Cytori Therapeutics: Natural Play on Cosmetic Medicine

by: Mike Havrilla

The ETF Innovators Global Stem Cell and Regenerative Medicine Index includes 40 companies with market caps less than $1B at the index inception on 2/22/09 and the total market value of the index is down 7.6% at 3,629 from a starting value of 3,928.

The index is down 26.3% over the past year on an equal-weight basis, compared to losses of 34.5% for the Healthcare Sector SPDR (NYSEARCA:XLV), 17.1% for iShares Nasdaq Biotech (NASDAQ:IBB), 9.8% for SPDR S&P Biotech (NYSEARCA:XBI), 26.5% for PowerShares Biotech & Genome (NYSEARCA:PBE), and 43.4% for the S&P 500 SPDR (NYSEARCA:SPY).

In the near-term, President Obama is expected to issue an executive order that would lift the 2001 ban for federal funding of human embryonic stem cell research, making good on his campaign promise and following the recent FDA clearance to allow human clinical trials of stem cell treatments.

Also, two prominent legislators (Senators Tom Harkin of Iowa and Arlen Specter of PA) and supporters of stem cell research have reintroduced a Senate bill that would allow federal funding for research using stem cells taken from human embryos which are left over from fertility treatments. It is the same legislation that Congress approved in 2007, but was vetoed by former President Bush.

Since the FDA clearance for Geron (NASDAQ:GERN) to begin a Phase 1 clinical trial of its experimental stem cell treatment for spinal cord injuries (GRNOPC1); many of the stocks in the Stem Cell Index have given up the majority of their gains. I bought more shares of Cytori Therapeutics (NASDAQ:CYTX) on Friday below three bucks in anticipation of the company's earnings call on 3/16/09 and the expected lift of the federal funding ban for stem cell research in the near-term by President Obama.

Cytori is a commercial-stage regenerative medicine company which is developing the Celution System to process a patient's own fat (adipose) tissue in about one hour for a variety of reconstructive and cosmetic medicine (e.g. breast augmentation) applications.

Cytori also offers StemSource Cell Banking for a patient to preserve their own adipose-derived stem and regenerative cells (ADRCs) for use in the future as ongoing clinical trials establish the safety and effectiveness for cardiovascular disease, breast reconstruction / augmentation, liver disease, kidney failure, orthopedic / spinal disc regeneration, stress urinary incontinence, and gastrointestinal conditions.

Cytori currently offers its products and services in Japan and Europe along with two key strategic partners - Olympus Corp. (OTCPK:OCPNY) (a strategic investor, major shareholder with over 4 million shares, and medical device partner for commercial-stage manufacturing of the Celution System) and Green Hospital Supply (OTC:GHSPF) (a strategic investor and partner for StemSource Cell Banking for hospitals in Japan).

Earlier this year, Cytori formed a partnership with GE Healthcare (NYSE:GE) to market the Celution System in Europe for regenerative medicine and cell banking applications. Also, an article on Bloomberg from last November identifies GlaxoSmithKline (NYSE:GSK), JNJ, Novartis (NYSE:NVS), and Roche (OTCQX:RHHBY) as healthcare giants that plan to become active in regenerative medicine through both direct investments and partnerships.

With Johnson & Johnson (NYSE:JNJ) paying over $1 billion for breast implant maker Mentor, the most interesting application of the Celution System may be for cosmetic medicine in the form of breast reconstruction and augmentation procedures. Last May, Cytori reported encouraging results from a clinical study being conducted in Japan using the patient-derived 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 early this year after the nine-month follow-up is completed, 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 results which are both long-lasting and natural.

I own CYTX as my favorite stock to commercialize the potential for stem cells and regenerative medicine and have been buying more shares below three bucks recently. Cytori will report its results for 4Q and full-year 2008 on 3/16/09 and investors should also receive more clarity on the nature of the next financing for the Company.

In January, Cytori suggested the GE Healthcare pact could be expanded to include more therapeutic applications and/or geographic regions. Since Cytori has a history of raising most of its capital through strategic investors (e.g. Olympus Corp. and Green Hospital Supply); GE Healthcare could be a major source of the Company's next financing.

In addition, the expected lift of the ban on federal funding for stem cell research for President Obama should generate interest in most of the companies in the Global Stem Cell and Regenerative Medicine Index.