Lineage Cell Therapeutics: Not Yet Attractive Stem Cell Company (NYSE:LCTX)

Lineage Cell Therapeutics (LCTX) develops cell therapies for degenerative diseases. The company has 5 cell types in active development across its 3 clinical and 2 preclinical programs. The company has already treated over 50 patients with no rejections, and there have been 5 “unprecedented” cases of retinal regeneration on a single administration per patient so far.

LCTX works by using Pluripotent Cell Lines (ES or iPS). ES is Embryonic Stem Cells which are harvested from embryos through in vitro fertilization (IVF). They are naturally pluripotent, meaning they can differentiate from all three germ layers (ectoderm, mesoderm, and endoderm) into any of the over 200 types of human cell types. However, they have ethical considerations because the human embryo is destroyed during the process, a problem that iPS or induced Pluripotent Stem Cells, developed from reprogramming somatic (adult) cells, such as skin cells or blood cells, do not have. On the other hand, iPS development is technologically challenging because it requires transcription factors for reprogramming and is also potentially less safe because some of the transcription factors like c-Myc may induce tumorigenicity.

So LCTX takes these PSCs, and using a proprietary guided differentiation procedure, produces the required cell lines in an allogeneic, scalable, ready-to-inject formulation. Its current pipeline is this:

Lead asset is OpRegen, in a phase 2 trial targeting dry AMD with Geographic Atrophy (GA). The program is partnered with Genentech and has already treated 24 patients. A second asset is OPC1, using Demyelination to treat spinal cord injury (SCI). The candidate has already treated 30 patients.

Genentech has paid $50mn for OpRegen, and will pay another $620mn in milestone payments, and double-digit royalties. Genentech will fund all development and commercialisation expenses with the goal to not only treat dry AMD but also to preserve as well as restore the function of the retina. The company describes the investment thesis succinctly:

• Age-related macular degeneration (AMD) presents in two forms, wet and dry
• Wet age-related macular degeneration (wet AMD) is usually caused by blood vessels that leak fluid or blood into the macula
• Dry age-related macular degeneration (dry AMD) involves the loss of retinal pigmented epithelium (RPE cells), creating an area of geographic atrophy (GA), causing impaired vision and blindness
• Wet AMD supports >$10Bn1 in product sales, and dry AMD is eight times more common

OpRegen is an allogeneic retinal pigment epithelial (RPE) cell transplant, the same RPE whose loss leads to dry AMD. The logic is, therefore, simple to understand – it is the technical implementation that is key. Anatomically, OpRegen works by replacing and restoring retinal tissue, and functionally, the goal is to preserve or improve vision. It is dosed as a one-time injection.

A phase 1/2 trial in 4 cohorts has been completed. Cohorts 1-3 had 12 legally blind patients in it. The drug was generally well tolerated with no rejections, however, at 12 months follow-up, BCVA averaged less than 5 letters. The 4th cohort of 12 visually impaired patients showed the first signs of efficacy, with 5 patients who achieved extensive coverage of atrophic area and foveal center showing 12-month gains in visual acuity of +12.8 letters on average. The average for the entire cohort was +7.6 letters.

Detailed data from this trial, presented at the 23rd EURETINA Congress, is as follows:

• Retinal structural improvement in the patients described above was initially observed on day 1 (n=1), day 14 (n=1), month 1 (n=2), and month 3 (n=1).

• Maintenance and/or greater improvements in retinal structure were observed over time.

• Structural improvement (as defined below) was only observed within GA lesions with extensive coverage with the surgical bleb suggesting that OpRegen RPE cells provide support to the remaining retinal cells within atrophic areas.

• These 5 patients had an average of 4.4 letter BCVA gain by 3 months and 12.8 letter BCVA gain by 1 year compared to baseline.

• OCT images were reviewed by three independent graders from the day after surgery to the start of structural improvement and subsequent follow-up visits.

• Structural improvement on OCT was qualitatively defined as meeting all pre-specified criteria including: 1) reduction in outer plexiform layer (OPL) and/or inner nuclear layer (INL) subsidence; 2) reappearance of external limiting membrane (ELM); and 3) increased hyperreflectivity and/or thickness of RPE and/or Bruch’s membrane or reduction of hypertransmission on at least two non-adjacent B scans.

• The patient who demonstrated retinal structure improvement as early as day 1 following OpRegen subretinal delivery exhibited persistence of structural improvement as measured by OCT, with resolution of areas of complete RPE and outer retinal atrophy (cRORA) features at 24 months following treatment. Durability of retinal structure improvements beyond the 12-month primary endpoint is still being evaluated in other patients.

A phase 2a trial is now enrolling patients, with plans to enroll up to 60 patients.

In the other program, spinal cord injury or SCI, there are approximately 18,000 US patients per year (incidence rate). Many of these patients become unemployed and treatment burden goes up to millions of dollars. The goal of OPC1 treatment is to restore motor function at least in the extremities to reduce the burden of self-care.

The company uses Oligodendrocyte progenitor cells (OPCs)which are precursors to the myelinating cells of the central nervous system. OPCs ultimately help restore damaged myelin sheath. The product is a one-time, allogeneic injection with a brief (60 days) immunosuppression regimen. Long-term studies have been done using OPC1, and there have been indications of efficacy. The company is now planning a larger, controlled trial.

Financials

LCTX has a market cap of $197mn and a cash balance of $41mn. R&D expenses for the three months ended September 30, 2023, were $3.7 million, and G&A expenses for the three months ended September 30, 2023, were $4.0 million. At that very low expense rate, the company has a cash runway of 3-4 quarters.

Over 51% of the stock is held by retail. Institutions and hedge fund managers hold the rest. Key holders are Broadwood Capital, Vanguard, and BlackRock.

Risks

LCTX is a very small company and such companies come with inherent risks of lack of transparency, cash problems, and so on.

Trading volume is also quite low, which can cause low liquidity and associated problems.

Cash is a key issue here, and while their expenses are quite low, later-stage trials will need additional funding and eventual dilution.

Bottom line

Cell therapy for such critical areas as AMD and SCI are crucial areas of development, and I am always interested to cover companies working in these fields. For me, on the one hand, stem cell therapies seem like the last word in therapeutics for a number of diseases – but only in theory. In practice, like I indicated earlier, the space is beset with technical difficulties. For whatever reason, LCTX has come nowhere near achieving the full potential of stem cell therapies.