Cytori Therapeutics, one of our Stem Cell Sector Companies, has demonstrated a solid business plan and excellent (or we presume so, since few details are yet available) partnering agreements with the likes of Olympus Corporation and Green Hospital Supply. In fact these partners have provided a major portion of Cytori's operating cash requirements while it goes through the process of either waiting for, or creating, a market for its Celution System. The Celution System extracts, processes, and, if necessary, stores adipose stem cells. Cytori is attempting to create a market for Celution by supporting and/or tracking various tests using adipose derived stem cells.
As is the case across the stem cell spectrum, it is reasonably clear the timing anticipated in the company's partnering agreements with Olympus and Green Hospital Supply may be behind schedule. In their 10k filed in April 2007 for the 2006 calendar year, they predicted that the Cytori-Olympus joint venture would be producing the Celution system by sometime in 2008. In fact, the joint venture is and was contemplated by Cytori to be the sole production entitiy for the Celution System. So far, however, sales have not prompted a need for sophisticated manufacturing schedules simply because there is so far not a sufficient demand for adipose stem cells at the therapeutic level.
With the thought in mind that Cytori's manufacturing joint venture with Olympus has as its purpose the production of the company's Celution products, here are some other quotes from Cytori's 10Ks covering 2006 and 2007:
"Our balance sheet includes a line item entitled deferred revenues, related party. This account primarily consists of the consideration we have received in exchange for future services that we have agreed to perform on behalf of Olympus and the Joint Venture. We recognize deferred revenues, related party, as development revenue when certain performance obligations are met. Such revenue recognition results from completion of certain milestones, such as completion of pre-clinical and clinical studies, product development efforts, and seeking regulatory approval for the treatment of various therapeutic conditions with adult stem and regenerative cells residing in adipose (fat) tissue. In 2007, we recognized $5,158,000, and in 2006 we recognized $5,905,000 of revenue associated with our arrangements with Olympus. There was no similar revenue in 2005 or 2004.
We and Olympus must overcome contractual and cultural barriers as we work together. Our relationship is formally measured by a set of complex contracts, which have not yet been tested in practice. In addition, many aspects of the relationship will be essentially non-contractual and must be worked out between the parties and the responsible individuals over time. The Joint Venture is intended to have a long life, and it is difficult to maintain cooperative relationships over a long period of time from a far distance in the face of various kinds of change. Cultural differences, including a language barrier to some degree, may affect the efficiency of the relationship as well.
Olympus-Cytori, Inc. is 50% owned by us and 50% owned by Olympus. By contract, each side must consent before any of a wide variety of important business actions can occur. This situation possesses a risk of potential time-consuming and difficult negotiations which could at some point delay the Joint Venture from pursuing its business strategies.
Olympus is entitled to designate the Joint Venture's chief executive officer and a majority of its board of directors, which means that day-to-day decisions which are not subject to a contractual veto will essentially be controlled by Olympus. In addition, Olympus-Cytori, Inc. will need more money than its initial capitalization in order to finalize development of and production of the future generation devices. If we are unable to help provide future financing for Olympus-Cytori, Inc., our relative equity interest in Olympus-Cytori, Inc. may decrease.
Furthermore, under a License/Joint Development Agreement among Olympus-Cytori, Inc., Olympus, and us, Olympus will have a primary role in the development of Olympus-Cytori, Inc.'s future generation devices. Although Olympus has extensive experience in developing medical devices, this arrangement will result in a reduction of our control over the development and manufacturing of the future generation devices.
As a result of trying to time product development and distribution to coincide with adipose stem cell demand development at the therapeutic level, Cytori has become one of the more flamboyant of our sector companies in its announcements of research progress to the press and the investment community.
The announcement today, which can be read here , for example takes liberties with unwritten research release protocol that is a bit beyond the pale. Quickly read, the release seems to suggest that this was a clinical study. While it specifically states that the results are preclinical, it goes on to talk about study 'subjects,' a term usually applied to clinical studies on people. This study was probably on mice, although it never says so. In fact, the study did not use the Celution System to extract and process the adipose cells. Instead, "a manual extraction technique" was used. The announcement goes on to say, "this potential application could be made more efficient and cost effective with the use of Cytori’s Celution® System to isolate clinical grade ADRCs in real time." ADRCs, by the way, are Adipose Derived Regenerative Cells. In other words the company's release is about a potential application at the preclinical stage wherein the company's products were not involved.
Most likely the reason the Celution System was not used is that its extractor is a bit large for those tiny mouse bodies since it was designed for use on humans. But we speculate here, of course. The results reported in the study of the effect on these mice, or whatever the 'subjects' actually were, seem good as far as the report went (the subject area was kidney damage). But to suggest, or imply, that these preclinical studies represent a step reasonably close to a therapeutic treatment for which the company's Celution System might be used is a stretch.
Because sector companies and the stem cell industry as a whole are under constant pressure to accelerate the time passage from what are increasingly positive research results to the development and application of human patient therapies, there is great variety in the implication suggested by press releases on progress being made. It behooves all of us along for the ride, hoping that the advent of regenerative medicine will change a great deal in disease treatment, to pay very close attention to what is actually said in these press releases as they appear.
I agree that we in the industry much be cautious about not over-hyping the facts. However, one would have to read this release so "quickly" as to miss the headline and first sentence to believe these were 'clinical results' despite the use of the word 'subjects' which is admittedly atypical. I also believe that a read of the release suggests that the company's ADRC products were used in the study albeit not 'clinical-grade'.
-Lee
http://www.celltherapyblog.com
Posted by: Lee Buckler | February 28, 2009 at 09:30 PM