Cytori Therapeutics, Inc., develops, manufactures, and sells medical products to enable the practice of regenerative medicine. Regenerative medicine describes the emerging field that aims to repair or restore lost or damaged tissue and cell function. Our commercial activities are currently focused on cosmetic and reconstructive surgery in Europe and Asia-Pacific, fulfilling the demand among physicians in Europe and Asia Pacific for clinical grade stem and regenerative cells, and stem and regenerative cell banking (cell preservation) worldwide. In addition, we are seeking to bring our products to market in the United States as well as other countries. Our product pipeline includes the development of potential new treatments for cardiovascular disease, spinal disc degeneration, gastrointestinal disorders, liver and renal disease and pelvic health conditions.
The foundation of our business is the patented Celution® System family of products which processes patients’ cells at the bedside in real time. Each member of the Celution® System family of products consists of a central device, a related single-use consumable used for each patient procedure, proprietary enzymes, and related instrumentation. Our commercialization model is based on the sale of Celution® Systems and on generating recurring revenues from the single-use consumable sets.
Our Celution® 800/CRS System was introduced during 2008 into the European cosmetic and reconstructive surgery market through a network of medical distributors. The Celution® 900/MB is being marketed in Japan through our commercialization partner, Green Hospital Supply, Inc. (Green Hospital Supply) as part of the comprehensive StemSource® Cell Bank, which prepares cells for cryopreservation in the event they may be used in the future.
The most advanced therapeutic application in our product development pipeline is cardiovascular disease. Currently, two cardiovascular clinical trials are being conducted in Europe with adipose-derived stem and regenerative cells, processed with the Celution® 600 System, an earlier version of the Celution® 800/CV. The Celution® 800/CV has recently been introduced to these clinical sites. One of the clinical trials is in patients suffering from chronic myocardial ischemia, a severe form of chronic heart disease, and the other is in heart attack patients.
In the United States, our goal is to seek regulatory and marketing approval on the Celution® 700 System family of products. We expect to finalize our U.S. regulatory and clinical development strategy in 2009.
Our MacroPore Biosurgery operating segment manages the ThinFilm biomaterial product line in Japan. We sold our non-Japan Thin Film business in 2004. Pending regulatory approval in Japan, this product line would be distributed exclusively through Senko Medical Trading Co. (“Senko”) for anti-adhesion applications, soft tissue support, and minimization of the attachment of soft tissues throughout the body.
Reconstructive Surgery
The Celution® 800/CRS System is approved in Europe as a bedside device for separating and concentrating a patient's stem and regenerative cells, which reside naturally within their adipose (fat) tissue, so that these cells may be re-injected back into that same patient.
The Celution® 800/CRS System was introduced into the European and Asia-Pacific reconstructive surgery market in the first quarter of 2008. Our distribution network covers the UK, France, Germany, Norway, Finland, Denmark, Sweden, Austria and Switzerland through our commercialization partnership with GE Healthcare, and Belgium, China, Greece, Indonesia, Israel, Italy, Korea, Malaysia, Portugal, Singapore, Spain, Turkey and the Netherlands through a network of independent distributors.
We hope to begin commercializing the Celution® 800/CRS System with indications for use for breast reconstruction for partial mastectomy defects as early as 2010 pending supporting clinical data and expanded CE certification. To support this goal, a 70-patient, multi-center study, RESTORE II, was initiated in Europe in 2008. The results from this study will also be used to support reimbursement for such procedure.
Market for Clinical-Grade Cells
The Celution System is being sold to physicians to fulfill their demand for access to clinical-grade stem and regenerative cells. Celution is the only such system broadly available in Europe today that can provide real time access to cells, which can safely be administered to patients. Availability at the point of care enables physicians to apply cells across an array of applications. Certain physicians may even choose to study patient outcomes to understand the benefit of these cells under their own independently sponsored and regulated studies. Such ‘translational’ efforts are growing and already represent applications as diverse as wound healing, radiation injury, breast reconstruction, breast augmentation, HIV related facial wasting syndrome, vocal cord paralysis, burn, urinary incontinence, fistula repair (and Crohn’s disease), bone regeneration, cardiovascular applications, peripheral vascular disease, renal insufficiency and acute kidney injury, and liver disease among many others. We expect the breadth of these applications will grow significantly as physicians continue to adopt cell based regenerative medicine into their treatment strategies based on the availability of safe clinical grade cells at the point of care.
StemSource® and Cell Banking
The Celution® 900/MB System is the foundation of our StemSource® Cell Bank for cryopreserving patients’ adult stem and regenerative cells. The StemSource® Cell Bank is being marketed to hospitals, tissue banks and stem cell banking companies in Europe and Asia. With a StemSource® Cell Bank on site, hospitals will be able to offer their patients the option of storing their adipose tissue-derived stem and regenerative cells and accessing them as clinical applications are approved.
The StemSource® Cell Bank is being marketed in Japan, Korea, Taiwan and Thailand exclusively by Green Hospital Supply, Inc. The value of a StemSource® Cell Bank lies in the recurring revenue from processing and freezing. It starts with a tissue collection procedure, which may be performed during an already planned surgery or a separate elective procedure. The cells are prepared for storage using the Celution® 900/MB System, which automates the separation and concentration of stem and regenerative cells from adipose tissue and thereby allows hospitals to more affordably offer such service to patients.
As part of our agreement with Green Hospital Supply, we equally split revenues in Japan, Korea, Taiwan and Thailand from the sale to hospitals of StemSource® Cell Banks and single-use, per-procedure consumables. Green Hospital Supply is responsible for all sales and marketing while Cytori is responsible for manufacturing the Celution® 900/MB System and sourcing all necessary equipment, including but not limited to cryopreservation chambers, cooling and thawing devices, cell banking protocols and the proprietary software and database application.
Cytori signed a commercialization partnership with GE Healthcare in January 2009, which grants GE Healthcare exclusive rights to commercialize the Celution® System in the U.K., France, Germany, Norway, Finland, Denmark, Sweden, Austria, Switzerland, Belgium, the Netherlands and Luxembourg for clinical grade access to stem and regenerative cells and stem cell banking.
Cardiovascular Disease
We currently have two clinical trials underway in Europe for adipose-derived stem and regenerative cells processed with the Celution® 600 and 800 Systems, to study cardiovascular disease. In January 2007, we initiated a clinical trial for chronic myocardial ischemia, a severe form of coronary artery disease. In late 2007, we initiated a study for acute heart attacks, for which enrollment is ongoing. Enrollment for both trials is projected to be completed in 2009. Both are double-blind, placebo controlled safety and feasibility studies, which will evaluate a variety of primary and secondary safety and efficacy endpoints.
We believe there is significant need for new forms of treatment for cardiovascular disease, which represents one of the largest healthcare market opportunities. The American Heart Association estimates that in the United States of America alone there are approximately 865,000 heart attacks each year and more than 13,000,000 people suffer from coronary heart disease.
Celution® System Pipeline
Other applications for the Celution® System family of products under investigation include gastrointestinal disorders, vascular disease, pelvic health conditions, and orthopedic and spinal applications. Our scientists are, to a varying degree, investigating these applications in pre-clinical models.
Manufacturing
The Celution® 800/CRS, Celution® 900/MB, and related single-use consumables are being manufactured at Cytori’s headquarters in San Diego, CA. The completion of our internal manufacturing facilities in 2007 is expected to enable us to meet anticipated demand in 2009.
In the future, the next generation Celution® device is expected to be manufactured through a joint venture arrangement between Cytori and Olympus Corporation (“Olympus”), a global optics and life science company. Olympus-Cytori Inc. (the “Joint Venture”), enables Cytori to access Olympus’ expertise in engineering, manufacturing and servicing of sophisticated medical devices. The Joint Venture will supply the Celution® System for all therapeutic applications solely to Cytori at a formula-based transfer price. Cytori owns Celution® System marketing rights for all therapeutic applications.
Competition
We compete with multiple pharmaceutical, biotechnology and medical device companies involved in the development and commercialization of medical technologies and therapies.
Regenerative medicine is rapidly progressing, in large part through the development of cell-based therapies or devices designed to isolate cells from human tissues. Most efforts involve cell sources, such as bone marrow, embryonic and fetal tissue, umbilical cord and peripheral blood, and skeletal muscle. We work exclusively with adult stem and regenerative cells from adipose tissue.
Companies working in this area include, among others, Aastrom Biosciences, Inc., Baxter International, Inc., BioHeart, Inc., Cellerix SA, Genzyme, Inc., Geron Corporation, Isolagen, Inc., MG Biotherapeutics (a joint venture between Genzyme and Medtronic), Osiris Therapeutics, Inc., Stem Cells, Inc. and Tissue Genesis, Inc. Many of our competitors and potential competitors have substantially greater financial, technological, research and development, marketing, and personnel resources than we do. We cannot with any accuracy forecast when or if these companies are likely to bring cell therapies to market for indications that we are also pursuing.
Some of our competitors are also working with adipose-derived cells. To the best of our knowledge, none of these companies are currently conducting human clinical trials. In addition, Cytori is aware of several surgeons who are performing autologous fat transfers using manual methods, some of whom enrich the fat with autologous adipose-derived cells.
Companies researching and developing cell-based therapies for cardiovascular disease include, among others, Baxter, BioHeart, MG Biotherapeutics, and Osiris. Baxter completed a Phase II study in the United States using stem cells extracted from peripheral blood for chronic myocardial ischemia. BioHeart is conducting multiple ongoing clinical trials in the United States and Europe for its investigational product MyoCell™, which are cultured autologous skeletal myoblasts. We are aware that BioHeart has disclosed its intentions to develop heart attack treatments using adipose-derived cells. Osiris Therapeutics, Inc. completed a Phase I clinical trial using allogeneic (donor), mesenchymal stem cells, for acute myocardial infarction and is planning a broader Phase II study.
Research and Development
Research and development expenses were $17,371,000, $20,020,000 and $21,977,000 for the years ended December 31, 2008, 2007 and 2006, respectively. For 2008, majority of the research and development expenses were related to our regenerative cell technology. Our research and development efforts in 2008 focused predominantly on the following areas: Optimization of the design, functionality and manufacturing process for the Celution® System family of products, single-use consumables and related instrumentation for the entry of the device into the European reconstructive surgery market and the StemSource® Cell Banking market in Europe and Asia-Pacific; Development of the infrastructure and logistics in partnership with Green Hospital Supply including building out a proprietary database and software application and optimizing proprietary protocols, resulting in the first sale in Japan of the StemSource® cell banking line to the University of Kyoto;
Preparation and initiation of a 70 patient European breast reconstruction post-marketing clinical study using the Celution® System. The study is taking place across several centers and will measure safety, volume retention as well as other metrics related to autologous fat transfers enriched with the Celution® System output to correct partial mastectomy defects; Implementation and continuing enrollment in two randomized, double blind, placebo controlled, cardiovascular disease clinical trials in Europe for chronic myocardial ischemia and heart attacks. Preparation and submission of multiple regulatory filings in the United States, Europe, and Japan related to various cell processing systems under development; Conducting extensive pre-clinical safety and efficacy studies investigating the use of adipose-derived stem and regenerative cells for reconstructive surgery, spinal disc repair, renal failure, pancreatitis, stroke, and other therapeutic applications; Investigating the cellular and molecular properties, composition, and characteristics of stem and regenerative cells residing in adipose tissue towards improving our intellectual property position and towards understanding how to improve and control the therapeutic products.
Customers
Cytori has established a network of distributors who offer our Celution® System, instrumentation and consumables to surgeons and hospitals throughout Europe. These distributors purchase the devices from Cytori at a contractually agreed-upon transfer price. We also market our Celution® System directly to customers in select countries within Europe. In addition, we offer the Celution as part of the StemSource® Cell Bank, a comprehensive suite of products to allow hospitals or tissue banks to cryopreserve adipose-derived stem and regenerative cells.
In July 2004, we entered into a Distribution Agreement with Senko under which we granted to Senko an exclusive license to sell and distribute Thin Film products in Japan. The sale of products through Senko commences upon “commercialization,” which requires regulatory clearance from the Japanese regulatory authorities. We are currently pursuing the required regulatory clearance. Following commercialization, the Distribution Agreement has a five-year duration and is renewable for an additional five years after reaching mutually agreed minimum purchase guarantees. In 2004, we sold all of our non-Japan Thin Film business.
Sales by Geographic Region
For the year ended December 31, 2008, all of our product revenue came from sales of Celution® 800/CRS System to the European and Asia-Pacific reconstructive surgery market and installation of our first StemSource® Cell Bank in Greece. For the year ended December 31, 2007, our only product sales came from our bioresorbable surgical implants. As these were no longer core to our business focus, we sold our remaining interest in this line of business to Kensey Nash in May 2007 (excluding our Thin Film products in Japan) and we no longer receive any revenue from the sales of those products. Prior to May 2007, we sold our products predominantly in the United States and to a lesser extent internationally through Medtronic.
Regenerative Cell Technology
Beginning in March 2008, we began sales and shipments of our Celution® 800/CRS System to the European and Asia-Pacific reconstructive surgery market. In September 2008 we completed installation of our first StemSource® Cell Bank in Greece. This product includes a combination of equipment and service deliverables, some of which will be provided to the customer over time. We have recorded $4,528,000 in revenue during 2008 related to our Celution® products and StemSource® Cell Bank.
Additionally, our consolidated balance sheet includes a line item entitled deferred revenues, related party. This account primarily consists of the consideration we have received in exchange for future obligations that we have agreed to perform on behalf of Olympus and the Joint Venture. We recognize deferred revenues, related party, as development revenue when certain performance obligations are met. Such revenue recognition results from completion of certain milestones, such as completion of product development efforts, regulatory filings and related pre-clinical and clinical studies. In 2008, 2007 and 2006, we recognized $774,000, $5,158,000 and $5,905,000 of revenue associated with our arrangements with Olympus, respectively.
In a separate agreement entered into on February 23, 2006, we granted Olympus an exclusive right to negotiate a commercialization collaboration for the use of adipose stem and regenerative cells for a specific therapeutic area outside of cardiovascular disease. In exchange for this right, we received a $1,500,000 payment from Olympus. As part of this agreement, Olympus could conduct market research and pilot clinical studies in collaboration with us for the therapeutic area up to December 31, 2008 when this exclusive right expired. Accordingly, on December 31, 2008, we recognized $1,500,000 as other development revenue and reduced our deferred revenues, related party balance for the same amount.
For the year ended December 31, 2006, we recorded $310,000 in grant revenue related to our agreement with the National Institutes of Health (“NIH”). Under this agreement, the NIH reimbursed us for “qualifying expenditures” related to research on Adipose-Derived Cell Therapy for Myocardial Infarction. There was no similar revenue in 2007 and 2008.
For the years ended December 31, 2008, 2007 and 2006, we recorded revenue of $47,000, $85,000 and $102,000, respectively, related to cell processing equipment, and adipose derived stem cell research products sold to various research facilities. We also recorded stem cell banking revenue of $4,000, $4,000 and $7,000 for the years ended December 31, 2008, 2007 and 2006, respectively, related to our U.S. StemSource® Cell Bank offering for the processing and preservation of adipose-derived stem and regenerative cells at our FDA and California state-licensed tissue bank facility.
MacroPore Biosurgery
In 2007 and 2006 our product sales were $792,000 and $1,451,000, respectively, all of which relate to the MacroPore Biosurgery segment. These revenues were primarily related to orders for our radiographically identifiable Spine System products, marketed under the name MYSTIQUE™. As noted above, we were concerned about the level of commitment to these products from Medtronic, our exclusive distributor, and we sold our intellectual property rights and tangible assets related to our spine and orthopedic bioresorbable implant product line to Kensey Nash in May 2007.
Under a distribution agreement with Senko, we are responsible for the completion of the initial regulatory application to the MHLW (the Japanese equivalent of the U.S. Food and Drug Administration). We recognized development revenue based on milestones defined within this agreement of $10,000 and $152,000 for the years ended December 31, 2007 and 2006, respectively. We did not recognize any similar revenue in 2008. We have not received any Thin Film product revenue in Japan yet, and we sold all our non-Japan Thin Film business in 2004.
We anticipate that our future international product revenues will increase as a result of our Distribution Agreement with Senko to the extent our Thin Film products reach commercialization in Japan.
Planned Capital Expenditures
Although capital expenditures may vary significantly depending on a variety of factors, we may spend up to $1,000,000 on capital equipment purchases in 2009, although we will diligently seek to spend much less. These may be paid with our available cash, or financed if appropriate. (See additional discussion regarding Liquidity at the beginning of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.)
Raw Materials
Raw materials required to manufacture the Celution® System family of products and disposables are commonly available from multiple sources, and we have identified and executed supply agreements with our preferred vendors. Some specialty components are custom made for Cytori, and we are dependent on the ability of these suppliers to deliver functioning parts in a timely manner to meet the ongoing demand for our products. There can be no assurance that we will be able to obtain adequate quantities of the necessary raw materials supplies within a reasonable time or at commercially reasonable prices. Interruptions in supplies due to price, timing, or availability could have a negative impact on our ability to manufacture products.
Intellectual Property
Our success depends in large part on our ability to protect our proprietary technology, including the Celution® System product platform, and to operate without infringing on the proprietary rights of third parties. We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality agreements, licensing agreements and other agreements, to establish and protect our proprietary rights. Our success also depends, in part, on our ability to avoid infringing patents issued to others. If we were judicially determined to be infringing on any third party patent, we could be required to pay damages, alter our products or processes, obtain licenses or cease certain activities.
To protect our proprietary medical technologies, including the Celution® System platform and scientific discoveries, Cytori has has three issued U.S. patents and six issued International patents. In addition, we have 117 patent applications pending worldwide. We are seeking patents on methods and systems for processing adipose-derived stem and regenerative cells, on use of adipose-derived stem and regenerative cells for a variety of therapeutic indications, including their mechanisms of actions, and on compositions of matter than include adipose-derived stem and regenerative cells.
In June 2008, Cytori was issued U.S. Patent No. 7,390,484 (the ‘484 patent). The ‘484 patent is a foundational patent that protects the Celution® System technology for processing adipose tissue to obtain a diverse and mixed population of adipose derived stem and regenerative cells. The ‘484 patent establishes a strong barrier-to-entry against potential competitors and provides critical market protection while we seek regulatory approval in the United States.
In September 2008, Cytori was issued U.S. Patent No. 7,429,488 (‘the ‘488 patent). The ‘488 patent protects Cytori’s Celution® System based methods of generating adipose tissue derived stem and regenerative cell enhanced fat grafts. Cell enhanced fat grafts may be used in a variety of cosmetic and reconstructive surgery applications, including breast reconstruction following partial mastectomy, breast implant salvage, as well as facial and other cosmetic applications.
In January 2009, Cytori was issued U.S. Patent No. 7,473,420 (‘the 420 patent). The ‘420 patent protects combinations of the Celution System output with various additives including, but not limited to, agents that promote cell differentiation such as growth factors, cytokines and protein, demineralized bone, tissue or tissue fragments, biological or artificial scaffolds, and immunosuppressive compounds. These additives may be combined with the Celution System output to increase efficacy, optimize or localize cell delivery, enhance specific cell properties or promote cell differentiation.
Cytori has also received six international patents. Specifically, Cytori has received patents in Korea and Singapore related to the Company’s current Celution System devices, patents in Korea and Australia related to the Company’s StemSource Cell Bank, and patents in Singapore and South Africa related to the use of adipose derived stem and regenerative cells for cardiovascular therapy.
We are also the exclusive, worldwide licensee of the Regents of the University of California’s rights to U.S. Patent No. 6,777,231 (the ‘231 patent), U.S. Patent No. 7,470,537 (the ‘537 patent), six issued international patents and 17 patent applications pending worldwide. The ‘231 patent covers isolated adipose derived stem cells that can differentiate into two or more of a variety of cell types. The ‘231 patent has been construed to cover isolated adipose derived stem cells in an environment substantially free of other cellular materials found in adipose tissue. The ‘537 patent, issued in December 2009, covers a population of stem cells and progenitor cells which can be obtained from adipose tissue and which express certain combinations of cell surface markers. Specifically, the ‘537 patent covers adipose derived stem and progenitor cells that express certain combinations of Stro-1+, CD29+, CD44+, CD71+, CD49d+, CD90+, CD105+, SH3, CD45-, CD31- and low or undetectable levels of CD106. International patents related to isolated cells from adipose tissue have issued in Australia, Korea, Russia, Singapore and South Africa.
We cannot assure that any of the pending patent applications will be issued, that we will develop additional proprietary products that are patentable, that any patents issued to us will provide us with competitive advantages or will not be challenged by any third parties or that the patents of others will not prevent the commercialization of products incorporating our technology. Furthermore, we cannot assure that others will not independently develop similar products, duplicate any of our products or design around our patents. U.S. patent applications are not immediately made public, so we might be surprised by the grant to someone else of a patent on a technology we are actively using.
Patent law outside the United States is uncertain and in many countries is currently undergoing review and revisions. The laws of some countries may not protect our proprietary rights to the same extent as the laws of the U.S. Third parties may attempt to oppose the issuance of patents to us in foreign countries by initiating opposition proceedings. Opposition proceedings against any of our patent filings in a foreign country could have an adverse effect on our corresponding patents that are issued or pending in the U.S. It may be necessary or useful for us to participate in proceedings to determine the validity of our patents or our competitors’ patents that have been issued in countries other than the U.S. This could result in substantial costs, divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of operations and financial condition. We currently have pending patent applications in Europe, Australia, Japan, Canada, China, Korea, and Singapore, among others.
Patent litigation results in substantial costs to us and diversion of effort, and may be necessary from time to time to enforce or confirm the ownership of any patents issued or licensed to us or to determine the scope and validity of third party proprietary rights. If our competitors claim technology also claimed by us and prepare and file patent applications in the United States, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office or a foreign patent office to determine priority of invention, which could result in substantial costs to and diversion of effort, even if the eventual outcome is favorable to us.
In the fourth quarter of 2004, the University of Pittsburgh filed a lawsuit naming all of the inventors who had not assigned their ownership interest in U.S. Patent 6,777,231 to the University of Pittsburgh, seeking a determination that its assignors, rather than the University of California’s assignors, are the true inventors of Patent No. 6,777,231. If the University of Pittsburgh wins the lawsuit, our license rights to this patent could be nullified or rendered non-exclusive with respect to any third party that might license rights from the University of Pittsburgh. On August 9, 2007, the United States District Court granted the University of Pittsburgh’s motion for Summary Judgment in part, determining that the University of Pittsburgh’s assignees were properly named as inventors on Patent 6,777,231, and that all other inventorship issues shall be determined according to the facts presented at trial. The trial was concluded in January 2008 and on June 9, 2008 the Court signed its final order which we received on June 12, 2008. The Court concluded that the University of Pittsburgh’s assignors were the sole inventors of the ‘231 Patent. The Court’s decision terminated UC’s rights to the ‘231 Patent. Upon review of the Court’s findings, we believe that the Court’s decision was in error and that work completed at the University of California was critical to obtaining this patent. The UC assignors are appealing the decision. If the UC assignors’ appeal of the Court’s decision is successful, UC’s rights to the ‘231 Patent should be reinstated.
We are not named as a party to the lawsuit, but our president, Marc Hedrick, is one of the inventors identified on the ‘231 Patent and therefore is a named individual defendant. Due to our license obligations to UC relating to the ‘231 Patent and other UC patent applications, we have provided substantial financial and other assistance to the defense of the lawsuit. Since our current products and products under development do not practice the ‘231 Patent, our primary ongoing business activities and product development pipeline should not be affected by the Court’s decision. Although the ‘231 Patent is unrelated to our current products and product pipeline, we believe that the ‘231 Patent and/or the other technology licensed from UC may have long term potential to be useful for future product developments, and so we have elected to support UC’s legal efforts in the appeal of the Court’s final order. We have incurred substantial legal costs as a result of the University of Pittsburgh lawsuit to date, but we expect future costs will be minimal since the only remaining expense will be related to the final argument of the appeal. As a named inventor on the patent, Marc Hedrick is entitled to receive from the UC up to 7% of royalty payments made by a licensee (us) to UC. This agreement was in place prior to his employment with us.
In addition to patent protection, we rely on unpatented trade secrets and proprietary technological expertise. We cannot assure you that others will not independently develop or otherwise acquire substantially equivalent techniques, somehow gain access to our trade secrets and proprietary technological expertise or disclose such trade secrets, or that we can ultimately protect our rights to such unpatented trade secrets and proprietary technological expertise. We rely, in part, on confidentiality agreements with our marketing partners, employees, advisors, vendors and consultants to protect our trade secrets and proprietary technological expertise. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our unpatented trade secrets and proprietary technological expertise will not otherwise become known or be independently discovered by competitors.
Failure to obtain or maintain patent protection, or protect trade secrets, for any reason, third party claims against our patents, trade secrets or proprietary rights, or our involvement in disputes over our patents, trade secrets or proprietary rights, including involvement in litigation, could have a substantial negative effect on the results of our operations, cash flows and financial condition.
Government Regulation
As newly developed medical devices, our Celution® System family of products must receive regulatory clearances or approvals from the European Union, the FDA and, from other state governments prior to their sale. Our current and future Celution® Systems are or will be subject to stringent government regulation in the United States by the FDA under the Federal Food, Drug and Cosmetic Act. The FDA regulates the design/development process, clinical testing, manufacture, safety, labeling, sale, distribution, and promotion of medical devices and drugs. Included among these regulations are pre-market clearance and pre-market approval requirements, design control requirements, and the Quality System Regulations/Good Manufacturing Practices. Other statutory and regulatory requirements govern, among other things, establishment registration and inspection, medical device listing, prohibitions against misbranding and adulteration, labeling and post-market reporting.
The Celution® System family of products must also comply with the government regulations of each individual country in which the products are to be distributed and sold. These regulations vary in complexity and can be as stringent, and on occasion even more stringent, than US FDA regulations. International government regulations vary from country to country and region to region. For example, regulations in some parts of the world only require product registration while other regions / countries require a complex product approval process. Due to the fact that there are new and emerging cell therapy and cell banking regulations that have recently been drafted and/or implemented in various countries around the world, the application and subsequent implementation of these new and emerging regulations have little to no precedence. Therefore, the level of complexity and stringency is not known and may vary from country to country, creating greater uncertainty for the international regulatory process. Furthermore, government regulations can change with little to no notice and may result in up-regulation of our product(s), thereby, creating a greater regulatory burden for our cell processing and cell banking technology products.
The regulatory process can be lengthy, expensive, and uncertain. Before any new medical device may be introduced to the United States of America market, the manufacturer generally must obtain FDA clearance or approval through either the 510(k) pre-market notification process or the lengthier pre-market approval application (“PMA”) process. It generally takes from three to 12 months from submission to obtain 510(k) pre-market clearance, although it may take longer. Approval of a PMA could take four or more years from the time the process is initiated. The 510(k) and PMA processes can be expensive, uncertain, and lengthy, and there is no guarantee of ultimate clearance or approval. We expect that some of our future products under development as well as Olympus-Cytori’s will be subject to the lengthier PMA process. Securing FDA clearances and approvals may require the submission of extensive clinical data and supporting information to the FDA, and there can be no guarantee of ultimate clearance or approval. Failure to comply with applicable requirements can result in application integrity proceedings, fines, recalls or seizures of products, injunctions, civil penalties, total or partial suspensions of production, withdrawals of existing product approvals or clearances, refusals to approve or clear new applications or notifications, and criminal prosecution.
Medical devices are also subject to post-market reporting requirements for deaths or serious injuries when the device may have caused or contributed to the death or serious injury, and for certain device malfunctions that would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. If safety or effectiveness problems occur after the product reaches the market, the FDA may take steps to prevent or limit further marketing of the product. Additionally, the FDA actively enforces regulations prohibiting marketing and promotion of devices for indications or uses that have not been cleared or approved by the FDA. In addition, modifications or enhancements of products that could affect the safety or effectiveness or effect a major change in the intended use of a device that was either cleared through the 510(k) process or approved through the PMA process may require further FDA review through new 510(k) or PMA submissions.
Under the terms of our Joint Venture Agreements with Olympus we are the party with the primary responsibility for obtaining regulatory approvals to sell the Olympus-Cytori, Inc. devices. To date we have prepared and submitted multiple regulatory filings in the United States and Europe related to various cell processing systems under development, which notably resulted in receipt of a CE Mark on the Celution® 800 System and 510(K) clearance in the United States for various related medical technologies, including an autologous blood processing device.
We must comply with extensive regulations from foreign jurisdictions regarding safety, manufacturing processes and quality. These regulations, including the requirements for marketing authorization, may differ from the United States FDA regulatory scheme. Specifically, in regard to our Thin Film product line in Japan (distributed by Senko), we have been seeking marketing authorization from the Japanese Ministry of Health, Labour and Welfare for the past four years, but have not obtained approvals yet.