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TOPIC: DOVs write up on Cytori strategy and development

DOVs write up on Cytori strategy and development 15 Jun 2015 05:49 #4666

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In the week-end I received the below write up from DOV in my mailbox, which he distributed to his investment friends. Since posting the word document here has some technical issues, he asked me to post it here for him. If you want to save the doc to your records you can download the pdf attached. It has the same content.

Cytori Therapeutics:
A Pharmaceutical or a Medical Device Company?


The management team at Cytori Therapeutics is doing everything possible to be viewed as a pharmaceutical company and not a medical device company. After quite a number of years marching along with two left feet, Cytori has embarked on a new strategy to bring Adipose Derived Stem and Regenerative Cell (ADRCs) therapies to market. This time, I think they are getting it right!

About ten years ago, Cytori developed a medical device (Celution 800) that could isolate clinical grade stem and regenerative cells from a small amount of fat tissue obtained by a simple liposuction procedure. Competing methods used force to separate the cells from the fat while Cytori’s highly patented process used an enzyme called Celase GMP. The device produced such a high quality cell product that the FDA refused to grant the device a 510K fearing doctors would be free to use this potent dose of cells in any application without first going through clinical trials similar to the approval process for drugs. Many countries around the world have approved the device and it is being used to provide the cells in more than 50 independent investigator lead studies. In short, the company had a great medical device, but no approved and reimbursed applications for the cell product.

Until the summer of 2014, Cytori portrayed themselves as a medical device company that produced ADRCs to treat various diseases just as pharmaceuticals would do. In other words, Cytori Therapeutics was both a medical device company and a pharmaceutical company. Licensed Financial Analysts as well as hobbyists like myself, tried to calculate the number of razors and razor blades sold in the most recent quarter and what growth might look like in the future. The company led us in this direction by outlining their strategy to capture the breast reconstruction market in the EU as well as applications in the wound healing markets. These commercial sales efforts helped label Cytori as a medical device company and not a very good one at that. On the pharmaceutical side, the company was leveraging the very strong results of their APOLLO and PRECISE trials to go after the huge cardiac ischemia market. This was, and really continues to be, a very promising application for the ADRCs produced by the Celution 800 System. Because of the very strong Phase I data from these trials, management embarked on this very expensive cardiac pathway expecting to attract a large partner to validate the stem cell science and to fund the ATHENA trials through the FDA to approval. This partner never materialized and the balance sheet could not support continuing the pursuit of the expensive cardiac market.

The new strategy began with a headcount reduction to control the cash burn rate, which included most sales and marketing personnel. Cytori continues to fill orders from a few commercial customers around the world and they support independent investigator studies. They have chosen new and more specialized applications to move through the FDA approval process. These are low cost trials (fewer patients with a low cost per patient) and a much faster time to market than the cardiac trials.

Cytori has cleaned up the balance sheet somewhat by addressing the Olympus liability and paying down the Oxford loan balance and renegotiating the terms. They are not happy about the dilution that occurred but they had no choice. The current cash balance is focused on conducting their US based trials. For the stockholder dilution to stop, the company must be successful with their trials and attract a partner willing to purchase a licensing agreement that does not include purchasing newly issued stock. 
The BARDA contract includes money to redesign the Celution 800 System. The new model (CTX2) will cost only about $15,000 and be the size of a desktop copier. It is said to be faster, more efficient, and more versatile. It will have Internet connectivity capability, which could be a valuable feature to control use and pricing. The company is close to having working prototypes and the development of the CTX2 should be completed long before any FDA approvals.

The most visible change in the company’s strategy is found in their slide presentations. No longer is there any reference to the razor and razor blade business model. The entire presentation is devoted to their FDA approved clinical trials that are either underway or about to start enrollment. In addition, they sight trials that are underway in the EU and Japan that should result in government approvals and reimbursement in those countries.

The FDA is likely to crack down on many of the stem cell therapy clinics operating in the U.S. today. In the fall of 2014, the FDA issued guidelines clarifying regulatory issues pertaining to adipose tissue, the manipulation of cells and tissues, and exemptions regarding the use of cell and tissue products in the same surgical procedure. The FDA has ruled that the cell output from the Celution System is a biologic and therefore, clinical trials must be conducted to gain approval for each application. Cytori is doing just that. As Cytori moves through the trial timelines and the FDA actually does crack down on these clinics, it should help Cytori capture the market, as they should have a sizable first to market advantage.

The company believes Wall Street will increasingly view Cytori as a pharmaceutical company with drugs in various stages of FDA approved clinical trials. The stock price and market cap strongly suggests this is not the case today. Data from well-designed clinical trials showing strong efficacy from the cell output is needed. The fact remains that stem cell therapy is a new medical field and has not been embraced by the institutional investment community as being "the next big thing." That does not mean stem cells do not work. It means there is a big difference between the promising results of preclinical studies and full-blown clinical trials. Cytori has a substantial lead over other stem cell companies regarding the number of FDA approved trials underway.

Here is a list of Cytori's drug pipeline:

ECCO-50 - This drug is being tested in a 90 patient Phase IIA/B FDA approved randomized, double blind, placebo controlled trial (ACT-OA for knee osteoarthritis). There is a low dose, a high dose and a placebo dose randomized 1:1:1. The primary end point will be pain while walking at 12 weeks. They will also log before and after MRIs looking for cartilage repair among other things. As of May 15th, enrollment reached the halfway point of 45 patients. Data is expected in 2016. Based on the results of this trial, the company will seek a partner to fund a Phase III pivotal trial. 

ECCS-50 - This drug is being tested in an 80 patient pivotal Phase III FDA approved randomized and placebo controlled trial for the treatment of Scleroderma in the hands (STAR Trial). Enrollment is anticipated to begin in 2015 and include 20 centers throughout the United States. The primary endpoint will be hand function at six months. The trial is expected to take a full year with data in late 2016.

A similar 40 patient Phase III trial for Scleroderma called SCLERADEC-II should begin enrolling in France this summer with data expected in 2016. Orphan drug designation has been approved in the EU, which will provide Cytori a 10-year exclusive once the drug is approved.

ECCM-50 - Enrollment has begun (Feb 10, 2015) in a single arm, open label investigator initiated trial in patients undergoing surgery for traumatic meniscal injuries in the knee. This is a two center Phase I study in up to 60 patients conducted by Dr Ramon Cugat in Barcelona. The primary endpoints will be pain, function and activity. MRIs will be performed before and at 90, 180 and 365 days after surgery. 

ECCI-50 - This drug is being tested in a Japanese Government sponsored Phase II/III trial to correct urinary incontinence in males. Apparently this trial has begun enrollment, but Cytori has not issued a confirming press release. 

OICH-D3 - This drug was used in the now completed Phase IIA (ATHENA) trial for Chronic Heart Failure. Results from this shortened trial (31 patients) will be released in November or thereabouts.

DCCT-10 - This drug is in the preclinical stage for treatment of Cutaneous Thermal Injury. A Phase II/pilot trial is in the planning stage and will be funded by the BARDA contract. 

In summary, Cytori's drug pipeline consists of two Phase III trials to treat Scleroderma, one in the USA and one in the EU. Once these trials demonstrate strong efficacy of the ADRCs, the next step is the FDA approval process followed by reimbursement codes. It is difficult to predict how long these processes may take to complete. Scleroderma is a billion dollar market worldwide and has already been granted Orphan drug status in the EU. Cytori’s Celution System is being used in another Phase III trial underway in Japan to treat male stress urinary incontinence. The new regenerative medicine laws in Japan should help Cytori gain reimbursement if the trial is fully successful. This is also a very large market. In addition to these Phase III trials, Cytori has two Phase II clinical trials; one to treat Knee Osteoarthritis and the other to treat Chronic Heart Failure. Each of these therapies address multi-billion dollar markets. However, neither of these applications will proceed past the Phase II trial level without a partner. Finally, there is the BARDA funded Cutaneous Thermal Burn Injury application, which is still in the pre-clinical stage. 

It is well known that biotechnology companies are valued by Wall Street based on their drug development pipeline and the potential size of the markets that these drugs will serve. On the other hand, medical device companies are valued based on their unit sales growth and earnings potential. Cytori is mostly valued on the latter. If this were to change to a biotech valuation, what would that look like? I went to the stock screener at Charles Schwab and found the biotechnology portfolio for the ALPS Medical Breakthrough Fund. Then I selected companies that are in the developmental stage with Phase I, II, and III trials underway for indications similar to the strengths of ADRCs (anti-inflammatory, renal failure, auto-immune, MS, Crohn's, neurological disorders, diabetes, liver, etc.) Most companies selected have little to no revenue and are losing a lot of money to R&D. It is reasonable to assume the potential available markets for all of these company's drugs are in the billions. There are not a lot of differences between Cytori and this list of biotechnology companies.

The FDA is adamant that ADRCs are biologics and like it or not, they rule the day. The key is to get Wall Street to agree with the FDA and value Cytori the same way they value this list of companies. Strong data or significant validating partnerships are the only things that will cause this to happen and even then it will not happen overnight.

Looking at the targeted applications, it appears that Cytori is closest to Receptos, Inc. They have a market cap of $5.14 billion with sales of $4.55 million. A similar valuation would put Cytori at $25 per share. I seriously doubt Cytori will be able to change the perception regarding their industry category and become known as a biotech company without first publishing strong trial results. I also doubt the Athena trial will be considered large enough to be conclusive. Therefore, the first opportunity will be the 12-week results from the ACT-OA trial. The earliest possible timetable for these results would be the spring of 2016. The next possible data release would be from the two trials on Scleroderma expected at the end of 2016.

Until then, all the company can do is to downplay the sales numbers that are associated with medical device companies and promote themselves as a pharmaceutical company in public and private meetings with money managers. There are too many factors that will determine when these drugs will be approved for marketing and additionally for reimbursement. Every country seems to have its own rules and timetables. But there is no reason to think that Cytori’s timetables are any different than those of any pharmaceutical companies on this list.

Once approved, Cytori’s business model will be substantially similar to any competing pharmaceutical company. The primary differences will be: how and where the drug is manufactured (factory or bedside), how well the drug works compared to the competition, the cost, and the risk of side effects. This is when “regenerative medicine” will win the respect it deserves. I have never waivered from my belief that this science is “the next big thing in medicine.”


Best Regards,

Doctor of Value


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Board moderator and Site-owner. I still regret the day I started analysing the prospects of MacroPore (now Cytori) back in 2004- a left-over from the tech-bubble at that time from the century change in my portfolio- and became addicted to Cytori´s fat cell technology. :cry:

DOVs write up on Cytori strategy and development 15 Jun 2015 05:57 #4667

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In the write up DOV was referring to an excel spreadsheet he made, comparing the market value of Cytori to the caps of biotech Companies of which the business model is better understood by Wallstreet, but basically in end effect are not much different.

Besides their assigned market value that is... :bash: :really:

Anyway- you will find the excel spreadsheet as PDF below.. :whistle:


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Board moderator and Site-owner. I still regret the day I started analysing the prospects of MacroPore (now Cytori) back in 2004- a left-over from the tech-bubble at that time from the century change in my portfolio- and became addicted to Cytori´s fat cell technology. :cry:

DOVs write up on Cytori strategy and development 15 Jun 2015 06:42 #4668

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Thanks for sharing Fas.
Perhaps DOV will or has backed off a bit from what I considered ridicules earning projections 2017-2020.
I would also note the years of cash the top 5 comparable companies have from DOV's list and the corresponding market caps. Something the bull-headed bozos at Cytori could never understand !!! You raise when you can, MORE than you think you need. Now they are stuck with horrible deals and those they go begging to know they have zero leverage.
Cytori still has much to prove and I continue to believe, as I have always, that will take a sales ramp before a more fair valuation can be applied to this company.
I do agree with DOV that a change and new focus is occurring at CYTX.
I also agree we are currently undervalued.

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DOVs write up on Cytori strategy and development 15 Jun 2015 09:56 #4674

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DOV writes well.

Presently, there are many, many "semi-illegal" (per FDA new guidelines) stem cells clinics in the US, using adipose derived stem cells. Many people are paying the treatments for their underlying illnesses. Once CYTX's specific indicated uses are approved by the FDA, many of these clinics will probably start to use the new celution systems, in order to get insurance reimbursement. JMHO

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