Alveolar Type II Cell-derived MMP1 ^high basal cells promote destructive microcysts in idiopathic pulmonary fibrosis

Idiopathic Pulmonary Fibrosis (IPF) is a fatal lung disease characterized by progressive epithelial metaplasia and widespread fibrosis. Alveolar microcysts develop near terminal airways in IPF and are linked to poor outcome. Using HTII-280 as a short-term lineage marker of AT2-derived AT0 (SFTPC ⁺ /SCGB3A2 ⁺ ) and basaloid (KRT17⁺) cells, together with organoids and spatial transcriptomics (Xenium), we highlight epithelial similarities between respiratory bronchioles (RBs) and alveolar microcysts both having AT0, SCGB3A2+, and basaloid/basal cells (BCs), albeit with expanded BCs in IPF microcysts. The AT0- and AT2-derived BCs strongly express the collagenase, matrix metalloproteinase protein-1, MMP1 in organoids - mirroring in situ BCs lining IPF microcysts, but distinct from MMP1 ^low BCs in large airways or normal lungs. Expression of MMP1 correlates with basal cell hypoxia pathway activity. MMP1 ^high AT2-derived BCs and IPF BCs promoted type 1 collagen degradation ex vivo and in vivo after xenotransplantation, forming microcystic structures that were abrogated by concurrent MMP inhibitor treatment. Notably, a Frizzled 5 WNT agonist antibody reversed the MMP1 ^high state of AT2-derived BCs, raising a possible therapeutic approach. These findings suggest AT2 transdifferentiation to basaloid/basal cells is uncommon in normal lungs but can expand as a potential source of alveolar destruction, likely contributing to the pernicious course of IPF.