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Executives

Michael Wood - LifeSci Advisors

Martin Rosendale - Chief Executive Officer

Dr. James Hinson - Chief Medical Officer

Andrew Maslan - Chief Financial Officer

Analysts

Jason Napodano - Zacks Investment Research

Ren Benjamin - Burrill & Company

Mike Scott - Stephens Inc.

Cytomedix Inc. (CMXI.OB) Q4 2012 Earnings Conference Call March 19, 2013 8:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter 2012 Cytomedix Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we’ll facilitate a question-and-answer session (operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Michael Wood with LifeSci Advisors. You may begin.

Michael Wood

Good morning and thank you. This is Michael Wood with LifeSci Advisors. I’d like to thank you all for participating in today's Cytomedix fourth quarter and fiscal year 2012 corporate update conference call. Joining me from Cytomedix are Martin Rosendale, Chief Executive Officer; Dr. James Hinson, Chief Medical Officer; and Andrew Maslan, Chief Financial Officer.

Here is an outline of today’s call. First, Martin will provide a brief summary of the fourth quarter and the fiscal 2012 corporate events. Dr. Jim Hinson, Cytomedix's Chief Medical Officer will then join the call to discuss the progress made on rolling out coverage with evidence development for Autologel. He will then hand the call over to Andrew who’ll provide you with a summary of the fourth quarter and fiscal 2012 financial results. Finally, Martin will conclude with an outlook for 2013 before opening up the call to questions.

After the market closed yesterday, Cytomedix announced financial results for the fourth quarter and fiscal year 2012r. If you have not yet received the news release or if you would like to be added to the company's distribution list, please call LifeSci Advisors in New York at 646-597-6992, and speak with Paul Arnd.

Before we begin today’s call, I would like to caution that comments made during the conference call will contain forward-looking statements that involve risks and uncertainties regarding the operations and the future results of Cytomedix. Actual results could differ materially from those projected. I encourage you to review the company's filings with the Securities and Exchange Commission including, without limitation, the company's forms 10-K and 10-Q as amended to date, which specify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as far as the date of the live broadcast, Tuesday March 19, 2013. Cytomedix undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

I would now like to turn over the call to Martin Rosendale.

Martin Rosendale

Thank you, Michael. Good morning everyone and thank you for joining us today. Cytomedix had a year of strong execution in 2012, making significant progress in both commercial operations and research and development. In the second half of the year we achieved important milestones for our two commercial products, Autologel and Angel, which we believe will contribute in a material way to our topline in 2013.

We delivered solid financial performance throughout the year and in the fourth quarter. As we pre-announced in our press from February 20, we reported overall fourth quarter product sales of just over $2 million, representing an increase of 27% over the same period in 2011 and a 20% sequential increase over the third quarter of 2012. Both the Angel system and the Autologel showed double digit growth, with Angel achieving record quarterly sales of $1.9 million. We are confident that our efforts to enhance market penetration will continue to build momentum.

In August last year, we announced that the Center for Medicare and Medicaid Services, CMS, had agreed to provide reimbursement for Autologel in the treatment of chronic non-healing wounds. This national coverage determination was a significant development for Cytomedix and gives us the opportunity to re-launch Autologel into the marketplace with Medicare coverage. CMS will provide coverage through CED, Coverage with Evidence Development, a program intended to provide access for Medicare beneficiaries through promising medical technologies by providing coverage and reimbursement while generating additional clinical data to demonstrate the impact and help the outcomes.

Since August of last year, we have collaborated with CMS to prepare the protocols for collecting evidence in support of the use of Autologel. Earlier this month we announced that CMS granted formal approval of the clinical outcomes to find in all four of our clinical protocols submitted to CMS. In addition, we announced yesterday that CMS has issued guidance to Medicare administrative contractors and fiscal intermediaries, which includes the building codes and procedures that will be used to process claims for Autologel.

While the process has taken longer than we anticipated, the outcome is what we predicted. There was specificity in the claims process to identify and monitor Autologel. Beginning on the implementation date of July 1, 2013, all Medicare claims for Autologel provided after August 2 of 2012 and within the guidelines of the CED protocols will be processed for reimbursement. To clarify, actual claims processing will begin July 1 of this year and claims for Autologel provided since August 2 of last year will be eligible. Obviously including treatments under the approved data collection protocol which we expect to begin shortly.

The national coverage decision opens up a very large market for us. The market for advanced products addressing clinic wounds in the U.S is estimated to be over $2.3 billion annually, with 6 million wounds primarily diabetic foot ulcers, venous leg ulcers and pressure ulcers per year. Importantly, significantly more than 50% of the patients are Medicare beneficiaries, with Medicare coverage now secured for Autologel. In 2013 we will expand our sales and marketing efforts, starting with outpatient wound care centers.

Coverage with evidence development provides us with a unique market development opportunity to expand the use of Autologel while continuing to collect evidence on the effectiveness in diabetic ulcers, pressure ulcers and venous ulcers through the U.S. Wound Registry. In a few minutes, Dr. Jim Hinson, our Chief Medical Officer will discuss in more detail the progress we have made in achieving coverage with evidence development for Autologel.

CMS coverage is also driving partnering discussions. Our plan continues to be to secure an appropriate commercial partnership for Autologel. Discussions are now ongoing with several potential partners with the possibility of (inaudible) cash in the transaction. Although I cannot predict the timing of an agreed upon transaction, the possibility of us securing a partner who can help us unlock the true commercial potential of Autologel remains favorable.

Turning to the Angel cPRP system. Angel remains a product that is driving the majority of our sales today. Most of our growth today is in orthopedic procedures, especially in sports medicine to treat tendinitis and tendonosis . Angel continues to be used in cardiovascular surgeries, specifically open heart surgery where it’s being used to facilitate fusion of the sternum and to prevent infection. We have now placed over 425 Angel devices in the U.S market and over 100 internationally. Angel is currently used in the treatment of close to 40,000 patients every year.

The second important milestone we achieved in 2012 was the addition of a second indication for the Angel system. In November we received the 510(NYSE:K) clearance from the FDA and the CE mark to process bone marrow. This significantly expands our opportunity in the orthopedic surgical market and should further contribute directly to our topline sales in 2013. The new indication creates potential for physician use in bone repair and regeneration procedures that include spinal, periodontal and joint revision surgery.

Let me put some numbers around that. There are approximately 400,000 spinal fusion procedures performed every year in the United States alone and as many as 90% of these would be eligible for use of the Angel system. The biologics market associated with spinal fusion procedures is worth approximately $700 million annually.

On the strength of our new indication, we have engaged in partnering discussions with companies focused in orthopedic surgery. Our plans for Angel are to pursue additional orthopedic indications, explore expansion opportunities in pain management, and evaluate options for use as a delivery vehicle for other biological therapies.

In support of our sales growth plans for 2013, we are currently increasing the size of our field sales force and adding technical and scientific specialists. We have begun sponsoring a series of PRP workshops. The first workshop was held in February and was an unqualified success. Today, participants in that workshop are preparing to begin using the Angel system in their medical practices. Outside the U.S, our focus in 2013 is to help the international distribution partners we have established to expand their angel business in the regions they serve. Our international business should deliver robust growth in 2013.

This week we are exhibiting at the American Academy of Orthopedic Surgeons, AAOS conference in Chicago. Immediately following this earnings call, Ed Field, our Chief Operating Officer, will be presenting at the Annual Canaccord Musculoskeletal Conference which is held each year in proximity to the AAOS meeting. Ed’s presentation will be webcast and recorded.

So let’s talk about our Bright Cell technology pipeline. We have two Phase 2 studies ongoing. The first of these is the recovery stroke trial designed to treat ischemic stroke. It is a 100 patient, double blind placebo controlled study. We are now in the open enrolment period and reasonably expect to be fully enrolled by the end of the year, with topline data released about four months post the final enrolment. We have enrolled 26 of the target 100 patients and our enrolment rate continues to improve.

My optimism for our ability to enroll the study by yearend stems from a number of things. We recently received FDA approval for protocol amendments that modify the inclusion and exclusion criteria that allow more patients to qualify for the study. I recently toured the country with our Chief Medical Officer visiting a number of our trial sites and saw firsthand the enthusiasm for the study and commitment to success by our investigators.

Ultimately we expect to have up to 15 sites. There are nine sites up and running today and several more are indicative of the strong desire to participate. Our plan continues to be to seek a partner for ALD-401 and to the extent we show a positive clinical benefit in this study, we anticipate that we will be able to attract a partner to fund the Phase 3 study and take this product onto commercialization.

We also announced in late 2012 an NIH sponsored Phase 2 Bright Cell clinical study with ALD-301 in peripheral arterial disease, PAD. The phase study is an 80 patient, double blind, placebo controlled clinical trial in patients diagnosed with intermittent claudication which make up a significant subset of the PAD population. This is the first randomized clinical trial to look at the benefits of autologous stem cell therapy in this specific indication. We anticipate enrolment for the phase study to begin in the coming weeks and to be fully enrolled by the end of the year. The study is fully funded by the NIH in collaboration with the Cardiovascular Cell Therapy Research Network, the CCTRN. So there will be very little direct expense for Cytomedix aside from what we will incur in manufacturing the product.

In 2012, we also announced an open label clinical study funded by the Duke University Medical Center to treat cognitive disorders in patients that have been treated for malignant glioma. One of the 12 patients has been enrolled to date. The initiation of this study further demonstrates the potential value of Bright Cells in regenerative medicine.

Before I conclude, I want to draw your attention to the comprehensive strategic financing plan we put into place in February. It included an equity raise, a trust senior secured term loan facility and a committed equity facility. We received approximately $9.5 million in gross proceeds with the closing of the transaction and have commitments for up to an additional $18 million. While we expect our commercial product to get us to profitability, it is important that we have sufficient capital to continue to execute on our growth plans in the near term. The capital will be used to fund our priority activities in 2013 which include the launch of Autologel with CED, sales expansion for the Angel cPRP system, business development and partnering activities and completion of the recover stroke Phase 2 study. Drew will provide more details on the financing.

I would now like to turn the call over to Dr. Jim Hinson who will provide additional detail on Autologel.

Dr. James Hinson

Thank you, Martin and good morning. The process for initiating protocols under CED begun after the draft National Coverage Decision or NCD was issued in May 2012 and was formalized after the final NCD was issued August 2, 2012. We continue to have an ongoing dialogue with the coverage and analysis group at CMS since that time and about two weeks ago received approval for our designs and endpoints and approval from CMS to begin enrolment in the coverage with evidence development. Our protocols have been designed to address and do satisfy the requirements specified in the publicly available NCD. The endpoint specified in the NCD include a primary endpoint of the group mean percent healing of 12 weeks. The rates of healing of ulcers and the measurements of the impact of treatment on patient wellbeing or quality of life are also being assessed.

The package of four protocols that we’ve submitted and approved center around randomized control trial in patients with diabetic foot ulcers. This efficacy study will enroll about 260 equally randomized subjects and is powered to the expected differences in healing rates at 12 weeks of Wagner scale 1 and 2 diabetic foot ulcers between those patients who are treated with Autologel and those patients who are treated with defined usual and customary care.

We also agreed with CMS that in order to get the more widely acceptable or applicable effectiveness information, larger studies with broader inclusion criteria were required and that registry based cohort studies would be the best methodology to achieve this. Thus, a companion 12 week cohort study in diabetic foot ulcers was designed with inclusion and exclusion criteria intended to march the types of subjects who would normally be expected to be treated with Autologel in clinicians offices. This open label study will treat 760 patients with Autologel across about 30 centers and will be controlled by multiple case matching techniques using a validated wound scoring index.

Similarly designed cohort studies will be operated in venous leg ulcers and pressure ulcers and will allow correlation of healing rates and quality of life scoring across the spectrum of ulcers that CMS once studied and provide CMS the information required to ultimately finalize their decisions on unconditional coverage for Autologel for a wide range of clinical wound care.

These studies will treat about 2400 patients with Autologel. Based on prior experience we expect each of these will receive on average six treatments. We will compare those patients in cohort studies against a larger number of controls when statistical data analysis is performed. Unlike clinical research studies designed for FDA prior to product approval, the treatment of patients and collecting of data will not stop when we reach the target number of patients required for inferential statistics in the four protocols. As a reimbursed and revenue generating product, we obviously would not want it to stop.

We have partnered with a company that operates the U.S Wound Registry, a company named (Telecare) in Houston, Texas who is a national company who provides electronic healthcare record management for the wound care centers. We are using (Telecare) to identify sites and to provide data management for the study. The design of their proprietary electronic healthcare record provides a consistent electronic record of wound care and includes all medical information and wound photographs and therefore provides complete documentation of physician encounters for billing accuracy.

As physicians must complete this real time to get paid by insurance or Medicare, you can imagine the compliance with this system is nearly universal. Thus all the information we need to answer our research questions is already being captured electronically on that record in real time as the clinician treats his or her patient. Those of you familiar with research methodology will recognize that this source record can simply be programmed to provide data outputs required for analysis that would normally require transcription by site personnel to a case report form. Thus adherence to good clinical practice guidelines is also significantly simplified. You will note that this not only provides faster and more secure access to more complete and accurate research information, but dramatically lowers the research cost by removing effort at the site level and allowance of remote monitoring.

We are posting all protocols to clinicaltrials.gov and we understand that CMS ultimately publishes these protocols. More detailed review of these designs can therefore be seen on those websites. We have submitted the protocols to a central IRB or Institutional Review Board that will handle the majority if not all of these sites those protocols are presently under review. In addition to the above operational issues, initial site startup is underway. As I emphasized earlier, Medicare beneficiaries will enjoy full coverage for Autologel when it is provided within one of the protocols I just discussed.

I will remain on the line for questions later and now I would like to hand the call over to Drew Maslan, Chief Financial Officer who will summarize our fourth quarter and fiscal year 2012 financial results.

Andrew Maslan

Thanks Jim. Good morning everyone. I’ll first discuss the fourth quarter of 2012. In Q4 2012 we reported product sales of $2.0 million, up 27% from the $1.6 million in the same period in 2011. Angel sales were $1.9 million, up 26% year over year, primarily driven by continuing commercial efforts to increase market penetration with the significant contribution coming from international markets. In Q4 2012, non-U.S Angel sales accounted for 17% of all Angel sales. We also noted healthy 21% sequential growth in overall Angel sales, although we believe the third quarter generally suffers from seasonal impact.

Autologel sales were $121, 000 in the quarter, up 36% year over year and 12% sequentially. Up until now, and including in Q4, there has not been a concerted effort in the sales area on Autologel as the focus has been on reimbursement and partner discussions, but this will change now that reimbursement is in place.

Total revenues in Q4 were $2.1 million compared with $3 million in the same period of 2011. The number is lower year over year because in Q4 2011 we recognized $1.3 million in licensing revenue associated with the non-refundable payment we received from a pharmaceutical company in exchange for exclusive negotiations regarding Autologel.

Gross margin on product sales declined were 47% in Q4 2012 compared to 55% in the prior year period. The decline is primarily due to a mix shift as sales to distributors which have lower margins in Europe, the Middle East, and Australia increased. Importantly, gross margin were up in the fourth quarter versus the third quarter of 2012 and we believe we can continue a positive trajectory in 2013.

We think it’s also important to look at cash margins which we define as gross margins exclusive of amortization and depreciation expense. Cash margins on product sales in the fourth quarter were 56% with 61% cash margins on disposables. These numbers are in line with historical norms. In 2013 we expect modest improvements in cash margins as we realize the benefits of supply chain streamlining initiatives and as our continued penetration in the orthopedics market and addition of the bone marrow indications support higher pricing.

Operating expenses in the fourth quarter were $4.6 million, $2.6 million increase from the same period in 2011. The difference primarily consisted of about $1.5 million legacy Aldagen operating expense as well as increases in headcount related and general expenses associated with expanded commercial operations.

We recorded net loss of $3.8 million in the fourth quarter, or $0.04 per share compared to net income of $800,000 or $0.02 per share in the comparable period in 2011.

We had cash and equivalents of approximately $2.6 million at December 31, 2012. In February 2013, we announced plans for up to $27.5 million in financing commitments, which includes a tranched $7.5 million senior secured term loan facility, a $5 million equity raise, and a $15 million committed equity facility. At closing we received $9.5 million in gross proceeds with commitments for up to an additional $18 million. We believe this is sufficient to fund operations through 2013 and potentially well beyond depending on our access to those additional commitments and the outcome of partnership conversations.

Now let me briefly discuss the full year 2012. Consolidated revenue in 2012 was $10.6 million, up 46% from 2011. Licensing and royalty fees were up 147% to $3.3 million and product sales of $7.2 million were up 23% over the prior year. Product sales included $6.6 million in Angel sales and $0.6 million in AutoloGel sales.

We recorded a net loss of $19.8 million or $0.24 per share for the year compared to a net loss of $3.9 million, or $0.08 per basic share in 2011.

Of course we recommend that for any additional information you can refer to our annual report on Form 10-K that we filed with the SEC yesterday and now I will turn the call back to Martin.

Martin Rosendale

Thank you, Drew. Let me take a minute and summarize what you can expect from Cytomedix in the coming year. We see significant commercial opportunities ahead of us in 2013 for both the Angel and AutoloGel systems. Once again I cannot express how excited we are in achieving CMS coverage for AutoloGel and how important this is as we re-launch the product into the marketplace and seeking appropriate distribution arrangement with a partner.

This year we will also be filing the 510(K) application for our next generation AutoloGel system, a project which we have reprioritized over the past year based on available resources and the progression of partnership discussions. The new device will make the product more convenient and easier to use.

Our promotional plans for the new bone marrow aspirate processing indication for the Angel cPRP system are kicking off as we speak at the annual AAOS conference in Chicago. Toward the end of the year we expect to complete enrolment in the two Phase 2 Bright Cell technology trials, the recover stroke trial with the ALD-401 and the pace study in peripheral arterial disease.

For Cytomedix, 2013 will be a year of focused execution. Before I open the call to questions, just a couple of additional comments. The integration of the Bright Cell technology in the two corporate teams if you will that staffing has done very well since the acquisition of Aldagen in February of last year. The management team is stronger because of it and overall the company is stronger because of it. The management team and the staff are very excited about 2013 and going forward. Our objectives this year are very clear. They are growing sales, executing a valuable partnership and completing the recovery stroke trial. Our expectation is that this will be a year of execution and with the financing we just completed we have the financial strength to make it happen.

So with that, operator, I’d like to open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question is from the line of Jason Napodano from Zacks. You may proceed.

Jason Napodano - Zacks Investment Research

Martin, can you run down some of the changes to recover stroke that you instituted and that were recently approved to help speed enrolment?

Martin Rosendale

Sure. But I’d like to pass that question to Jim because he’s more equipped to answer that.

Dr. James Hinson

Hi Jason. That’s an interesting question and one we worked on for a good period of time with Food and Drug Administration. There are a number of smaller changes, but there are two major changes in the last several months that allow an increased enrolment. The first is an ability to enroll slightly older patients than we originally had in the protocol. That age group now goes up to 83 from 75. It’s a relatively small age range, but it increases the number of strokes by 20% to 30% in the entirety. The bigger addition however is the allowance of the subcortical and lacunar strokes into the program. Initially, FDA and us were concerned that these would not be strokes that would be approachable by cell therapy, but later information that’s come out in the number of centers and with a number of our preclinical investigators have given us enough information to suggest that in fact the cell therapy would be useful in those strokes. So we’ve recently in discussions with FDA and with outside experts changed the protocol to allow patients with subcortical and lacunar strokes into the protocol. Overall this probably adds about 50% to the number of patients who are eligible for protocol treatment.

Jason Napodano - Zacks Investment Research

That’s helpful. Can you give me a sense of the competition that you’re seeing at sites? I don’t know if you specifically had the same sites as say Athersys with their Phase 2 trial. But can you give me a sense of the nine centers that you’re enrolling at, some of the centers that you’re planning to open soon, if there’s competition there for cell therapy and stroke?

Dr. James Hinson

What I can tell you is that there is one center in which both studies are being completed. So far they’re reporting no specific competition for patients primarily because of the time periods in which they’re enrolled that patients who enrolled in the Athersys trial are doing it very early and those who come into our study are doing it late. Overall though we’ve not seen -- we’ve had one site who has refused to do the study because they were doing the Athersys study and we’ve had a number of sites who have told us they were looking both, but then ended up coming with us or going with Athersys. But right now only one study site that we either have on board or are trying to bring up is doing Athersys.

Jason Napodano - Zacks Investment Research

And just in terms of the mechanism here, verse something like Athersys multi-stem. Athersys tells us that their cells don’t in graft. They don’t synaptically integrate. If you listen to a company like Neuralstem, they tell you the exact opposite, that their cells in graft and integrate and they do DNA fingerprinting with their cells to specifically prove that that happens. So you’ve got two companies that are going after stroke with cell therapy and have two completely opposite end of the spectrum there in their mechanisms. Give us a sense of the Aldagen technology and where you guys fall on that spectrum and why you feel like you’ve got the right mechanism.

Dr. James Hinson

Well, our theories are a little closer to Neuralstem than they would be to Athersys in terms of what we think biologically goes on with cells. However, we don’t see that in graftment and differentiation of the ingrafted cells as the mechanism of action. We do think that homing to the area of the skin is required. We don’t think that those cells actually differentiate into neural cells or (inaudible) cells or glial cells or anything like that. We think that they basically serve as biological instructors. That’s a little more towards the Athersys theory, although our theory would be different and we believe that that instruction is going on locally and there’s a significant amount of evidence from ours and other cells that that’s true. The Athersys theory is much more of a systemic response to healing than it is a specific CMS level response. So they’re involving both pulmonary and splenic biological activities and creating (inaudible) that work then at the CMS level as well as then would be distributed globally. We’re much more in the belief that the (inaudible) activity and the biological activity is CMS related.

Jason Napodano - Zacks Investment Research

And maybe you can kind of -- can continue that discussion in terms of the economics of the cells and how these cells compare from a cost basis to an AutoloGel product or an allergenic off the shelf kind of product.

Dr. James Hinson

Jason, I would have to defer that to someone who knows more about it and that actually would -- Martin may have had discussions with Ed Field, our Chief Operating Officer who actually knows a lot about this. But I’m not prepared to have that discussion today. Maybe Martin has more.

Martin Rosendale

So Jason, just generally, these cells do not need to be expanded. What we’ve seen are cells typically ranges from 1 million to 3 million cells. So it requires a small sample of bone marrow. Because there’s no expansion there’s no modification of the cells beyond the isolation sorting and concentration. There’s no additional expense associated with that. So we believe overall our manufacturing process is not only shorter, but more cost effective, less costly than other processes.

Jason Napodano - Zacks Investment Research

That’s helpful, Martin. Let’s move on to AutoloGel. Now that you’ve got the protocols in place and you’ve been granted reimbursement codes, can you give us a sense of the economics back to you guys on sales of the product? What your profit margin looked like and how do the reimbursement codes compare to competition products out there on the market?

Martin Rosendale

So I’ll start and then I’ll let Drew speak a little bit to profit margins. So, essentially a G Code is a temporary code that is provided that’s intended to cover both the procedure, the service if you will as well as the product. In some ways and I’m not sure if CMS would directly agree with this, but in some ways you could think of it as a combination of a CPT code and (inaudible) code, a procedure code and a product code. So the reimbursement under that code would cover both the physician’s time, technician’s time, the processing time as well as the product itself. We are working with CMS right now. It’s our understanding that the coding and reimbursement group at CMS intends to issue reimbursement guidance to the physical intermediaries and the administrative contractors. So we’re working with them on that right now. Expectation is given the added value that this brings to AutoloGel overall. Our average selling price to the centers will go up. The model here is we will sell the product to the centers and then the centers will file claims with CMS to get coverage or reimbursement for both the product and the service provided for the patient. So Drew, if you want to touch on the margins?

Andrew Maslan

Yeah. I’ll just give you a sense -- historically the cash margins on AutoloGel have been in the 75% range, very attractive and that’s at a price point that has been really introductory for us because our focus has been on the data gathering and the reimbursement effort as we move forward and reimbursement rates are not yet set. But we would expect those margins to continue or really improve from there.

Jason Napodano - Zacks Investment Research

So now that you guys seem to be over this CMS hurdle and moving forward, give me a sense and I know you mentioned the 510(K) for the next-gen product, but maybe I missed when you plan on filing that. I don’t know if you’ve got a timeframe in mind for that 510(K).

Martin Rosendale

Sure. Let me touch on that then I want to come back to coding for just a minute because I think there may be some other information there that would be valuable to disseminate. But with respect to the next generation product, as you know we’ve been talking about it for quite some time. We have completed the sterilization, validation. We’ve got 1500 prototypes manufactured. The reason it’s been re-prioritized over the past year or so is because it’s a project that because we have a good working AutoloGel system in place now we could reprioritize this project in light of resources and frankly depending on some of the partnership discussions that we’ve been having. So the plan now is to move forward, which means we need to complete the product validation steps and then complete the 510(K) application and get it submitted. Once it’s submitted it’s a 90 day 510(K) process, assuming that there are no additional FDA questions. Usually there are some questions so the process may take a little bit longer. At this point I would guess now and I don’t have the plan back from our operations group yet exactly what the timing would be. So I want to make clear this is an estimated moment. But we think it’s about three to four months to complete that validation and complete the process to submit the application.

Jason Napodano - Zacks Investment Research

Okay. So we’re looking sometime in the second half of the year?

Martin Rosendale

Yes.

Jason Napodano - Zacks Investment Research

Or maybe early in the second. Okay.

Martin Rosendale

And Jason if I could, I want to go back and address the coding for just a second because one thing I want to make clear, the G Code that we got if you recall from the press release, G0460. In addition to that, there is a modifier code that is assigned to AutoloGel in the protocols and then there’s actually a third code if you want to call it a code or an identifier and that is the identification that clinicaltrials.gov gives to the protocols. So when submission is made or a claim is filed with CMS, AutoloGel is identified specifically in the process based on that coding sequence if you will, including the protocols from the NIH.

Operator

And your next question will come from the line of Ren Benjamin with Burrill. You may proceed.

Ren Benjamin - Burrill & Company

Just going back to one of your earlier comments Martin about increasing the potential sales force. Can you talk to us a little bit about how much that increase could be and how will that get spread throughout the year or will it be something that comes in all at once? Just your thoughts as to how the operational side is going to expand.

Martin Rosendale

Certainly. So just to give a sense, I’ll talk about Angel first. In 2012, we ended the year with eight sales people on the Angel sales force team. We started the year with six. We brought in a national sales director who’s someone I’ve known for quite a long time and he’s a top notch executive and she has been working on streamlining the sales process and improving the sales team and sales overall if you will. So the plan going into 2013 and towards the end of the year we begun expanding the sales force a bit more and our expectation is we’re right about 10 physicians now. We’ll probably get to at least 12 physicians before the second half of the year to drive sales going forward. In addition, we’ve relied for technical support on one person in the past and that’s Pete Clausen, our Vice President of Technology and Business Development. Pete is a PhD biochemist and frankly sales have been growing so fast it’s been more than Pete could handle.

So we have also planned to bring in a couple of technical specialists, MSLs if you’re familiar with the jargon used in the pharma industry and these are two individuals that are highly experienced , highly trained and will support the sales force and the customers in the field with the technology in the sales process. So that’s on the Angel side to give you a sense of the growing sales organization there. On the AutoloGel side, now remember our intent is to partner this technology with someone that’s got more resources, but we want to take advantage of the reimbursement decision that we have from CMS. So we will have three sales professionals focused on AutoloGel going forward as well as three technical field specialists if you will providing training on customer support and one that’s the sites as we roll them out and we move forward under CED.

Ren Benjamin - Burrill & Company

And then as part of the opening statements, you mentioned the workshops that you were conducting and that it was quite successful. Can you talk to us about why was it a success, how do you judge success? Do you have a sense of potentially how many physicians may be converting or trying it or how do we get a sense of I guess how successful the workshop was? And related to that, how many more of these workshops do you think you’ll be having throughout 2013?

Martin Rosendale

Sure. The workshop that we had in February, the reason we judged it as a success is because the physicians that left that workshop left it and then came back and actually began ordering Angel devices and setting up and preparing to order Angel kits. So they made the switch. The focus of the workshop is on the preparation of PRP in different applications and indications and the reason it’s effective for us is because we have the only -- and this is a focus on the Angel system by the way, not wound care and the AutoloGel system. The Angel system is the only device of its kind that has the flexibility to produce many, many different formulations of civic concentration and PRP. And so bringing a group of physicians together who are familiar with the use of PRP or have read about it and want to begin using it and then showing them how with this device they can process blood, they can process bone marrow, they can produce a formulation that based on the literature that they’ve read will be effective in the indications that they would like to use it for. It’s a pretty powerful opportunity.

Basically they hear from their peers, the presenters at these workshops are key opinion leaders that are using the technology today. They learn about everything from how to set up the protocols in the Angel device to how others are drawing bone marrow and such. So it’s a very powerful workshop because of that and because of the nature of the Angel device. Now, as far as how many of these workshops we plan to do in 2013, I know we have the next couple of workshops planned. I don’t have dates and locations for you right in front of me but I can give those to you offline if you’d like. And then beyond that I’m not sure what our plans are as far as the number of workshops that we will be sponsoring going forward in 2013.

Ren Benjamin - Burrill & Company

And about how many physicians attend these workshops and what do you think is -- I don’t know, call it a switch grade, is the actual hit rate that you get from these workshops?

Martin Rosendale

Well, we’ve only done one so far, Ren and one thing I forgot to mention by the way. To ensure that these physicians are truly interested, they actually pay a small admission fee. So rather than us paying them to show up, that way we can be assured of their interest. The last workshop I believe we had about eight participants and the actual conversion rate off the top of the head I’m not sure, but I’m pretty sure it was at least half of those eight.

Ren Benjamin - Burrill & Company

And just switching gears to the CED and the protocols, I’m sorry I wasn’t quick enough in taking down these notes. But can we just go over the four trials again, just the details with some focus on timing. I understand from a reimbursement perspective timing isn’t an issue. But how long do you think these studies will go on/ but then also with a little bit of focus on what the best standard of care is that you’ll be focusing on.

Martin Rosendale

So Jim, why don’t you begin with that question?

Dr. James Hinson

Okay. Ren, there’s a whole lot of questions baked into that one. So I’ll see if I can hit them all here. If I leave anything out please just re-ask. Just as a recap of the four protocols, there is one randomized control trial in Wagner grade 1 and 2 diabetic foot ulcers. The endpoints of that are what’s on the CED national coverage decision. It’s wound healing that’s percent of wounds healed by 12 weeks, rates of wounds healing and quality life score. That’s what the CMS had asked for. So that’s the general design of that study. The problem with doing any kind of randomized control trial is you end up with fairly restricted inclusion/exclusion criteria. You demonstrate efficacy against control, but you don’t do a very good job of effectiveness in the general community. So the remainder of the studies are designed as effectiveness trials. The inclusion/exclusion criteria of all of those trials will be fairly broad and in fact are not terribly restricted at all. They’re only restricted basically to patients who could not get AutoloGel anyway.

Patients whose wounds are too large so have bone exposed, have significant core morbidities that would prevent either drawing blood or reapplying wound care devices or that sort of thing. So really it’s not terribly restricted at all. So three cohort studies, one in diabetic foot ulcers which will allow initial correlation of results. That will be in Wagner’s grade 1 through 4 and then venous leg ulcers and pressure ulcers. The randomized trial will be the first one initiated because it will be the one that keys everything else. The others will follow immediately behind that in terms of their imitations and will start roughly, we have planned to start all these in the second quarter of this year. From start on all these studies it’s going to take about 18 months to get through we believe enrolment and completion of the first analysis. So around 18 months is the timing. You asked one other question, Ren. I’ve blanked what it was.

Ren Benjamin - Burrill & Company

Just the best in the randomized control study, the best standard of care and is there some restriction there or is it pretty much open for the…?

Dr. James Hinson

Got it, okay. No, it’s not open. In the randomized trial itself -- this is an interesting point and a very good question, Ren, for me to answer. So thank you. This is actually important to demonstrate. In the randomized trial the usual customer care is defined and it will be defined by standards that had been put out by the diabetic groups that work on wound care. So there’s two or three guidances that we’ve taken the best of those guidances and put it into a UCC that CMS has agreed should be the usual in customary care of the patients and that experts have agreed. So we’ve defined usual customer care there. As an example both patients if they fail usual customer care and have to go to another advanced wound care treatment, there are statistical methodologies of handling that as a non-healing wound. In the cohort trials, the usual customer care is not defined. It is whatever the clinician does with that patient going forward because those patients are not randomized into any sequence. They’re just patients who are being matched at the start of their care to a patient who has gotten AutoloGel at the start of their care. So it’s a matching situation. So there’s no definition of what happens with usual and customary care in the comparative groups in the registry trials.

Martin Rosendale

Ren, let me expand on that just a little bit. This is Martin. First of all, the smaller randomized diabetic foot ulcer study that Jim is talking about, it made a lot of sense to us and to me that with CMS now covering this product, to take advantage of that and to do a study like this in order to drive clinical data to support promotion and expansion of the product just made a lot of sense. The three cohort studies that Jim is referring to are how we will expand and increase sales during the CEB process. Those three cohort studies have very open enrolment criteria. Basically the criteria are essentially the criteria that are in the package insert for the AutoloGel product. Allow us to expand the utilization, increase sales and grow the use of AutoloGel under CED. Then the expectation as Jim pointed out in his remarks earlier is that once we’ve reached the point where we’re doing the statistical evaluation, the cohort studies don’t stop. Patients still enroll. We still record the data and we continue to expand and grow sales. That’s important that people realize this is not like what you’re accustomed to in the FDA clinical trial which is meant to prevent access to a product until its been proven to work. This is meant and intended to create access for Medicare beneficiaries. So it’s very different than the average trial.

Ren Benjamin - Burrill & Company

Thanks for that clarification. And I think you answered this just right now, but I just want to confirm. All the results from these studies is available to the company to parse through and potentially access for promotion going forward. Is that correct?

Martin Rosendale

Yes. And particularly cohort studies which are open label and as Jim pointed out, the matched controls here can be and will be many other technology. So it would also give us the opportunity to do comparative analysis.

Ren Benjamin - Burrill & Company

Will we have, since it is an open label study and it can just continue to keep accruing patients, is there the potential that whenever the company feels like there’s been enough data points the potential for just data releases the first hundred patients, the first 200 patients. Is that a thought at all or is it pretty much your intention to just wait until the end?

Martin Rosendale

Jim?

Dr. James Hinson

Yeah, I’ll take that one. From a statistical standpoint that particular path that you described has its own dangers that I would want to avoid. The choice of the number of patients that I mentioned that we would treat under CED in the cohort protocols is statistically derived and therefore that would define the expected powering based on our knowledge of AutoloGel and based on what we would expect to see in general care. So to break that open earlier and start having inferential analysis done significantly would reduce the power of finding a response at the backend. It’s something we would not necessarily do at the present time. We have some interim looks built into our statistical analysis plan, but those are repowering looks. They’re not looks that would give us say okay, we’re winning this one. Let’s keep going. We keep going until we reach the number of patients that is likely to give us powering and then we cut the data at that point. The reason that’s important here is not only what I just discussed, but it’s to Martin’s point. We can keep going after that. We can keep putting patients into the trial. So to do things earlier does not provide us with much of an advantage.

Ren Benjamin - Burrill & Company

Just one question. I know that in the past you had talked about obviously the partnership potential of AutoloGel and I just wanted to get maybe a sense based on the fact that you’ve gone through this process, you know what sort of different partners are thinking about. Could you just remind us what the ideal deal for you guys outside of Medics would be once -- if you didn’t have to worry about anything else, what this partnership deal ideally would look like for you.

Martin Rosendale

Sure. So a couple of things. First of all the players that have been at the table are still at the table. I want to make sure that’s clear, that nobody has walked away. Secondly, the process is beginning to pick up steam because we’ve now turned up a number of uncertainties. There are uncertainties around coverage revenue development and uncertainties around our own financial position. And so with that clarity the discussions are beginning to pick up speed. As far as what we’re looking for with AutoloGel, what we’re talking about is a supply and distribution agreement. So we would continue to supply the product and the partner would be responsible for the sales and marketing and distribution to the customer base. Ideally for us it would be an upfront payment, a royalty with milestones built in along the way. I don’t want to get into specific numbers, Ren only because I don’t want to inhibit or impair our negotiations.

Ren Benjamin - Burrill & Company

No problem at all. And just one final question, guidance for 2013. I know you didn’t mention it per se during the prepared remarks, but can you give us a sense as to what you’re thinking especially with the workshops that are coming online and the July 1 reimbursements that will be coming online that will be retrospective. Any thoughts as to how revenues could grow?

Martin Rosendale

So I’ll give you some guidance, probably not as much as you’re looking for. What we’ve been saying and what we still believe strongly is that with respect to AutoloGel, we expect to be able to treat 1000 patients in this year under these protocols and that’s anticipated to be an average of about six treatments per patient given the data that we have shows us how long the patient gets to healing. That’s in comparison to, so if you compare it to the numbers in 2012, that represents about between 250 and 300 patients to give you some sense of what we expect AutoloGel this year. With respect to Angel, again I’m not going to give you specific numbers at this time. We are getting closer. I’m getting ot the point where I’m getting more comfortable in our forecast and plan to be or hope to be providing that kind of financial guidance sometime later this year. But nonetheless at this point you can look at the number of sales people that we had in 2012 beginning the year with six, ending the year with eight.

And with no technical support, field based technical support supporting that group. Look at the potential of adding the sales people that I talked about earlier as well as the technical support and what that’s likely to do to increase the rate of growth for the Angel system going forward. In addition, the bone marrow aspirate indication, we have a handful of partnering discussions ongoing right now with respect to companies that have a strong focus in orthopedic surgery that could help us take that technology into those markets with bone marrow aspirate indication. And the bone marrow aspirate indication is also working for us to help drive the European sales. As you may have noticed European or ex-US sales are becoming a bigger part of our overall sales because we’re growing very rapidly in some of those marketplaces and to a great extent they’ve been waiting for the bone marrow aspirate indication and anticipate the growth rates will increase even more.

Ren Benjamin - Burrill & Company

Thank you very much and good luck in 2013.

Operator

And your next question will come from the line of Mike Scott from Stephens Inc. You may proceed.

Mike Scott - Stephens Inc.

Just quickly, I’ve got a question about as it relates to AutoloGel. Just I’m sure it’s about if you could talk about the remaining stiffs, not specifically as much as an overview on the ramp up to full AutoloGel distribution on a mainstream type basis. Do you feel like the talk in terms of talk assumption or things that we need to see maybe financially which you said that have been accomplished and as far as production of the actual product for them to be able to ramp up and really make this a mainstream product. I sense that the second 2014 event, do you feel good about that happening in 2014?

Martin Rosendale

Mike, I do feel good about it happening in 2014. If you look at other products that have been placed under coverage of evidence development by CMS, in some cases the registries that have been built for those products become a tremendous promotional and sales tool because of the data that the registry has produced and the registries act as a quality benchmark for these customers. So my expectation is that 2013 the focus is twofold. Identifying a partner as we’ve discussed that has the resources to accomplish what you’re describing in 2014 and ensuring that our process for moving forward and collecting the data under these protocols is working efficiently and effectively. So while we see a significant growth in AutoloGel sales this year, our primary focus is making sure that this process works properly and we don’t make any missteps and then given that, we can see the kind of growth and expansion in 2014 that you’re describing.

Mike Scott - Stephens Inc.

And one more question, you talked about Medicare reimbursement almost exclusively. From a private setting, do you think that this going to gain traction and just the general healthcare population for insurance coverage also?

Martin Rosendale

Abosolutely. So I’ve been talking with the consultants that we’ve been working with and helping us through this process. They tell us that looking at the private payers out there, the big ones, United Healthcare, Blue Cross, Blue Shield, Cigna, Aetna and so on. About half of them are expected to follow suit very quickly on the heels of the CMS decision. Half of them will take a little bit more of a wait and see attitude and will want to see some of this data coming out. But absolutely they will follow on and we will get reimbursement and coverage support in the private market as well.

Mike Scott - Stephens Inc.

I want to thank you guys for the manner in which you communicate. It’s very open and understandable. Thank you guys. You’re doing a good job.

Operator

And ladies and gentlemen that’s all the time we have for questions. I would like to turn the call back over to Mr. Martin Rosendale for your closing remarks.

Martin Rosendale

Thank you, Frances. In closing, I’d like to thank you all for joining us this morning and your continued support. These are exciting times for Cytomedix and I am looking forward to providing you with our progress on the next conference call in May. Thank you again and have a great day. .

Operator

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Have a good day.

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