INTERNATIONAL STEM CELL CORPORATION The following discussion of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated
financial statements and related notes and other financial information included
elsewhere herein. This information should also be read in conjunction with our
audited historical consolidated financial statements which are included in our
Form 10-K for the fiscal year ended
Business Overview
We are primarily a research and development company, for the therapeutic market, which has focused on advancing potential clinical applications of human parthenogenetic stem cells ("hpSCs") for the treatment of various diseases of the central nervous system and liver diseases. We have the following wholly-owned subsidiaries:
•Lifeline Cell Technology, LLC ("LCT") - for the biomedical market, develops, manufactures and commercializes primary human cell research products including over 200 human cell culture products, including frozen human "primary" cells and the reagents (called "media") needed to grow, maintain and differentiate the cells; •Lifeline Skin Care, Inc. ("LSC") - for the anti-aging market, develops, manufactures and markets a category of anti-aging skin care products based on our proprietary parthenogenetic stem cell technology and small molecule technology; • Cyto Therapeutics Pty. Ltd. ("Cyto Therapeutics") - performs research and development for the therapeutic market and is currently conducting clinical trials inAustralia for the use of ISC-hpNSC® in the treatment of Parkinson's disease.
We generated aggregate product sales revenues from our two commercial businesses
of
Our products are based on multi-decade experience with human cell culture and a
proprietary type of pluripotent stem cells, human parthenogenetic stem cells.
Our hpSCs are comparable to human embryonic stem cells ("hESCs") in that they
have the potential to be differentiated into many different cells in the human
body. However, the derivation of hpSCs does not require the use of fertilized
eggs or the destruction of viable human embryos and also offers the potential
for the creation of immune-matched cells and tissues that are less likely to be
rejected following transplantation. Our collection of hpSCs, known as
UniStemCell™, currently consists of fifteen stem cell lines. We have facilities
and manufacturing protocols that comply with the requirements of Good
Manufacturing Practice ("GMP") standards as promulgated in the
We have never been profitable and have incurred net losses on an annual basis since inception. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur operating losses for at least the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year.
We do not expect to generate any revenues from sales of any therapeutic products until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will seek to fund our operations through public or private equity or debt financings or other sources, including one or more collaborative arrangements with larger companies to share specified development and commercialization expenses. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative effect on our financial condition and ability to develop our product candidates.
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COVID-19 Pandemic
The impact of the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to our business have included a reduction in sales volume primarily from media sales in our biomedical market segment and professional channel sales in our anti-aging market segment, temporary or reduced occupancy of portions of our manufacturing facilities, the availability of certain materials used in our packaging, and disruptions or restrictions on our employee's ability to travel to such manufacturing facilities. We have taken precautionary measures to better ensure the health and safety of our workers, including staggering employees' shifts and isolating at-risk employees.
The scope and duration of these delays and disruptions, and the ultimate impacts of COVID-19 on our operations, are currently unknown. We are continuing to actively monitor the situation and may take further precautionary and preemptive actions as may be required by federal, state or local authorities or that we determine are in the best interests of public health and safety. We cannot predict the effects that such actions, or the impact of COVID-19 on global business operations and economic conditions, may continue to have on our business, strategy, collaborations, or financial and operating results.
Market Opportunity and Growth Strategy
Therapeutic Market - Clinical Applications of hpSCs for Disease Treatments. With respect to therapeutic research and product candidates, we focus on applications where cell and tissue therapy is already proven but where there is an insufficient supply of safe and functional cells or tissue. We believe that the most promising potential clinical applications of our technology are: 1) Parkinson's disease ("PD"); 2) traumatic brain injury ("TBI"); and 3) metabolic/liver diseases. Using our proprietary technologies and know-how, we are creating neural stem cells from hpSCs as a potential treatment of PD, TBI, and stroke, and liver cells from hpSCs that may be able to treat a variety of hepatic and metabolic liver diseases.
Our most advanced project is the neural stem cell program for the treatment of Parkinson's disease. In 2017, we began our Phase I trial of ISC-hpNSC®, human parthenogenetic stem cell-derived neural stem cells for the treatment of Parkinson's disease. This trial involved three groups, each with four patients, with each group receiving an increasing amount of ISC-hpNSC® via intracerebral transplantation. Patients were evaluated for 12 months (active phase of the study) with an additional 5-year observational follow-up period to assess safety.
In
We anticipate releasing additional data from our Phase I trial in the second
half of 2021 and are evaluating initiating a Phase II trial of ISC-hpNSC®.
Although the Phase I study was conducted in
Biomedical Market - Primary Human Cell Research Products. Our wholly-owned
subsidiary
Anti-Aging Market - Skin Care Products. Our wholly-owned subsidiary
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Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended June 30,
2021 2020 $ Change % Change
Product sales $ 1,833 $ 1,812 $ 21 1 %
Cost of sales 770 719 51 7 %
As a % of revenues 42 % 40 %
Research and development 113 200 (87 ) -44 %
Selling and marketing 349 427 (78 ) -18 %
General and administrative 1,007 1,298 (291 ) -22 %
Other income (expense), net 622 (254 ) 876 -345 %
Net income (loss) $ 216 $ (1,086 ) $ 1,302 -120 %
As a % of revenues 12 % -60 %
Product Sales
Product sales revenue for the three months ended
Our media product sales continue to be adversely impacted by COVID-19, largely as a result of reduced demand from our largest original equipment manufacturer customers. For the year ending 2021, we estimate domestic biomedical product sales will be comparable to the year ended 2020. International product sales in our biomedical market have largely recovered and are expected to remain strong for the remainder of the year.
Our anti-aging market segment includes skin care products that are distributed
through various ecommerce and professional channels. The market for our skin
care products across our ecommerce and professional channels has become
increasingly competitive. As such, our anti-aging product sales have experienced
a decline in customer acquisition for the three months ended
Cost of Sales
Cost of sales for the three months ended
Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company's products, as well as related direct materials, general laboratory supplies and an allocation of overhead. We aim to continue refining our manufacturing processes and supply chain management to improve the cost of sales as a percentage of revenue for both LCT and LSC.
Research and Development Expenses
Research and development expenses for the three months ended
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Our research and development efforts are primarily focused on the development of treatments for Parkinson's disease, traumatic brain injury and stroke. These projects are long-term investments that involve developing both new stem cell lines and new differentiation techniques that can provide higher purity populations of functional cells. Research and development expenses are expensed as incurred and are accounted for on a project-by-project basis. However, much of our research has potential applicability to each of our projects.
Selling and Marketing Expenses
Selling and marketing expenses for the three months ended
General and Administrative Expenses
General and administrative expenses for the three months ended
Other Income (Expense), Net
Other income, net, for the three months ended
Comparison of the Six Months Ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended June 30,
2021 2020 $ Change % Change
Product sales $ 3,491 $ 4,171 $ (680 ) -16 %
Cost of sales 1,385 1,576 (191 ) -12 %
As a % of revenues 40 % 38 %
Research and development 328 503 (175 ) -35 %
Selling and marketing 696 944 (248 ) -26 %
General and administrative 2,055 2,436 (381 ) -16 %
Other income (expense), net 590 (171 ) 761 -445 %
Net loss $ (383 ) $ (1,459 ) $ 1,076 -74 %
As a % of revenues -11 % -35 %
Product Sales
Product sales revenue for the six months ended
Our media product sales continue to be adversely impacted by COVID-19, largely as a result of reduced demand from our largest original equipment manufacturer customers. For the year ending 2021, we estimate domestic biomedical product sales will be comparable to the year ended 2020. International product sales in our biomedical market have largely recovered and are expected to remain strong for the remainder of the year.
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Our anti-aging market segment includes skin care products that are distributed
through various ecommerce and professional channels. Our anti-aging product
sales have experienced a significant decline in customer demand for the six
months ended
Cost of Sales
Cost of sales for the six months ended
Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company's products, as well as related direct materials, general laboratory supplies and an allocation of overhead. We aim to continue refining our manufacturing processes and supply chain management to improve the cost of sales as a percentage of revenue for both LCT and LSC.
Research and Development Expenses
Research and development expenses for the six months ended
Our research and development efforts are primarily focused on the development of treatments for Parkinson's disease, traumatic brain injury and stroke. These projects are long-term investments that involve developing both new stem cell lines and new differentiation techniques that can provide higher purity populations of functional cells. Research and development expenses are expensed as incurred and are accounted for on a project-by-project basis. However, much of our research has potential applicability to each of our projects.
Selling and Marketing Expenses
Selling and marketing expenses for the six months ended
General and Administrative Expenses
General and administrative expenses for the six months ended
Other Income (Expense), Net
Other income, net, for the six months ended
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Liquidity and Capital Resources
As of
In
Our primary use of cash is to continue to fund our research and development programs and operations.
Cash Flows
Comparison of the Six Months Ended
The following table provides information regarding our cash flows for the six
months ended
Six Months Ended June 30,
2021 2020
Net cash provided by (used in) operating activities $ (757 )
(6 ) (70 )
Net cash provided by financing activities 824 654
Net increase in cash $ 61 $ 831
Operating Cash Flows
For the six months ended
Investing Cash Flows
Net cash used in investing activities for the six months ended
Financing Cash Flows
Net cash provided by financing activities for the six months ended
Funding Requirements
Management continues to evaluate various financing sources and options to raise working capital to help fund our current research and development programs and operations. We will need to obtain significant additional capital from sources including equity and/or debt financings, license arrangements, grants and/or collaborative research arrangements to sustain our operations and develop products. Unless we obtain additional financing, we do not have sufficient cash on hand to sustain our operations at least
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through one year after the issuance date. The timing and degree of any future capital requirements will depend on many factors, including:
• the accuracy of the assumptions underlying our estimates for capital needs
in 2021 and beyond;
• the extent that revenues from sales of LSC and LCT products cover the
related costs and provide capital;
• scientific progress in our research and development programs;
• the magnitude and scope of our research and development programs and our
ability to establish, enforce and maintain strategic arrangements for
research, development, clinical testing, manufacturing and marketing;
• our progress with preclinical development and clinical trials;
• the time and costs involved in obtaining regulatory approvals;
• the costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims;
• the number and type of product candidates that we pursue;
• demand from our largest original equipment manufacturer customers; and
• the development of major public health concerns, including COVID-19 or other
pandemics arising globally, and the current and future impact that such
concerns may have on our operations and funding requirements.
As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced volatility and disruptions, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. As the pandemic continues and restrictions remain in place or new restrictions are imposed, it may make any additional debt or equity financing more difficult, more costly and more dilutive. Our failure to raise capital or enter into applicable arrangements when needed would have a negative impact on our financial condition. Additional debt financing may be expensive and require us to pledge all or a substantial portion of its assets. Further, if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of its technologies, product candidates or products that we would otherwise seek to develop and commercialize on our own. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of our product initiatives.
We currently have no revenue generated from our principal operations in therapeutic and clinical product development through research and development efforts. There can be no assurance that we will be successful in maintaining our normal operating cash flow and obtaining additional funds and that the timing of our capital raising or future financing will result in cash flow sufficient to sustain our operations at least through one year after the issuance date.
Based on the factors above, there is substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements were prepared assuming that we will continue to operate as a going concern. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Management's plans in regard to these matters are focused on managing our cash flow, the proper timing of our capital expenditures, and raising additional capital or financing in the future.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our condensed consolidated financial statements,
which have been prepared in accordance with generally accepted accounting
principles in
Our estimates are based on our historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and amount of expense recognized that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We evaluate our estimates and assumptions on an ongoing basis. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of the change in estimates.
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There have been no material changes to our critical accounting policies and
estimates during the six months ended
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 1 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations and
commitments outside the ordinary course of business during the six months ended
Off-Balance Sheet Arrangements
As of
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