Scimitar Equity Blog

Scimitar Equity continues with a BUY ranking which implies a blended valuation of $7.97 given the quarterly basic and diluted weighted average shares of 45.3M. 

The Avg. Blended Price Valuation of $7.97 is above this stock’s current price of $4.98 with a trading range of $3.08 – $9.50. 

Scimitar Equity’s SOTP scenario is extremely conservative (with a 10% discount) and details a value of $5.76, and when merged with a direct comparables analysis of $15.63 reinforced by a stem cell sector perspective of $1.71, a cosmetic companies comparables of $4.39, and a wound care device company comparable of $12.36, implies a blended valuation of $7.97 given the quarterly basic and diluted weighted average shares of 45.3M. 

• The Avg. Blended Price Valuation of $7.97 is above this stock’s current price of $4.98 with a trading range of $3.08 – $9.50;
• We applied 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 $5.76 per share;
•  We note the average market capitalization of designated comparables is $707.94M or about 3.1X the implied multiple of CYTX’s market cap of $225.59M;
•  In a review of the overall sector stem cell companies, CYTX has a 0.3X multiple and a comparison value of $1.71;
• Scimitar Equity believes (assuming market growth) share price momentum and appreciation should propel CYTX to the designated valuation.

CYTX continues to expand the number of Celution(R) and StemSource(R) products in the field while simulating system adoption and consumable usage.

• Expanded Celution(R) indications-for-use in EU include new medical applications such as breast reconstruction and the repair of wounds positively impacts their ability to sell systems to hospitals;
• This expansion of market opportunity opens the door for sales efforts that had been focused (primarily) on cosmetic surgery clinics;
•  CYTX anticipates that 12 month results from the RESTORE 2 breast reconstruction trial will support efforts to gain reimbursement for breast reconstruction in the EU;
• In addition, PureGraft(TM) approval in the US and EU now expands the product portfolio to more comprehensively address the autologous fat grafting market;
• When combined, the importance of the expanded claims and PureGraft(TM) approvals support the CYTX’s transformation from a primarily R&D organization to a multi-product, multi-market, sales driven organization.

On 08/23/10, the Federal District Court for the District of Columbia issued a temporary injunction on President Obama’s 2009 executive order that expanded federal funding for embryonic stem cell research, returning to order the previous ban enforced by the Bush administration in 2001. 

• The news immediately halted NIH funding at academic and private research labs on embryonic stem cells;
•  At issue is whether the Dickey-Wicker Amendment prohibits the government from using taxpayer dollars to pay for experiments involving human embryonic stem cells, which are made by disassembling embryos that are days old.

The U.S. Board of Appeals placed a pause on the ruling on 09/09/10, allowing the NIH to temporarily resume funding for research involving human embryonic stem cells; however, on 09/15/10 attorneys for the two adult stem cell research scientists who initially spurred the ruling filed papers asking an appeals court to overturn its decision striking a judge’s temporary injunction preventing funding.

• The market interpreted this move as harmful to all stem cell stocks – although it creates no such impediment to business at CYTX, as it is involved in a non-controversial area of stem-cell research. Furthermore, CYTX funding is not financed through federal research availability.

Additionally, in light of recent events, it is important to note that CYTX has no involvement in human embryonic stem cell research.

• It is equally important that investors observe that Cytori’s stock price should not be tied to any federal ruling on embryonic stem cells, as CYTX focuses on therapeutic uses of autologous cells;
• CYTX creates these autologous cells through a small liposuction procedure, generating adipose-derived stem and regenerative cells (ADRCs) from a patient’s own fat cells;
• CYTX’s ADRCs have been shown to improve fat grafting for plastic and reconstructive surgery procedures, and in the treatment of certain chronic wounds in clinical trials;
• CYTX is also examining the uses for ADRCs in the treatment of acute myocardial infarction (heart attack) and chronic myocardial ischemia (a severe form of coronary artery disease);
• However, as evidenced in the recent negative impact on CYTX’s stock price following US District Judge R C. Lamberth’s ruling, there — was — a perceived market risk in the perception of CYTX as a stem cell company that would be affected by such an order.

To dowload CYTX’s new review: http://scimitarequity.com/upload/CYTX%20Q2%20Update%20&%20Review778434.pdf