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 a clinical stage biotechnology company devoted to discovering and
developing innovative therapies using human parthenogenetic stem cells to treat
severe diseases of the central nervous system, joints, and liver. Our lead
product candidate, ISC-hpNSC is designed to treat Parkinson's Disease, traumatic
brain injury, and ischemic stroke. ISC-hpNSC-based therapy is in phase I
clinical trials for Parkinson's disease, while therapies for traumatic brain
injury and ischemic stroke are in preclinical stages. We have additional product
candidates in development for osteoarthritis and metabolic liver diseases. We
currently intend to commercialize our products directly or through
collaborations. None of our product candidates have been approved for sale in
Our products are based on multi-decade experience with human cell culture and a
proprietary type of pluripotent stem cells, human parthenogenetic stem cells
("hpSCs"). 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 15 stem cell lines. We have facilities
and manufacturing protocols that comply with the requirements of current Good
Manufacturing Practice (cGMP) standards as promulgated by the
We have generated aggregate product sales revenues from our Biomedical and
Anti-aging commercial businesses of
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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 reduced occupancy of portions of our manufacturing facilities, and
disruptions or restrictions on our employee's ability to travel to such
manufacturing facilities, which have caused minor delays in manufacturing. Our
manufacturing facilities continue to operate as they are deemed essential
suppliers in accordance with laws applicable to
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 Parkinson's disease ("PD"), traumatic brain injury ("TBI"), and stroke. Using our proprietary technologies and know-how, we are creating neural stem cells from hpSCs as a potential treatment of PD, TBI, and stroke.
PD: Our most advanced project is the neural stem cell program for the treatment
of Parkinson's disease. In 2013, we published in Nature Scientific Reports the
basis for our patent on a new method of manufacturing neural stem cells, which
is used to produce the clinical-grade cells necessary for future clinical
studies and commercialization. In 2014, we completed the majority of the
preclinical research, establishing the safety profile of NSC in various animal
species, including non-human primates. In
We announced a successful completion of the dose escalating phase 1 clinical
trial in
Stroke: In
TBI: In
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neural stem cells used in our Parkinson's disease clinical trial, ISC-hpNSC®, significantly improved TBI-associated motor, neurological, and cognitive deficits without any safety issues.
Anti-Aging Cosmetic Market - Skin Care Products
Our wholly owned subsidiary
•ProPlus Advanced Defense Complex •ProPlus Advanced Recovery Complex •ProPlus Eye Firming Complex •ProPlus Neck Firming Complex • ProPlus Advanced Aquoues Treatment • ProPlus Collagen Booster (Advanced Molecular Serum) • ProPlus Elastin Booster • ProPlus Brightening Toner
LSC's products are regulated as cosmetics. LSC's products are sold domestically through a branded website, Amazon, and ecommerce partners.
Biomedical Market - Primary Human Cell Research Products
Our wholly owned subsidiary
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 September 30,
2022 2021 $ Change % Change
(dollar in thousands)
Product sales, net $ 1,703 $ 1,842 $ (139 ) -8 %
Cost of sales 690 814 (124 ) -15 %As a % of product sales, net 41 % 44 % Research and development
147 165 (18 ) -11 %
Selling and marketing 358 352 6 2 %
General and administrative 808 1,134 (326 ) -29 %
Other income (expense), net (43 ) 458 (501 ) -109 %
Net loss $ (343 ) $ (165 ) $ (178 ) 108 %
As a % of product sales, net -20 % -9 %
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Product sales, net
Product sales for the three months ended
Cost of sales
Cost of sales for the three months ended
Profit margins have increased approximately 3 percentage points 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 to refine 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 income
Research and development expense for the three 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 three months ended
Our sales and marketing expenses consist primarily of employee-related expenses including salaries, bonuses, benefits, and share-based compensation for our Biomedical and Anti-aging cosmetic businesses. Other significant costs include facility costs not otherwise included in or allocated to other departments as well as marketing material costs, permits and licenses for ecommerce, and other advertising type expenses.
General and administrative expenses
General and administrative expenses for the three months ended
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decrease of
Our general and administrative expenses consist primarily of employee-related expenses including salaries, bonuses, benefits, and share-based compensation. Other significant costs include facility costs not otherwise included in or allocated to other departments, legal fees not relating to patents and corporate matters, and fees for accounting and consulting services.
Other income (expense), net
Other expense, net for the three months ended
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30,
2022 2021 $ Change % Change
(dollar in thousands)
Product sales, net $ 5,750 $ 5,333 $ 417 8 %
Cost of sales 2,133 2,200 (67 ) -3 %As a % of product sales, net 37 % 41 % Research and development 367 492 (125 ) -25 % Selling and marketing
982 1,049 (67 ) -6 %
General and administrative 2,512 3,190 (678 ) -21 % Other income (expense), net (110 ) 1,050 (1,160 ) -110 % Net loss
$ (354 ) $ (548 ) $ 194 -35 %
As a % of product sales, net -6 % -10 %
Product sales, net
Product sales for the nine months ended
Our media product sales have recovered, in part as a result of increased demand from our largest original equipment manufacturer customers. For the year ending 2022, we estimate domestic biomedical product sales will exceed or be comparable to the year ended 2021. International product sales in our biomedical market are down from 2021.
Our anti-aging market segment includes skin care products that are distributed
through various ecommerce channels (and were also previously distributed through
a professional channel). Our anti-aging product sales have experienced a
significant decline in customer demand for the nine months ended
Cost of sales
Cost of sales for the nine months ended
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Profit margins increased by approximately 4 percentage points for the nine
months ended
We may modify or expand certain product promotions and discounts through the end of 2022 as we continue to assess the ongoing impact of COVID-19 on our business, which may have an adverse impact on our profit margins.
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 to refine 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 nine 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, including allocations for facilities and depreciation, 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 nine months ended
Our sales and marketing expenses consist primarily of employee-related expenses including salaries, bonuses, benefits, and share-based compensation for our Biomedical and Anti-aging cosmetic businesses. Other significant costs include facility costs not otherwise included in or allocated to other departments as well as marketing material costs, permits and licenses for ecommerce, and other advertising type expenses.
General and administrative expenses
General and administrative expenses for the nine months ended
Our general and administrative expenses consist primarily of employee-related expenses including salaries, bonuses, benefits and share-based compensation. Other significant costs include facility costs not otherwise included in or allocated to other departments, legal fees not relating to patents and corporate matters, and fees for accounting and consulting services.
Other income (expense), net
Other expense, net, for the nine months ended
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Liquidity and Capital Resources
The Company enters into contracts in the normal course of business with various third-party consultants and contract research organizations ("CRO") for preclinical research, clinical trials and manufacturing activities. These contracts generally provide for termination upon notice. Actual expenses associated with these arrangements may be higher or lower due to various reasons, including but not limited to, progress of our development products, enrollment in clinical trials, and product and personnel delays due to COVID. Other short-term and long terms commitments that would affect liquidity include lease obligations as well as related party debt repayments.
As of
Licensed patents
The Company had a minimum annual license fee of
Cash Flows
Comparison of the Nine Months Ended
The following table provides information regarding our cash flows for the nine
months ended
Nine Months Ended September 30,
2022 2021
Net cash provided by (used in) operating activities $ 253 $ (981 )
Net cash used in investing activities (8 ) (27 )
Net cash provided by financing activities 250 824
Net increase in cash $ 495 $ (184 )
Operating Cash Flows
For the nine months ended
For the nine months ended
For the nine months ended
Investing Cash Flows
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Net cash used in investing activities for the nine months ended
Financing Cash Flows
Net cash provided by financing activities for the nine 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 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 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;
• 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 extent to which third party interest in Company's research and
commercial products can be realized through effective partnerships;
• 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; 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.
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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 its own. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of its 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 consolidated financial statements were prepared assuming that we will continue to operate as a going concern. The 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.
There have been no material changes to our critical accounting policies and
estimates during the nine 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 nine months ended
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