You stated that "...the most important factors for CRY's stock price are developing the Biofoam market in Europe and expanding the surgical use of Synergraft".
Question #1 - It seems to me that Biofoam has characteristics of Bioglue, mainly the similar delivery syringe. This seems to me to be a sign of lack of research capability and lack of imagination on the part of CRY. Do you think that Biofoam is going to be a leading edge product? Do you see it developing a substantial revenue stream?
Question #2 - The Synergraft technology just seems to me to be a continuation of the tissue business. The tissue business seems to have a low gross profit margin, heavy government regulation, high fixed costs, and just not be a product line that will ever add much to profit. Please explain to me how this product is ever likely to generate anything more than nominal positive cash flow improvement.
I would enjoy reading your response and your opinions.
The relative low margins in tissue processing these past few years have advantages since they tend to get rid of one's competition. In the heart valve market, several of CRY's competitors have exited the business in the last 2 years leaving only the non-profit Lifenet. Tissue processing margins had a bad year in 2009, dropping about 10% as the economic downturn created price pressures and CRY signed a number of hospital contracts with price concessions. Synergraft is a definite improvement over regular tissue chiefly because it vastly reduces the immune response but also clinical evidence has shown Synergraft tissue lasts longer and performs better than the normal tissue. For these reasons, CRY gets a 10% to 30% price improvement on its Synergraft tissues.
CRY hasn't gone to 100% Synergraft for its cardiac business because they are waiting on FDA 510K clearance for its Synergraft aortic valve, which is 40% of its cardiac business, and they are presently impeded by a 1-year shelf life regulation. CRY has 510 approval for the pulmonary valve and will convert to Synergraft for that business when they get an extension on the 1-year shelf life. They are currently working with the FDA to obtain that. Synergraft is also the technology CRY would use for future xenograft devices.
Dept. of Defense grants of over $5 million were given for developing Biofoam. It functions as a hemostatic agent as well as an adhesive so it could be used for gunshot wounds or internal organ hemorrhages. While it is the same underlying chemical as Bioglue, it has a number of advantages. Once applied, it expands up to four times its size and sets within seconds while adhering itself to the tissue. It thus forms a mechanical barrier over the bleeding site while allowing the blood to coagulate. This expansion results in significant improvement in adhering to lacerations including such difficult areas as internal organs like the liver. Biofoam is biodegradable and fully digests itself in about 6 months which is preferred in surgery since you don't want to implant solid materials in a patient. Instead of a clear liquid that is only slightly more viscous than water, Biofoam is easily seen, doesn't run off while having a consistency and appearance frequently compared to a very hard Reddi-whip. Due to its expansion, Biofoam is not as strong as Bioglue but still can withstand the pressures one would encounter in cardiac surgery. Biofoam has received a CE mark in Europe for sealing internal organs and has applied for an IDE to do likewise in the U.S. CRY should soon apply for a CE mark to use Biofoam in European cardiac surgeries and late this year or early in 2011, plans to apply for a cardiac use IDE in the U.S. Biofoam would also be an improvement for the meshes currently used in hernias and results have been very positive in this application so far in Germany.
I wouldn't totally forget about BioDisc which can be used for the treatment of herniated discs. Though it's in clinical trials, widespread use seems years away. However, it might become a valuable selling point for the company much earlier than that.