Cryo-Cell: The Stem Cell Sector's Profit Leader, Part 2

by: M. E. Garza

<< Part 1

BioMedReports: Let’s talk about business operations. What sets you apart from competitors?

Mercedes Walton: There are three private family cord blood banks that are the largest in the industry, and represent about eighty percent market share, so Cryo-cell is one of the three. Cryo-cell actually has more quality accreditations than any of our competitors in the industry. We are registered with FDA, our laboratory is state of the art good manufacturing practice, good tissue practice, facility, so we have clean rooms in which the processing, the manufacturing is done.

We are accredited by AABB, which is formerly the American Association of Blood Banks, we are accredited by ISO, so we have an ISO 9000, 2001 accreditation, and so, the combination of all of the accreditations that we have make us the quality leader in the industry.

This is really important because our clients are basically buying trust in us. These stem cells that they store, be it the U-cord or the menstrual stem cells, are very precious, and they are storing them for future applications, and the future applications could be many, many years down the road. So, they are trusting that we’re manufacturing to the highest standard, such that, if they need these cells, they would be viable upon thaw and useful to them in, what is often, a life-impacting transplant. So, the quality aspect of our business and operation is keenly important. Cryo-cell is really proud to be the quality leader in the industry, so much so, that we actually offer a fifty-thousand dollar product guarantee for our umbilical cord blood stem cells. The product quality guarantee would provide that, if a client retrieved their specimen for transplant, and, upon thaw, if those stem cells are not viable, Cryo-cell would provide them with a lump sum of fifty thousand dollars. We’re very proud that, with well over forty transplants, we’ve never had to pay that. They’ve all been viable upon thaw.

BioMedReports: Our readers and investor’s would be interested in knowing about the stability and profitability of the company. What can you tell us?

Mercedes Walton: Our Chief Financial Officer, Jill Taymans can talk about the most recently filed financials.

Jill Tayman: Our most recently filed financials were for the six months ending May 31, 2009. We had revenue of 8.1 million, with a net earnings of approximately 1.3 million. We had reported six and a half million dollars in cash, and we are running gross margins at about seventy-three percent.

BioMedReports: What can you tell us about your marketing efforts?

Mercedes Walton: Well, our marketing efforts have evolved at both the industry and the marketplace has evolved. So, initially, when Cryo-cell began operations back in the early 1990’s, the marketing strategy was a viral strategy, and it was predominantly word of mouth, where one mom would share with another, and educate family and friends about the benefits of Cryo-preserving cord blood stem cells. In the late 90’s when the competition increased in the industry, the focus shifted to practitioners, as the influencer to the clients’ decision to store cord blood, so there was much more of an emphasis to educate physicians on the benefits.

Then, in 2005, FDA took jurisdiction of the industry, and began regulation of the industry, and, from a marketing perspective, the industry actually self-adopted the pharma-med guidelines. So, that really changed the way in which our competitors could market to the medical community. So, increasingly now, OBGYNs are agnostic in terms of making a recommendation on a service provider. There are, for example, I believe, sixteen or more states in the country that actually require OBGYNs to inform expectant moms about the possibilities of cord blood stem cell preservation, but increasingly, they’re agnostic to actually recommend a provider, so much of the marketing strategy today is Internet-based.

I would say that Cryo-cell’s platform is very much focused on Internet marketing, because our clients are , for the most part, the profile of the cord blood client, is a woman that is in her early thirties, a large number of our clients have college degrees, and a good proportion have post-graduate degrees, so they’re highly educated. The average income is approximately a hundred thousand dollars annually, the average family income, these clients typically have discretionary income, and they’re value shoppers. They’re Internet savvy, and they comparatively shop on the Internet. So, that’s where a lot of our focus is right now. There are a lot of blogs, for example, that talk about cord blood stem cell services, so it’s very viral. Cryo-cell is on Facebook and Twitter, we’re very much in the mix of the social marketing strategy.

BioMedReports: Is there anything that prohibits you, for example, from doing magazine and broadcast type of outreach for future clients?

Mercedes Walton: No, no, in fact, we’ve had, over the years, a lot of prominent presence in a lot of the pregnancy journals, but, as I’ve mentioned, the shift has clearly moved away from print advertising as the most effective vehicle, and we find that Internet marketing is, by far, the most effective way to reach our target market.

BioMedReports: So you don’t have to have a sales force out there making contact with practitioners to help move your product.

Mercedes Walton: No, we don’t, but we certainly keep an active rapport with the practitioner community. We have a base of well over twenty thousand practitioners with whom we have established relations, so we communicate with that base very frequently. But, really and truly, as consumers are becoming more educated about stem cell research and regenerative medicine, the way that we can reach these clients most effectively is through the Internet, and by having a highly differentiated product.

Cryo-cell’s new cord product, for examples, is an extraordinary value when you compare it to the services of our competitors. From a feature, functionality and price standpoint, what we have is, hands down, more compelling than our competitors. For examples, our service, for the processing, testing and first year storage, our service is $1,720, is the retail price, and when you compare that to the top two competitors, ViaCord, for example, is $2,195, and Cord Blood Registry is $2,150. But for that $1,720, we provide a value-packed service. Not only do we have the $50,000 product guarantee that I mentioned, but we’re the only company that only company that actually offers, we have a Cryo-cell Cares payment program. Knowing that it’s such a financial burden for families that have to pursue transplants, with transportation to the hospital and hotels, and such, we will provide our clients with a lump sum of $10,000, should they retrieve a specimen for a transplant, and no other company offers that.

We’re also the only company that is partnered with Upromise, the college savings program, so we’re an industry-exclusive partner with Upromise, so clients who purchase our service using a Upromise registered credit card receives money for college, and we’re the only company that has locked-in prices for returning clients. We have the Cryo-cell Client for Life program, which is very significant for a lot of families, because they want to store for their subsequent children, and they really appreciate the confidence that, if they purchase their service from Cryo-cell, any future children they have, they’ll be able to purchase the service for the same price as the initial child they stored with. So, all of these combined, and of course the fact that we’re an industry quality leader - we’re just in an orbit of our own.

BioMedReports: Every business has challenges. What are some of the challenges for your business?

Mercedes Walton: Well, I think that the challenges for the cord blood banking industry in general relate to the overall state of the economy and it’s impact on discretionary consumer spending, and I think another related challenge has to do with the growing prevalence of public cord blood banks.

There are a number of public banks that are funded both at the state and the federal level, and families can actually donate their cord blood specimens to these public banks, and they become part of the public registry, so many families that don’t have the discretionary income to store privately opt for this public alternative. So, the competitive landscape is shifting in a way that public banking is a formidable competitor of private banks in today’s environment.

So, I think those are the predominant challenges. The challenges associated with innovative technology, such as our C’elle technology, have to do with the fact that it is a very new cutting edge service, and because the stem cells are not being used in clinical therapies, it is a future, forward-looking type of service to participate in. Many of our well-educated clients that understand stem cell science at a basic level, can understand and know that stem cells harvested, for instance, from bone marrow, have been used for thousands and thousands and transplants for decades, so we know that the C’elle stem cells have the adult stem cell markers similar to those that are harvested in bone marrow, and we also know that there’s huge promise in embryonic stem cell research , and these C’elle cells have embryonic stem cell markers, yet they have not demonstrated the propensity for teratomas, in the same way that embryonic stem cells have that drawback.

Embryonic stem cells always produce teratomas, and our C’elle cells have not demonstrated that propensity. In addition to that, both of our products are coming from non-controversial sources, that otherwise would be discarded as waste. So, for our C’elle stem cells, the challenge is really educating the consumer about the characteristics of the cell, and really being able to draw the parallels between menstrual stem cell technology, bone marrow stem cells, and other adult stem cells.

Disclosure: Long CCEL.OB