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Cytori: A Low Risk Stem Cell Play

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The biotech company has had successful clinical trials yet is unloved by the market. Here's why investors should start a position now.

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Typically, early-stage biotech companies are considered to have a binary outcome. If successful with the first product that enters clinical trials the company moves on to raise more money through stock sales, enter a partnership with a large pharmaceutical company, or sell the company. In each case, investors do well. However, if the first product fails in its clinical trial, there is a good chance the company will run out of money and fail. Hence, it's binary -- all or nothing.

Stem cell therapies have been garnering significant attention as the field of regenerative medicine starts to evolve. As one would expect, there are a number of start-up biotech companies in the field. Examples are Aastrom Biosciences (ASTM) and Stemcells, Inc. (STEM). There are others, but they all harvest stem cells in some manner, expand these cell populations outside of the body, manipulate them to perform a certain therapeutic function, and pray that they can get through the required clinical trials and FDA approval process before they run out of money. That is the definition of binary biotech.

One stem cell start-up may not fit the usual binary description. This company is Cytori Therapeutics (CYTX). Cytori's approach is to use the stem cells that exist in fat tissue known as adipose tissue. Adipose tissue is connective tissue consisting mainly of fat cells, specialized to synthesize and contain large globules of fat within a network of fibers. In other words, your beer belly.

Whenever I think about the human body and diseases, I go back to the reality that we all have the same caveman genes. Our common 487th great, great grandfather as a teenager beat off a saber-tooth tiger at his cave entrance, but took a nasty flesh wound. If it hadn't healed, we wouldn't be here. What healed it? The answer is stem cells. To be more precise, adult stem cells.

There are two major types of stem cells, embryonic and adult. The role of embryonic stem cells is obvious and critical. We all started out as an egg impregnated by a sperm. This cell then divided until it was time to differentiate into organs, arms, or legs. How this happens is just amazing, but it happens. Once the embryonic stem cells are done creating babies, their role is over. Mammals don't regenerate organs, limbs, or whatever.

The role of adult stem cells is also critical, but less obvious. There are two common sources of adult stem cells:

1. Bone marrow, which contains stem cells that grow new blood cells and immune system cells, and stem cells that can form bone, cartilage, and other tissues

2. Adipose tissue, which contains stem cells that can form bone, cartilage, heart, and other tissues, and adolescent cells( something between a stem cell and a fully mature cell) that can support the healing process.

One critical component of wound healing is the building of new blood vessels to supply blood to the healing wound. Tissue that lacks sufficient blood and therefore doesn't get enough oxygen is called ischemic. Ischemic diseases/conditions include heart attacks, congestive heart failure, and strokes. There are more, many more.

Did that light bulb above your head just light up? Could stem cells in my beer belly possibly save my life down the road? Could my adipose stem cells be harvested, concentrated, and used to treat me, if one of these deadly ischemic conditions developed? Congratulations, you just conceived Cytori's business plan on your own!

Cytori has developed a medical device system called Celution. Its next generation Celution will be manufactured by the Japanese instrument company Olympus, well-known and highly respected for the quality of its products. Celution takes adipose tissue, obtained through a simple liposuction procedure, treats the adipose tissue with enzymes and other reagents to free up the ADRCs from the fat matrix, and then centrifuges the remaining cells to concentrate the ADRCs. The entire process takes about one to two hours depending on the amount of fat and happily avoids any controversy attending embryonic stem cells.

The first ischemic application that Cytori targeted was breast reconstruction after lumpectomy surgery for breast cancer. Fat transplants have been tried in the past, but typically a big enough transplant to restore the natural shape of the breast would fail over time because the transplanted fat would not receive enough blood flow to stabilize as natural tissue and it would be absorbed away over time.

Cytori's concept was to concentrate adipose-derived stem and regenerative cells (ADRCs) and inject the concentrated ADRCs along with the fat tissue hopefully generating enough new blood vessels to stabilize the fat tissue. A clinical trial in Europe called RESTORE 2 was started and enrollment was completed in November 2009. Patients were followed and evaluated for one year. Results from the 32 patients who had reached the six-month follow-up at the time of analysis were presented at the San Antonio Breast Cancer Symposium in December 2009. Final data will be available later this year. Indications from the preliminary results look very favorable.

The preliminary results of this trial appeared as a cover story in Wired Magazine last November.

The next step for Cytori was to start trials in ischemic indications with larger markets than breast reconstruction. There is nothing bigger than cardiac applications. Ischemic heart problems can be classified simply. Either your heart muscle suddenly doesn't get enough oxygen (acute, a heart attack) or your heart slowly loses its ability to get enough oxygen (chronic, called congestive heart failure (CHF)). The money spent on treating heart problems is enormous.

In 2007 and 2008, Cytoria started two trials to address both types of ischemic heart conditions. The trial addressing myocardial infarctions (heart attacks) was called the Apollo trial.

Apollo was a safety and feasibility study in Europe to evaluate the use of ADRCs as a treatment in heart attack patients. Within 36 hours of experiencing heart attack symptoms, a patient's own ADRCs are extracted and injected into their coronary artery. The harvesting technique was similar to the RESTORE trial, but the concentrated ADRC cells were not mixed with any additional fat tissue. The size of the trial was very small but the results were quite good.

The chart below shows the reduction in infarct size (infarcted tissue is the dead or damaged heart muscle caused by the reduced blood flow from the blockage).

Cytori Apollo Trial

Cytori used these results to design a new major clinical trial called Advance. It will use ADRCs to treat acute heart attacks. The trial will be conducted in Europe.
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Position in CYTX

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