Cytomedix Fundamentals Improving - Analyst Blog
01 September 2011 - 9:31PM
Zacks
Cytomedix Fundamentals Improving
Jason Napodano, CFA
Update on CMS Reimbursement
On August 31, 2011, Cytomedix
(CMXI) provided an update on AutoloGel
coverage and reimbursement following its recent meeting with the
Centers for Medicare & Medicaid Services (CMS). As a reminder,
management filed a submission for reconsideration of the National
Coverage Determination (NCD) for AutoloGel in May 2011. This
process dates back over seven years, to when CMS first reviewed and
rejected the original NCD application in 2003 based on a lack of
significant evidence on safety, efficacy, and cost-effectiveness.
The submission in May 2011 culminates over seven years of data
collection and diligent work by management to file for
reconsideration.
The past few months, Cytomedix has been working with CMS toward the
ultimate goal of gaining a full coverage determination for
AutoloGel. Management met with the agency face-to-face in both
March and May 2011 before the filing. In March, CMS asked Cytomedix
to prepare a “net health benefit” presentation to discuss during
the May. The filing came two weeks after this second meeting. CMS
recently asked Cytomedix back for a third meeting in August 2011.
At that meeting, CMS provided its initial review of the data and
laid out its plan to provide Coverage with Evidence Development
(CED). CED allows for Medicare coverage for the appropriate use of
an item or service while additional data is collected to support
its ongoing use for Medicare beneficiaries. It’s full coverage with
no restrictions or limitations. The best algology for biotech
investors would be a drug gaining an “accelerated approval” or an
approval with the requirement of a phase 4 (post-market)
surveillance study.
We expect CED to go into effect in March / April 2012. In the
meantime, Cytomedix and CMS will be working closely together to
design appropriate treatment protocols and clinical data endpoints
to be collected in an ongoing prospective wound care registry of
patients. Cytomedix will collect this data under CMS’ CED policy.
We believe management will expand and tailor the existing AutoloGel
wound registry program to collect this data. Cytomedix included
data from 285 patients in this registry in the May 2011 dossier. At
this point, questions remain on just how many more patients and
what endpoints CMS would like to see. Nevertheless, we do not
believe expanding the existing registry to comply with CMS’
guidance will be significantly expensive. And, the new patients
that CED brings in should more than make up for the added cost of
expanding the registry program.
We believe coverage could be a meaningful driver of AutoloGel
sales. There are approximately 2.0 million pressure ulcers and 1.5
million diabetic foot ulcers each year in the U.S. where AutoloGel
could be an effective product. However, approximately half of these
are in patients covered by Medicare / Medicaid, and non-coverage
has been an issue for uptake. Management has been focusing on
private pay procedures, like the new effort to market AutoloGel in
hair restoration, and chronic wounds in long-term acute care
facilities and VA hospitals. We believe that CMS coverage could
effectively double sales of the product.
Angel 510(k) For BMAC Filed
On September 1, 2011, Cytomedix announced that it had filed a
510(k) application to the U.S. FDA for use of the Angel Whole Blood
Separation System for the processing of bone marrow aspirate. The
expanded indication includes processing a mixture of blood and bone
marrow, a rich source of stem cells, to create a bone marrow
aspirate concentrate (BMAC). In vitro performance testing with
Angel yielded statistically significant improvement in the
concentrations of hematopoietic progenitor / stem cells, reduced
presence of pro-inflammatory cells, and provided better separation
of platelet rich plasma (PRP) and red blood cells compared to
alternative devices.
Angel has the potential to deliver RPR with highly viable bone
marrow stems cells in a real-time, point-of-care setting for use in
orthopedic or cardiovascular indications. There are approximately
300,000 spinal fusion procedures performed each year and the
application of bone marrow or bone marrow concentrates has been the
historical gold standard to support effective fusion. The biologics
market associated with spinal fusion procedures is approximately
$800 million annually. We note that some clinicians are already
successfully using Angel in this indication today. However, FDA
clearance will allow Cytomedix to market the Angel System for this
significant opportunity. The ease-of–use, separation efficiencies,
and high quality output, are of notable benefit and competitive
advantage compared with other commercially available systems.
…Angel Upside Significant…
Management is planning another 510(k) application later this year
for reinfusion of the BMAC. Before Cytomedix took over, Sorin was
already seeing real-world use of the Angel device during surgery
for total blood management. Approval for reinfusion opens the door
for potential use in the surgical setting by cardiologists.
This would be a hybrid business model to what Aastrom Biosciences
(ASTM), with their stem-cell bone marrow aspirate product and
Cytori Therapeutics (CYTX) with their Celution System are doing.
Harvest Technologies has a similar device. Aastrom uses bone marrow
aspirate to develop Treatment Repair Cells (TRCs) used to treat
peripheral arterial disease such as critical limb ischemia (CLI)
and dilated cardiomyopathy (DCM). Data generated by Aastrom has
been impressive in both CLI and DCM; however, it still takes
Aastrom 14-day to culture and expand the cells off-site. Cytori
uses a point-of-care approach with its Celution System. This
real-time processing is a significant advantage in acute settings,
but Cytori uses adipose tissue and physicians may question the
viability of the product extracted from adipose. If Angel can
deliver real-time highly viable stem cells along with PRP, this
could be an enormous revenue opportunity for Cytomedix.
Besides surgical procedures, Angel is being used in the U.K. for
aesthetic applications, where physicians are injecting PRP under
the skin to facilitate skin rejuvenation. Angel PRP is also being
used in fat transfer procedures to improve graft survival and
aesthetic outcomes. These innovative applications represent
development opportunities for future Angel indications. It places
Angel squarely in competition with Cytori’s PureGraft and Celgraft
products for these aesthetic and plastic surgery market.
However, sports medicine remains the “Holy Grail” for Angel.
Evidence that using PRP to shorten and improve healing with knee,
ankle, elbow, or an ACL or MCL sprains is growing rapidly. Data
presented at the American Academy of Orthopaedic Surgeons in March
2010 demonstrated that PRP was 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.
The use of PRP is clearly on the rise in professional sports. In
fact, we are now beginning to see use in college and amateur
athletics. Standards have yet to be set however, and some sports
purists are bringing up ethical questions regarding the use of PRP.
In fact, the World Anti-Doping Agency, as of January 1, 2010, has
banned the use of PRP in international competition when injected
directly into muscle. The agency continues to allow PRP use for
tendon, bone, and ligament injuries. Nevertheless, for the
non-professional athlete, PRP could represent a cheap and quick
alternative to a lengthy recovery processes following orthopedic
surgery or a minor injury such as a muscle sprain or strain.
In the next few months we expect Cytomedix to see additional data
on the use of PRP in treating sports injuries. Cytomedix is working
with Dr. Peter H. Edwards, Jr, a board certified orthopedic surgeon
with a fellowship trained specialty in Sports Medicine. Dr. Edwards
practice has an emphasis on arthroscopic surgery of the knee and
sports injuries of the lower extremity. He is a team physician for
the U.S. Men’s and Women’s National Soccer Teams. Dr. Edwards has
amassed data from roughly 60 patients with Achilles tendonitis, and
plans to present the data at an upcoming medical meeting.
Cytomedix is also working with an Angel customer in the Northeast
that plans to look at the use of PRP in 20 patients with plantar
fasciitis. We view teaming up with cutting-edge physicians like
this as key to the company’s strategy to grow Angel in this
potentially enormous market opportunity. We think the product
offers doctors and trainers excellent characteristics, including
improved processing time, greater sterility, and enhanced
administration.
…Stock Looks Significantly Undervalued…
With a current capitalization of only $18 million, we believe the
market is far undervaluing Cytomedix. We estimate the company
should generate revenues in 2011 of $5.75 million thanks to growing
sales of the Angel System and AutoloGel. The current value of only
3x revenues is below the peer-group average of roughly 4-5x
revenues, and revenues in 2012 are expected to be up over 25% to
over $7 million.
We believe the company is on a clear path toward cash flow
profitability thanks to growing revenues, higher margin products,
and a lower cost structure. Management has spent much of the last
year streamlining the supply chain and removing inefficiencies from
the Angel business model masked within the larger Sorin
organization. As new indications for Angel come online, and
reimbursement and use for AutoloGel improves, we think the company
can achieve cash-flow breakeven levels in 2013, with revenues
exceeding $10 million by 2014. B
Based on our DCF analysis, a market capitalization closer to $50
million, or approximately $1.00 per share, more accurately values
Cytomedix. We see the market as under-estimating the future
earnings potential for the company with AutoloGel and Angel.
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