Cytori's Celution Starting to Ramp

| About: Cytori Therapeutics (CYTX)

By Jason Napodano, CFA

On May 11, 2009, Cytori Therapeutics (NASDAQ:CYTX) released financial results for the first quarter 2009. Total revenues in the first quarter were $1.92 million, and were comprised primarily of $1.3 million European and Asian Celution System sales and $0.6 million in StemSource revenues in Japan. These results were essentially in-line with our $1.99 million estimate.

During the quarter, management or its partners placed a total of 19 Celution Systems and 241 Consumables into the marketplace. Of the 19 Celution Systems, 13 were sold into the market place and 6 were placed into centers active in clinical trial.

Net loss for the first quarter totaled $6.1 million, or ($0.20) per share. This was slightly wider than our $5.3 million, ($0.18) per share, estimate based on a $0.8 net charge for a change in
fair value of warrants and option liability during the quarter.

Enrollment in the RESTORE-2 post-marketing breast reconstruction study is proceeding well, with 37 of the 70 patients enrolled as of early May 2009. Enrollment should complete by the middle of the year. This study has been designed to support reimbursement and market adoption of the Celution 800/CRS System for use in this application. The study will evaluate partial mastectomy patients undergoing reconstructive surgery to restore the volume and contour lost from removal of breast tissue associated with tumor removal. Interim data should be available in the fourth quarter 2009.

Besides Cytori’s ongoing RESTORE-2 program, there are over a dozen investigator-led programs underway using adipose-derived stem cells and the Celution 800/CRS System. These include programs for restoration and reconstruction of facial wasting induced by HIV therapy, restoration of vocal cord paralysis, breast reconstruction, healing of chronic wounds, chronic liver insufficiency, urinary incontinence, peripheral vascular disease, and radiation-induced local tissue injury.

In May 2009, management held a conference call update at the American Society for Aesthetic Plastic Surgery (ASAPS) with two leading independent European surgeons that have collectively preformed over 100 procedures using the Celution System. Dr. Claudio Calabrese, who has of May 2009 preformed over 70 procedures using the Celution System, presented very encouraging results on chronic wound fistulas and fat grafting following radiation therapy. Dr. Michael Scheflan, who has performed over 30 procedures, noted the Celution System offers a user-friendly, real-time procedure, with a highly predictive outcome. Dr. Scheflan has performed procedures in both reconstructive (post breast cancer, radiation therapy) and cosmetic (breast enhancement, enlargement, facial rejuvenation) surgery.

Both the cosmetic augmentation and breast reconstruction markets offer significant opportunities. We encourage investors to view the webcast of the presentation from Drs. Calabrese and Scheflan. The results are revolutionary, and have the potential to make stem-cell enhanced fat grafting the new standard of care for breast augmentation or facial rejuvenation.

We note that the opportunity to augment using a patient’s own fat tissue opens the door significantly expand the target population for plastic and reconstructive surgeons to now include those not interested in saline or silicone breast implants. This allows surgeons to expand their business to include both artificial and cell-based breast augmentation instead of cannibalizing one for the other.

Expert users in the technology can also expand their business into chronic wound healing and liver insufficiency. The revenue opportunity from plastic and reconstructive surgeons to Cytori is significant, and should allow for substantial growth of the Celution System product in the coming years.

We are pleased to see the operating expense are dropping dramatically as Cytori relies more and more on its partners to fund the selling and distributing, as well as the research and development, of the Celution System. The recent expansion of the GE Healthcare (NYSE:GE) deal to include the U.S. market is an exciting opportunity for the company.

Cytori exited the first quarter with $15.5 million in cash on the books. Add in the recent $4.2 million raise, and we believe the current cash balance is enough to fund operations into 2010.

We recommend investors purchase shares of Cytori today given the far below fair-value price and very attractive long-term opportunity. We think 2009 has the potential to be a very exciting year for Cytori as sales of Celution ramp around the world. Our target is $8.

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