Cytori Therapeutics Vs. Thermogenesis: A Fascinating Difference In Market Values

There are many reasons companies entering the commercialization stage of product  development might be valued differently by the stock market.  Some of them are rational, others are not. Thermogenesis (KOOL) and Cytori (CYTX) provide a great case study in market capitalilzation. While the companies are very similar in many ways, the market sees them as substantially different from one another.

Thermogenesis has arguably been a 'commercialization stage' company for almost ten years while Cytori is still arguably not in the commercialization stage even now although it has begun book sales. To some extent the market views Thermogenesis as a mature but unprofitable player in the cord blood processing and storage market and nothing more.  Relative to Cytori, which has yet to prove it has a broad commercial market, this perception of unprofitable maturity has hurt Thermogenesis.

Looking only at revenues, KOOL's were $21.9 million in its last fiscal year and $5.1 million in the March quarter; CYTX revenues were $4.5 million in its last fiscal and $1.9 million for the March quarter.  KOOL had a market value on Monday, June 15, of $41 million while CYTX's market value drifted down to $129 million from $138 million in Friday's trading session. Like KOOL, CYTX continues to lose money. In terms of cash burn, Cytori has less than a year's cash remaining while Thermogenesis projects profitability on a continuing cash basis within the next few operating quarters.

CYTX is valued at over 3 times the market value of KOOL.  The question is, why? Cytori specializes in the processing and storage of adipose (fat) stem cells.  It has established an intriguing joint venture with Olympus Corp. which calls for Olympus to manufacture the Cytori Cellution System.  While the idea of a manufacturing joint venture with a company like Olympus is clearly attractive and presumably representative of future possibility, nothing is known about the terms of this joint venture.

Thermogenesis makes devices that process and store cord blood and has recently, if belatedly, introduced the marrowXpress to process bone marrow stem cells.  It is following that introduction this month with Res-Q which is a device that processes bone marrow or peripheral blood at the point of care. In theory, this puts Thermogenesis and Cytori on the same playing field in terms of overal market potential.

 As we've said in past posts, both companies have a bright future assuming the processing and storage of adipose, cord blood, bone marrow and peripheral blood stem cells find a large and expanding market as stem cell therapeutic applications become commonplace.

So with KOOL selling over 20 million a year and CYTX with no established market (in terms of regularly used and proven application), why the difference in market values?

Presumably the market cap difference is explained in one of two ways:

1. KOOL's inability to expand beyond the cord blood market, which is limited in size, and into the broader bone marrow and peripheral blood markets.


2. Cord blood, bone marrow and peripheral blood stem cells are perceived by the stock market to have less of a therapeutic future than adipose stem cells.

Kool is in the process of accomplishing the first and there is no evidence of the second.

Right now CYTX is selling future hope. It's our guess that CYTX will fulfill that hope in reconstructive, and eventually in cosmetic, surgery where adipose would seem to have a theoretical advantage. At the moment, the stock market is pretty much ignoring the fact that there is, as yet, no established market of any size for adipose stem cells. But CYTX does a terrific job of selling the idea that there will be. Historically, and in fact right up to this point, KOOL has done a lousy job of selling hope.  The market value of a publicly traded company lives and dies on hope, and the perception of hope, until such time as the ability to grow steadily, produce profits, and react to change and adversity have been established.

Bottom line: Thermogenesis has a market only in cord blood and will have to give the market hope, in other words a reason to believe it will be a player in the expanding stem cell market outside of cord blood, to reach Cytori's market valuation or greater. Cytori, on the other hand, is offering hope in lieu of what the stock market sees as an expanding demand for the adipose stem cells it processes and stores. To maintain its market capitalization lead over Thermogenesis, Cytori will have to demonstrate that the adipose stem cell market is real.

Comments

[Kool_and_the_gang]

KOOL looks like a better company when you look at their revenue versus the market cap. About 50% their cap in annual sales versus CYTX which is only around 3%.

[John Gardner]

Besides Cytori's outstanding management team, 102 patents and triple A partners (GE and Olympus) it has a far superior business model. The fact is adipose solutions for breast, cardiac, and host of other applications have already been proved efficacious in a dozen countries. The trick now is rapid access to large “quantities” of stem, progenitor and related cells. Adipose is in plentiful supply – you just can’t get the volume from cord or bone marrow sources. Cytori understands this and is the leader in this market. It’s all about volume.