In an article I wrote about Cytori Therapeutics (CYTX) on Seeking Alpha in April 2012 I discussed how a start-up company called the Okyanos Heart Institute, was placing a big bet on the regenerative technology of Cytori Therapeutics by opening up a first class operation in the Bahamas to treat patients with heart disease. In that same article, I discussed the roller coaster ride that Cytori shareholders have been riding for the last five years:
The bone rattling volatility is a symptom of the continual waxing and waning of market perception between the exuberance of the unlimited possibilities of the science behind Cytori's platform and the subsequent and inevitable failure of the company to properly manage shareholder expectations and execute its business plan in a timely manner.
At the time of that article, Okyanos was hoping to begin operations by the end of 2012. That goal was never met as Okyanos found itself caught up in the Bahaman bureaucracy. (Side Note: with recently favorable legislation and all the major roadblocks behind them, Okyanos states that it is positioned to treat its first patient in February 2014. This will be a lucrative revenue stream to Cytori once it commences). For the last couple of years, delays, unmet expectations and an ever weakening stock price have been a hallmark of being a Cytori shareholder. It's a hell of a hard job to try and change the world.
Even a $106 million blockbuster deal in September of 2012 with the Biomedical Advanced Research and Development Authority (BARDA) that could soon finance the entire cost of Cytori's new tabletop version of its Celution and make the federal government Cytori's largest customer was not enough to keep the shares from falling to an 18 month low of $2 last week. Investors had become resigned to the perceived inevitability of yet another secondary offering, a necessity to meet debt covenants before the calendar changed pages to 2014. Then, this week, the unexpected happened, a low profile, yet very successful, Asian businessman and entrepreneur with a vision of the future stepped up to the plate with $24,000,000 of upfront, COLD HARD CASH. Nothing speaks louder than cold hard cash when looking for independent verification of value.
In the blink of an eye, at least to those who were not privy to the ongoing negotiations, despair turned into legitimate euphoria as a guy named KT Lim, single handedly solved the short term balance sheet issues for Cytori Therapeutics and eliminated any immediate need for a secondary. I've heard of LT, a hall of fame linebacker and JR, an infamous Texan oilman but who is KT?
KT Lim, short for Lim Kian Thiam, is the founder and Chairman of an Australian real estate investment trust called Victoria Investments and Properties LTD. He is also the founder of a Shariah compliant REIT called Axis. KT Lim's biography below was excerpted from this link:
Lim Kian Thiam, 52, a Malaysian, has been a Non-Independent Non-Executive Director of Axis REIT Managers since 15 March 2005. He is a member of the Malaysian Institute of Certified Public Accountants since 1978 and has been a Council Member since 1988. He also serves in its Executive Committee, Administration Finance & Accounting Committee and chairs its Public Affairs Committee. Since 1989, he has purpose built many buildings in Klang Valley for multinationals and local multinational companies. He is also the Founder and Chairman of Victoria Investments & Properties Pty Ltd and Jayaland Corporation Pty Ltd, both based in Melbourne, Australia since 1994. Victoria Investments & Properties Pty Ltd has been involved in the purchase, value-add and subsequent sale of real estate in excess of A$200 million, including commercial office buildings, industrial warehouse, a bulky goods display and retail centre, a suburban retail shopping centre and residential land. Jayaland Corporation Pty Ltd is currently planning a sustainable township with 8,000 homes on its 737 hectares site, situated 26 kilometers west of Melbourne city center. He currently serves as a member of the Executive and the Audit Committees of the Board. He is also a director of a number of private companies in Malaysia and Australia, which are involved in property investment.
So even as some may question his direct experience in developing a market for regenerative medicine, no one can argue with his success as a businessman and no one can question his upfront $24,000,000 investment which speaks much more loudly than words, in my opinion.
In the transaction announced by Cytori, K.T. Lim has set up a company called Lorem Vascular that will have exclusive rights "to market and sell the company products for all markets within the countries of China, Hong Kong, Australia, Malaysia and Singapore, excluding only the Cosmetic Market and the rights for Alopecia (hair loss)." Lorem Vascular will purchase 8,000,000 shares from Cytori at $3 per share (a 46% premium to the closing price on Friday November 1st before the deal was announced) for an important up front cash infusion of $24,000,000. In addition, Lorem Vascular will pay Cytori license fees on its gross revenues up to a maximum amount of $500 million dollars over 30 years. The license fees are payable based upon Lorem Vascular's achievement of gross revenue milestones in the amount of $50 million. At each such milestone, Lorem shall pay Cytori a license fee of $10 million until the maximum payable license fees are reached. In addition, Lorem Vascular will order $7 million in Celution® devices and consumables with a $2 million order placed immediately and a $5 million order to be placed following regulatory approval in China. We should learn more details about the deal and KT Lim on Cytori's conference call on Thursday November 7th at 5:00 PM EST.
What it Means
1) Many assumed that a big pharma or a medical device company would step up and partner with Cytori in some form or manner. However, partnering with a highly motivated, well connected, successful entrepreneur like K.T. Lim has its own advantages. Unlike a big Pharma conglomerate, Lorem Vascular will have a singular goal and a laser focus. There is no risk that the company will be distracted by other product lines or extraneous issues that could come with an unfocused conglomerate as a partner. From Cytori's 8-K: "Cytori Cell Therapy will transform the way healthcare addresses the most costly and insidious diseases impacting healthcare today and well into the future," said Mr. K.T. Lim. "This therapy represents a front-line treatment modality that will serve as the centerpiece of our cardiovascular, renal and diabetes commercial activities across the region. Lorem Vascular will initiate an immediate launch in Hong Kong, Singapore and Australia. A subsequent launch in China and Malaysia is planned in 2014, pending regulatory approvals."
2) More importantly for Cytori shareholders, with capital concerns out of the way, the market should start focusing on Cytori's upcoming catalysts, which if successful, could bring institutional money into the shares. The first catalyst is successful completion of Phase 1 of BARDA. I've already explained this transaction in depth and I advise those interested to review the BARDA transaction carefully. Timing for news on achieving the first milestone of the contract should be forthcoming in early 2014. Notice that today's negative article on the street.com made no mention of BARDA.
3)The second potential catalyst has even larger implications. It will be the preliminary Phase 2 results of Athena I and II, a clinical trial that treats chronic ischemic heart disease using different doses of Adipose Derived Regenerative Cells (ADRC's). Some may not realize that Cytori has already run a similar yet smaller double blinded clinical trial in Europe called PRECISE with stellar results. Data from the PRECISE trial contributed to gaining approval from the FDA to begin the ATHENA trial in a similar population of patients in the U.S. Heart disease is a huge market and a hugely expensive drain on the healthcare system. Potential partners with deep pockets are likely to get motivated once Cytori can show successful data in Phase II. Notice that today's negative article on the street.com made no mention of the upcoming Athena trial results.
Investors should recognize that it's very easy to knock any biotech that hasn't reached the finish line. Until FDA approval has been achieved, FDA approval has not been achieved. Until a company has successfully launched a product in a new market, it hasn't successfully launched a product in the new market. That's just the way it is. Cytori Cell Therapy has successfully treated thousands of patients (most by independent investigators) with no safety concerns and with great efficacy. In my view it's just a matter of time before the hurdles are overcome and regenerative medicine will become the next big thing in medicine. Cytori is well positioned to be a leader and with its balance sheet now resolved and important upcoming catalysts there is every reason to believe that the roller coaster ride will soon have bottomed out for good.
Additional disclosure: These are the personal views of Wall Street Titan and should not be relied upon for your investment decisions. All investors should ALWAYS do their own due diligence.