Solskin
Lineage Cell Therapeutics (NYSE:LCTX) is a small biotech company in the early stages of product development. At one point, the company was pursuing several different strategies and pathways in its drug development efforts; all but one of these lines of research have either been abandoned or spun off into independent companies. Its current drug development pipeline is centered around proprietary embryonic stem cells that are converted into specialized cells (See note 2). These specialized cells, when transplanted into a patient, will support and augment poorly functioning native cells. Like all transplantation procedures, they require the use of immunosuppressant drugs. But unlike transplants in general, immunosuppression can be discontinued after a brief period of time (see note 3). Currently, the company has several types of specialized cell lines in the early stages of clinical testing. These include cell lines designed to treat cancer, macular degeneration, and spinal cord injuries.
HyStem, Premvia, and Renevia
HyStem is a “hydrogel” designed to mimic the body’s naturally occurring extracellular matrix; it functions as a scaffold for the delivery of cellular products to localized areas in the body. HyStem and its related products are not part of the company’s embryonic stem cell development program and, for the most part, have been abandoned. Lineage’s first HyStem product was Premvia. Premvia was intended to speed up wound healing. It received FDA approval, but apparently was a marketing failure. Premvia is no longer being mentioned in the company’s website or corporate 10-K filing.
Its next HyStem based product is Renevia. Renevia is a cosmetic surgery product designed to restore skin volume. In late 2019, Renevia was approved for marketing in Europe; actual marketing has yet to begin, and I suspect it never will. Renevia is only mentioned briefly in its latest 10-K, and no longer mentioned at all on its website or in its investor conference calls. In addition, in its most recent 10-K, the company stated that it has stopped production of HyStem, a key component of Renevia. But more recently, Lineage announced an agreement to supply HyStem to Advanced BioMatrix (Advanced BioMatrix resells the HyStem on its website). My guess is that Lineage has abandoned Renevia, and rather than let its HyStem production capacity go to waste, the company found somebody to sell it to.
OPC1
OPC1 is an “allogeneic” preparation of “oligodendrocyte progenitor cells” (OPCs). When OPCs are injected into a patient, they form a protective myelin sheath around damaged nerve fibers. Currently OPC1 is in the early stages of clinical testing for acute spinal cord injuries. Lineage hopes to someday expand OPC1 testing into other diseases such as ischemic stroke and multiple sclerosis.
The original OPC1 research was carried out by Geron (GERN) over 25 years ago; with the first human clinical trial taking place in 2010. The trial started off with a lot of fanfare. But almost immediately after the trial started, Geron abandoned OPC1 along with all other lines of research involving embryonic stem cells. Geron’s cell lines and IP were ultimately sold to Lineage (it called itself BioTime back then). And over the last few years, Lineage has abandoned all other lines of research and is betting the company on the IP it obtained from Geron.
Cellular based drug trials are becoming quite ubiquitous; however, OPCs—which have shown a considerable amount of efficacy in animal trials—are rarely used in clinical (i.e. human) trials. I’ve attempted to find a reason why this is so, but haven’t had a lot of luck. One possible explanation is that OPCs need to be grown from either embryonic stem cells or adult cells that have been reprogrammed to function as embryonic cells (iPSCs); this extra step is time consuming and may result in the therapeutic window of opportunity being missed. Since Lineage’s OPCs are allogeneic, they can be mass produced and stored frozen until they are needed. Administering the drug within the therapeutic window of opportunity should not be a problem.
OpRegen
OpRegen is (or was) Lineage’s cellular treatment for dry age-related macular degeneration. Lineage recently sold the exclusive rights to develop and commercialize OpRegen to Genentech, a subsidiary of Hoffmann-La Roche (OTCQX:RHHBY). In the agreement, Lineage will complete its current OpRegen trial and then hand over development work to Roche. In return, Lineage received a $50 million upfront payment. In addition: “Lineage is eligible to receive up to an additional $620 million in certain developmental, regulatory and commercialization milestone payments. Lineage is also eligible for tiered double-digit percentage royalties on net sales of OpRegen.” Since Lineage does not own all of the IP that underpins OpRegen, $21 million of the $50 million had to be turned over to various IP holders.
Details on the agreement can be found in this SEC filing. What is notable about this document is that most of the information that investors would consider to be important, like financial terms and specifics on the IP that is being transferred to Roche, has been redacted.
Despite the uncertainty surrounding the deal, the arrangement will most likely be a beneficial one for Lineage. In the arrangement, Roche has committed itself to conduct large scale clinical trials of OpRegen. The size of these trials will most likely dwarf the size of the combined clinical trials that Lineage has so far conducted on its entire pipeline. Since the products in Lineage’s pipeline are all derived from the same underlying technology, positive clinical trial results for any one of Lineage’s cellular products will reflect on Lineage’s entire pipeline and make it significantly easier for the company to find partners to fund further drug development. Roche is essentially paying to help validate Lineage’s methodology for drug development.
The VAC platform
The VAC Platform is a tool for producing immune modulating drugs. Lineage uses this platform to produce VAC2, a cancer vaccine. VAC2, is currently in a Phase 1 clinical trial for non-small cell lung cancer.
Exactly what the VAC Platform entails has never been fully explained. However, based on the description of VAC2, the VAC Platform appears to be a collection of tools, hardware, procedures, and techniques for transforming embryonic stem cells into immune cells and programming these cells to recognize diseased tissue.
Some elaboration on these steps are warranted. To produce VAC2, the VAC Platform first converts embryonic stem cells into dendritic cells. Dendritic cells are a specialized type of cell that is able to program the immune system to attack diseased cells and foreign microbes. But first, the dendritic cells themselves need to be programmed. This is accomplished by loading the dendritic cells with a marker molecule that is uniquely found on the surface of the diseased or foreign cells that need to be destroyed. This marker is known as an antigen. The dendritic cells, once loaded with the proper antigen, will present the antigen to another type of cell (T cells) whose job it is to destroy any cell that contains a copy of the antigen that was presented to it by dendritic cells.
Lineage is just one of many companies that have been looking into immuno-therapeutic drugs. The most widely used and successful drugs in this category are mRNA vaccines (made famous by COVID-19) and CAR T cells (which I consider to be the gold standard). In addition to these two technologies, there are many more in various stages of development. Given this backdrop, Lineage’s VAC Platform initially seemed like just another minor entry in a very active and competitive field. But a little over a year ago, my opinion on this started to change.
In April of 2021, Lineage signed a development agreement with Immunomic Therapeutics (ITI), a subsidiary of HLB Investment of Korea. Under the agreement, Lineage will use the VAC Platform to load dendritic cells with an antigen provided by ITI. The antigen that ITI is providing targets a fast-growing and aggressive brain tumor known as glioblastoma multiforme or GBM. ITI will cover Lineage’s development cost, and Lineage will receive royalties on future sales.
What makes this deal interesting is that ITI is currently conducting a phase 2 clinical trial on a drug that sounds very much like the one that Lineage is developing for ITI. It appears (at least to me) that ITI considers Lineage’s technology for producing dendritic cells to be superior to its own.
A more recent event that piqued my interest in this product is a comment that was made in the Q1 investor conference call. During the call, the company reported that it can now produce (allogeneic) Natural Killer cells (NK cells) with the VAC Platform. NK cells are the immune system’s first line of defense against foreign invaders and diseased cells. And unlike dendritic cells, NK cells are not antigen driven and, as such, do not have to be tailormade for a specific disease; whether you’re fighting cancer or COVID-19, you would still use the exact same NK cells. And because of this, they are relatively easy to mass produce. My guess (and it’s just a guess) is that the company hopes to become a major supplier of NK cells to pharmaceutical companies, hospitals, and researchers.
I suspect that the main issue that will need to be resolved in future clinical trials is whether allogeneic NK cells can substitute for autologous NK cells. In other words, can foreign NK cells be safely and effectively substituted for a person’s own NK cells?
Pre-clinical
In addition to natural killer cells. Lineage has two other cell lines that it recently announced: ANP1 and PNC1. ANP1 is an auditory neuron progenitor cell line for restoring debilitating hearing loss, and PNC1 is a photoreceptor neural cell line for the treatment of vision loss. Beyond their existence, no information on these cell lines has been provided.
From a quick Google search (note 4), it appears that photoreceptor cells like PNC1 and the “Retinal pigment epithelial cells” that are used in OpRegen have a close and complementary relationship. And in fact, it is this relationship that appears to be the key to OpRegen’s ability to treat macular degeneration. If Roche’s OpRegen trials are successful, it is very likely that they will want to obtain the rights to PNC1.
Wrap-up
Regardless of how successful a drug is in early clinical testing, odds are it will never make it to market (if something can go wrong, it most assuredly will). The ones that do make it, however, tend to be extremely profitable. Lineage, in theory, has several drug candidates in its pipeline. The reality, however, is that these drugs are all based on allogeneic embryonic stem cells that have been reprogrammed (differentiated) to perform specific functions. This approach has yet to prove itself.
Another more obvious problem facing Lineage is funding. Its only sources of income are small amounts of sporadic grant funding and small (but growing) royalty income.
In its recent first quarter investor conference call, the company stated that it has “multiple years of cash on hand”. Looking at the cash it has on hand and its ongoing expenses, adjusting R&D to reflect the winding down of OpRegen, and assuming no new major projects, then multiple years of funding would seem reasonable.
With multiple years of funding, there will be sufficient time for additional trial results to come in before funding runs out. And the more positive the results, the more favorable the funding will be.
However, in its recent 10-Q, the company states that it has “sufficient liquidity to carry out our current planned operations through at least twelve months from the issuance date of our consolidated financial statements”. If this is the case, Lineage will need to raise money before the end of the year. It is highly unlikely that this could be done in a manner that is favorable to the company.
And one final and important issue that needs to be addressed is how to determine a reasonable price for the stock. For a company that doesn’t have a product on the market, this is obviously a hard determination to make. A crude but useful approach is to look at the market cap to shareholders’ equity ratio. The current market cap (accessed on 07/05/2022) is $260 million, and shareholders’ equity as of 03/04/2020 is $90 million, which gives a ratio of 2.9—a reasonable number for a company like Lineage. This argument, unfortunately, loses its usefulness if the company decides to dilute shareholder equity.
And, lastly, it should not be forgotten that Lineage is still a long way off from demonstrating that its embryonic stem cell technology works. But if it works, it most likely will be very profitable.
Notes
1. Unless otherwise stated, all information is from the company’s recent 10-K, 10-Q, or other SEC filings.
2. The original development behind Lineage’s embryonic stem cell technology was performed by Geron. Geron abandoned the project and ultimately sold its work to Lineage (the company called itself BioTime back then).
3. Neither the company website nor its SEC filings mention anything about the need for immunosuppressants. However, both its spinal cord therapy and its macular degeneration treatment require immunosuppression:
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Ten-year safety of pluripotent stem cell transplantation in acute thoracic spinal cord injury. This is a follow-up to the original phase 1 trial for what is now referred to as OPC1
As for the company’s immune modulator drug, VAC2, it is designed to treat cancer by upregulating the patient’s immune system. Any use of immunosuppressant would be counterproductive. The company’s 10-K in fact states that “we believe that as an allogeneic therapy, VAC has the potential to stimulate a more robust immune response through an adjuvant effect resulting from the partial immune mismatch between the VAC cells and patients receiving the therapy.”
4. A good overview of these cells can be found in Wikipedia (accessed 07/07/2022)
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