Dec. 3, 2013 Jason Napodano
On December 2, 2013, Cytomedix, Inc. (OTCQX:CMXI) announced that the Centers for Medicare & Medicaid Services (CMS) has issued final Medicare payment regulations for the Hospital Outpatient Prospective Payment System (HOPPS) and the Medicare Physician Fee Schedule (PFS) that will take effect on January 1, 2014. These regulations were published to the federal register website on November 27, 2013. Below we link these final regulations for both HOPPS and PFS.
CMS-1601-FC: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment System (PDF, 2.6MB, 1281 pages).
CMS-1600-FC: Revisions to Payment Policies under the Physician Fee Schedule, Clinical Laboratory Fee Schedule and Other Revisions to Part B (PDF, 3.6MB, 1369 pages).
We believe these new payment rules dramatically enhance the commercial viability of Cytomedix' AutoloGel (autologous platelet-rich plasma) for the treatment of chronic wounds, including diabetic foot ulcers, venous leg ulcers, and pressure ulcers. For example, under the new classification in HOPPS as a Level-2 skin substitute (APC-0327), AutoloGel will be reimbursed at an average rate of $411 per treatment encounter. This is roughly a five-fold increase from the proposed $83 per treatment encounter under the proposed rules that came out earlier in the year that incorrectly classified AutoloGel as a Level-2 debridement product, and a greater-than five-fold increase over the average reimbursement under HOPPS of $74 in 2013. We believe this represents approximately 60% of the Medicare market for the treatment of chronic wounds.
Under the PFS, the remaining 40% of the Medicare market, AutoloGel will reimbursed and claims will be paid based on charges submitted by physician offices. We suspect that most physicians will claim between $425 and $450 per treatment encounter. This is an enormous improvement in reimbursement from AutoloGel's status at the beginning of 2013 when most claims for the product were denied. We remind investors that this change in policy took place on July 10, 2013, and on Cytomedix' third quarter earnings call, CEO, Marty Rosendale, noted the company has already begun targeting wound care physicians in their offices, as well as stepped-up previous efforts to promote the product at Long Term Acute Care Facilities and with Veteran's Health Administration Hospitals.
Efforts will now be expanded to promote AutoloGel into the hospital outpatient market and free-standing wound care clinics in 2014. Cytomedix continues to develop launch strategies by focusing on key high density markets that management believes will offer the greatest revenue generating options. The company has nine people in its specialty sales force, which includes one newly hired marketing director, seven account executives, and one VA specialist. Cytomedix expects to double the size of its sales force during 2014 to accommodate the growing number of AutoloGel treatment sites. Additionally, management continues to note being in specialized partnership discussions and we anticipate the signing of key strategic relationships shortly.
CMS Moves Toward Packaging, But Less Boldly Than Predicted
In October 2013, we wrote an article for Seeking-Alpha noting that, "Big Changes" were coming to the wound care market in 2014. We based this belief on the proposed payment rules that CMS published in July 2013. The proposed rules made it clear that CMS was moving toward packaging the product cost in with the application payment to create one bundled payment. It was a move we applauded, and the first step is moving the U.S. healthcare system from the current pay-for-service model, in which the treating physician bills the government based on the number and type of procedures performed, to a pay-for-performance model in which reimbursement is fixed for a given diagnosis. This protocol, intended to incentivize physicians to pursue the most cost-effective treatment modalities and minimize the nation's health bill, is how much of Europe and the rest of the world reimburse things like chronic wounds. The change shifts the market share away from expensive or high-tech products with little demonstrated therapeutic benefit to those with more cost-effective solutions.
Under the proposed guidelines, CMS proposed packaging skin substitutes with their associated surgeries similar to how implantable biologics were bundled with surgery in 2009. Packaging payments for skin substitutes into the APC payment for the related surgical procedures would result in a total prospective payment that is more reflective of the average resource costs of the procedures because prices for these products vary significantly from product to product. Packaging would also promote more efficient resource utilization by hospitals and would be more consistent with the treatment of similar products under the HOPPS. The total reimbursement for skin substitutes and the procedure has been proposed at $874.
But significantly lobbying and political pressure, mostly from companies with high-priced skin substitute products or physician's organizations racking in big bucks under the "pay for service" plan forced CMS to acquiesce. Instead of one proposed payment of $874 per treatment procedure, CMS gave us a tiered-system of "low-priced" and "high-priced" products, classified into Level-2 and Level-3 categories. Level-2 skin substitutes, which include the aforementioned AutoloGel, as well as the Oasis Wound Matrix, and Theraskin products, are reimbursed at $411 per procedure. Level-3 skin substitutes, which include market leaders Shire's (SHPG) Dermagraft and privately-held Organogenesis' Apligraf, are reimbursed at $1,371 per procedures.
These reimbursement levels are up to 100 cm2 of product. This encompasses an estimated 90% of the wound care market, as products like Dermagraft and Apligraf are typically supplied in 37.5 cm2 or 44 cm2 sheets, respectively. When greater than 100 cm2 of product is required, the reimbursement is increased to $2,260.
Economics Favor AutoloGel
Despite not being reimbursed on an equal level with Dermagraft or Apligraf, we think the economics imposed by the new CMS payment rules dramatically favor Cytomedix and AutoloGel. For example, in our conversations with Cytomedix CEO, Marty Rosendale, he tells us that Cytomedix can achieve 70% or greater gross margin under the new HOPPS and PFS combined payment system. Baked into the new packaged payment rules are the application cost. This is the reimbursement to the physician for their time and doing the procedure. So the wholesale cost from Cytomedix to the physician's office or wound care center must be low enough that the physician or center can maintain profitability at the current payment, but still high enough that the manufacturer has an economically viable business model. If Cytomedix thinks it can still achieve 70% or greater gross margin under this new system, it tells us the cost-of-good on AutoloGel is less than $100.
Counter that incredible low cost versus products like Dermagraft and Apligraf which may cost $1,000 or more and investors can get a sense of where the market will shift starting in 2014. Under the old model, Shire charged roughly $1,620 for Dermagraft. Organogenesis charged even more for Apligraf at around $1,675. Physcians were typically claiming $300 per applications, putting the total cost of the product to CMS at between $1,920 and $1,980. Under the new model, this is capped at $1,371. If physicians still want to make $300 for a Dermagraft or Apligraf procedure, this means Shire and Organogenesis will have to wholesale the product for $1,050 or less. That's an estimated 35% price drop! It remains to be seen if either product is economically viable at this level. Keep in mind that products like Dermagraft must be keep in -75° C freezer, so physicians have added carrying costs when they use the product. If Shire plays hardball with the physicians on Dermagraft price, the physicians will migrate to products that provide better profits to the facility or practice. If Shire caves and allows the physicians or center to earn a handsome profit, their gross margins plummet.
We have heard that Osiris Therapeutics' (OSIR) Grafix has costs-of-good well in excess of $1,000 per unit. Grafix received a two-year pass through on the new CMS payment rules, but Grafix has no national coverage determination that we could find, so the pass through is moot. We continue to believe Grafix will be a commercial failure for Osiris. Oddly enough, Osiris' CEO stepped-down yesterday. The future of MiMedx' (MDXG) Epifix, which received a one-year pass through on the CMS payment rules, also remains in-doubt starting in 2015. Contrast this to use of AutoloGel that allows the physician the added reimbursement of the phlebotomy, on top of standard debridement procedures, and we think Cytomedix is in a good position right now. We think Cytomedix has the flexibility in its manufacturing and pricing to allow the physician or center to earn a net $200 profit on each application, and still have handsome economics themselves.
From 'Zero' to 'Hero' With CMS Decision
We have always noted that the data suggest AutoloGel compares well, if not superior to market leading products, Dermagraft and Apligraf. The issue in the past has always been reimbursement. Until recently, the majority of physician's claims under PFS have been denied, and reimbursement under HOPPS was barely sufficient to cover the manufacturing cost of the product. This forced Cytomedix to focus attention on the cash-pay or private insurance market. Only private insurance typically follows Medicare's lead, and cash-pay represents less than 10% of the entire market for chronic wounds. In fact, Medicare is approximately two-thirds of the market. Cytomedix just had two significant doors kicked-open for them by CMS and the new payment rules to take effect January 1, 2014. Not only are there now pathways for reimbursement under both PFS and HOPPS, but AutoloGel might have one of the best economics in the industry under the new rules.
Investors may have noticed that on November 21, 2013, Cytomedix entered into a convertible note transaction to raise $3.0 million in cash. The company also has a $15 million common stock purchase agreement (CSPA) active and accessible with Lincoln Park Capital Fund, LLC. With the new CMS payment rules now finalized, we believe Cytomedix is in a much better strategic position to negotiate with potential partners. The debt offering and CSPA provide some flexibility to the company during these negotiations.
Keep in mind, skin substitutes did approximately $600 million in sales in 2012. AutoloGel has less than 0.1% market share. The changes we've outlined above could get AutoloGel to 5% market share in the next few years. That's a $20 to $25 million product, with 70% gross margin. We think larger players in the wound care market, including Shire, Kinetic Concepts, Organogenesis, or Smith & Nephew will take notice.
Sentiment: Strong Buy
will be our partner. Tweet, Tweet...
Commitments for 2013
•Enable further understanding of diabetes, its complications, and the importance of seeking immediate treatment for a diabetic foot ulcer.
•Enhance our engagement with and support of patient organizations in their goal of providing support to patients and their families.
•Continue to facilitate discussions among leaders of regenerative medicine and diabetes to help accelerate the development and delivery of much needed therapies to patients
Sentiment: Strong Buy
up over 30% within the last few trading days. Huge orders to buy CMXI at $0.54 ( 170k shares). That's nearly 2x greater than ADV before last week alone i'm shocked no correction, great strength.
"Dermagraft is DONE. CMS just turned a $150M product into a paper-weight"!
AutoloGel immediately jumps from "extremely disadvantaged" on a reimbursement standpoint to "extremely advantaged" given the cost of only $450 per use and the potential for reimbursement at 2-3x that level. Products like Dermagraft and Apligraf cost $1500 or.more.
now go back under your rock creep.
Sentiment: Strong Buy
OSIR CEO to step-down. Comes 3 days after CMS decision on wound care reimbursement ensures Grafix will be a commercial failure. Dermagraft is toast too. Interesting how Cytomedix may pick up a huge part of their market!
Sentiment: Strong Buy
I believe SHIRE will have to replace the Dermagraft potential CMS hit. The great thing is that they have a powerful distribution team already. By the way Autologel is the best in class!
"AutoloGel, in our view, is a potential significant leap forward in the treatment paradigm for chronic non-healing wounds. Not only is the product more effective than the more commonly used Dermagraft (~$195M in sales in 2011) and Apligraf (~$125M in sales in 2011), but it costs less. The data below was compiled by B&D Consulting in September 2007. B&D is an independent advisory and advocacy firm located in Washington. The firm completed a cost effectiveness analysis of AutoloGel compared to alternative therapies for patients with diabetic foot ulcers. Results of this study demonstrate AutoloGel offers a lower cost and better healing outcomes than the other therapies analyzed. This study was published in the Journal of Advances in Skin and Wound Care in December 2008".
Sentiment: Strong Buy
AutoloGel immediately jumps from "extremely disadvantaged" on a reimbursement standpoint to "extremely advantaged" given the cost of only $450 per use and the potential for reimbursement at 2-3x that level. Products like Dermagraft and Apligraf cost $1500 or more per use, so wide-scale implementation of these new procedural codes could have a profound impact on the chronic wound market in 2014. I don't think people have realized that yet, so keep an eye on the final CMS decision
Sentiment: Strong Buy
Cytomedix huge footprint with a partner in Japan along with Patrick P. Vanek, R.Ph., Vice President, Operations.
The diabetic population in Japan is estimated to be 22.1 million, including patients
suspected to have diabetes, according to the National Heath and Nutrition Report 2008
by the Ministry of Health Labor and Welfare in Japan. This data indicates that nearly
one out of five Japanese either has diabetes or is suspected to be diabetic, thus
providing a significant market potential for diabetic wound healing in Japan
Cytomeix s Japanese partner, Millennia Holdings, Inc. (“Millennia”), has compiled data on 100
wounds treated with the Company’s AutoloGel™ System, and will use this initial data to
support its regulatory and reimbursement filings in Japan.
Hiroki Tarui, President and Chief Executive Officer of Millennia Holdings, Inc.,
commented on the data stating, “The AutoloGel System’s advanced technology has
demonstrated superior clinical efficacy in treating a variety of chronic wounds as
evidenced by our clinical evaluation of these 100 wounds. We were very pleased that
the positive outcomes seen in U.S. studies were confirmed by our own clinical case
studies. We expect to use this positive data to effectively advance the AutoloGel™
System as a foundation to succeed to the regulatory process and on to a successful
commercial launch in Japan.”
The diabetic population in Japan is estimated to be 22.1 million, including patients
suspected to have diabetes, according to the National Heath and Nutrition Report 2008
by the Ministry of Health Labor and Welfare in Japan. This data indicates that nearly
one out of five Japanese either has diabetes or is suspected to be diabetic, thus
providing a significant market potential for diabetic wound healing in Japan.
Also our VP had an upper executive position with at Otsuka America Pharmaceutical
Patrick P. Vanek, R.Ph., Vice President, Operations
Patrick Vanek joined Cytomedix, Inc. in July 2010. He brings to Cytomedix more than 30 years of diverse technical and managerial experience in pharmaceuticals and medical devices, specifically Formulation Design, Process Development, QA/QC and Supply Chain/Logistics. Prior to joining Cytomedix, Mr. Vanek spent 12 years at Otsuka America Pharmaceutical, Inc. where he rose through a number of managerial positions to become Vice President of Technical Operations. Prior to that, he held various development/technical management positions at KV Pharmaceutical Corp., Teva Pharmaceuticals USA, Wyeth Laboratories and McNeil Pharmaceutical. Mr. Vanek earned a B.S. in Pharmacy from the Philadelphia College of Pharmacy & Science and is a Registered Pharmacist.
April 11, 2012) – Cytomedix, Inc. (OTC/BB: CMXI) (the “Company”), a leading developer of biologically active regenerative therapies for wound care, inflammation and angiogenesis, today announced the publication of positive clinical data regarding its AutoloGel™ System in the April 2012 issue of Ostomy Wound Management in an article entitled, “A Retrospective, Longitudinal Study to Evaluate Healing Lower Extremity Wounds in Patients with Diabetes Mellitus and Ischemia Using Standard Protocols of Care and Platelet-Rich Plasma Gel in a Japanese Wound Care Program.”
The purpose of this retrospective study was to capture evidence-based treatment outcomes in limb salvage patients with complex ulcerations treated in Japanese wound care centers using AutoloGel platelet-rich-plasma gel (“PRP”). The study involved 40 wounds in 39 severely compromised patients with comorbidities of diabetes mellitus (DM), lower limb arteriosclerosis, ischemia and infection. The majority of the patient population (34 or 85%) had DM and 24 of those also had arteriosclerosis. Diabetic foot wounds were Wagner Grade lll (77%) (deep ulcers with cellulitis or abscess formation, often with osteomyelitis) and lV (23%) (localized gangrene). Skin perfusion pressures of less than 40 mm Hg were recorded in 25 or 63% of the patients, and less than 30 mm Hg in 20 or 50% of the patients indicating critical limb ischemia which can impair healing. The study included a run-in period of 75.3 days on average, during which revascularization and/or debridement along with standard-of-care therapy with advanced modalities were administered.
◾During the run-in period, no wounds healed and wound measurements for area, depth and volume actually increased
◾Following AutoloGel treatment, 32 or 83% of wounds healed in an average of 145.2 days (p=0.00002) using an average of 6.1 treatments.
◾Mean changes over time in area (p=5.0x10-7), depth (p=1.2x10-6), and volume (p=7.3x10-5) were all statistically significant
Dr. Chugo Rinoie, DPM, ABPO, CWS, Chief of Podiatric Surgery, Wound Healing Center, Methodist Hospital of Southern California, Arcadia, CA, Medical Director, Millennia Wound Management, Inc, Los Angeles, CA and corresponding author of the publication, noted, “These data demonstrate that autologous PRP gel can be used to heal long-standing, chronic Wagner III and IV wounds in patients with diabetes and moderate-to-severe peripheral arterial disease whose skin perfusion pressure indicates poor healing prognosis and probable limb amputation. Further, the associated wound care database now comprises over 200 wounds from Japanese AutoloGel patients.”
“We are delighted to have this compelling data published in a peer-reviewed journal as this study demonstrates that patients with chronic diabetic wounds and compromised arterial flow can heal and avoid limb amputation with AutoloGel treatment,” commented Martin P. Rosendale, Chief Executive Officer of Cytomedix. “These data support and validate previous studies showing that AutoloGel significantly and reliably improves the rate of complete healing, speed and progress to healing, and quality of life as compared with standard wound care. The complexity and comorbidities associated with these wounds would have excluded them from any randomized controlled trial making this real world comparison study even more compelling. We believe data such as these strongly support our case for a positive National Coverage Determination from the Centers for Medicare & Medicaid Services to cover autologous PRP gel for the benefit of the various stakeholders interested in improving clinical wound care outcomes while lowering overall costs.”
Dr. Rinoie will be presenting these positive data in a poster presentation at the upcoming Symposium on Advanced Wound Care-Spring 2012 being held in Atlanta, Georgia from April 19-22, 2012
More than a world standard...
US, Europe, Canada, Mid-Eastt now Australia...
Australia is the latest international territory where the Angel System is now included and available for sale. The Angel is also on the market in various countries throughout Europe and the Middle East. Cytomedix has established a broad network of experienced distributors to promote and sell the product in international markets. Further territory launches are expected in 2013.
"We are pleased to launch Angel in Australia where there is significant growth potential for PRP," said Martin Rosendale, Chief Executive Officer of Cytomedix. "Sales in international markets are a meaningful contributor to overall Angel revenues, and are growing at an encouraging rate. We are fortunate to be working with Medtel as they have an excellent track record in launching and promoting innovative healthcare technology products."
Jeannie Devereaux, Business Development Manager, Regenerative Medicine Sports, Orthopedic & Tissue Regeneration, at Medtel, added, "We view the Angel cPRP System as the gold standard in platelet rich plasma preparation and expect a positive response to our Angel launch activities. TGA inclusion provides us with a great opportunity to develop the PRP market in aesthetics and sports medicine."
The Angel cPRP System is intended to be used in the clinic or intraoperatively at the point-of care for the safe and rapid preparation of platelet rich plasma (PRP). The initial approved indication in Australia is for the preparation of PRP from a sample of whole blood. The system is designed to produce consistently high platelet yields using a fully automated process. Angel's advantages compared with other commercially available systems include: 1) high platelet yields, 2) significant reduction in pro-inflammatory cells, 3) rapid processing time, 4) adjustable hematocrit from 0%-25%, and 5) flexible final cPRP volumes. Proprietary software automatically adjusts the separation parameters to deliver a consistent, high quality product.
On August 7, 2013, Cytomedix (CMXI.OB) reported financial results for the second quarter 2013 and announced a commercial partnership for Angel. Financial results for the second quarter were largely in-line with our expectations. In fact, Angel sales were dead-on with our forecast, coming in around $2.25 million in sales, up 38% year-over-year. Below we discuss the big news on the Angel commercial partner, reiterate the key points behind why we believe AutoloGel may finally be ready to takeoff, and conclude with some brief remarks on Aldagen and valuation.
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.
AutoloGel Finally Ready For Takeoff
We note that the long-waited finish line for gaining the Centers for Medicare and Medicaid Services (CMS) reimbursement on AutoloGel seems to be in sight. This has been a long and somewhat convoluted process for investors to follow, but it is obvious that the company is making progress based on the history to date:
- On August 2, 2012, CMS issued a National Coverage Determination (NCD) for autologous blood-derived products for the treatment of chronic non-healing wounds. The decision reversed nearly 20 years of non-coverage for autologous platelet rich plasma (PRP) treatments, including Cytomedix's AutoloGel - the only FDA approved PRP treatment option for wound care.
- On March 4, 2013, CMS approved the clinical outcomes in the Coverage with Evidence Development (CED) protocols submitted by the company. This approval allowed Cytomedix to begin promoting and rolling out the protocols to physicians and patients for AutoloGel when used to treat Medicare beneficiaries.
- On March 18, 2013, CMS issued temporary reimbursement coding and claims payment instructions to its regional contractors for the use of AutoloGel in chronic non-healing wounds. The assignment of a Healthcare Common Procedure Coding System (HCPCS) code establishes the reimbursement mechanism for physicians and other providers submitting claims for services provided to Medicare beneficiaries.
- On July 10, 2013, Cytomedix, Inc. announced that CMS has issued proposed payment regulations under the Physician Fee Schedule (PFS) and the Hospital Outpatient Prospective Payment System (HOPPS) that include proposed guidelines covering Medicare reimbursement for AutoloGel.
With respect to physicians' offices, CMS has proposed that Medicare Administrative Contractors (MACs) determine the payment amount for AutoloGel for claims as they are submitted. Historically, Medicare contractors have paid these types of claims based on product invoices presented by the healthcare provider. Cytomedix will essentially get paid under the Physician Fee Schedule for what they bill - around $450 per single use. This took effect July 1, 2013. As a result, Cytomedix can immediately now go out and promote AutoloGel to physicians, mostly podiatrists and wound-care specialists, for in-office use of AutoloGel and get reimbursed full price for each sales.
For hospital outpatient services, CMS has placed the reimbursement code for AutoloGel in an Ambulatory Payment Classification (APC) that provides limited reimbursement for use of the product. Under the HOPPS guideline, AutoloGel will be reimbursed only comparable to a Level-2 debridement product, the reimbursement of which is less than $100 per use. That puts Cytomedix at a significant disadvantage trying to charge $450 for a product hospitals are only authorized to reimburse at around $100 per use. Cytomedix tells us that they are already in communication with CMS on revising the APC listing to authorize reimbursement of AutoloGel similar to a skin substitute, which would put the reimbursement for the product and associated application service in the area of $875 to $1375 per use.
Net-net, the decision in July was a positive for Cytomedix. Prior to that decision, there was virtually no government business for AutoloGel. CMS-NCD provides a pathway for reimbursement of AutoloGel to Medicare and Medicaid beneficiaries, which make up over half of the approximate 2.0 million pressure ulcers, 1.5 million diabetic foot ulcers, and 1.7 million venous leg ulcers treated in the U.S. each year. AutoloGel is the only PRP product FDA-approved for the treatment of these types of chronic wounds.
The market for products addressing chronic wounds in the U.S. is estimated to be $2.3 billion annually. Prior to CMS reimbursement, AutoloGel was significantly disadvantaged compared to competing products with full coverage, including Dermagraft (~$153M in sales in 2012) and Apligraf (~$125M in sales in 2011). Instead of going after CMS beneficiaries, management had been focusing on private pay procedures, long-term acute care hospitals (LTAC), veteran's administration (VA) facilities, and certain state Medicaid agencies. However, the lack of a national coverage decision on the product has limited uptake in this area as well. So the CMS coverage decision not only kicks open the door to Medicare and Medicaid, it also meaningfully expands private pay coverage as well as many private insurance companies follow the CMS's lead. The assigning of a reimbursement code for AutoloGel is important because the "G" code facilitates reimbursement in the hospital outpatient setting, skilled nursing facilities, rural health clinics, comprehensive outpatient rehabilitation facilities, federally qualified health centers, and critical access hospitals for non-healing chronic wounds.
If this can be accomplished by January 1, 2014, which Cytomedix management thinks it can, then AutoloGel immediately jumps from "extremely disadvantaged" on a reimbursement standpoint to "extremely advantaged" given the cost of only $450 per use and the potential for reimbursement at 2-3x that level. Products like Dermagraft and Apligraf cost $1500 or more per use, so wide-scale implementation of these new procedural codes could have a profound impact on the chronic wound market in 2014.
…Registry Program Underway…
Cytomedix has already announced they are working with wound care centers around the country to build the registry program. The company will be using Intellicure to aid in the collection and analysis of the data as it is being generated. Management tells us that each use of AutoloGel will generate a profit to the company. That's important for investors to understand. CED allows Cytomedix to earn a profit as it collects the data and funnels that back to CMS for review. That's different from a traditional clinical trial, which normally cost companies money. Cytomedix will be selling AutoloGel with CMS coverage, and booking revenues as it ramps.
Back in May 2013, when Cytomedix held its first quarter 2013 conference call, CEO Martin Rosendale said he expects to be able to treat 1,000 patients with AutoloGel in 2013. That's a significant acceleration from the approximate 300 patients treated in 2012. We wouldn't be surprised to see Cytomedix either expand their sales force to start actively promoting AutoloGel, something they have not been doing prior to this year, or strike a co-promotional agreement with a larger organization in the chronic-wound market.
…Final Thoughts On AutoloGel…
We estimate greater than 50% of the market is Medicare beneficiaries. But besides missing out on these patients, private payors were also disadvantaging AutoloGel. With CMS now on board, we expect private payors to follow suit. The economics around AutoloGel should be dramatically improved by the second half of 2013. For example, the company tells us it treated roughly 300 patients to generate $0.55 million of sales in 2012. That came with little marketing and promotional effort by the company. With CED now in place, the company expects to dramatically step-up the marketing efforts. Above we noted that some of the 10 sales representatives previously promoting Angel will be moved over to AutoloGel. On the second quarter call, management noted they would like to see 8-10 sales reps in-house by the end of the year, and then perhaps double that number again in 2014.
In the meantime, Cytomedix is focusing on driving enrollment and treating patients in one of the four CMS-approved trials to collect the data necessary under the CED pathway. These four trials include one randomized efficacy program with Grade 1 or 2 diabetic foot ulcer (DFU) patients vs. a standardized (usually and customary) care and three outcome assessment studies in broader patient populations, such as DFU patients with Grade 3 and 4, venous leg ulcers, and pressure ulcers. The primary efficacy study will seek to enroll 260 patients. In total, the company plans to enroll and treat over 2,400 patients between all four studies to compile data for CMS under the CED pathway.
The goal for 2013 is to exit the year with over 1,000 patients enrolled. This would be a three to four fold increase in sales from 2012, or to around $1.5 million. It's been a rocky-road for AutoloGel, but the potential for significant acceleration in sales in 2013 and beyond is clearly one of the company's biggest opportunities.
The company continues to look for distribution partners for AutoloGel. After the "Big Pharma" partner walked away earlier in 2012 the company immediately began conversations with new potential partners. The timing of a deal remains a wildcard, but any transaction that provides increased sales and promotion, upfront cash, royalties on sales, and the potential for backend milestones would be a big win for management. A partnership remains another, albeit more difficult to forecast, potential opportunity for Cytomedix.
What To Do With Aldagen
Enrollment in company's phase 2 RECOVER-Stroke program continues to languish along at a pace of roughly 2 patients per month. As of early August 2013, enrollment is only up to 36 patients - six higher than when the company held its first quarter call in early May 2013. At that pace, it will take 30+ months to complete enrollment at 100 patients.
It looks as though the changes made to the study earlier in the year (increasing the age and easing the inclusion / exclusion criteria based on location of the stroke in the brain) have had little impact on the enrollment pace. At this pace, we believe it might be wise for management to adjust the size of the trial down from 100 patients to 50-60 patients.
RECOVER-Stroke is a phase 2 study with a primary focus on demonstrating proof-of-concept and safety. We believe this can be effectively accomplished at 50-60 patients, albeit with meaningfully less power, than the planned 100 patients. Nevertheless, 100 patients seem unobtainable at this point so a change needs to be made.
Back in May 2013, we wrote an article posing the question, "Does Cell Therapy Hold The Key To Treating Stroke?" Cytomedix needs to get proof-of-concept and safety data from RECOVER-Stroke into the hands of potential large pharmaceutical partners with a desire to drive ALD-401 forward into registration studies. Above we noted that management is focusing on growing the commercial business with AutoloGel. We understood the impetus for the Aldagen acquistion back in February 2012, but to date there has been no validation of this expense - and it is hurting the stock.
In the end, ALD-401 may be a breakthrough cell therapy candidate for stroke. I don't know. The company is also studying ALD-301 in intermittent claudication. This phase 2 study is being funded by NHLBI/NIH and managed by the Cardiovascular Cell Therapy Research Network (CCTRN). But until management show that the either ALD-401 or ALD-301 are viable cell therapy candidates, we believe the market will continue to assign little to no value - and potentially even negative value - to the Aldagen subsidiary.
From a go-forward standpoint, the deal to partner Angel makes sense. Although Angel was the primary driver of the top-line over the past two years, we believe that Arthrex can take the product to levels far beyond what Cytomedix can obtain in-house. The sales force promoting Angel at Arthrex will be, at a minimum, ten-fold to where it was prior to the deal. Thus, although Cytomedix will only collect low-teens royalties on gross sales, by 2015 we believe the net cash flows from the deal will be positive compared to if Cytomedix continued to promote Angel alone.
The light at the end of the tunnel seems to have finally emerged for AutoloGel, so much so that management feels confident enough to monetize Angel and focus all commercial resources on product. With favorable reimbursement, AutoloGel goes from near zero sales to potentially tens of millions.
The Angel partnership deal provides Cytomedix with much-needed cash. The company reported $7.0 million on hand (pro-forma) as of August 8, 2013 thanks to the upfront payment from Arthrex. With a market value of only $45 million, we believe the shares are cheap. We are an update or two away from visibility on RECOVER, and look to see an acceleration in AutoloGel sales in 2014.
Sentiment: Strong Buy
Very impressive terms it’s a win-win smart move team!
“The closing for the Offering is anticipated to take place no later than the 5th day following the satisfaction of closing conditions, including, among others, a condition relating to the determination by the Centers for Medicare & Medicaid Services (“CMS”) of a favorable decision regarding the Autologel reimbursement (the “CMS reimbursement determination”), as set forth in the Subscription Agreement”,
“The Warrants also contain exercise price anti-dilution adjustments, cashless exercise and other similar provisions”.
“The Notes also contain conversion price anti-dilution adjustments and other similar provisions”.
Item 1.01 Entry into a Material Definitive Agreement.
The registrant hereby incorporates by reference the disclosure made in Item 2.03 below.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On November 21, 2013, Cytomedix, Inc. (the “Company”) entered into subscription agreements (the “Subscription Agreements”) with certain institutional and individual “accredited investors” (the “Purchasers”), with respect to the sale of 10% subordinated convertible notes (the “Notes”) and warrants to purchase shares of the Company’s common stock for gross proceeds of $3 million (the “Offering”). The closing for the Offering is anticipated to take place no later than the 5th day following the satisfaction of closing conditions, including, among others, a condition relating to the determination by the Centers for Medicare & Medicaid Services (“CMS”) of a favorable decision regarding the Autologel reimbursement (the “CMS reimbursement determination”), as set forth in the Subscription Agreement, and is presently anticipated to take place on or about December 6, 2013. To the extent the foregoing closing condition is not satisfied, the closing will not occur and the Offering will terminate. Upon satisfaction of the closing conditions, 75% of the net proceeds of the Offering will be disbursed to the Company at such closing, with the balance to be disbursed ten days after the Company’s registration statement in connection with the resale of the securities sold in the Offering is declared effective.
The principal amount of the Notes will be due 91 days following payment in full of the Company’s senior debt facility currently in place with Midcap Financial LLC (“Midcap”). The Notes will accrue interest at a rate of 10% per annum, payable quarterly in cash or shares of the Company’s common stock, and may be converted into the shares of the Company’s common stock at any time following the Closing at the conversion price equal to 85% of the price of the Company’s common stock equal to the average of the daily volume weighted average prices for the ten trading day period immediately following the favorable CMS reimbursement determination (the “Market Price”), but in no event to exceed $0.75 per share. The Company may, upon advance notice, at any time prior to 120 days after the Closing repurchase the Notes from the investors at a price equal to 110% of the principal amount of the Note outstanding plus any accrued and unpaid interest. The Notes also contain conversion price anti-dilution adjustments and other similar provisions. In connection with the issuance of the Notes, the Company also agreed to issue to the investors in the Offering five-year warrants (the “Warrants”) to purchase shares of the Company’s common stock in the amount equal to 75% of the number of the Company’s shares into which the Notes may be converted at the Closing, at an exercise price equal to 125% of the Market Price. The Warrants also contain exercise price anti-dilution adjustments, cashless exercise and other similar provisions.
The Company agreed, pursuant to the terms of the Registration Rights Agreement entered into with the investors in the Offering, to file, within thirty days of the Closing, a registration statement with the Securities and Exchange Commission for the purposes of registering the resale the shares of the Company’s common stock underlying the Notes, the Warrants and the placement agent warrants to be issued in the Offering, and in the event of late filing of such registration statement, to pay certain late registration statement filing penalties as set forth in the Registration Rights Agreement.
The Company agreed to pay BTIG, LLC, the placement agent in connection with this Offering the following compensation: (i) an 8% cash commission on the gross proceeds of the Offering, (ii) a warrant to acquire shares of the Company’s common stock which number of shares is equivalent to 3% of the total common-equivalent shares sold in the Offering on the terms and provisions substantially similar to the Warrants, including the same registration rights, and (iii) out of pocket and legal expenses of the placement agent. In connection with the foregoing Offering, the Company was required to enter into a certain warrant modification agreement with its senior secured lender, Midcap, also an investor in this Offering, to reduce the exercise price of the February 2013 warrant issued by the Company to Midcap to be equal to the lesser of the Market Price and $0.70 per share, subject to future reduction upon completion of a future financing.
All respective purchasers in the Offering are “accredited investors” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act), and the Company will sell the securities in the Offering in reliance upon an exemption from registration contained in Section 4(2) and Rule 506 under the Securities Act. The Company intends to use the net proceeds of the Offering for the general corporate and working capital purposes.
The foregoing descriptions of the Subscription Agreement, the Notes, the Warrants and the Registration Rights Agreement contain other terms and provisions that are customary to the agreements and instruments of this nature. The representations, warranties and covenants contained in such documents and agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements, and (i) should not be treated as statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in the agreements by disclosures that were made to the other party in connection with the negotiation of the agreements; (iii) may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and (iv) were made only as of the date of such agreements or such other date or dates as may be specified in the agreements.
Item 3.02 Unregistered Sales of Equity Securities
The registrant hereby incorporates by reference the disclosure made in Item 2.03 above.
Pursuant to the requirements of the Securities
Sentiment: Strong Buy
more worthless stuff with the facts of course....
Pressure Ulcer market could be 10x's more than anticipated...GLTA!
Hospital-acquired pressure ulcers are 10 times more common than Medicare data shows, research suggests
The Medicare program often paints a far rosier picture of hospitals' pressure ulcer rates than is indicated by data collected bedside by nurses, according to a newly published study.
The underlying challenges identified by the University of Michigan researchers — of identifying and coding pressure ulcers — are familiar to long-term care providers. Hospitals' administrative data is based on billing data generated by hospital coders, who interpret medical record notes left by physicians and wound care teams. Medicare considers this type of data to determine how many pressure ulcers occur at a hospital, which is posted on the Hospital Compare website and used in calculating financial penalties.
The researchers compared this administrative data with “surveillance data,” which was derived from the results of bedside skin assessments given by nurses. The team looked at 2 million all-payer administrative records from about 450 California hospitals and quarterly surveillance data from 213 hospitals in the state.
Overall, the surveillance data resulted in pressure ulcer rates that were about 10 times higher than the rates based on administrative data, the researchers discovered.
"We found drastic differences in performance for bedsore rates depending on which type of data was reviewed — hospitals could be graded as either superior or below average depending on the type of data used," said lead author Jennifer Meddings, M.D., M.Sc., an assistant professor in the Department of Internal Medicine.
The findings indicate the need for a more standardized approach to identifying and accounting for pressure ulcers, according to an editorial that accompanied the study, which was published Tuesday in the Annals of Internal Medicine. The editorial was written by Barbara Pieper, Ph.D., RN, from Wayne State University, and Robert S. Kirsner, M.D., Ph.D., from the University of Miami Miller School of Medicine.
“All providers need to learn pressure ulcer assessment and terminology and correctly record this information no matter how many other diagnoses a patient has," Pieper and Kirsner wrote.
Sentiment: Strong Buy