Tuesday, March 16, 2010

Cytori - Down But Not Out - GE Next Up?

After reporting earnings on March 12th, shares of Cytori Therapeutic have been hit hard. Shares have fallen from $7.50 to below $5. The impetus for the decline was clear, news that the company flagship product, the Celution, would require a Pre-Market Approval application for 'soft tissue filling" in order to get FDA approval. From a practical standpoint, the process requires a U.S pivotal / approval study and the end result is that there will be no quick commercialization for the Celution in the U.S. It is clear now that traders in CYTX were speculating on a more expedient path to FDA approval but it is unclear as to why, as there was no indication from the company as to how the approval process would play out. I refer readers directly to Cytori's Shareholder's Letter and a recent Presentation at the Roth Growth Conference to learn the details of the FDA issue.

Going forward, many are anticipating the May 7th clinical results from the cardiac related Precise and Apollo clinical trials. However, there is another potential catalyst that may not be a focus of market participants.

In January 2009, Cytori signed a
commercialization partnership with GE Healthcare:

"The partnership provides GE Healthcare with exclusive commercialization rights for 18 months in the U.K., France, Germany, Norway, Finland, Denmark, Sweden, Austria, and Switzerland for the cosmetic and reconstructive surgery market, translational medicine, and stem cell banking. The same terms apply in Belgium, The Netherlands and Luxembourg for translational medicine and stem cell banking. GE Healthcare was granted a two year right of first refusal to sales and distribution rights in the United States and all remaining European countries."

This partnership agreement will expire in mid July 2010. In my view, the many examples of impressive therapeutic success, in numerous indications over the ensuing 18 months, by patients treated with cells from the Celution should put Cytori in a much stronger negotiating position compared to January 2009 when the original agreement was signed. This opens up the possibility of a bidding process and a much better deal from GE or any potential large player looking to enter the promising market of regenerative medicine. Of course, it's not possible to predict what terms will be reached and with who but it could potentially include a substantial up front cash investment as Cytori is the leader in autologous regenerative technology and already impressive commercial unit sales growth in Europe and Asia.

As I've mentioned before on this blog, the best time to buy a story stock is when the story is still great but investor enthusiasm has waned. The recent Cytori stock price certainly seems to indicate that we have reached this point as downside momentum has seemingly fed upon itself and the tremendous growth potential of Celution technology is temporarily being ignored.

As always, I urge all investors to do their own due diligence.

3 comments:

Greg said...

The FDA may require a longer approval process for Cytori's technology as it relates to cosmetic medicine, because there is no "immediacy" for that type of treatment. I wonder if a successful Precise and Apollo trial might cause the FDA to rethink this and fast-track the technology? Saving lives and a considerable amount of healthcare dollars by treating the United State's number one killer with technology as inexpensive as Cytori's might do the trick.

Wall Street Titan said...

Greg,

Both trials have limited enrollment. Apollo has 48 patients and Precise has 36 patients. On its own, this limited enrollment makes fast track status seem less likely. However, positive results from the Precise trial for chronic heart disease would seem to have a better possibility to result in a fast track status, in my opinion. I say this because patients in this trial cannot be treated by any other means. One could see how positive ADRC treatment results on patients with no alternative treatment could lead to fast track status. Obviously, this would be an important development for the company and its stock price. May 7th should be an interesting day for Cytori investors.

Greg said...

You are absolutely right about ischemic heart disease and lack of treatments. My mother died of heart failure due to ischemic heart disease a couple of years ago. The most they could offer her was an IV treatment twice a week that had little benefit and cost $10,000 a month. Hopefully the PRECISE trial will have promising results and the FDA will fast track Cytori's therapy.