I continue with a BUY ranking and believe share price momentum and appreciation should propel CYTX to the designated valuation in FY11.
Our SOTP scenario is extremely conservative (with a 10% discount) and details a value of $5.60, and when merged with a direct comparables analysis of $16.35 reinforced by a stem cell sector perspective of $2.73 and a cosmetic companies comparables of $5.06, implies a blended valuation of $8.77. The Avg. Blended Price Valuation of $8.77 is above this stock’s current price of $5.71 with a trading range of $3.15 – $9.50. We apply a standard 20x P/E biotech multiple to 2010 EPS and a 10% Discount Rate back to 2009 or 4 years/periods and achieve a fair value of $7.05 per share. We note the average market capitalization of designated comparables is $825.98M or about 2.9X the implied multiple of CYTX’s market cap of $288.41M. In a review of the overall sector stem cell companies, CYTX has a 0.5X multiple and a comparison value of $2.73.
CYTX has created a family of medical devices and disposable supplies to extract a cocktail of stem and regenerative cells from a patient’s fat and re-inject those cells into the patient during the same surgical procedure. This mixed collection of cells has demonstrated ability to stimulate new circulation in transplanted tissue and improve blood flow in organs where it is impaired.
Adult stem and regenerative cells have been shown to promote healing. CYTX’s lead product is the Celution System, a medical device that extracts and separates stem and regenerative cells from a patient’s own fat tissue. The device is currently approved in the EU for applications including breast reconstruction, soft tissue repair, and the facilitation of healing certain types of wounds, such as those resulting from Crohn’s disease.
Cytori systems have been used to treat more than 1,000 patients in 38 countries. They are currently being sold for cosmetic and reconstructive procedures and research as well as being evaluated for a range of applications, including heart attack, urinary incontinence, renal failure and liver disease.
Sales of the system have been tracking downward over the past 3 Q’s in a questionable economy. Hopefully, Q4/10 will come in even, enabling a transition to the New Year and economic outlook. We believe the Celution System will see sales ramp significantly over next year, FY11. But, ultimately, clinical data will determine the pace at which the share price continues to rise. So far, the clinical data has been exciting, and with several investigator-sponsored programs ongoing. Cytori is directly selling its products in Asia and Europe and also has distribution agreements with GE Healthcare and Green Hospital Supply.
CYTX continues to expand the number of Celution(NYSE:R) and StemSource(R) products in the field while simulating system adoption and consumable usage. Expanded Celution(R) indications-for-use in EU include new medical applications such as breast reconstruction and the repair of wounds positively impacts their ability to sell systems to hospitals. This expansion of market opportunity opens doors for sales efforts beyond what had been focused (primarily) on cosmetic surgery clinics.
The global market for regenerative medicine is forecast to reach $1.4B by the year 2015, powered by increasing focus on stem cell research, greater usage of non-autograft products, ageing baby boomers and higher investments in R&D activity. For an industry segment known for both hope and hype, it is no surprise that stem cell therapies are once again making headlines and CYTX operates within what is expected to be a high-demand sector in the coming years.
CYTX 12 month results from the RESTORE 2 breast reconstruction trial support efforts to gain reimbursement for breast reconstruction in the EU. In addition, PureGraft(NYSE:TM) approval in the US and EU now expands the product portfolio to more comprehensively address the autologous fat grafting market. When combined, the importance of the expanded claims and PureGraft(TM) approvals support the CYTX’s transformation from a primarily R&D organization to a multi-product, multi-market, sales driven organization.