Induced pluripotent stem cells (iPSCs) hold great promise for cell therapy. However, their low efficiency of lineage-specific differentiation and tumorigenesis severely hinder clinical translation. We hypothesized that reprogramming of somatic cells into lineage-specific progenitor cells might allow for large-scale expansion, avoiding the tumorigenesis inherent with iPSCs and simultaneously facilitating lineage-specific differentiation. Here we aimed at reprogramming rat hepatic WB cells, using four Yamanaka factors, into pancreatic progenitor cells (PPCs) or intermediate (IM) cells that have characteristics of PPCs. IM clones were selected based on their specific morphology and alkaline phosphatase activity and stably passaged under defined culture conditions. IM cells did not have iPSC properties, can be stably expanded in large quantity, and expressed all 14 genes that are used to define the PPC developmental stage. Directed differentiation of IM and WB cells by Pdx1-Ngn3-MafA (PNM) into pancreatic beta-like cells revealed that the IM cells are more susceptible to directed beta cell differentiation due to open chromatin configuration, as demonstrated by expression of key pancreatic beta cell genes, secretion of insulin in response to glucose stimulation, and easy access to exogenous PNM proteins at the rat insulin 1 and Pdx1 promoters. This notion of IM cells superior to their parental cells is further supported by the epigenetic demonstration of accessibility of Pdx1 and insulin 1 promoters. In conclusion, we have developed a strategy to derive and expand IM cells from hepatic WB cells via conventional cell reprogramming. This proof-of-principal study may offer a novel, safe, and effective way to generate autologous pancreatic beta cells for cell therapy of diabetes.