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Cytori (NASDAQ:CYTX) is a regenerative medicine company which is currently developing stem cell treatments for cardiovascular disease, wound healing, orthopedic/sports injuries and soft tissue damage. While the majority of its stem cell competitors manufacture their therapies at 3rd party owned facilities in off-site locations, Cytori's stem cell therapy is prepared at the patients point of care through utilizing the company's patented Celution® system. This technology enables physicians to take a sample of a patient's adipose tissue, concentrate the stem cells from it and create an injectable stem cell treatment for the patient in less than one hour. Thus far this method has shown to have what many leading experts believe to be the most dramatic results seen in Chronic Ischemic Heart Disease to date. With new clinical data rolling in over the next several months and a potential government contract for up to $106M pending approval, positive news from any one of Cytori's upcoming catalysts could ignite an immediate re-pricing of the company's shares.

A Dynamic Cell Therapy

While most stem cell therapies in development consist of a narrow range of cell types typically constrained to just one, Cytori's therapy includes the diversity of 8 different types of cells. These cells include stem cells, CD34+/CD31 cells, vascular smooth muscle cells, endothelial cells, tissue macrophages and white blood cells. Why does it matter? This matters due to the fact that this sets Cytori's therapy apart from any of its competitors based on the odds of efficacy encompassed by using a diverse mix of cells. To give an example of this we could take a look at Baxter (NYSE:BAX) whose cell therapy currently under development to treat Chronic Myocardial Ischemia uses solely CD34+ stem cells. While CD34+ cells have shown what appear to be positive results thus far, if further down the line in clinical trials these cell types are shown to be less effective then previously thought, companies like Baxter could have a product not qualified for FDA approval. As much as biotech scientists would like to believe they can accurately predict what effects certain drugs and biologics will have on treating specific diseases, the fact of the matter remains that it more often than not involves the process of trial and error to find out what works and what doesn't. An example of this can be seen with Regeneron (NASDAQ:REGN) whose billion-dollar drug for macular degeneration Eylea™ was originally in clinical trials aiming to treat cancer. It wasn't until the clinical results revealed that the drug did not show any significant benefit in cancer, but did show a significant side effect of helping people's vision that Regeneron immediately redirected its targeted disease course to macular degeneration. While Cytori's therapy has already shown what leading medical experts agree are likely best in class results in the cardiovascular therapy space, it is impossible to tell at this stage which of the 8 cell types used in Cytori's therapy brings about the greatest benefit to patients.

Logistics

The immunotherapy company Denreon (NASDAQ:DNDN), whose prostate cancer therapy Provenge pioneered the way for the sector, brought along with it a major dose of reality for biotech companies and investors alike. This reality was that regardless of FDA approval, if a product is not affordable and logistically convenient to manufacture, than you might as well go short the stock. While Provenge was approved based on the minimal benefit it provided to prostate cancer patients in comparison to the standard of care, in the end it turned out disastrous considering the high product manufacturing costs coupled with the length of time it took to actually get the therapy to the patient. In terms of Cytori's logistics and cost model, it is one of the most efficient I have seen to date. Being that the company's therapy is manufactured at the patient's point of care in roughly an hour immediately alleviates any time constraint issues. Likewise, being that the company's Celution medical device produces a safe and effective product seamlessly by using a sample of a patient's fatty tissue, this provides the company enormous flexibility in terms of product pricing. Cytori's main competitor in the cardiovascular space, Baxter, has been reported to be shopping its cell therapy division and in my opinion the reason behind this is likely logistical inconvenience and cost.

BARDA

A year ago Cytori entered into an agreement with the US government agency BARDA involving its therapy's applicability for healing patients who experience thermal injuries and burns resulting from potential nuclear attacks. This contract for up to $106M is extremely unusual and unlike any I have seen thus far in this space. Typically in circumstances such as Cytori's, a company will receive milestone payments if they can re-create positive clinical results in humans similar to what they have shown in animal models. In the case of Cytori however, the government has for some reason decided to flip the normal terms upside down and stated that if Cytori can replicate the positive results its therapy shows in humans with animal models, then the company will unlock multi-million dollar grants from BARDA. Considering that Cytori's therapy is already being used daily around the world and has accumulated a stockpile of positive data pointing to the clear benefits produced from its therapy, I would say that investors have an extremely de-risked catalyst in store when the next BARDA milestone arrives in Q1 2014.

Risks

While Cytori is certainly one of my favorite stem cell companies long-term, investing in the stock does involve certain risks. The biggest risk currently faced by Cytori investors is dilution. Based on the company's report on June 30th that it had $13.6M in cash and equivalents, it is my opinion that if the company does not enter into some type of partnership or licensing agreement in the next few months, there exists a high chance the company will have to raise capital through a secondary offering. Since Cytori has been extremely successful in arranging licensing deals in the past by permitting other companies to utilize its technology for specific medical targets, I think it is not far fetched that investors could likely see another licensing/partnership arrangement come to light in the near-term. For a complete list of all risks involved in investing in Cytori please reference the company's annual report here.

Conclusion

The next several months hold the potential to be a transformative period for Cytori as a company. When taking into account the company's large patent portfolio currently in place, it is evident that Cytori currently holds a monopoly on all treatments utilizing stem cell enhanced fat grafts. These are not only the richest source of stem cells discovered in the body, but also the easiest to extract from patients. The compiling body of data showing the clinical efficacy of adipose derived stem cells, which has been rolling in over the past few years, only further strengthens Cytori's position as a leader in the emerging stem cell sector. Aside from cardiovascular disease and nuclear threats, other areas which the company is currently working to pursue are: Breast Reconstruction, Scleroderma, Male Incontinence and Cosmetic Surgery. While the risk of dilution still overhangs the investment community, I feel the upside potential over the next several months outweighs any short-term price drop resulting from a potential secondary offering. Stem cell investors should keep an eye on Cytori as a future sector leader which could be rapidly approaching a significant inflection point.

Source: Cytori: A Transformative Year Awaits