ThermoGenesis: Multiple Catalysts Could Heat Up Shares

May. 4.11 | About: Cesca Therapeutics (KOOL)

ThermoGenesis (NASDAQ:KOOL) is a regenerative medicine company focused on the development and commercialization of products and devices for the collection, processing and storage of adult stem cells derived from the bone marrow and cord blood sources, in addition to other blood-based components such as fibrin and platelets. Below is a summary of KOOL’s products.

The BioArchive System is an automated cryogenic (preservation by freezing) device used by cord blood stem cell banks in over 30 countries for preserving and archiving cord blood stem cell units for transplant.

The AutoXpress Platform (AXP) is a group of automated devices that includes the AXP (cord blood processing) and the MXP (MarrowXpress) bone marrow processing along with companion sterile blood processing disposables for harvesting stem cells in closed systems.

The CryoSeal FS System is an automated device and companion sterile blood processing disposable used to prepare fibrin sealants from plasma (the liquid component of blood) in about an hour. The CryoSeal FS System is approved in the U.S. for liver resection surgeries and has also received the CE Mark for sales of the product in Europe.

The Res-Q 60 BMC (Res-Q) is a point-of-care system used to prepare cell concentrates (e.g. stem cells, platelet rich plasma) from bone marrow aspirates. During 4Q10, KOOL submitted an updated FDA 510(k) application, seeking marketing clearance to prepare platelet rich plasma (PRP) from the peripheral blood with a decision estimated during 2-3Q11 but no formal decision deadlines. In October 2010, KOOL and BioParadox entered into an agreement whereby BioParadox will obtain the exclusive global rights for the use, research and commercialization of the Res-Q technology in the production of PRP in the diagnosis, treatment and prevention of cardiovascular disease.

In early March 2011, KOOL announced plans to sell 2.25 million (NYSE:M) shares at $2 per share plus five-year common stock warrants (exercisable after six months) for 1.125M shares at $2.64 per share. In its quarterly update statement, KOOL stated the $4.5 million equity raised will provide the Company with additional growth capital to accelerate its market expansion efforts (e.g. emerging markets such as China) while providing additional funding for product and business development activities.

While the stock offering occurred at an approximately 24% discount to the previous day closing stock price of $2.62 per share; the sale represents a relatively minor dilution of 16% to the previous share count of 14.1M shares of common stock. At the close of the offering, KOOL will have about 16.4M shares of common stock outstanding, zero debt, and about $14M in cash / equivalents in addition to the potential for an additional 1.125M shares of common stock if the associated warrants are exercised at $2.64 for potential additional proceeds of about $3M. In addition, the CEO 6of KOOL, Mr. J. Melville Engle, purchased 22,500 shares of KOOL at $2.30 on 3/10/1.1

Below is a summary of the Company’s second quarter Fiscal Year 2011 results for three months ended 12/31/10, which were reported on 2/10/11 (with an updated commentary from the CEO available at the link below). 3QFY11 results will be reported after the market close on 5/5/11 with a conference call scheduled for 5pm (ET) that day.

  • Quarterly revenue of $5.9 million (M) vs. $6M in year-ago period
  • Net loss of ($486,000) or ($0.03) per share vs. net loss of ($1.5M) or ($0.10) per share in year-ago period
  • Ended 12/31/10 with $10.2M in cash / equivalents vs. $10.7M in cash / equivalents at end of FY10 (6/30/10) and estimated $14M in cash / equivalents following the stock offering that was completed in early March
  • Revenue for first six months FY11 increased by 16% to $12.9M vs. $11.1M for first six months of FY10 due to increased sales of Res-Q
  • Net loss of ($554,000) for first six months FY11 vs. net loss of ($3.7M) for first six months FY10
  • Expects improved long-term gross margins (based on lower contract manufacturing expenses and expected continued trend of increased disposable sales) of 55-60% as compared to 40% during the most recent quarter and 34% in FY10
  • Announced a product purchase agreement for its AXP AutoXpress and BioArchive Systems with Beike Biotechnology in China
  • Expects an approximately 10% increase in revenue for FY11 vs. FY10 despite an estimated 5-10% decline in cord blood collections over the past year (cord blood distribution partners cite the overall economic environment in the US and Europe for the shortfall and expect collections to increase as the economy improves)…also will look to emerging markets such as China to grow sales
  • Expects to record initial AXP and BioArchive sales from the Beike Biotechnology agreement during the second half of FY11 (i.e. from January to June 2011) and believes the sales potential of this deal could approach seven figures ($1M) on an annualized basis. Beike processes a full line of stem cell products derived from umbilical cord tissue, cord blood and bone marrow stem cells and operates two stand-alone cord blood processing / storage facilities and 18 specialized laboratories in China in addition to stem cell research and process laboratories.
  • Other China growth initiatives include a four-year distribution agreement signed in late 2010 with Nanshan Memorial Medical Institute (Nanshan), and KOOL is working with them on the processes necessary to achieve regulatory and registration approvals. In addition, Fenwal continues to advance the registration process for the BioArchive and AXP in China and expects to record initial revenues from their efforts during 2H11.
  • On 3/30/11, announced that Nanshan will be utilizing AXP AutoXpress and BioArchive Systems to process and store stem cells from cord blood in its two stem cell banks in China. Nanshan expects to purchase over time the necessary processing and cryopreservation storage capacity to process and store up to several hundred thousand stem cell units at each facility.
  • LOOL is also moving closer to achieving registration for Res-Q and MXP in several Latin America countries and recently announced marketing clearance in India.

In addition to regulatory approval efforts in the US and abroad, KOOL has several ongoing clinical trials, including…

  • Expects to complete enrollment in spring 2011 for a Critical Limb Ischemia (CLI) trial being conducted in India with partner TotiPotent
  • Twenty patients have been enrolled in a CLI clinical trial in Naples, Italy utilizing the MXP and four patients have completed their12-month follow up evaluations while eight have reached their six-month evaluation. New data from this trial is expected to be published later in 2011
  • The initial clinical trial for spinal fusion using Res-Q being conducted by Celling Technologies continues to enroll patients and a study they are doing in conjunction with U.C. Davis is scheduled to begin enrollment in the near future.

I currently own shares of KOOL and believe the pending regulatory (FDA 510k, China and Latin America), operating / financial and clinical catalysts expected in 2011, could result in share prices of $4-5+ within the next 9-12 months, given the company's extremely low valuation (market cap = $36M with no debt and $14M cash post stock offering) despite the near break-even operating results and growth initiatives in key emerging markets such as China.

Disclosure: I am long KOOL.