Targeting Ischemic Diseases by Improving Blood Flow, Cytori Therapeutics (CYTX)
Initiated with a BUY ranking and believe that CYTX’s stock has a low valuation but will appreciate as the IDE clarity, execution and trial results become clear. The new blended valuation model implies a pricing of $6.00 given the fully diluted shares of 63.4M.
This market has especially depreciated the stem cell universe over the last fifteen (15) weeks.
Substantiating our Sum of the Parts (SOTP) scenario which is extremely conservative (with a 10% discount); details a value of $4.12, and when merged with a direct comparables analysis of $15.08 reinforced by a stem cell sector perspective of $1.46 and a cosmetic companies comparables of $3.36, implies a blended valuation of $6.00 given the fully diluted number of shares of 63.4M.
The Blended Price Valuation of $6.00 is above this stock’s current price of $3.95 with a trading range of $2.93 – $9.50. We apply a standard 20x P/E biotech multiple to 2010 EPS and a 10% Discount Rate back to 2009 or 4 years/periods and achieve a fair value of $6.48 per share. We note the average market capitalization of designated comparables is $955.84M or about 3.8X the implied multiple of CYTX’s market cap of $250.43M. In a review of the overall sector stem cell companies, CYTX has a 0.4X multiple and a comparison value of $1.46.
Cytori Therapeutics manufactures and sells products to the cosmetic and reconstructive surgery markets and develops treatments for cardiovascular disease. Its principal products include the Celution® System family of products, which processes patients’ cells at the bedside in real time, consisting of a central device, a related single-use consumable used for each patient procedure, proprietary enzymes and related instrumentation. This report highlights:
- Improved outcomes from interim results in a European breast reconstruction reimbursement study and improved patient outcomes in two (2) EU cardiovascular clinical studies, one in acute heart attacks and the other in chronic heart disease,
- Data from the 14 patient APOLLO study showed a substantial reduction in the size of injury to the heart, an improvement in the amount of blood supply to the heart muscle, and a corresponding functional improvement in the amount of blood the heart can pump,
- Data from the 27 patient PRECISE study showed a reduction in the extent of infarct size in the left ventricle and a statistically significant improvement in maximum oxygen,
- Pre-IDE meeting with the FDA should define the clinical objectives needed for Celution® approval for soft tissue reconstruction to determine the exact scale, scope, design, timing and any other requirements for a US study,
- Finalizing the design and protocol for a pivotal European heart attack study which is expected to initiate in FY10-11; the EU approval study is expected to range in size from 150 to 250 patients,
- Negotiating partnerships that appropriately value the product platform for cardiovascular disease applications and other current or future therapeutic applications,
- Entered into a $20M secured loan facility (6/14/10) allaying the perception of dilution or an imminent financing; these amounts will fund operations into 2012.
This review is available at website: http://scimitarequity.com/upload/CYTX%20Initiation%20Review%207766001.20766001.10766001.pdf