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Lipids Like Sugar
By Mark Glassman
March 8, 2006
AS THE DEBATE OVER embryonic stem cells continues to rage on campaign trails and in budget meetings, a handful of biotechnology companies are circumventing the controversy altogether. Biotechs like Aastrom Biosciences (ASTM1) and StemCells (STEM2) are collecting stem cells from patients' own bodies for use in various therapies. Others like Viacell (VIAC3) are relying on the stem cells found in umbilical cord blood.
These approaches dodge the stigma tied to embryonic stem cells, which are harvested from human fetuses, but they have their drawbacks. The existing processes of removing stem cells from the body can be painful and invasive, and umbilical cord blood must be properly stored from the time of birth in the event it's ever needed. In either case, an expensive and lengthy process called cell culturing is required to keep the stem cells viable between the time of extraction and when they're administered to a patient.
Cytori Therapeutics (CYTX4) is trying to overcome all of these obstacles. Founded in 1997, the San Diego-based company is developing a cheaper, faster and decidedly less controversial process of gathering stem cells from patients' own fat. Cytori says it's still two to three years away from perfecting the procedure and rolling it out in the U.S., but if successful the process could revolutionize the way researchers, doctors and patients approach regenerative medicine.
Stem cells hold the promise of treating a broad range of medical conditions, from spinal-cord injuries to rare genetic disorders, because they have the potential to morph into other cells. Embryonic stem cells are particularly attractive because they are the building blocks that ultimately evolve into every organ and system in a human body. Adult stem cells haven't been found to have the same degree of transformational capabilities.
Cytori's experimental procedure aims to get the most out of adult stem cells by avoiding cell culturing altogether. "If you culture the cells, you get phenotypic drift," says Kenneth Chien, the director of the Massachusetts General Hospital Cardiovascular Research Center who has also served as an advisor to Cytori. "So the cells can change in one way or another." Without culturing, the stem cells can be isolated and used for treatment right away, he says.
The procedure could also lower overhead costs and increase the likelihood of reimbursement coverage from private insurers and Medicare. "It gives them more leverage," says Ren Benjamin, an analyst who covers the stem-cell space for Rodman & Renshaw, an investment bank in New York. "If your cost of goods is lower, you have more leverage to negotiate prices that might be able to beat out competing technologies."
In theory patients would come to a hospital for a single procedure that begins with stem-cell extraction from fat. "An hour later, the doctor has a syringe of stem and regenerative cells to put into the patient," says Marc Hedrick, Cytori's president. "Nobody else can do that."
Of course, neither can Cytori — at least not in a commercially viable way. But Cytori's early studies involving stem cells from fat are promising, and so are the applications. Results published in the cardiovascular supplement of the March 3 issue of Nature Clinical Practice show that the cells harvested by Cytori's process can be used to treat heart failure. The cells may help the heart by becoming cardiac muscle cells and indirectly encouraging the formation of new blood vessels. The company hopes this cardiovascular application will become the main revenue driver once the process is refined and rolled out, perhaps as early as 2008.
Research suggests that the adipose-derived stem cells, or stem cells that come from fat tissue, may be less useful in forming new muscle cells. The data in cardiac muscle regeneration studies have been ambiguous, Mass. General's Chien says. However, the evidence supporting the link between the cells and blood vessel formation is more clear, he says.
Cytori's fat-derived stem cells have a number of other potential applications, as well. In Japan, an independent surgeon has used the cells in breast reconstruction in more than 20 women who had soft-tissue defects associated with certain types of breast disease. "The doctor used the stem cells from fat tissue and treated those areas in a way that you really can't with other treatments," says President Hedrick. Cytori says that work will be published shortly, and that the surgeon will soon begin a more formal clinical trial, in which the data will be subject to a higher level of scrutiny.
Another independent researcher is working on using the cells to treat a complication of Crohn's disease, an inflammatory bowel disorder that can sometimes cause tears in the intestine. It's possible that stem cells may serve as a kind of plaster, sealing up those wounds.
Further down the road, the company also hopes to use its technology to develop high-end cosmetic treatments, says Hedrick. To combat the effects of aging, the cells could be used to revive fat tissue in a patient's face. Another potential application: breast reconstruction after tumor removal. (Moreover, given that the process involves a kind of isolated liposuction, it's also a quick way to shed a modest amount of localized fat.)
Not surprisingly for an early stage biotech, Cytori operates in the red5, but it did report third-quarter revenue of $1.6 million, mostly from sales of its spine and orthopedic implants, which are distributed by Medtronic (MDT6). Those sales, coupled with an $11 million milestone payment it received this year from its development partner, Japan's Olympus, should sustain the company until it commercializes its stem-cell process in the U.S. in 2008 or 2009. A first-generation process received marketing approval in Europe in January and will be used to gather clinical data for U.S. approval.
As of Sept. 30, before Olympus — better known as a camera maker but also a manufacturer of medical devices — made its milestone payments, Cytori had about $10 million in cash and short-term investments. The company burns between $1.5 million and $2.0 million a month.
"Olympus's months of due diligence has helped to validate the technology," says Hedrick. The collaboration agreement, worth up to $55 million, was signed in November.
As for Cytori's stock7, it hasn't done much since joining the Nasdaq in December. Shares have fallen about 10% during the three-month span. Cytori has traded in Frankfurt since 2000, because management was able at that time to arrange more favorable equity-offering terms in Germany. Shares continue to be listed there. The dual listing on Nasdaq, while not raising additional capital, paves the way for U.S. investors to own a piece of the company and opens doors to additional avenues of financing, if needed.
So don't look for any big surprises when the company releases earnings later this month. Quarterly financials probably won't be very telling for a while. But do keep a close eye on Cytori's clinical progress with those fat-derived stem cells. Positive results could very well push the stock higher.
Links in this article:
1http://www.smartmoney.com/cfscripts/Director.cfm?searchString=ASTM
2http://www.smartmoney.com/cfscripts/Director.cfm?searchString=STEM
3http://www.smartmoney.com/cfscripts/Director.cfm?searchString=VIAC
4http://www.smartmoney.com/cfscripts/Director.cfm?searchString=CYTX
5http://macro.client.shareholder.com/news/Q305/MACRO1114.pdf
6http://www.smartmoney.com/cfscripts/Director.cfm?searchString=MDT
7http://www.smartmoney.com/eqsnaps/index.cfm?story=charting&symbol=CYTX
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