you can imagine almost any variable you can dream up could be demonstrated as having an effect on the lineage of a population of cells. And to give you a real nice specific example, the rate at which a bunch of cells are moved up and down a pipette or whether cells are growing on the edge of a flask versus the middle of the flask, everything you can imagine can cause variability. And you're talking about a process that maybe it varies from company to company, but it could be 4 weeks, it could be 6 weeks, it could be 8 weeks of cell growth. So you have this countless number of areas of potential variability. And of course, what the FDA cares greatly about is control. They want to make sure that you're making the same thing every time, so that if you test your cells in a patient population and they grant you approval, you're not administering something different later on.

So the tech transfer is really a massive undertaking because you're changing the operators, you're changing the equipment, you're changing the air pressure because you could be at a different altitude. Everything you can think of has to be reconciled and explained and controlled. So it's just simply a long process. It's a laborious process. But that is exactly why we want to own the process and have it in-house because I think you get better results faster and more efficiently and cheaper than if you throw it over a wall to some contract manufacturing that just doesn't have the same passion and concern and attention to detail.

With respect to prioritizing our programs, there is a bit of a natural hierarchy. Our dry-AMD program is probably the one that garners the most attention because we are really in a compelling part of its development where patient by patient, each piece of new data is adding to a story that really seems to indicate that the cells can have a positive effect on a person's vision and slow down the anatomical destruction in the back of the eye. So I think from a short-term perspective, OpRegen is at the forefront.

With respect to the second position, I would presume that, that is held by the spinal cord program because the clinical data that was generated is really exciting, and there's as little a competition as there is in dry-AMD. There's even less in the spinal cord injury space. So I think that that's an area that you can really imagine a small company going far and being very successful with it.

And then thirdly, only because you've got to choose who's first, second and third, I would put our oncology program. And I'm thankful that there's an increasing body of evidence that would suggest that dendritic cell vaccines will have a place in the future in the physicians' armamentarium, but we need to demonstrate some of those items that I shared earlier with respect to immunogenicity.

And then lastly, with respect to comparisons with StemCells, Inc., I never want to want to disparage other companies. But what I can say is that the materials that we are growing are coming from cell lines. There's no new material that's being obtained. And I think that overall, in the field of cell therapy, and I believe you've even written about this at times, there has been a maturation in cell therapy where the tools that we use to measure things and our understanding of what's happening to these cells, how to use them, how to administer them, how to grow them, et cetera, is vastly different from when companies like Geron had first started out in this space and there was great promise around the whole field. I think the great promise, it's just really taking a little bit longer because that's the nature of scientific progress. So I hope that covers the 3 parts of your question.

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Jason Howard Kolbert, Dawson James Securities, Inc., Research Division - Director of Research [37]

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It does, and it's amazing how much you've transformed this company just in a short period of time you've been there. My last question is really on Renevia. My nickname in Japan was Tanuki. That means raccoon because I always have black eyes. So what I want to know is it seems to me that the aesthetic marketplace for a filler is huge. It's enormous. The amount of money that's spent on this country just on -- when you're -- as you get older, a natural feature of aging is kind of a sinking outlook. So I would think that the BD potential here could be quite significant. What's your early read?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [38]

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My early read is that there is little that attracts more attention these days than people wanting to look and feel good. So I concur that the aesthetics market represents a huge opportunity. Admittedly it is competitive. You really, I think, need to find your niche. You need to find where you stand out. If you are a smaller product or you're a smaller company, you need a foothold, you need a beachhead, you need a place to start and to build from. I think we have that inherently built in with Renevia because the data in HIV lipoatrophy was quite convincing. So I think that can afford a potential partner, a beachhead, so to speak. And then, additional work and a lot of market research, you start to sort of emerge from there and figure out where other appropriate uses could be based on collection of additional data and market research, as I say. So I think that the really short answer is it's unknown to us. It's unknown to us in part because we're not a European-based aesthetics company. That's why we're looking for a partner who brings those capabilities. But I think that we are quietly optimistic about the short-, medium- and long-term future.

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Operator [39]

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Our next question comes from the line of Jason McCarthy with Maxim Group.

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Joanne Lee, Maxim Group LLC, Research Division - Equity Research Associate [40]

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This is Joanne Lee on the line for Jason McCarthy. Congratulations on the progress. So my first question is more clinically related. As we've seen in wet-AMD, an improvement of 15 letters or more typically represents a clinically meaningful improvement. And since wet- and dry-AMD are similar but distinct diseases, could you shed a bit more color on what are some of the provable end points that we might be seeing in dry-AMD? And then could you explain the importance of focusing on treating patients who are legally blind versus patients with less severe disease? Why is it easier for the second group of patients?

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [41]

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Certainly, Joanne. Thanks for joining. I'm going to pass the question again to Gary Hogge who can talk to you about similarities and differences with wet and dry as well as the importance of now treating the better-vision subjects.

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Gary S. Hogge, Lineage Cell Therapeutics, Inc. - SVP of Clinical & Medical Affairs [42]

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Yes. So the 3-line difference is typically associated with the wet-AMD therapies, so Eylea and Lucentis. And it's a difference between treatment and sham treatment groups. And it's not necessarily an improvement, it's just a 3-line difference at the 1-year assessment time point. Specifically, with the GA therapies, it's a 50% reduction in the progression of the area of GA. And that was done for the lampalizumab study, it's the primary end point also for the CAPELLA study. So it would be up to discussions with the agency to see whether it's geographic atrophy or best corrected visual acuity, which might be more important, but both play a role. And so that would ultimately steer what the next study might look like.

With regards to why we think the less severely affected patients are likely to benefit from therapy, in all likelihood, the photoreceptors are much more preserved and much more likely to preserve those that are still in the, we'll call it, transition area. Those that are kind of sick but not dead yet. And the thought is the cell replacement therapy with the RPE from OpRegen enables those cells to become healthy again. And that's thought then to potentially halt the progression of disease.

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Operator [43]

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This concludes today's question-and-answer session. I would now like to turn the call over to Brian Culley, CEO, for closing remarks.

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Brian M. Culley, Lineage Cell Therapeutics, Inc. - CEO, President & Director [44]

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All right. Thank you, Sarah. I appreciate everyone joining us this afternoon. I'm obviously excited about our plans. And as a final reminder, our focus going ahead will be on 3 items: collecting and maturing our OpRegen data in dry-AMD; finding the right commercialization partner for Renevia; and as always, ensuring we meet our milestones while keeping our expenses low as possible.

Thank you so much and look forward to speaking with some of you after the event.

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Operator [45]

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