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Cytori Therapeutics: Set for a Sale to Olympus?



November 12, 2008 – Comments (0) | RELATED TICKERS: CYTX , OSIR , GERN

Cytori Therapeutics: Set for a Sale to Olympus?

Earlier this week, regenerative medicine innovator Cytori Therapeutics (CYTX) reported 3Q08 results, which included sales of Celution System related products of $2.3M, up nicely from $1.4M last quarter, in addition to $0.4M in deferred revenue that will be recognized in the next quarter. Gross margins were up 20% sequentially to 72% during 3Q08 thanks to cost-cutting in the form of reduced R&D + G&A expense, offset by higher marketing costs since the 1Q08 launch of the Celution System.

Cytori ended 3Q08 with $15.6M in cash + accounts receivable and announced a $15M credit line last month led by GE Healthcare, of which $7.5M has already been funded with the remaining half set for funding by mid-December, subject to meeting financial parameters pre-set by the lender. The Company views the significant opportunity in breast reconstruction alone as $800M, which does not even include the market for cosmetic medicine in the form of breast augmentation procedures. The Company also confirmed its first StemSource Cell Bank sale in Japan with partner Green Hospital Supply [GHS] (Tokyo: 3360), with another sale possible before year-end.

Cytori closed today at $2.55 per share, resulting in a market cap of just $67M despite the fact that strategic partners Olympus Corp. (OCPNY) and GHS were willing to pay $6 per share in private placements less than two months ago. In addition, Olympus Corp. is a major shareholder with over 4M shares and has a long history of buying equity stakes in Cytori at stock prices, which occurred at levels about 2X higher than the current print. I own shares of Cytori and have been adding to my position at current levels, which offers investors an entry point at all-time lows since the stock debuted on the Nasdaq despite its success at launching the Celution System in both Europe and Asia earlier this year for cell banking and regenerative medicine applications.

Given this history, the sharp sell-off in Cytori, challenging market conditions for stocks + credit, and the two companies joint venture to product the Celution System; Olympus Corp. should consider a buyout of its smaller partner instead of funding it through equity investments and private placements. Such an acquisition would provide Olympus with an R&D division to complement its expertise in manufacturing and Cytori could focus solely on expanding the use of the Celution System through clinical trials to gain wider use and insurance reimbursement instead of concerns over funding and the financial markets.

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