Lattice Biologics building on biotech success one block at a time

(Stockhouse Interviews: HEALTHCARE – BIOTECHNOLOGY) February 11, 2016

Lattice Biologics (TSX: V.LBL, Forum), based out of Scottsdale, Arizona, is a biotech developer and manufacturer providing cellular therapy and tissue engineering solutions with a focus on bone, skin, and cartilage regeneration. The company’s next generation proprietary patented Extracellular Matrix (ECM) solutions are set to revolutionize the regenerative medicine space.

Now that I got that mouthful out of the way, let me explain how Lattice and its technologies could disrupt regenerative medicine in terms that someone without a medical degree, like me, would understand. When you are injured, let’s say with a broken arm, your body triggers a healing process that, when you think about it, is really quite miraculous.

You don’t walk around with extra bone just waiting in case of a break. There is a connective tissue membrane surrounding your bones, known as the periosteum, which is home to precursor cells. Precursor cells, or blast cells, are like stem cells in that they are able to morph into another cell type, but unlike stem cells, blast cells are restricted to changing into only one cell type. Anyway, it’s these precursor cells that are essential to the healing process by forming the different bone types that are required to fill in the ‘gap’ in order to duplicate the broken bone’s original shape and strength.

Soft-tissue injuries heal in much the same way, with precursor cells forming into the necessary self-organizing ingredients for recovery. However, there are injuries such as severe compound fractures, third-degree burns and those involving cartilage breakdown that don’t provide an easy template for these precursor cells to carry out their regenerative tasks. It’s like trying to patch a large hole in your drywall just using a big dollop of drywall mud. The mud sags, bulges and fails to fill the hole seamlessly. Without a mesh to hold the compound in place, you end up with a failed and unsightly mess.

The body’s mesh is known as the Extracellular Matrix or ECM. This collection of extracellular molecules secreted by cells forms a microbiological framework which provides structural and biochemical support for the surrounding cells. In the event of an injury, the ECM takes on the role of general contractor, directing the healing process to ensure the best possible adherence to the body’s physiological schematics. However, in injuries such as the ones noted in the previous paragraph, there may not be any or enough ECM to guide the healing process and an external prodding is required.

This is where Lattice Biologics comes in. The company has developed a range of products based on its ground-breaking ECM solutions from traditional allografts such as bone dowels to soft tissue allografts used in tendon repair. Currently the competition only offers temporary tissue ‘void fillers’ that do nothing to promote healing or guide the cellular regeneration at the wound/surgical site. Instead, they leave the healing process up to the patient’s stem cells, which as we get older, become less and less effective.

Lattice offers a directed scaffold technology derived from native ECM secreted by human Mesenchymal Stem Cells (hMSC). Enhanced for optimal regeneration, differentiation, homing and engraftment, Lattice’s next generation ECM-based allografts dramatically improve the healing capacity while reducing surgical recovery times.

Since the first multi-cellular animals appeared on Earth some 600 million years ago, evolution has honed the biological act of healing down to an art and up until the last 100 years, the medical community has continued to unwittingly stymie that process with a host of relatively ineffectual artificial solutions. It is only now that we have begun to truly understand our inner workings and offer an actual helping hand. This improved approach will not only seriously add to our quality of life, but could significantly extend the time we have. Lattice Biologics is one of the companies on the leading-edge of this enlightened wave.

LatticeNow, let’s talk about Lattice itself. The previously privately-held company completed an RTO with Blackstone Ventures last year that resulted in trading on the TSX Venture Exchange. Lattice is currently headed by CEO, Guy Cook, an 18-year veteran of the tissue engineering field well familiar with running all aspects of start-up and midsized businesses. Mr. Cook founded Bacterin International, a small R&D startup, in 2009 and in three years, grew it into a publicly-traded multinational with sales in over 15 countries and revenues of US$30.1 million.

Lattice CFO, Cheryl Farmer, came on board with Guy and brings to the table two decades of experience as a CFO and business development specialist. Previous to her post at Lattice, Ms. Farmer served as Global Business Executive for the Greater Phoenix Economic Council and was responsible for identifying and building strategic relationships throughout Western Canada with individual businesses, government agencies, economic development organizations and foreign trade associations to support expansion into America.

Gregory Davis rounds of the executive team as COO. During his 25 years in the tissue-banking sector, Mr. Davis established a respected reputation for successfully developing operational budgets and cost containment initiatives while working with organ procurement organizations as well as leading eye and tissue banks.

Last year was an active one for Lattice’s expert management. First off, there was the IPO which seriously added to the company’s credibility when it came to recruiting surgeons, developing and maintaining relationships with hospitals, and pursuing financing. The company also added two new products to its already prolific pipeline, hired an additional PhD to conduct trials, and laid the infrastructural foundation for quality control and processing in order to double sales.

In 2016, Lattice hopes to launch another product in the first quarter and become cash flow positive with $1.0 million per month revenues by the end of H1 2016. It also intends to commence Phase 1 clinical studies on its next generation of allograft products which would place the company even further ahead of the pack in a global regenerative medicine sector expected to hit $67.6 billion annually by 2020.

However, all of this is going to take money and the company just closed at  $1.57 CAN round on Dec 23, 2015.

Which brings us to sales; the company is focusing its efforts on Canada with the addition of a full-time regional biologics rep, but Lattice hasn’t taken its eye off the future, signing distribution agreements in New Zealand and the UK, and working toward a possible collaboration in Australia. Lattice also incorporates a direct sales model, cutting out the middle man. This streamlined approach allows the company to offer its products, ‘as good or better than anything on the market’, at a discount to the competition; a necessary attraction to hospitals as they continually look to stretch their budgets.

That said, hospitals are a hard sell as they are slow, and rightfully so, to adopt new products/services, sometimes taking up to two years before granting approvals. However, this studied reticence will also work in Lattice’s favour. Once they get in the door, it will be extremely hard to be displaced.

Now, the markets in general are crap and investors are becoming ever more fearful in laying down their money, but biotech has always marched to its own drum and in some ways has provided a relatively robust option despite the ongoing financial storm. Mr. Cook affirmed, “Our segment of the Health Care market is certainly growing. Biologics and biotech are certainly up. We think 2016 is going to be a good year. Despite the general market malaise, 2015 was certainly a good year for our sector. As well, in challenging times such as what the markets are facing now, investors look for safe havens. Well, Health Care and Med Tech just keep moving on. I mean, people are always going to get sick. They will always need our products, so from an investor’s standpoint, this space is a relative rock.”

This makes Lattice a pretty solid ticket as is, especially if it carries out some tasty acquisitions in regards to distribution, but if the company is able to get regulatory approval on its next generation of products within the next 12 to 18 months, the near-term growth potential on this will skyrocket.

As well, although this is in early-stage R&D, the company is also working on a cutting-edge cancer diagnostics solution that, in future, could diversify its portfolio and add significantly to its bottom line.

Lattice’s aims are not without their challenges. The company will have to work hard to execute on doubling its sales to reach its million/mth goal. Bringing on hospitals will also require a continued and concerted effort, not to mention securing the funds necessary to make this happen, but I don’t see these hurdles as insurmountable with the team that’s currently in place.

So there you have it; expert management with a clear vision backed by a storied Board, a revenue generating entity with the strongest form of patented IP, a company operating in the healthiest of healthy sectors with the possibility of a ground-breaking industry-first product, and last but not least, blue sky potential in a rapidly growing multi-billion dollar space. Smart investors would be well-advised to keep their eye on this one. As always, this is my opinion. Do your due diligence before making any investment decision.

STOCKHOUSE EDITORIAL

Full Disclosure: Lattice Biologics is a Stockhouse Publishing client.

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