RHHBY - A Second Look At Lineage Cell Therapeutics

2023-10-04 09:38:04 ET

Summary

• Lineage Cell Therapeutics is a clinical-stage biotechnology company focused on developing cell therapies for degenerative diseases.
• The shares trade for just over a buck apiece. Five analyst firms have reissued Buy/Outperform ratings on the stock, with price targets ranging from $4.00 to $7.00 a share.
• The company is partnered with Genentech around its main developmental program and that is targeting a large potential market.
• An analysis follows in the paragraphs below.

Our names were made for us in another century .”? Richard Brautigan

Today, we put Lineage Cell Therapeutics, Inc. ( LCTX ) in the spotlight for the first time in two years as the first article on the name was posted on October 3rd, 2021. This small developmental company is targeting a large potential market and has a significant collaboration deal with a major drug maker. An analysis follows below.

Company Overview:

Lineage Cell Therapeutics is headquartered just outside of San Diego in Carlsbad, CA. The company is a clinical-stage biotechnology company that is focused on developing novel cell therapies for the treatment of degenerative diseases via allogeneic cell transplant therapies. The stock currently trades just above a buck a share and sports an approximate market capitalization of just north of $200 million.

The company's main focus is the development and eventual commercialization of OpRegen for the treatment of ocular disorders. OpRegen is a retinal pigment epithelium transplant therapy. This therapy has potential uses in a variety of ocular disorders. However, the company's main focus area is evaluation of OpRegen for advanced dry age-related macular degeneration or dry AMD with geographic atrophy [GA].

Currently this therapy is being evaluated for this indication via a Phase 2a study intended to optimize subretinal surgical delivery and observe safety and activity in up to 60 patients . A couple of things to note. First is OpRegen has Fast Track Designation from the FDA for this indication. This entails more detailed and regular interactions with this government and could eventually mean expedited approval provided this therapy produces positive trial results.

Second, in late 2021, Lineage Cell Therapeutics inked a collaboration deal to jointly develop this therapy with drug giant Genentech, a business unit of Roche ( RHHBY ). This entailed an upfront payment of $50 million to Lineage. If development is successful, this deal could garner up to $620 million in additional regulatory, development and sales milestones as well as double-digit royalties on any commercialized sales.

Genentech will handle the responsibility for further clinical development and commercialization of the OpRegen program. Currently, Genentech is enrolling patients in the 2a study, and the primary endpoint occurs just 90 days following each transplant. Back in May 2022, positive results from an early-stage study showed the potential to slow, stop or reverse disease progression for this indication.

The company has one other candidate in the early Phase I stage and two others they should be filing IND applications on by the end of the year. Early this year, Lineage Cell Therapeutics signed a small option and license deal with Eterna Therapeutics (ERNA) . This will provide Lineage the ability to evaluate some novel beta 2 microglobulin (B2M)-deficient induced pluripotent stem cell lines, which Lineage will Lineage could eventually develop additional differentiated cell transplant therapies. All of these efforts are too early in development to be part of this analysis.

Analyst Commentary & Balance Sheet:

Since July, five analyst firms including Cantor Fitzgerald and Robert W. Baird have reissued Buy/Outperform ratings on the stock. Price targets proffered range from $4.00 to $7.00 a share.

Just under five percent of the outstanding float in the shares is currently held short. There has been no insider activity in the shares since March 2022. The company ended the second quarter with approximately $46 million in cash and marketable securities on its balance sheet. Management has stated this is sufficient to fund all planned operations into the fourth quarter of next year.

Verdict:

There are a couple of obvious concerns around a potential investment in Lineage Cell Therapeutics. The first is the company is going to have to raise additional capital in the near future in a challenging time to do so. The second is sentiment is lousy on small biotech stocks that don't have rock-solid balance sheets at the moment. The SPDR® S&P Biotech ETF (XBI) was down nearly 15% in the quarter, one of the weakest sectors in the market in a tepid quarter. It added more than three percent to those losses Monday, during the first trading day of the fourth quarter.

The partnership with Genentech is a positive, as is the FDA's Fast Track designation around its main development effort. The analyst community also is positive about the company's longer-term prospects. In addition, Syfovre, the first FDA-approved agents available to treat geographic atrophy secondary to dry AMD has had some recent safety issues . Syfovre is produced by Apellis Pharmaceuticals (APLS) . This is a large potential opportunity, it should be noted.

The development timeline for Allogeneic Cell Transplant therapies always seems to run longer than initially envisioned in my experience as well. Therefore, I am passing on any investment recommendation on LCTX until the company raises additional capital and its lead trial effort advances to later stage development.

Fools seek identity in ancestry, the wise build their identity with sweat and blood .”? Abhijit Naskar

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