another Cytomedix read...enjoy...
On August 8, Cytomedix (CMXI) announced corporate updates and financial results for the second quarter of 2013. As part of this update, the Company announced a new five-year partnership with Arthrex, Inc. (private) for the commercialization of the Angel® Concentrated Platelet Rich Plasma System. Cytomedix will receive an up-front payment of $5 million as part of the deal.
Cytomedix is Refocusing Efforts on AutoloGel. As part of their announcement of quarterly results on August 8, Cytomedix management indicated an intention to focus all commercial efforts on the sale of AutoloGel in the wound care market. This decision was prompted in part by the significant progress they have made in obtaining reimbursement from the Centers for Medicare and Medicaid Services (CMS) for AutoloGel use in Medicare patients. This is very important because more than half of the addressable market - patients suffering from pressure ulcers, venous ulcers, and diabetic foot ulcers - are covered by Medicare. Cytomedix is also preparing to launch AutoloGel into Veterans Health Administration (VA) hospitals. Company management expressed an intention to continue to explore potential commercial agreements for AutoloGel that may help to improve the pace of sales growth.
We believe the shift in focus towards AutoloGel is a smart move for Cytomedix, as they have been working to grow the market for this product, which addresses a clear unmet need. The decision to provide reimbursement through the Coverage with Evidence Development (CED) program shows that CMS recognizes the wound healing properties of the platelet rich plasma (PRP) gel that is produced by the AutoloGel system. Moreover, the Company can now focus their resources on selling AutoloGel while putting Angel into the capable hands of their new partner Arthrex. Details of this commercial partnership are described below.
Cytomedix Licensed Exclusive Rights for the Angel® System to Arthrex. Along with second quarter earnings, Cytomedix also announced that it has issued an exclusive 5-year license agreement with privately-held Arthrex, Inc. for the commercialization of the Angel Concentrated Platelet Rich Plasma (cPRP) platform. The agreement also contains an option for an additional 3-year license. We believe this is a very favorable deal for Cytomedix, as they will receive a $5 million up-front payment from Arthrex in addition to low double-digit royalties on all sales. Moreover, Cytomedix retains ownership of the Angel technology.
Arthrex is a strong and ideal partner to move forward with the commercialization of the Angel cPRP System. The company has a presence in all areas of orthopedic medicine, having developed more than 6,000 products that supply the arthroscopic and minimally invasive orthopedic surgical markets. Arthrex controls a patent estate of more than 205 granted US patents, with additional coverage in foreign countries. Although it is a US-based company, Arthrex has a strong international presence, especially in Europe, and distributes supplies to more than 90 foreign countries. As a leading provider of orthopedic supplies, the company already has an established sales force interacting with the physicians who would use Angel.
Explanation of CMS Reimbursement for AutoloGel and Product Launch. In August 2012, Cytomedix announced that the CMS had issued a National Coverage Determination (NCD) indicating that PRP gel would be eligible for coverage under the Coverage with Evidence Development (CED) program. This NCD reversed a 20 year old non-coverage determination and was the culmination of significant efforts by Cytomedix. This reimbursement milestone also dramatically improved the commercial prospects for AutoloGel. Since that time Cytomedix has continued to work through the complicated process of obtaining reimbursement. In March, CMS issued a Healthcare Common Procedure Coding System (HCPCS) code to enable reimbursement of AutoloGel. The new HCPCS code is G-0460, which covers "Autologous platelet rich plasma for chronic wounds/ulcers, including phlebotomy, centrifugation, and all other preparatory procedures, administration and dressings, per treatment."
In July, CMS issued proposed rules that will determine the coding and reimbursement for any new or changed products and procedures in 2014. This includes regulations for the Physician Fee Schedule (PFS) and the Hospital Outpatient Prospective Payment System (HOPPS). The proposed rules make it relatively easy to obtain reimbursement for AutoloGel in a physician's office, meaning Cytomedix can immediately start charging a price in this setting that is economically viable. However, under HOPPS, for claims submitted from July 1 through December 31 of this year, CMS has placed the reimbursement code for AutoloGel in an Ambulatory Payment Classification or APC that initially provides only limited reimbursement. Cytomedix plans to work with CMS to get this situation reversed. A final decision on the reimbursement rate will be made in late November and will go into effect on January 1, 2014.
As part of the rules process, CMS is also proposing that AutoloGel and other wound healing products be reimbursed as part of a procedure, rather than for the individual product. This type of 'packaging' is designed to control costs by giving doctors incentives to use lower priced products in procedures. Because AutoloGel has a competitive price, this may be a net positive for Cytomedix when all wound healing products are reimbursed this way, but the final rules are not yet known.
With the reimbursement process moving forward, Cytomedix is preparing to launch AutoloGel initially in high-volume physicians' office and into Veteran's Health Administration hospitals. This will give the Company access to a large number of wound healing procedures with a relatively small sales force. A full scale launch in large wound care centers is planned for early 2014. The Company's sales force is expected to double by the end of 2013 from 4 or 5 representatives and to double again through 2014.
Second Quarter Financial Results. For the quarter ending June 30, 2013, Cytomedix reported product sales of and total revenues of $2.4 million. Excluding a one-time license payment recorded in the same period in 2012, this represents a $0.5 million increase in revenue over the previous year's quarter. Cash used for operating expenses in the quarter was $3.7 million. Total operating expenses for the quarter were $5.7 million, an increase of $0.7 million over 2012. Cytomedix recorded a net loss of $5 million or $0.05/share for the three months, compared to a net loss of $7.5 million or $0.09/share in the same period in 2012.
The Company reported a cash position at the end of the quarter of $3.4 million, although this total does not take into account the $5 million up-front payment from Arthrex. Cytomedix therefore reported pro forma cash of $7 million as of August 8, 2013.
Upcoming Expected Milestones
Q3 2013 - Expected enrollment of first AutoloGel patients in CED.
Q3 2013 - Submit comments to CMS regarding AutoloGel reimbursement.
Q4 2013 - Final CMS rules for AutoloGel reimbursement are expected in November.
Q1 2014 - Launch AutoloGel in the hospital outpatient market and wound healing clinics under CED program.
H1 2014 - Data expected from AutoloGel CED for patients with diabetic foot ulcers.
H2 2014 - Expected CE mark for European commercialization of AutoloGel. Less
Sentiment: Strong Buy
Sentiment: Strong Buy
Great Cytomedix read 8-16-13
Angel Licensed To Arthrex, Inc. For Cash & Royalties
Cytomedix announced that it had signed a five-year exclusive worldwide licensing agreement with Arthrex, Inc., for the commercialization of the Angel Concentrated PRP System. Under the terms of the agreement, Cytomedix will retain ownership of Angel, but has granted Arthrex an exclusive worldwide right to develop, manufacture, and commercialize the product. Arthrex paid Cytomedix an upfront payment of $5 million, and will make royalty payments on future sales in the low teen range (we model 13.5%). The term of the agreement is five years, with a three year renewal option.
…A Little Background On Angel…
Angel is the company's concentrated PRP device and associated disposable products used in surgical settings for the separation of concentrated platelets from whole blood or bone marrow aspirates. Angel has been the main bright spot for Cytomedix over the past year. In fact, sales have continued their impressive march upwards ever since the company acquired the product from Sorin in April 2010. Angel sales in the second quarter 2013 totaled $2.25 million, up 38% year-over-year and 7% sequentially from the first quarter 2013. Below is a graph depicting the impressive recovery and solid growth Cytomedix has been able to achieve with Angel.
Cytomedix has placed nearly 600 units into the market to date, that's up nicely from the 500-525 placed at the end of 2012. What's more impressive is that the company has been doing this with only a handful of sales representatives. The company exited 2012 with 8 full-time sales reps, and only recently increased the number to 10 as of May 2013.
Much of the growth is coming from orthopedics (sports medicine). In November 2012, Cytomedix announced U.S. FDA approval for the use of Angel for processing a small sample of blood or a mixture of blood and bone marrow aspirate (BMAC). The 510(k) approval now allows for PRP produced from either blood or a mixture of bone marrow aspirate to be combined with bone graft material and used in appropriate orthopedic procedures such as spinal fusion, healing of nonunion bone fractures and other bone grafting applications. Concentrated PRP produced from blood and bone marrow may be used in up to 90% of spinal fusion procedures. In the U.S., approximately 400,000 spinal fusion procedures are performed each year and the application of bone marrow or bone marrow concentrates has been the historical gold standard. The U.S. biologics market associated with spinal fusion procedures is approximately $700 million annually. We think an equal opportunity exists in Europe.
…A Little Background On Arthrex…
Arthrex is a global medical device company and leader in new product development and medical education in orthopedics. The company pioneered the field of arthroscopy and developed more than 6,000 innovative products and surgical procedures to advance minimally invasive orthopedics. Arthrex has twenty locations worldwide, with over 60 international distribution locations, shipping products to over 100 countries. As of year-end 2012, Arthrex had more than 1,500 employees in Southwest Florida, 700 national and international employees and about 2,000 sales associates around the world (source: company spokeswoman Lisa Gardiner).
Arthrex, Inc. - National & International Locations
Arthrex has a large commercial infrastructure supporting sales throughout the world and will immediately take responsibility for all sales and marketing activities for Angel. Angel is currently approved in the U.S., and various countries in Europe and in the Middle East, as well as in Canada and Australia.
…Why This Makes Sense For Cytomedix…
Above we noted that Cytomedix was able to generate roughly $10 million in annualized revenues from Angel with only 10 full-time sales representatives. Arthrex has 2,000 sales representatives. The company has a core focus on orthopedic products, with a strong emphasis on orthobiologics. A quick trip to the Arthrex website shows key product groups in autologous blood products, bone grafting, cartilage, cellular products, and soft tissue repair. Angel fits right in with this core focus. We can see Arthrex promoting Angel alongside its existing bone marrow aspirate cell suspension products, its BioCartilage® matrix, its Autograft osteochondral repair system, or its existing PRP autologous systems.
There are several things we believe Arthrex can do to drive Angel sales. The first is increase the Angel average selling price. To date, Cytomedix has been focusing on cardiovascular surgery and only just starting to penetrate the orthopedic market. Arthrex, with a strong foothold in orthopedics can co-mingle Angel with existing products to create kits or solutions for orthopedic surgeons. Secondly, we expect Arthrex to dramatically ramp-up the marketing and promotion on Angel - something cash-strapped Cytomedix has been unable to do. Previously, Cytomedix was relying on PRP workshops and peer-to-peer networking to get the word out about Angel. Arthrex can throw significant marketing dollars at the product to drive uptake, both in and outside the U.S. Finally, Arthrex scale dwarfs what Cytomedix had. Even if only 10% of the Arthrex sales force carries Angel, that's still a 200% increase over what Cytomedix was doing.
Angel held about 10% market share in the concentrated PRP market. With sales annualizing around $10 million, that puts the entire market at around $100 million in size. However, this is a market that is growing rapidly. Cytomedix estimates the market was only $40 million in size in 2009. Sales of concentrated PRP devices have been soaring as more data becomes available in orthopedics and sport-related injuries. Evidence that using PRP to shorten and improve healing with knee, ankle, elbow, or an ACL or MCL sprains is growing rapidly. We have seen clinical data demonstrating PRP is effective at treating chronic tennis elbow, severe Achilles tendonitis and osteoarthritis of the knee. Tiger Woods was reported to use PRP to shorten his recovery time after his ACL tear in 2008. Pittsburgh Steelers' Hines Ward and Troy Polamalu both used PRP to recover from an injury during the 2008 NFL season in which the team won the Super Bowl. New York Mets all-star center fielder Carlos Beltran used PRP to aid in his recovery from a bone bruise on his right knee. The LA Dodgers, Seattle Mariners, Denver Nuggets, and Dallas Cowboys have all embraced the use of PRP.
…How PRP Works In Sports Injuries…
Source: Jenny Vrentas & Michael Guillen, NJ Star Ledger
From a forecasting standpoint, we previously believed that Cytomedix could drive Angel sales to $12.5 million in 2015. We believe Arthrex can double that number. We suspect that Arthrex will eventually take over the manufacturing of Angel as well, reducing overhead cost at Cytomedix. We believe many of the existing 10 sales representatives at Cytomedix previously promoting Angel will be swapped over to AutoloGel. At Cytomedix, Angel was a peak $15 million product. In the hands of Arthrex, sales could easily hit $40 million in five years. Thus, our estimated 13.5% royalty payment on top-line sales from Arthrex to Cytomedix actually equates to greater net cash flow to the company starting in 2015. And finally, it allows Cytomedix to focus on increased promotion of AutoloGel, a product set for a significant re-launch into the market later this year. L
Sentiment: Strong Buy