Cytori: A Must Own Biotech

| About: Cytori Therapeutics (CYTX)

On March 11, 2011, Cytori reported financial results for the fourth quarter and full year ended December 31, 2010. Total revenues in the quarter were $2.5 million, above our expectations for total revenues of $2.0 million. Upside came from strong consumable shipments and reorders, as well as strong initial update for PureGraft in only its second quarter on the market.

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Cytori sold or placed 14 revenue generating systems in the fourth quarter, bringing the total installed base to 149 units. This was right-on with our forecast, and up from the 13 sold in the third quarter and 12 in the second quarter of 2010, and 9 in the first quarter (48 total for 2010). There were no StemSource banks sold during the quarter, in-line with expectations. For the year management has installed 2 StemSource systems. Cytori sold 1,847 PureGraft units in 2010. PureGraft launched in April 2010 and has seen strong (pent-up) demand.

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Cytori sold 437 consumable units in the fourth quarter, far above our expectations. We had been expecting only 275 consumable units. By comparison, in the second quarter Cytori shipped 392 consumables, but saw a sharp decline in the third quarter to only 221 units. Management continues to guide to "lumpy" revenues in the coming quarters. In 2010, Cytori sold a total of 1392 consumable units. Of the consumables sold, reorders accounted for 80% in the fourth quarter (350 units) and 77% for the full year (1077 units). We expect the reorder rate and system utilization rate to continue to remain high in 2011. Total revenues in 2010 were $10.6 million, of which $8.3 million was product sales. Product sales increased by 41% from 2009 levels.

Management continue to invest in the business both on a global infrastructure (SG&A) front, and in R&D. For the full year 2010, net loss totaled $27.5 million, or $0.60 per diluted share. Although we may be seeing significant growth in the top-line over the next few quarters, and we may be at the "infection point" for the business that management has spoken about in the past, expenses are growing rapidly as well. Cytori is a global company, with operations in the U.S., Europe, and Asia. The ADVANCE program in Europe will cost an estimated $15 to $20 million, and Cytori plans to conduct pre-IDE and HDE programs in the U.S. in 2011 and 2012. Despite the significant upside potential in cardiac indications, we do not see profitability until 2014 or beyond.

Cytori’s cash position is solid. The company exited 2010 with $52.7 million in cash and investments. We view the current cash balance as sufficient to funds the company's commercialization and clinical development activities in Europe, Asia and the U.S., including the pivotal ADVANCE cardiovascular program and the soft tissue defect repair IDE program in the U.S. through 2012. We remind investors that in December 2010, Cytori and Astellas Pharma entered into a strategic equity agreement to evaluate the potential of adipose derived stem and regenerative cells for the treatment of serious illnesses for which there is no fundamental treatment.

Making Progress In Europe

In July 2010, Cytori announced that it has received additional indications-for-use approvals, expanding the CE Mark approval for the Celution System in Europe. The previous Celution System indications-for-use was rather broad, and allowed for the digestion of adipose tissue to extract, wash and concentrate a patient’s own stem cells and other associated cells for re-injection back into the same patient. These broad claims inhibited the direct sale of the Celution System to hospitals and through government reimbursement for specific applications. The new indications add specific medical applications for re-injection of cells to include breast reconstruction, repair of soft tissue defects, and facilitation of healing certain types of wounds, such as those resulting from Crohn’s disease.

Approval for these indications was largely based on Cytori’s RESTORE-2 breast reconstruction trial in Europe, and other wound repair clinical studies conducted over the past several years.

RESTORE-2 was a 71-patient prospective 12-month breast reconstruction study were a cell-enriched graft was prepared by first extracting each patient's own stem and regenerative cells from their fat tissue using Cytori's Celution 800/CRS System, and then combining these cells with the fat graft, all in the same surgical procedure. Physician satisfaction rates at month twelve were 85%. Patient satisfaction rates were 75%. Both were consistent with reported six month satisfaction results. Physician and patient satisfaction criteria encompassed functional and cosmetic outcomes, namely breast deformity, breast symmetry, appearance of scarring, and skin pigmentation. Cytori plans to publish the comprehensive data in a peer-review journal later in 2011.

Until July 2010, Cytori’s sales effort has been focused mostly on private-pay plastic and cosmetic surgery clinics. The more specific approvals now listed in the CE Mark support management’s effort to gain reimbursement for stem and regenerative cell-enriched breast reconstruction and other reconstructive surgery procedures at the over 5,000 hospitals in Western Europe. Management has hired a reimbursement specialist in Europe to facility obtaining reimbursement codes in the next few quarters for these added claims. Procedures are currently in place in the UK and in parts of Italy. The company is evaluating coding for reimbursement in Germany now, and plans to expand into other geographic areas around Europe throughout 2011.

ADVANCE Acute-MI Program Underway

On January 20, 2011, Cytori announced that is has initiated the pivotal European ADVANCE program designed to investigate adipose-derived stem and regenerative cells, processed by the company’s new Celution One System, in the treatment of patients with acute heart attack. Enrollment in ADVANCE began in The Netherlands, with the first patient expected to be treated very soon. The trial will progress to include a total of 35 centers, predominately in Europe, throughout 2011. Enrollment will take 18 to 24 months to complete. The possibility exists that Cytori will expand ADVANCE into Japan or India as well. Cytori is using its new Celution One System, created via a joint venture with Olympus Corp., which has been specifically designed for processing greater tissue volume in less time for the hospital (cardiac / cathlab) setting. Cytori filed an application for approval of Celution One over the summer 2010. We expect a decision out of the European regulatory authority mid-2011.

ADVANCE is a randomized, placebo controlled, double-blind trial that will enroll up to 375 patients with ST-elevation myocardial infarction (STEMI) into one of three cohorts, 20 million ADRCs, 30 million ADRCs, or control (saline solution). The increased dose group at 30 million cells from the 20 million used in the phase 2 APOLLO program is particularly intriguing. Dr. Duckers, principal investigator from APOLLO, believes that higher doses can be safely administered and will increase response. We may see an interim analysis after the first 125 patients have been treated.

The primary endpoint of ADVANCE is the reduction of infarct size at six months (the same as APOLLO) as measured by cardiac magnetic resonance imaging (MRI). This is the most predictive measure for future adverse clinical outcomes such as recurrent heart attack, hospital admission for heart failure, or death. We have seen significant research that backs-up this claim. This physiological endpoint will serve as the key regulatory hurdle for EU label expansion. Major adverse cardiac and cerebral events (MACCE) will be followed out to 12 months. Additionally, pharmacoeconomic (healthcare cost effectiveness) data and healthcare utilization metrics will also be collected during the trial. The goal of the study is to expand the Celution One CE Mark to include acute heart attack claims and to provide economic data to justify its implementation and reimbursement.

APOLLO Provides Excellent Proof-of-Concept

Cytori made the decision to move into a pivotal registration program based on the highly encouraging data from the company’s phase 2 APOLLO program.

APOLLO was a 14 patient (10 on ADRC / 4 control), double-blind, placebo-controlled, safety and feasibility study in Europe designed to evaluate the use of ADRCs as a treatment in patients with acute myocardial ischemia. The entry criteria was that patients must have de novo acute MI with a left ventricle ejection fraction (LVEF) between 30% and 50% (normal is around 60%). Patients were treated within 24 hours of the event. Herein lays the key advantage in the cell therapy market for Cytori. ADRCs created by Celution One are both real-time [like allogenic "off-the-shelf" therapies similar to Athersys, Pluristem (NASDAQ:PSTI) or Osiris (NASDAQ:OSIR)] and autologous [similar to Aastrom Bio (ASTM) or Dendreon (NASDAQ:DNDN)]. Cytori’s technology combines the best of both strategies in our view.

As part of the procedure, a small amount (200 ml) of fat tissue was removed from each patient's abdomen. Using Cytori’s Celution System, stem and regenerative cells were quickly separated from each patient's fat tissue and concentrated at the point-of-care while the patients were prepared for catheterization and injection. The dose was roughly 20 million cells. The ADRC were then injected directly into the patient’s coronary artery. Data from the six-month outcome show:

  • The Celution System-based procedure could be safely performed in an acute setting with no side effects from cell delivery, and no increase in arrhythmias and a 0% complication rate.
  • The study showed an absolute reduction in the left ventricular infarct (LVI) size in the cell treated group versus the placebo group from baseline to six months. Mean infarct size improved from 31.6% at baseline to 15.4% at six months in cell-treated patients, and remained unchanged at 24.7% in the placebo group. The relevance of this reduction is that based on published literature, patients with an infarct size below 18% have a significantly lower risk of major adverse cardiac events (MACE) than those who are above this level.
  • There was a 3.5-fold greater improvement in perfusion within the left ventricle in the cell treated group (6.0) compared to the placebo group (1.7), as measured by SPECT (single photon emission computed tomography) Visual Rest Scores (nuclear imaging of the heart).
  • Ejection fraction was measured by four imaging modalities. The greatest absolute change was found in the SPECT (single photon emission computed tomography) analysis, which showed a 5.7% absolute improvement in the cell treated group (+4.0%) compared to placebo (-1.7%).
  • There was a statistically significant reduction in ventricular tachyarrhythmia following ADRC therapy.

We spoke with principal investigator, Dr. Henricus J. Duckers. M.D., Ph.D., at the American Heart Association (AHA) meeting, and he noted several key aspects of the data. Firstly, improvements in infarct size, perfusion, and ejection fraction are all reflective of improvement in the overall cardiovascular health of a patient. Infarct size in particular is believed to be the most important predictor of re-hospitalization for heart failure, subsequent infarction, and death. Dr. Duckers also noted that the Celution System is the ideal treatment vessel for this type of same day treatment therapy. Only Cytori’s Celution System, which employs real-time processing of autologous adipose tissue, is applicable in an acute care setting. Management plans to present 18-month follow-up data from APOLLO around the middle of 2011. We will be looking for continued separation from the control group, and at the very least, that the improvements in perfusion and ejection fraction hold.

EU Compassionate Use Opportunity Based On PRECISE

Cytori has met with European regulatory authorities and believes that there is a path to expand the CE Mark on Celution to include claims in a compassionate use for patients with "no-option" chronic myocardial ischemia. There are more than 2 million patients in the EU Big-5" (UK, Germany, France, Spain, Italy) that would fit this "no-option" heart failure category. Cytori is assessing the next steps for an application here.

PRECISE was a multi-center 27 patient, double-blind, placebo-controlled, dose-escalation study in patients with chronic myocardial ischemia. To qualify for the study, patients must have a LVEF below 45% and be classified by CCS at II-IV or NYHA II-III. Patients with severe valvular disease, atrial fibrillation, or ACS / MI in the past 30 days were excluded.

As part of the procedure, a small amount of fat tissue was removed from each patient's abdomen. Using Cytori’s Celution System, stem and regenerative cells were quickly separated from each patient's fat tissue and concentrated at the point-of-care while the patients were prepared for catheterization and injection. Immediately thereafter, using the NOGA System, made by Biologic Delivery Systems Group, a J&J company, a three dimensional image was created to guide the injection of cells into the injured (ischemic) regions of the heart. Data at 12 and 18 months confirms:

  • Myocardial Oxygen Consumption (MVO2) showed a statistically significant improvement from baseline to six-months in the cell treated group as compared to placebo. This improvement persisted at 18 months. MVO2 is a measure of the amount of oxygen the heart uses per minute (measured in mL of O2 per kg of body weight per min). It is a clinically relevant prognostic factor in heart disease and is commonly used as a contributing measure to stratify patients for heart transplant. The results showed absolute increase (improvement) in MVO2 by 0.62 mL/kg/min in the treated group versus 2.84 mL/kg/min decrease (worsening) in the placebo group from baseline to six-months, based on matched-pair analysis. At 18 months, the results showed an absolute increase of 0.26 mL/kg/min in the cell treated group vs. a decrease of 4.08 mL/kg/min for placebo. This difference was statistically significant at both time points.
  • Metabolic equivalent, a measure of the body’s aerobic capacity, improved by 0.18 points from baseline to six-months in the cell treated group compared to a decrease of 0.81 points from baseline to follow-up in the placebo group based on matched-pair analysis. Results persisted at 18 months, with the cell treated group at +0.07 vs. -1.17 for the placebo. This difference was statistically significant at both time points.
  • The percent of left ventricle infarcted, the portion of the heart not receiving blood to support pumping, decreased (improved) by 3.0% in the cell treated group compared to an increase (worsening) of 5.2% in the placebo group, an absolute difference of 8.2% (p=0.04).
  • Improvements in New York Heart Association Functional Class, which classifies the severity of heart disease on a scale of one to four, were observed in 63% of patients treated with cells as compared to observed in 33% of patients in the placebo group.

This is very encouraging data, especially in patients with such severe heart disease. Results show that using adipose-derived regenerative cells is safe and feasible in severely compromised patients, and cell therapy is able to show meaningful improvements in various measures suggestive of efficacy, including MVO2, MET, LVI size, and NYHA functional class. Cytori plans an additional follow-up at 36 months. We are particularly excited about the opportunity to start generating revenues off the PRECISE data on a compassionate use basis in Europe. Management noted certain restrictions based on this type of accelerated approval, so as of yet we are holding off on modeling significant sales here, but it is clear that Cytori plans to seek an expanded label claim for Celution based on this impressive PRECISE data.

U.S. Coming Along

In the U.S., Cytori will use the European ADVANCE trial to serve as an excellent non-registration program for discussions with the U.S. FDA. Management would love to expand ADVANCE to include some cites in the U.S. but it does not look like this is going to happen. The FDA has been extremely tough on these programs from a safety and design standpoint. Instead, Cytori can take what it will learned from ADVANCE and design the U.S. pivotal program to include both the physiological and clinical endpoints necessary to gain U.S. regulatory clearance at a later date. This is the ultimate goal; however, as of now, we are not expecting a U.S. registration program in an acute indication in 2011 or 2012.

Instead, the first major step forward in the U.S from a cardiac standpoint is a phase 2 program in chronic myocardial ischemia similar to what was done in Europe with PRECISE. Cytori is currently working on a pre-IDE package to submit to the FDA. Management anticipates this will be a 60-120 patient feasibility trial, with similar enrollment criteria (LVEF below 45% and be classified by CCS at II-IV or NYHA II-III). Endpoints would be safety, along with exercise capacity, MVO2 and METS. Management is hoping to get this trial enrolling in early 2012. Funding remains a key issue here. Cytori has over $50 million in cash as of the end of 2010, but existing operations in cosmetic and reconstructive surgery, along with ADVANCE, take precedence. On the fourth quarter conference call in March 2011, management noted a number of funding alternatives, including grant opportunities, which they were evaluating to push forward in the U.S. We expect an update here later in the year with respect to guidelines from the FDA, trial design, timeline, and budget.

U.S. HDE Pathway

Meanwhile, similar to the compassionate use potential in Europe based on PRECISE, Cytori believes there is a potential path forward in the U.S. under the FDA’s Humanitarian Device Exemption (HUD) protocol. HUD is a device that is intended to benefit patients by treating or diagnosing a disease or condition that affects or is manifested in fewer than 4,000 individuals in the U.S. per year. To obtain approval for HUD, Cytori must file a humanitarian device exemption (HDE) application.

HDE is similar in both form and content to a premarket approval application, but is exempt from the effectiveness requirements of a PMA. An HDE application is not required to contain the results of scientifically valid clinical investigations demonstrating that the device is effective for its intended purpose. The application, however, must contain sufficient information for FDA to determine that the device does not pose an unreasonable or significant risk of illness or injury, and that the probable benefit to health outweighs the risk of injury or illness from its use. Cytori believes that they can seek approval for the Celution System under an HDE based on the RESTORE-2 data, and obtain approval for HUD in congenital conditions affecting the soft tissue such as chronic or facial wasting syndrome.

Besides the HUD pathway, Cytori remains confident that the traditional 510(k) pathway remains a viable approach to market clearance with limited claims for Celution System’s tissue processing technology. Cytori is hoping that the data from RESTOE-2 program can be used as an acceptable as pilot program in the U.S., which may allow management to progress directly into a phase 3 program for cosmetic and reconstructive claims. If not, Cytori will need to conduct a phase 2 study similar to RESTORE-2 in the U.S. prior to the initiation of a larger pivotal program. As part of an integrated strategy, management has multiple FDA applications under review and in the process of being filed. These consist of a mix of 510(k) filings and a PMA trial for the phase 2 chronic myocardial ischemia trial as described above.

PureGraft Launch Strong

In April 2010, Cytori received U.S. approval for its PureGraft System for autologous fat grafting procedures. PureGraft is a sterile (closed) system that always for the harvest, processing, and return of autologous fat from one part of a patient’s body to another. Used independently, PureGraft rapidly and reliably produces optimal graft tissue for autologous fat grafting procedures replacing current non-standardized methods of graft preparation. Used in combination with the Celution CRS (in Europe), PureGraft lowers processing times and increases processing volumes, improving the utility and efficiency of Cytori’s core product for soft tissue applications. Cytori has begun commercializing the product to physicians in Europe, both as a standalone product and as a complement to the Celution CRS System. The approval of PureGraft in Europe allows management to offer a low-cost product to the plastic and reconstructive surgeons, with the ultimate goal of introducing the Celution system in the future. It greatly expands the company’s opportunity to establish and build relationships to hospitals and up-sell to these institutions.

In the meantime, Cytori plans to ramp sales of its PureGraft product in the U.S. as a gateway product into the plastic surgery market. PureGraft leverages technology found in hemodialysis and peritoneal dialysis procedures and uses it to dialyze a fat graft to remove the impurities that accumulate during liposuction as well as excess water that doctors don’t want to add back to patients. PureGraft is a low entry price, but high margin, useful tool that helps drive awareness and Cytori’s presence as a major player in aesthetic body contouring. The product compliments the Celase (Cytori’s proprietary enzyme product) and Celbursh (Cytori’s graft delivery instrument) products currently being used for cosmetic and reconstructive procedures.

In 2010, Cytori sold a total of 1,847 PureGraft units worldwide. We expect this number to grow rapidly over the next several quarters. In the U.S., management expects PureGraft to continue to grow rapidly, and has implemented a cost-effective and creative initiative that uses print, radio, TV and social media to support the launch.


We continue to be positive on Cytori Therapeutics. We view the company as a must own in the cell therapy industry. Our current rating is ‘Outperform’ with a $10 price target. We note the current business fundamentals in CRS (cosmetic and reconstructive surgery) are improving. Cytori is nearing that "inflection point" in the business where the clinical data and new product offerings are starting to show up in the revenue line. Upside to the story comes as the company transitions from the current CRS approach to regenerative medicine, specifically in the area of both acute and chronic cardiovascular disease. We are big fans of the company’s "real-time/point-of-care" Celution System.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.