Cytori Therapeutics: Soon to Be Sold to Olympus?

(click on chart to enlarge)
 

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 (GE), 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 toyesterday at $2.55 per share, resulting in a market cap of just $67M despite the fact that strategic partners Olympus Corp. (OCPNY.PK) 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.

Disclosure: Author owns shares of Cytori

Comments

[sheepshead:]

Quote- Olympus Corp. should consider a buyout of its smaller partner instead of funding it through equity investments and private placements. End-Quote

Mike- hope you are ok- despite >100 Mio investment by Olympus in the hardware development that the market doesnt see and the JV deal of 35 Mio that is known besides the equity input of 4 mio shares at about 26 Mio- Olympus still owns only 14% of Cytori.

Major stakeholders know this situation perfectly well and appreciate the added value that Olympus created.
Presently 7 investigator initiated trials are underway or upcoming in Japan for a variety of indications at no cost to Cytori, but using its technology (and actually paying for it)
Cant imagine Cytori "organized" this- this is all Olympus induced in my mind.

So yes you are right, makes sense for Olympus to embrace the benefits of their own efforts- but on the other side- the hard core stockholders of CYTX knowing the prospects of the company and knowing the monetairy value of the Olympus efforts, would jack up the pricetag in astronomical hights, which they surely cant sell to their shareholders.

Thats fine - the Japanese to my mind have a totally different (and positive) mentality- they dont HAVE to own everything but also appreciate loyal partnerships and building special things together to the benefit of mankind- and making some money in the process.

2008 Nov 13 02:26 PM

[Joseph Ramelli:]

"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."

Gross margins are calculated before R&D and G&A and thus would not benefit from reductions in these expenses. This is accounting 101 stuff. No offense, but you should really understand this before posting an article on seekingalpha.

2008 Nov 25 11:41 PM