NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization, Basis of Presentation and Liquidity
Asterias Biotherapeutics, Inc. (“Asterias” or “the Company”) is a clinical-stage biotechnology company dedicated to developing
pluripotent stem cell-derived therapies to treat neurological conditions associated with demyelination and cellular immunotherapies to treat cancer. We have industry-leading technology in two cell types, each with broad potential applicability: (1)
oligodendrocyte progenitor cells, which become oligodendrocytes that have the potential to remyelinate axons within the central nervous system and perform other restorative functions, and (2) antigen-presenting dendritic cells, which train T-cells
in the immune system to attack and destroy solid or liquid tumor cells across multiple types of cancer. Asterias currently has three clinical-stage therapeutic programs:
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•
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Spinal Cord Injury. AST-OPC1 is an oligodendrocyte progenitor cell population derived from pluripotent stem cells that is currently in a Phase 1/2a clinical trial for
spinal cord injuries (“SCI”) that has been partially funded by the California Institute for Regenerative Medicine (“CIRM”).
|
|
•
|
Non-Small Cell Lung Cancer. AST-VAC2 is a non-patient-specific (“off-the-shelf”) cancer immunotherapy derived from pluripotent stem cells that is currently in a Phase 1
clinical trial in non-small cell lung cancer (“NSCLC”). The trial is being funded and sponsored by Cancer Research UK (“CRUK”), the world’s largest independent cancer research charity.
|
|
•
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Acute Myeloid Leukemia. AST-VAC1 is a patient-specific cancer immunotherapy which has generated positive Phase 2 data in the treatment of acute myeloid leukemia (“AML”).
Because AST-VAC1 and AST-VAC2 are both dendritic cells presenting the telomerase antigen, an antigen presented by 90% of all cancers, we believe that AST-VAC1 provides supportive evidence for the use of AST-VAC2 in the treatment of AML.
|
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and
footnote disclosures normally included in comprehensive financial statements have been condensed or omitted pursuant to such rules and regulations. The balance sheet as of December 31, 2017 was derived from the audited financial statements at that
date, but does not include all the information and footnotes required by GAAP. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in Asterias’ Annual Report on Form 10-K for the
year ended December 31, 2017.
The accompanying interim condensed financial statements, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of Asterias’ financial condition and results of operations. The condensed results of operations are not necessarily indicative of the results to be expected for any future interim
period or for the entire year.
Liquidity
– Since inception, Asterias has
incurred operating losses and has funded its operations primarily through the issuance of shares of Asterias common stock, sales of marketable equity securities that we hold, warrant exercise proceeds, payments from research grants, and royalties
from product sales. At September 30, 2018, Asterias had an accumulated deficit of $132.3 million, working capital of $13.3 million and stockholders’ equity of $24.5 million. Asterias has evaluated its projected cash flows and believes that its
cash, cash equivalents, and restricted cash of $6.5 million, marketable equity securities of $6.2 million, and $2.4 million of receivables largely related to our Novo agreements (payments were received in early October 2018) as of September 30,
2018, will be sufficient to fund Asterias’ operations through at least twelve months from the issuance date of these financial statements. If the value of Asterias’ marketable equity securities decreases or it is unable to obtain adequate future
financing or other sources of funding, it may be required to reduce or curtail its operations. Future financings or other sources of funding may not be available to Asterias at acceptable terms, or at all. Sales of additional issued equity
securities would result in the dilution of interests of current shareholders.
2. Summary of Significant Accounting Policies
Revenue Recognition
Beginning January 1, 2018,
the Company follows the provisions of ASC Topic 606,
Revenue from Contracts with Customers
. The guidance provides a unified model to determine how revenue is
recognized.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under the Company’s agreements, the
Company performs the following steps: (i) identifies the promised goods or services in the contract; (ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the
contract; (iii) measures the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations based on estimated selling prices; and (v) recognizes revenue when (or as) the
Company satisfies each performance obligation.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in
ASC Topic 606. The Company’s performance obligations generally included in customer contracts are research and development services for clinical studies or licenses to use intellectual property. Customer contracts for research and development
services require significant management judgment to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligation. If the Company cannot reasonably estimate when its
performance obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using
the cumulative catch-up method. The Company considers licenses for the use of intellectual property “right of use” licenses. The Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred
to the customer, and the customer can use and benefit from the license. At September 30, 2018, all the performance obligations under the Company’s license agreements have been satisfied as control transferred at contract inception when the customer
could benefit from the right of use license. Currently, since none of the Company’s contracts contain more than one performance obligation, no allocation of the transaction price is necessary. However, if the Company enters into an arrangement
containing more than one performance obligation the total transaction price will be allocated to each performance obligation based on the estimated relative standalone selling prices of the promised goods or service.
Grant income:
The Company generates grant
income from award contracts to support the clinical development of AST-OPC1. These contracts provide for the reimbursement of qualified expenses for research and development activities. Revenue under these arrangements is recognized when the
related qualified research expenses are incurred.
Milestone payments:
At the inception of each
arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is
probable that a significant revenue reversal would not occur, the value of the associated milestone (such as completion of a therapeutic administration of a licensed product to a certain number of patients by the Company) is included in the
transaction price. Milestone payments that are not within the control of the Company are not considered probable of being achieved until the contingent event has occurred.
License and Royalties:
The Company considers
licenses for the use of intellectual property “right of use” licenses. The Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer, and the customer can use and benefit
from the license. For arrangements that include sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when
the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). The Company’s arrangement that contain royalty minimums also contain termination clauses, therefore these royalties are
considered variable consideration and included in the transaction price when the notice period has lapsed.
Option to License Patents:
The Company
recognizes revenues from up-front fees associated with granting a material right to, or an option to license certain intellectual property to certain third parties ("optionees"), whereby the option itself is deemed to be a performance obligation of
the Company, upon the earlier of a) the date the Company and the optionee enter into a license agreement or b) if no license is consummated, at the end of the period to negotiate a license.
Comprehensive loss
– ASC
220,
Comprehensive Income
, requires that an entity’s change in equity or net assets during a period from transactions and other events from non-owner sources
be reported. Total comprehensive loss has been disclosed in the Condensed Statements of Comprehensive Loss.
Investments in Equity Securities
–
Beginning January 1, 2018, the Company adopted the provisions of ASU Topic 2016-01,
Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
. The guidance eliminated the available-for-sale classification for equity securities and requires unrealized holding
gains/losses to be reported through earnings. Prior to the adoption of the new guidance, unrealized gains and losses, net of tax from the Company’s financial instruments categorized as available-for-sale securities were reported in other
comprehensive income/(loss) until realized. Realized gains and losses and declines in value judged to be other-than-temporary related to equity securities, were included in other income/(expense), net.
Asterias accounts for its marketable equity securities in BioTime and OncoCyte at fair value in accordance with ASC 321-10
Investments-Equity Securities
, as the shares have a readily determinable fair value as specified by ASC 820-10
Fair Value Measurement.
The securities are quoted on the NYSE American and are held principally for future working capital purposes, as necessary. These securities are measured at fair value and reported as
current assets on the balance sheet based on the closing trading price of the security as of the date being presented (see Note 4).
Basic and diluted net loss per
share
– The computations of basic and diluted net loss per share are as follows (in thousands, except per share data) (unaudited):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net loss
|
|
$
|
(4,454
|
)
|
|
$
|
(6,809
|
)
|
|
$
|
(13,748
|
)
|
|
$
|
(21,824
|
)
|
Weighted average common shares outstanding – basic and diluted
|
|
|
55,531
|
|
|
|
49,771
|
|
|
|
54,956
|
|
|
|
49,110
|
|
Net loss per share – basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.44
|
)
|
The following common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods
presented as they are anti-dilutive (in thousands) (unaudited):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Stock options and restricted stock units
|
|
|
7,047
|
|
|
|
7,272
|
|
|
|
7,047
|
|
|
|
7,272
|
|
Warrants
|
|
|
2,813
|
|
|
|
2,813
|
|
|
|
2,813
|
|
|
|
2,813
|
|
Recently Adopted Accounting
Pronouncements
–
The following Accounting Standards became effective during 2018:
In May 2014, the FASB issued ASU No. 2014-09,
Revenue
from Contracts with Customers (Topic 606)
, to provide guidance on revenue recognition. During 2015 and 2016, the FASB issued additional amendments to the revenue guidance in Topic 606 relating to reporting revenue on a gross versus net
basis, identifying performance obligations, licensing arrangements, collectability, noncash consideration, presentation of sales tax, transition, and clarifying examples. ASU No. 2014-09 replaces all current GAAP guidance on this topic and
eliminates all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine how revenue is recognized. The core principal of the guidance is that an entity should recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates
than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate
performance obligation. Topic 606, as amended, is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted one year earlier.
The Company adopted the new standard effective January 1, 2018 under the modified retrospective transition method applied to those
contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the
Company’s historical accounting under Topic 605. Upon adoption there was an immaterial cumulative effect to the opening accumulated deficit based on the Company’s analysis of the contracts in scope at the transition date.
On January 5, 2016, the FASB issued Accounting Standards Update 2016-01,
Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
(ASU No. 2016-01). Changes to the current GAAP model primarily affect the accounting for equity investments,
financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, ASU No. 2016-01 clarified guidance related to the valuation allowance assessment when recognizing deferred
tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The more significant
amendments are to equity investments in unconsolidated entities.
In accordance with ASU No. 2016-01, all equity investments in unconsolidated entities (other than those accounted for using the equity
method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (with changes in fair value reported in other comprehensive loss) for marketable equity securities with
readily determinable fair values. The classification and measurement guidance is effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
The Company adopted ASU No. 2016-01 effective January 1, 2018 and has recorded a cumulative-effect adjustment under the modified
retrospective transition method of $6.5 million between accumulated other comprehensive loss and the accumulated deficit in the balance sheet. The adjustment represents the cumulative unrealized holding loss from the date that the securities were
acquired through the date of adoption. Refer to Note 4 for discussion regarding Asterias’ marketable equity securities.
In November 2016, the FASB issued Accounting Standards Update ASU 2016-18,
Statement of Cash Flows (Topic 230);
Restricted Cash
(ASU 2016-18), which defines new requirements for the presentation of
restricted cash and restricted cash equivalents in the statement of cash flows. The amendments in this ASU require retrospective application to each period presented. The Company adopted this guidance effective January 1, 2018 retrospectively. This
ASU requires entities to present a statement of cash flows in a manner such that it reconciles beginning and ending totals of cash, cash equivalents, restricted cash or restricted cash equivalents. Also, when cash, cash equivalents, restricted cash
or restricted cash equivalents are presented in more than one line item within the statement of financial position, an entity should, for each period that a statement of financial position is presented, present on the face of the statement of cash
flows or disclose in the notes to the financial statements, the line items and amounts of cash, cash equivalents, and restricted cash or restricted cash equivalents reported within the statement of financial position. The amounts, disaggregated by
the line item in which they appear within the statement of financial position, shall sum to the total amount of cash, cash equivalents, and restricted cash or restricted cash equivalents at the end of the corresponding period shown in the statement
of cash flows. The Company has adopted this guidance and the ending cash, cash equivalents, and restricted cash balance includes the $100,000 Asterias holds as restricted cash.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation
– Stock Compensation: Scope of Modification Accounting
to clarify the scope of modification accounting for share-based compensation. Under the new guidance, modification accounting is required only if the fair value, the vesting
conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being
accounted for as modifications. The Company adopted ASU No. 2017-01 effective January 1, 2018. Upon adoption of the new standard there is no change to the Company’s historical financial statements as the new guidance will be applied prospectively
to awards modified on or after the adoption date.
Recently Issued Accounting
Pronouncements Not Yet Adopted
– The following accounting standards, which are not yet effective, are presently being evaluated by Asterias to determine the impact that they might have on its financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842),
which requires lessees to recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. Leases will be classified as either financing or operating, with
classification affecting the pattern of expense recognition in the statements of operations. ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows
arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted. Although Asterias has not completed its evaluation of
the impact of the adoption of ASU 2016-02, Asterias currently holds operating leases (see Note 8). As a result, the adoption of ASU 2016-02 could have a material impact to Asterias’ financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based
Payment Accounting. ASU No. 2018-07 supersedes the guidance for equity-based payments to non-employees (Topic ASC 505-50). Under the new standard, an entity should treat equity-based payments to nonemployees the same as stock-based compensation to
employees in most cases. The new guidance is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is assessing ASU 2018-07 and does not expect it to have a material impact on its
financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The new guidance is effective for interim and annual periods beginning after December 15, 2019. The Company is assessing ASU 2018-13 and
does not expect it to have a material impact on its consolidated financial statements.
3. Balance Sheet Components
Property, plant and equipment, net
As of September 30, 2018 and December 31, 2017, property, plant and equipment consisted of the following (in thousands):
|
|
September 30,
2018
(Unaudited)
|
|
|
December 31,
2017
|
|
Furniture, fixtures and leasehold improvements
|
|
$
|
40
|
|
|
$
|
5,275
|
|
Computers, machinery and equipment
|
|
|
1,753
|
|
|
|
2,112
|
|
|
|
|
1,793
|
|
|
|
7,387
|
|
Less - accumulated depreciation and amortization
|
|
|
(1,195
|
)
|
|
|
(2,844
|
)
|
Property, plant and equipment, net
|
|
$
|
598
|
|
|
$
|
4,543
|
|
Depreciation and amortization expense for the three and nine months ended September 30, 2018 was $248,000 and $761,000, respectively.
Depreciation and amortization expense for the three and nine months ended September 30, 2017 was $285,000 and $840,000, respectively.
On September 28, 2018, the Company’s office and research facility lease in Fremont, California (Fremont Lease) was terminated (see Note 8).
Upon of the termination of the Fremont Lease, Novo Nordisk Research Center Seattle Inc. (“NNRCSI”) entered into a new lease of the facilities with the landlord and a sublease agreement with the Company for part of the facility. As a result, the
Company derecognized its leasehold improvements at the office and research facility with a net book value of $3.0 million and the related lease liability to the landlord of $3.1 million. This resulted in a net gain of $76,000 which is included in
the deferred rent and lease incentives on the balance sheet at September 30, 2018 and will be amortized over the term of the sublease.
Additionally, on September 28, 2018, the Company sold certain laboratory equipment to NNRCSI which it is leasing back under the sublease
agreement (see Note 8). The gain on the asset sale and lease back totaling $116,000 is included in the deferred rent and lease incentives on the balance sheet at September 30, 2018 and will be amortized over the term of the sublease for the
research facility space.
Receivables
As of September 30, 2018 and December 31, 2017 the Company had a receivables balance of $2.4 million and $34,000, respectively. The
balance as of September 30, 2018, was largely comprised of amounts related to the Novo Nordisk option agreement payment due of $1.0 million combined with the NNRCSI lease incentive and sale of fixed asset payments due of $750,000 and $250,000,
respectively. Additionally, the deposit previously held by the Landlord for our Fremont lease, which is now payable to the Company is included in the receivables balance as of September 30, 2018.
Prepaid and other current assets
Restricted cash in the amount of $100,000 is included in prepaid and other current assets on the balance sheet as of September 30, 2018
and December 31, 2017. This certificate of deposit is held as customary collateral for the Company’s credit card program.
Deferred revenue
During the three months ended September 30, 2018, the Company and Novo Nordisk A/S ("Novo Nordisk") entered into an option for Novo
Nordisk or its designated U.S. affiliate to license, on a non-exclusive basis, certain intellectual property related to culturing pluripotent stem cells, such as hES cells, in suspension. Under the terms of the option, Asterias will receive a
one-time upfront payment of $1.0 million, in exchange for a 24-month period to negotiate a non-exclusive license during which time Asterias has agreed to not grant any exclusive licenses inconsistent with the Novo Nordisk option. This option is
considered a performance obligation as it provides NNRCSI with a material right that NNRCSI would not receive without entering into the contract. This $1.0 million has been included in deferred revenue on the Company's balance sheet at September
30, 2018. The Company will recognize revenue from the option agreement at the earlier of a) the date the Company and Novo Nordisk enter into a license agreement or b) if no license agreement is consummated, at the end of the 24-month period to
negotiate a non-exclusive license.
4. Investments in BioTime and OncoCyte
Investment in BioTime
The BioTime common shares held by the Company are included in marketable equity securities at fair value in current assets on the
balance sheets because the shares are traded on NYSE American under the (symbol “BTX”) and are available for working capital purposes. During the three months ended September 30, 2018, Asterias did not sell any BioTime shares. During the nine
months ended September 30, 2018 Asterias sold 859,274 of its BioTime common shares. The weighted-average price of the shares sold for the nine months ended September 30, 2018 was $2.59. As of September 30, 2018 and December 31, 2017, Asterias held
2,621,811 and 3,481,085 BioTime shares, respectively. As of September 30, 2018 and December 31, 2017, the BioTime common shares were valued at $6.2 million and $7.5 million, respectively, based on the closing price on those dates.
Investment in OncoCyte
The OncoCyte common shares are included in marketable equity securities at fair value in current assets on the balance sheets because
the shares are traded on NYSE American (symbol “OCX”) and are available for working capital purposes. During the three and nine months ended September 30, 2018, Asterias sold 73,175 and 181,756 of its OncoCyte common shares at a weighted-average
price of $3.56 and $3.12, respectively. As of September 30, 2018, Asterias did not hold any OncoCyte common shares. As of December 31, 2017, Asterias held 181,756 OncoCyte common shares valued at $0.8 million, based on the closing price on that
date.
Adoption of ASU No. 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities
On January 1, 2018, the Company adopted ASC Topic 321 using the modified retrospective method. Results for reporting periods beginning
after January 1, 2018, are presented under ASC Topic 321, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under ASC Topic 320 (see Note 2).
The adoption of the new guidance resulted in a cumulative effect adjustment to the accumulated deficit and accumulated other
comprehensive loss of $6.5 million as of January 1, 2018.
The unrealized gains for the three and nine months ended September 30, 2018 related to marketable equity securities held is calculated
as follows (in thousands) (unaudited):
|
|
Three Months
Ended
September 30,
2018
|
|
|
Nine Months
Ended
September 30,
2018
|
|
Net gains recognized on marketable equity securities
|
|
$
|
830
|
|
|
$
|
570
|
|
Less: Net gains recognized on marketable equity securities sold
|
|
|
69
|
|
|
|
46
|
|
Unrealized gains recognized on marketable equity securities held at September 30, 2018
|
|
$
|
761
|
|
|
$
|
524
|
|
5. Intangible Assets
Intangible assets net of accumulated amortization at September 30, 2018 and December 31, 2017 are shown in the following table (in
thousands):
|
|
September 30,
2018
(Unaudited)
|
|
|
December 31,
2017
|
|
Intangible assets
|
|
$
|
26,860
|
|
|
$
|
26,860
|
|
Less- accumulated amortization
|
|
|
(13,430
|
)
|
|
|
(11,416
|
)
|
Intangible assets, net
|
|
$
|
13,430
|
|
|
$
|
15,444
|
|
Asterias recognized $0.7 million and $2.0 million in amortization expense of intangible assets during the three and nine months ended
September 30, 2018 and 2017, respectively.
6. Common Stock and Warrants
As of September 30, 2018 and December 31, 2017, Asterias had issued and outstanding 55,658,684 and 54,051,142 shares of Series A common
stock and no shares of Series B common stock, respectively.
Common Stock Issuance
On March 28, 2017, Asterias entered into an amendment to its at-the-market (ATM) Sales Agreement, dated April 10, 2015, with MLV &
Co. (“MLV”). The amendment to the Sales Agreement was entered into by Asterias, MLV and FBR Capital Markets & Co. (“FBR” and together with MLV, the “Agents”), which acquired MLV. In June 2017, FBR was acquired by B. Riley, and together operates
as B. Riley FBR, Inc. Under the Sales Agreement, as amended, Asterias may issue and sell shares of its Series A common stock having an aggregate offering price of up to $25 million from time to time on or after March 28, 2017, through the Agents,
subject to certain limitations, including the number of shares registered and available under the Company’s previously filed and currently effective shelf registration statement on Form S-3 (File No. 333-215154) (the “Registration Statement”). For
the nine months ended September 30, 2018, Asterias sold 713,430 shares of Series A common stock for gross proceeds of approximately $1.2 million under this ATM agreement with approximately $21.5 million of Asterias common stock available for
issuance and sale pursuant to the terms of the ATM Sales Agreement. For the nine months ended September 30, 2017, Asterias sold 2.0 million shares of Series A common stock for gross proceeds of approximately $8.0 million.
For the nine months ended September 30, 2018 and 2017, pursuant to a services agreement with Cell Therapy Catapult Services Limited,
Asterias issued 364,727 and 217,193 shares of Asterias Series A common stock with a fair value of $643,000 and $858,000 respectively (see Note 11).
For the nine months ended September 30, 2018, Asterias issued 487,529 shares of Series A common stock with a fair value of $951,000 in
payment of accrued employee bonuses. For the nine months ended September 30, 2017, Asterias issued 201,112 shares of Series A common stock with a fair value of $720,000 in payment of accrued employee bonuses.
Warrants classified as a liability
On May 13, 2016, as part of the Asterias Series A Common Stock Offering, Asterias issued 2,959,559 warrants (the “Asterias Offering
Warrants”). The Asterias Offering Warrants have an exercise price of $4.37 per share and expire in five years of the issuance date, or May 13, 2021. The Asterias Offering Warrants also contain certain provisions in the event of a Fundamental
Transaction, as defined in the warrant agreement governing the Asterias Offering Warrants (“Warrant Agreement”), that Asterias or any successor entity will be required to purchase, at a holder’s option, exercisable at any time concurrently with or
within thirty days after the consummation of the fundamental transaction, the Asterias Offering Warrants for cash. This cash settlement will be in an amount equal to the value of the unexercised portion of such holder’s warrants, determined in
accordance with the Black-Scholes option pricing model as specified in the Warrant Agreement.
In accordance with ASC 815-40,
Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock
, contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the
likelihood of the transaction occurring that triggers the net cash settlement feature. Changes to the fair value of those liabilities are recorded in the Condensed Statements of Operations. Accordingly, since Asterias may be required to net cash
settle the Asterias Offering Warrants in the event of a Fundamental Transaction; the Asterias Offering Warrants are classified as noncurrent liabilities at fair value, with changes in fair value recorded in other income or expense, net, in the
Condensed Statements of Operations.
The fair value of the Asterias Offering Warrants at the time of issuance was determined by using a combination of the Binomial Lattice
and Black-Scholes option pricing models under various probability-weighted outcomes which take into consideration the probability of the fundamental transaction and net cash settlement occurring, using the contractual term of the warrants. In
applying these models, the fair value is determined by applying Level 3 inputs, as defined by ASC 820; these inputs have included assumptions related to the estimated future stock price of Asterias common stock, volatility and the timing of, and
varying probabilities that certain events will occur. The Asterias Offering Warrants are revalued each reporting period using the same methodology described above. Changes in any of the key assumptions used to value the Asterias Offering Warrants
could materially impact the fair value of the warrants and Asterias’ financial statements.
At September 30, 2018, based on a valuation performed on the Asterias Offering Warrants using the methodology described above, the fair
value of the Asterias Offering Warrants liability was $0.7 million, resulting in Asterias recording a noncash gain of $2.1 million for the nine months ended September 30, 2018, included in other income and expenses, net, in the Condensed Statements
of Operations.
Warrants classified as equity
On March 30, 2016, Asterias’ board of directors declared a distribution of Asterias common stock purchase warrants to all Asterias
shareholders other than BioTime, in the ratio of one warrant for every five shares of Asterias common stock owned of record as of the close of business on April 11, 2016. On April 25, 2016, Asterias distributed 3,331,229 warrants (the “Distribution
Warrants”). The distribution of the Distribution Warrants was treated as a disproportionate distribution since no warrants were distributed to BioTime. The Distribution Warrants were classified as equity, have an exercise price of $5.00 per share,
and were set to expire on September 30, 2016. Asterias recorded the Distribution Warrants at a fair value of $3.1 million with a non-cash charge to shareholder expense included in general and administrative expenses and a corresponding increase to
equity as of March 30, 2016 as the Distribution Warrants were deemed to be issued for accounting purposes on that date.
On September 19, 2016, Asterias extended the expiration date of the Distribution Warrants to February 15, 2017, no other terms were
changed. As a result of the extension of the expiration date of these warrants, Asterias recorded a $2.0 million non-cash charge to shareholder expense included in general and administrative expenses and a corresponding increase to equity for the
year ended December 31, 2016. On February 3, 2017, Asterias extended the expiration date of the Distribution Warrants to September 29, 2017. As a result of this extension, Asterias recorded a $1.7 million non-cash charge to shareholder expense
included in general and administrative expenses and a corresponding increase to equity for the quarter ended March 31, 2017. These warrants expired unexercised on September 29, 2017.
In connection with the warrant distribution to shareholders discussed above, 350,000 warrants with an exercise price of $5.00 per share
held by Romulus Films, Ltd. were adjusted to become exercisable into 409,152 shares at an exercise price of $4.28 per share (the “Romulus Warrants”). These warrants had an original expiration date of September 30, 2016. On September 19, 2016,
Asterias extended the expiration date of the Romulus Warrants to February 15, 2017, no other terms were changed. As a result of the extension of the expiration date of these warrants, Asterias recorded a $0.2 million non-cash charge to shareholder
expense included in general and administrative expenses and a corresponding increase to equity for the year ended December 31, 2016. On February 3, 2017, Asterias extended the expiration date of the Romulus Warrants to September 29, 2017. As a
result of this extension of the expiration date of these warrants, Asterias recorded a $0.3 million non-cash charge to shareholder expense included in general and administrative expenses and a corresponding increase to equity for the quarter ended
March 31, 2017. These warrants expired on September 29, 2017.
7. Stock-Based Compensation
The following table shows the stock-based compensation expenses included in the operating expenses for the three and nine months ended
September 30, 2018 and 2017 (in thousands) (unaudited):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Research and development
|
|
$
|
355
|
|
|
$
|
518
|
|
|
$
|
1,076
|
|
|
$
|
1,598
|
|
General and administrative
|
|
|
364
|
|
|
|
389
|
|
|
|
984
|
|
|
|
1,297
|
|
Total stock-based compensation expense
|
|
$
|
719
|
|
|
$
|
907
|
|
|
$
|
2,060
|
|
|
$
|
2,895
|
|
The weighted average assumptions used to calculate the grant date fair value of the Company's stock options granted during the three and
nine month periods ended September 30, 2018 and 2017 are as follows (unaudited):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Expected life (in years)
|
|
|
6.08
|
|
|
|
6.08
|
|
|
|
5.96
|
|
|
|
5.76
|
|
Risk-free interest rates
|
|
|
2.86
|
%
|
|
|
1.85
|
%
|
|
|
2.68
|
%
|
|
|
1.88
|
%
|
Volatility
|
|
|
73.15
|
%
|
|
|
73.31
|
%
|
|
|
71.27
|
%
|
|
|
74.73
|
%
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
The risk-free interest rate is based on the interest rates in effect at the date of grant for zero coupon U.S. Treasury notes with
maturities approximately equal to each grant’s expected term. A dividend yield of zero is applied since Asterias has not historically paid dividends and does not expect to pay dividends in the foreseeable future. The expected volatility is based
upon the volatility of Asterias’ own trading stock and a group of publicly traded industry peer companies. The expected term of options granted is derived using the simplified method under SEC
Staff Accounting Bulletin
Topic 14.
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models
and assumptions requiring the use of judgment. If Asterias had made different assumptions, its stock-based compensation expense and net loss for the three and nine months ended September 30, 2018 and 2017 may have been significantly different.
8. Commitments and Contingencies
Development and Manufacturing Services Agreement
On August 3, 2016, Asterias entered into a Development and Manufacturing Services Agreement (the “Services Agreement”) with Cognate
BioServices, Inc. (“Cognate”), a fully-integrated contract bioservices organization providing development and current Good Manufacturing Practice (“cGMP”) manufacturing services to companies and institutions engaged in the development of cell-based
products.
Under the Services Agreement, Cognate is performing under an Initial Statement of Work process development studies in support of
Asterias’ clinical and commercial development activities of AST-VAC1 and production and manufacturing services of AST-VAC1 under cGMP under the Second Statement of Work. In consideration for the process development services set forth in the Initial
Statement of Work, Asterias agreed to make aggregate payments of up to approximately $1.7 million in fees over the term of the Initial Statement of Work and pay for additional pass through costs for materials and equipment estimated by management
to be approximately $0.5 million. In consideration of the production and manufacturing services set forth in the Second Statement of Work, once the services under the Initial Statement of Work are completed and if Asterias receives United States
Food and Drug Administration ("FDA") concurrence on the clinical protocol for an AST-VAC1 trial, then Asterias will make an initial start-up payment, a monthly payment for dedicated manufacturing capacity, and certain other manufacturing fees.
On August 16, 2017, the Company amended SOW 1 (“Amended SOW 1”) and entered into a Statement of Work 1.5 (“SOW 1.5”) with Cognate to
modify the timing of certain process development studies being performed by Cognate under the Services Agreement. Under Amended SOW 1 and SOW 1.5, Cognate will perform certain process development studies initially contemplated by SOW 1 under SOW
1.5 after Cognate has completed the activities under Amended SOW 1 and the Company provides written notice to commence the activities under SOW 1.5.
The Services Agreement will expire on the later of (a) August 3, 2019; or (b) the completion of all services contracted for by the
parties in the Statements of Work under the Services Agreement prior to August 3, 2019. The term of the Services Agreement and any then pending Statements of Work thereunder may be extended by Asterias continuously for additional two year periods
upon written notice to Cognate with at least 30 days prior to the expiration of the then-current term.
The Services Agreement provides certain termination rights to each party and customary provisions relating to indemnity, confidentiality
and other matters. Asterias incurred $47,000 and $536,000 of expense to Cognate pursuant to the Services Agreement for the nine months ended September 30, 2018 and 2017, respectively. As of January 31, 2018, Cognate has completed the activities
under SOW 1 but the Company has not provided notice to commence activities under SOW 1.5.
Fremont Lease
On December 30, 2013, Asterias entered into a lease for an office and research facility located in Fremont, California ("Fremont
Lease"), consisting of an existing building with approximately 44,000 square feet of space ("Leased Space"). Asterias completed the tenant improvements in November 2015, which cost approximately $4.9 million, of which the maximum of $4.4 million
was paid to Asterias by the landlord. Asterias placed the asset into service in November 2015 and is amortizing the leasehold improvements and the landlord liability over the remaining lease term through September 30, 2022.
On September 28, 2018, the Company terminated the Fremont Lease agreement with the landlord. Simultaneously with the termination of the
Lease, Novo Nordisk Research Center Seattle, Inc. ("NNRSCI"), an affiliate of Novo Nordisk, a Denmark-based multinational pharmaceutical company, entered into a new lease agreement with the landlord for the Leased Space, whereupon the Company and
NNRSCI immediately entered into a sublease agreement for the Company to occupy and use part of the Leased Space (the “Sublease”). Upon execution of the Sublease, the Company received approximately $1.1 million from Novo Nordisk. The Company did not
incur any early termination fees in in connection with the termination of the Fremont Lease.
The Company has accounted for the Fremont Lease termination, Sublease, and other related agreements with the landlord and the affiliate
of Novo Nordisk and as follows:
1) The $1.1 million received from Novo Nordisk has been accounted for as lease incentives to enter into the sublease under ASC
840-10-35, and
will be recognized as a reduction of rent expense over the Sublease term for the office space of 39 months. This amount is included in the
deferred rent and lease incentives on the balance sheet.
As of September 30, 2018 and December 31, 2017, the deferred rent and lease incentives were $1.6 million and $316,000, respectively.
2) Upon termination of the Fremont Lease
agreement with the landlord, the leasehold improvements of $3.0 million (net of accumulated depreciation) and the related lease liability of $3.1 million to the landlord were derecognized and the resulting gain of $76,000 is included in the
deferred rent and lease incentives and will be recognized over the Sublease term u
nder ASC 840. Additionally, Asterias sold certain fixed assets (laboratory equipment) to Novo Nordisk. This equipment had a net book value of $134,000. T
he gain on the sale of the laboratory equipment of $116,000 is included in the deferred rent and lease incentives and will be recognized over the sublease term,
for the research space of 25 months, as this transaction is deemed to be a sale-leaseback transaction.
On September 28, 2018, Asterias entered into a Sublease agreement for office and research facilities located at its current location in
Fremont, California. This sublease initially consists of a total of 31,373 square feet of space of which 16,452 square feet of space is for the exclusive use of Asterias and 14,921 square feet of space that will be shared with the sublessor. On
October 31, 2020, the sublease space will be reduced to 23,108 square feet of space, excluding the research space. The leased facilities are being used by Asterias as a combined office and research facility. Under the terms of the Sublease, the
initial monthly rent for the subleased space is $67,814. As a result of the Sublease, the Company expects to lower its facilities related costs over the next several years by approximately $1.0 million annually. The Sublease expires on December 31,
2021. The Company may terminate the Sublease, with no penalty, prior to its expiration upon three months prior written notice.
As
of September 30,
2018, minimum sublease payments are as follows (in thousands) (unaudited):
Year
|
|
Minimum Lease Payments
|
|
2018
|
|
$
|
203
|
|
2019
|
|
|
820
|
|
2020
|
|
|
812
|
|
2021
|
|
|
681
|
|
Total
|
|
$
|
2,516
|
|
Litigation – General
Asterias is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation,
business transactions, employee-related matters, and others. When Asterias is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be
reasonably estimated, Asterias will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, Asterias discloses the claim if the likelihood of a potential loss is reasonably possible and
the amount involved could be material. Asterias is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.
Employment Contracts
Asterias has entered into employment contracts with certain executive officers. Under the provisions of the contracts, Asterias may be
required to incur severance obligations for matters relating to changes in control, as defined and involuntary terminations.
Indemnification
In the normal course of business, Asterias may provide indemnifications of varying scope under Asterias’ agreements with other companies
or consultants, typically Asterias’ clinical research organizations, investigators, clinical sites, suppliers and others. Pursuant to these agreements, Asterias will generally agree to indemnify, hold harmless, and reimburse the indemnified parties
for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the use or testing of Asterias’ products and services. Indemnification provisions could also cover third party
infringement claims with respect to patent rights, copyrights, or other intellectual property pertaining to Asterias products and services. The term of these indemnification agreements will generally continue in effect after the termination or
expiration of the particular research, development, services, or license agreement to which they relate. The potential future payments Asterias could be required to make under these indemnification agreements will generally not be subject to any
specified maximum amount. Historically, Asterias has not been subject to any claims or demands for indemnification. Asterias also maintains various liability insurance policies that limit Asterias’ exposure. As a result, Asterias believes the fair
value of these indemnification agreements is minimal. Accordingly, Asterias has not recorded any liabilities for these agreements as of September 30, 2018 and December 31, 2017.
9. Shared Facilities and Services Agreement
BioTime
On April 1, 2013, Asterias and BioTime executed a Shared Facilities and Services Agreement (“Shared Services Agreement”). Under the
terms of the Shared Services Agreement, Asterias has the right to use BioTime’s premises and equipment located at Alameda, California, for the sole purpose of conducting Asterias’ business. BioTime charges Asterias a fee for the services and usage
of facilities, equipment, and supplies provided under the shared services agreement. For each billing period, BioTime equitably prorates and allocates its employee costs, equipment costs, insurance costs, lease costs, professional costs, software
costs, supply costs, and utilities costs, if any, between BioTime and Asterias based upon actual documented use and cost by or for Asterias or upon proportionate usage by BioTime and Asterias, as reasonably estimated by BioTime. Asterias pays 105%
of the allocated costs (the “Use Fee”). The allocated cost of BioTime employees and contractors who provide services is based upon records maintained of the number of hours of such personnel devoted to the performance of services.
The Use Fee is determined and invoiced to Asterias on a quarterly basis for each calendar quarter of each calendar year. If the Shared
Services Agreement terminates prior to the last day of a billing period, the Use Fee will be determined for the number of days in the billing period elapsed prior to the termination of the Shared Services Agreement. Each invoice is payable in full
by Asterias within 30 days after receipt. Any invoice or portion thereof not paid in full when due will bear interest at the rate of 15% per annum until paid, unless the failure to make a payment is due to any inaction or delay in making a payment
by BioTime employees from Asterias funds available for such purpose, rather than from the unavailability of sufficient funds legally available for payment or from an act, omission, or delay by any employee or agent of Asterias.
Asterias in turn may charge BioTime or any Other Subsidiary for similar services provided by Asterias at the same rate and terms as
aforementioned. “Other Subsidiary” means a subsidiary of BioTime other than a subsidiary of Asterias.
The Shared Services Agreement was renewed through December 31, 2018. The term of the Shared Services Agreement will automatically be
renewed and the termination date will be extended for an additional year each year, unless either party gives the other party written notice stating that the Shared Services Agreement will terminate on December 31 of that year.
BioTime allocated $10,000 and $117,000 of general overhead expenses to Asterias during the nine months ended September 30, 2018, and
2017, respectively. At September 30, 2018, Asterias had no net payable to BioTime under the Shared Services Agreement.
Novo Nordisk Research Center Seattl
e, Inc.
On September 28, 2018, Asterias and Novo
Nordisk Research Center Seattle, Inc. ("NNRCSI") executed a Sublease Agreement which includes a provision for shared facilities and services costs.
Under the terms of this agreement, Asterias has the right to exclusive use a certain
portion of the facilities and a shared use of a certain portion of the facilities. Additionally, it allows for shared use of certain equipment located at Fremont, California, for the sole purpose of conducting Asterias’ business. For each billing
period, the common facilities costs will be prorated and allocated (based on space usage) between NNRCSI and Asterias.
10. Income Taxes
The provision for income taxes is determined using an estimated annual effective tax rate. The effective tax rate may be subject to
fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or
de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where Asterias conducts business.
Management believes that the Asterias net operating losses generated during the nine months ended September 30, 2018 will result in no
income tax benefit or provision in the current year due to the full valuation allowance on its net deferred tax assets for the year ended December 31, 2017 and a full valuation allowance expected on its net deferred tax assets for the year ending
December 31, 2018.
For state income tax purposes, Asterias has a full valuation allowance on its state deferred tax assets as of September 30, 2018 and
December 31, 2017. Accordingly, no state tax provision or benefit was recorded for any period presented.
On December 22, 2017 the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduces the federal
statutory corporate income tax rate to 21%. This rate reduction has a significant impact on Asterias’ net deferred tax assets as of December 31, 2017, resulting in a one-time revaluation of its deferred tax assets and liabilities to reflect the new
lower rate. However, because Asterias maintains a full valuation allowance against its deferred taxes, the impact of the change is fully offset by the valuation allowance.
11. License and Royalty Obligations
Services Agreement with Cell Therapy Catapult Services Limited
In October 2015, Asterias entered into a Services Agreement (the “Services Agreement”) with Cell Therapy Catapult Services Limited
(“Catapult”), a research organization specializing in the development of technologies which speed the growth of the cell and gene therapy industry. Under the Services Agreement, Catapult will license to Asterias, certain background intellectual
property and will develop a scalable manufacturing and differentiation process for Asterias’ human embryonic stem cell derived dendritic cell cancer vaccine development program. In consideration for the license and Catapult’s performance of
services, at the time of the Services Agreement Asterias agreed to make aggregate payments of up to GBP £4,350,000 over the period from October 2015 through January 2020 (approximately $5.7 million based on the foreign currency exchange rate on
September 30, 2018). At the option of Asterias, up to GBP £3,600,000 (approximately $4.7 million based on the foreign currency exchange rate on September 30, 2018) of such payments historically may have been settled in shares of Asterias Series A
common stock instead of cash. Commencing January 1, 2018, all payments due will be made in shares of Asterias Series A common stock. If Catapult is unable to sell the stock in the market within 60 days of issuance, after reasonable and diligent
efforts through its broker, Catapult may request that the unsold portion of the stock payment, if any, be paid by Asterias in cash at a value equal to approximately 91% of the total amount that was issued in stock. This right by Catapult to have
unsold shares redeemed by to Asterias for cash expires upon the earlier to occur of the sale of the stock in the market or after 60 days of issuance.
Advance payments for research and development services to be performed by Catapult are deferred and recognized as research and
development expense ratably as the services are performed. Advance payments related to licenses are expensed when paid due to the experimental nature of the project. Pursuant to the Services Agreement, if there are any issued, but unsold Asterias
stock, to Catapult for payment of services and the 60-day put right has not expired as of the period end being reported on, Asterias will present that amount as “temporary” equity in accordance with ASC 480-10-S99. Once the put right expires or the
shares are sold by Catapult, the temporary equity amount will be reclassified by Asterias to permanent equity without adjustment to the carrying value of the stock.
During the nine months ended September 30, 2018 and 2017 Asterias paid $643,000 and $1.2 million, respectively, for services pursuant to
the Services Agreement. Asterias paid $295,000 in cash for these services for the nine months ended September 30, 2017 and the remainder was paid with Asterias Series A common stock. Asterias issued Series A common stock to pay for services for the
nine months ended September 30, 2018. For the nine months ended September 30, 2018 and 2017 Asterias issued 364,727 and 217,193 shares of Asterias Series A common stock, respectively, with fair values of $643,000 and $858,000, respectively, at the
time of issuance which Asterias subsequently reclassified into permanent equity.
12. Clinical Trial and Option Agreement with CRUK and CIRM Grant Award
During September 2014, Asterias entered into a Clinical Trial and Option Agreement (the “CRUK Agreement”) with Cancer Research UK
(“CRUK”) and Cancer Research Technology Limited, a wholly-owned subsidiary of CRUK, pursuant to which CRUK has agreed to fund Phase 1 clinical development of Asterias’ human embryonic stem cell derived AST-VAC2 allogeneic (non-patient specific)
dendritic cancer vaccine product candidate. Asterias, at its own cost, completed process development and manufacturing scale-up of the AST-VAC2 manufacturing process and transferred the resulting cGMP-compatible process to CRUK. CRUK will, at its
own cost, manufacture clinical grade AST-VAC2 and will carry out the Phase 1 clinical trial of AST-VAC2 in cancer patients both resected early-stage and advanced forms of lung cancer. Asterias will have an exclusive first option to obtain a license
to use the data from the clinical trial. If Asterias exercises that option, then Asterias will be obligated to make payments upon the execution of the License Agreement, upon the achievement of various milestones, and royalties on sales of
products. In connection with the CRUK Agreement, Asterias sublicensed to CRUK for use in the clinical trials and product manufacturing process certain patents that have been licensed or sublicensed to it by third parties. Asterias would also be
obligated to make payments to those licensors and sublicensors upon the achievement of various milestones, and then royalties on sales of products if AST-VAC2 is successfully developed and commercialized.
On October 16, 2014 Asterias signed a Notice of Grant Award (“NGA”) with CIRM, effective October 1, 2014, with respect to a $14.3
million grant award for clinical development of Asterias’ product, AST-OPC1. The NGA was subsequently amended effective November 26, 2014 and March 2, 2016. The NGA includes the terms under which CIRM will release grant funds to Asterias. Under the
NGA as amended on March 2, 2016, CIRM disbursed the grant funds to Asterias based on Asterias’ attainment of certain progress milestones.
Asterias received an initial payment from CIRM in the amount of $917,000 during October 2014 and had received $12.8 million through
December 31, 2016. In September 2017, Asterias received the final $1.5 million payment under the CIRM grant which was due upon achievement of certain progress milestones. Asterias had no deferred grant income relating to the CIRM grant as of
September 30, 2018 and December 31, 2017. Asterias recognized no grant income for the three and nine months ended September 30, 2018 and $1.5 million and $3.7 million in grant income for the three and nine months ended September 30, 2017,
respectively.
13. Subsequent Events
On November 7, 2018, we entered into a definitive agreement with BioTime, pursuant to which BioTime will acquire all of our
outstanding shares that BioTime does not already own, in a stock-for-stock transaction pursuant to which our shareholders will receive 0.71 shares of BioTime common share for every share of our common stock. Following the transaction, our
shareholders will own approximately 16.2% of BioTime, based on the number of BioTime shares outstanding on November 7, 2018. If the transaction is consummated, we would cease to exist as a public company and BioTime will consolidate our
operations and results with its consolidated results beginning upon the consummation of the transaction. The transaction is subject to certain customary closing conditions, including approval of our shareholders, as well as the shareholders of
BioTme.