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Friday, 13 April 2012 11:33

The Analyst´s view

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On January 24, 2010 Joe Feshbach (picture- here with his wife Cindy) published an article on his Instablog at Seeking Alpha, written by his friend, former investment banker and author of the book "Lost Star of Myth and Time"- Walter Cruttenden. An absolute classic for believers in Cytori technology. Joe was one of those believers and after attending the first Cellsociety annual meeting in San Diego in February 2011 decided with his brother Matt and other investors, to put his money where his "believes" were and started to organize the construction of a cardiac clinic on the Bahama´s using Cytori tech- i.e.Celution One. Unfortunately Joe suffered a massive heart attack on August 8 2011 whilst on a biketrip and never could see his plans come to fruition.   

A friend whose 30+ years of investment experience includes the founding of two investment banks as well as managing the research department of a major brokerage sent this article to me to further amplify/clarify the valuation and investment potential of CYTX so please enjoy - JLF


The Analyst´s View

Analysts generally believe that a company should be priced on revenues, projected earnings and key events – and most companies are. The exception to this general rule is the old “cure for cancer” clause - meaning that if a company has discovered something so amazing, such as a cure for cancer, all traditional valuation guidelines go out the door. One company in the regenerative medicine market meets this criteria; Cytori Therapeutics.

It is now known that Cytori’s technology, ADRC’s, have the potential to regenerate cells in a wide number of heretofore untreatable patients, but the story is really much bigger than this, and sadly the research analysts currently following the stock don’t seem to get it. Most of them are still under the impression that there are a host of viable stem cell competitors vying with competing technologies – still anybody’s game. They see embryonic, umbilical, bone marrow, and adipose derived cells going head to head and generally consider Geron the industry leader (because it carries the largest market cap) but here’s what they are missing:

The non-adipose based sources do not provide enough cell volume for therapies proving to be the most immediate and promising in clinical trials (heart attack, chronic ischemia, breast reconstruction, wound care, urinary incontinence). The only way you get a sufficient quantity from non-adipose based sources is to culture the cells, which unfortunately for Cytori’s competitors takes critical time and adversely effects the character of the cells (generally makes them too large). This is especially vital in the cardiac market where the cultured cells cannot even reach some of the damaged tissue (due to size)– and moreover pose a clogging risk to the patient.  ADRC’s do not have this drawback and appear to be the only efficacious solution in this enormous market.

Even more important, and also generally unrecognized, is the magic of an autologous “gimish” to treat the vast majority of the patient population. Cytori, whose technology is treating patients everyday, is showing that a multiplicity of cells is absolutely vital to the regenerative process. waltercStem cells alone are just not enough in most cases because of all the different specialized cell functions required to take place during the arc of the overall healing process.

So one needs ADRC's (for quantity and small size) and one needs a gimish (multiplicity of cells) for full regenerative capability (key to healing), but most still don't comprehend the significance of this combination, and fewer still realize that Cytori is the only company able to deliver the total solution. In fact, the Cytori head start and patents make it extremely unlikely that others will be able to develop a competing therapy anytime soon - meaning the main stem cell race is probably already won. When investors begin to understand that Cytori’s technology is the most viable and effective therapy for the mass market, (and that Geron and a few other stem cell hopefuls may not survive with current strategies), there will be a rapid reordering of valuations.

To put it in perspective, if a company had a proprietary cure for a broad range of cancers, it would probably carry a $5 billion plus valuation before any significant sales were realized. Cytori literally has a cure for something bigger, serving a population several times larger than the total number of cancer patients.

Before long the analysts will recognize that a leader has emerged in the regenerative medicine market, and scramble to change their valuation matrix. Alas, smart money rarely waits for the analysts “to get it right”.


P.S. No hard feelings to the current analysts.  I had a large research team working for me before I retired. The fact is they generally don’t like to take chances with client money so very few ever have the vision to name a winner in the early stages of a new industry. Nonetheless, they will eventually figure it out. When that happens – look out.


Read 2332 times Last modified on Monday, 22 February 2016 11:42

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