The Stem Cell 'Celution' for Success at Cytori Therapeutics
Cytori Therapeutics (CYTX) announced plans today to raise $17 million [M] from a private placement financing led by strategic partner Olympus Corp (Tokyo: 7733) in addition to select institutional investors. Net proceeds are expected to be approximately $16.4M after fees and expenses. Cytori will issue a total of 2.83M shares of common stock with 50% warrant coverage at $6.00 per unit. The warrants will be exercisable for up to a total of 1.42M shares of common stock at an exercise price of $8.50 per share. The warrants will have a five year term and will be exercizable no sooner than six months following the closing of this transaction. Olympus, as the lead investor, will purchase 1M shares and warrants exercizable for up to an additional 500,000 shares.Cytori also announced 2Q08 operating results, which included product revenue of $1.4M from the company's cosmetic and reconstructive surgery [CRS] business -- including the Celution System, related single procedure consumables, surgical instruments, and a proprietary enzyme solution. Cytori also received orders late in 2Q08 for an additional $0.9M in CRS-related products, which will be shipped and likely recognized during 3Q08.
Since the end of 2Q08, Cytori entered purchase commitments for two StemSource Cell Banks, for an aggregate purchase price in excess of $2.5M, which are expected to be installed during 2H08. Total operating expenses for 2Q08 were $9.1M versus $8.2M in the year-ago period, reflecting increased sales and marketing to support commercialization activity offset by a decline in general and administrative expenses. Cytori ended 2Q08 with cash/equivalents and accounts receivable of $6.4M and expects to realize about $16.4M from the private placement announced today.Cytori expects significant sales growth for the rest of this year due to strong demand for the StemSource Cell Bank, Celution System, and related consumables in the European and Asia Pacific CRS market. The company affirmed its $10 - $12M revenue guidance for 2008.
Cytori initiated its Celution System post-marketing study in Europe, RESTORE II, for breast reconstruction following partial mastectomy during 2Q08 in order to support reimbursement and to provide additional clinical data. Patient enrollment has started, and several patients have already been enrolled at clinical trial centers.
In addition, the company was informed that enrollment in an independent investigator-initiated Celution System study in Japan for breast augmentation was completed. Early results from the first three patients show that an increase in breast volume was maintained at three months.The company also entered into its first two purchase commitments during 3Q08 for StemSource Cell Banks, with the first sale going to a leading cell banking company in Europe, BioHellenika, and a second purchase commitment with a medical group in Singapore. Cytori has also recently expanded its commercialization partnership with Green Hospital Supply, which will market the cell banking product in Korea, Taiwan and Thailand, in addition to Japan.
Cytori was issued a key patent in June 2008, which Cytori believes provides market protection for commercialization of the Celution System in the United States. The newly issued patent specifically protects Cytori's device technology that processes adipose tissue to obtain a diverse and mixed population of cells. The company's intellectual property position was bolstered by its receipt of a Notice of Allowance in July 2008 from the USPTO for a patent application that covers methods of creating a cell-enhanced graft using a closed system to process adipose-derived stem and regenerative cells.
This patent is expected to specifically protect Cytori's Celution System-based devices and methods essential in novel cosmetic and reconstructive surgery procedures.Cytori continued to enroll patients in the company's chronic heart disease and heart attack clinical trials in Europe. To accelerate enrollment, the company is working to open additional trial centers. In addition, Cytori formed a collaboration with the Fraunhofer Institute for Cell Therapy and Immunology to develop adipose-derived stem and regenerative cell-based treatments for ischemic stroke. The Fraunhofer Society is expected to commit $425,000 over two years in support of Cytori's already planned research and development. The goal of the collaboration is to advance adipose-derived stem and regenerative cells into clinical trials for ischemic stroke.
Cytori Therapeutics (CYTX) is successfully implementing the early stages of a dual device and therapeutic commercialization strategy based on its Celution System, which transforms a patient’s own fat tissue in about one hour into a regenerative cell cocktail which can be utilized for medical procedures or stored for future use. While removing a little unwanted fat from patients is a good thing in itself, Cytori also circumvents the controversy and ethical debate over embryonic stem cell research by harnessing the regenerative cells found naturally in fat tissue.
The company recorded its first product revenue during 1Q08 of $153,000 related to sales of the Celution System, in addition to receiving orders for 13 more systems and the related consumables as part of a razor/razor blade business model. During 2Q08, Cytori will recognize an additional $0.8 million from shipments already sent during the first quarter. The company ended the first quarter of the year with $8 million cash and negligible debt on the balance sheet.
At the end of April, Cytori received $6 million in additional funding as the second half of an agreement to sell 1 million shares at $6 per share to its Japan-based strategic partner Green Hospital Supply, which specializes in distribution agreements with hospitals for Cytori’s stem cell banking business.
Green Hospital Supply now owns 3 million shares of Cytori, in addition to just over 3 million shares which are held by its other major strategic partner in Japan, Olympus Corporation, which provides expertise and support for the commercial-scale manufacturing of the Celution System. Cytori issued guidance for full-year product revenues of between $10 to $12 million based on initial demand from the European and Asian reconstructive surgery market, in addition to interest in its StemSource Cell Bank from hospitals in the same regions. Cytori hopes to expand upon its commercial activities following successful product launches this year, based on the results of multiple clinical trials which are evaluating the Celution System output for breast reconstruction and heart disease indications.
In mid-May, Cytori reported encouraging results from a clinical study being conducted in Japan using the company’s proprietary Celution System output of adipose-derived stem and regenerative cells for breast augmentation. Preliminary results in the first three patients demonstrated that the increased breast volume achieved in the study was retained after three months and the tissue had a natural appearance and texture. The next milestone in this study will occur in early 2009 with a nine-month follow-up, at which time volume retention and tissue softness will be measured to determine if the results persist and can be considered permanent. The study is being conducted on 20 patients as a new cosmetic surgery option for small-volume breast augmentation, with the goal of achieving both lasting and natural results. Cytori plans to develop the significant longer-term market opportunity for cardiovascular and heart disease on its own, supported by development and product revenue over the next few years.
Cardiovascular procedures are expected to be priced at about $10,000 per procedure, reflecting the more invasive, acute nature of these procedures versus less invasive banking and reconstructive procedures which are expected to be priced at less than half of this amount.
Product revenue should begin to ramp-up from initial 2008 levels of $10 to $12 million as post-marketing studies support wider adoption and reimbursement of the company’s disruptive technology in the medical community. Specifically, I expect Cytori to record sales of $40 - $50 million in 2009 and over the $100 million milestone by 2010, resulting in earnings power around $1 per share assuming a fully diluted share count of 30 million in 2010. The sale of non-core assets and development revenues should allow Cytori to reach sustained profitability by 2010 and provide the company with sufficient non-dilutive sources of cash to maintain a low share count, which currently stands at just over 29 million.
The company’s disruptive cell therapy and banking applications have the potential to reward investors over the long-term with multi-bagger gains over time as more clinical trial data leads to wider adoption and insurance reimbursement for its procedures which will translate into profits for Cytori and its investors. Over time, the stock market is likely to value Cytori more in-line or above its larger stem cell industry peers such as Geron (GERN) and Osiris Therapeutics (OSIR), which are valued at market caps of $270 million and $400 million, respectively.