Plus Therapeutics Inc (PSTV) 2009 Q2 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by and welcome to the Cytori Therapeutics second quarter 2009 financial results conference call. At this time, all participants are in a listen-only mode and following the formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded today August 10, 2009. At this time I would now like to turn the call conference over to our host, Mr. Christopher Calhoun, who is this CEO. Sir, you may now begin the call.

Thanks Craig. Good morning, and welcome to Cytori Therapeutics second quarter 2009 conference call. We want to advise you that over the course of our call and question-and-answer session today, forward-looking statements will be made regarding events, trends, and business prospects which may affect our future operating results and financial position.

Some of these risks and uncertainties are described under the risk factors section in Cytori's Securities and Exchange Commission filings which we advise you to review. We assume no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the dates that they are made.

The last five months have been a very important period for us, marked with record consumable reorders, significant clinical trial progress for breast reconstruction and cardiovascular disease, strengthening of our balance sheet; and most importantly, gaining clarity from the FDA on our US regulatory patent. Rather than go into further detail with prepared remarks, and to better accommodate our investors' time, we have issued a shareholder letter which include the topics those remarks would normally cover. This allows us to move directly into our question-and-answer session.

We would like to start by addressing a question that many of our investors have submitted to us via e-mail which is what is the implication of the FDA's recent determination that the Celution System will be regulated as a medical device? Well the recent determination by the FDA clarifies that our products will be regulated in a way that we believe is both appropriate and very favorable to Cytori.

The product has been determined to be a medical device by all the major markets that we've approached and now including the US. So looking forward, what we're now doing is seeking clarity whether the FDA will require any clinical trial work and if so, the scope and the size of such trial work. Our anticipated timeline for this process is somewhere between one and three years depending on the trial and so forth.

The second question was submitted regarding our StemSource sales. Were there any StemSource sales in Q2 and do you expect StemSource sales to be important in achieving the revenue targets during the second half of this year?

Our StemSource brand is for laboratory equipment products. Within this category are both adipose tissue cell processing systems as well as cell [cryopreservation] products or cell banking.

Our cell banking products are high dollar revenue items and usually have long sales cycles. There are currently many prospects in our sales funnel and we anticipate a few more of these sales this year although we can't predict the timing.

Our laboratory equipment sales are growing, including in the US market where partner GE is taking the lead. A portion of the Q2 revenues reported today is attributable to these sales.

Craig, we would like to go ahead and open up the call now for questions.

(Operator Instructions) Steve Brozak, WBB Securities.

Hey, good morning gentlemen and congratulations on the quarter. I will jump right into questions. Can you give us some differentiation in terms of consumables? Because obviously you guys are the proverbial razor blade model. I'd like to see what your thoughts are on that and I'll have one follow-up question after that.

Good morning Steve. I'll have Marc Hedrick answer that question.

Hi Steve. As we said in the shareholder letter, this is a great quarter for us in terms of consumable usage. There were 313 consumables shipped.

The shipped considerable number is made up of consumables that go out for clinical trials, includes opening orders for example to distributors or other direct customers where they buy the system and then they perhaps buy 10 to 20 consumables. And then I think the important part at least as we gauge the direction of the business is really consumable reorders.

And that's a number we look closely at because we think it's indicative of how satisfied doctors are with the results, with the utility of the system and frankly whether they're making their patients happy. So if you look -- if you drill down in that 313 consumable ship number and look at the 146 reorders that came with that that's almost half that number, that's continuing to grow. And as we get more and more systems out there, we expect that consumable reorder or annuity number to continue to grow, we think that's an important long-term predictor of the success of the business.

Okay, now switching over to -- let's candidly -- breast is what everyone is looking at right now given the amount of data. What kind of feedback are you getting?

Because the American clinicians have to be seeing what's going overseas and obviously plastic surgeons are looking for new ways to differentiate themselves. How much interest have you guys seen on the data that's been released overseas and what kind of a predictive value do you have, can you assess on that given what kind of interest you are seeing as far as what the American markets are looking at right now?

Steve, I'll go ahead and tackle that one as well. So the first thing I would say is I think you have to think about the breast market really in two discrete components.

The first component is the breast reconstruction market and that market is really going to be driven by clinical data including RESTORE-2. RESTORE-1 data was -- we were enthusiastic about that but RESTORE-2 is really geared towards providing more direct evidence that this is a treatment that could work around the world for a huge number of patients who have a partial mastectomy.

And what the elements that are really going to drive that market are besides the clinical data are also going to be reimbursement. So we're continuing to work not only getting that RESTORE-2 data done, we intend to report partial data hopefully by the end of the year at the San Antonio meeting and then the full study thereafter.

We are about 70% plus enrolled in that study. So reimbursement and clinical data are going to drive that market and that's going to take time because it's a reconstructive market. You have governments involved and you have to work on reimbursement and other things.

So that's a longer play. I think the other breast market that's more short-term and I think it's going to be more important to us in the near term is the cosmetic breast market and that can be in part reconstructive. In other words, there may not be reimbursement available today but patients who are willing to come in and pay for making the breast look better, even though it might be ultimately a reconstructive issue, and then -- but also includes breast augmentation.

And we have said that this technology is probably not a replacement for implants but it is probably a replacement for implants on the lower end, say up to two cups per breast improvement and also potentially generates a new market which are women that would never have a breast implant. Perhaps they've had kids, finished having kids and would like to take some tissue from around their abdomen, hips or thighs and put it up into their breasts.

And so that market is a nearer-term opportunity and we are continuing to see more and more demand not only in Europe but interest in the US. Because of our regulatory limitations in the US and sales limitations etc., it's really hard to address that market here although the interest is clearly there.

We're getting phone calls and our partner, GE, is getting phone calls. We're really focused on developing that in Asia and in the US -- Asia and in Europe. And it's really getting -- targeting doctors who have expressed interest who we find at meetings, they to come to our booth, and going out and meeting with them, solving the capital coming issues and getting a system in their hands so they can start using it. And then I think they are -- the positivity about the technology is really reflected in the consumable reorders.

Thanks for the answer. I'll hop back in the queue.

Erica Selin, Noble Financial.

Good morning. Thanks for taking my call. I was hoping that you could give us a little bit more clarity as to what pricing we should think of for the lab equipment. Clearly it would be much lower than the StemSource sales. Would it also be less than the Celution system sales because it's more of a lab equipment?

Hi Erica. It's Chris. So just to clarify your question, are you asking kind of about end-user pricing on the StemSource versus Celution products?

On the StemSource lab equipment that we are looking at sales this quarter from, just so we can get an idea as to if it was just a couple sales, a little bit more, just so that we can also set our expectations going forward.

I would say it's -- to model that, the transfer pricing and the end-user market pricing for the cell tissue processing laboratory equipment is consistent with what the Celution pricing is. So it's pretty much in parity around the world.

Okay, that's helpful. Thank you. And with that, would there be some consumables as well?

Yes.

And that would be recognized separately under StemSource?

Yes, that's exactly right and it's that same model. So it's equipment that goes in and then as they would process tissue for laboratory use, they would use consumables for each processing.

Okay, and is there any way to get a breakdown between what was Celution sales and how much was StemSource in the quarter?

Let me let Marc answer that question.

So to be clear, the question is StemSource versus Celution sales?

Yes.

Correct? You know, it's -- StemSource is sold primarily to researchers and potentially to others who might be interested in doing clinical research. Because that's really in at least in the US through our distributor, GE, and it's so early; there's not a whole lot of value in reporting that data.

I could say clearly the lion's share of the consumable sales and also the sales of the systems are related to Celution. I think over time as we get a better picture of the market for StemSource which is still early, I thank we will be able to provide more granularity in that. But it's just really difficult to provide at this point.

Okay, thank you very much. I definitely understand not trying to pin our hopes to certain growth in that area because that should be a more lumpy sale as well. Thank you very much.

Ren Benjamin, Rodman and Renshaw.

Good morning guys and thanks for taking the questions. I guess just very quickly, could you give us an update on the -- I know you have several investigators sponsored trials ongoing right now. Can you give us an update on those trials and how they are progressing and when we might expect some results from that?

Good morning Ren. I'll have Marc Hedrick to answer that question for you.

Hey Ren. Thanks for the question. So for those of you who aren't fully familiar with the investigator initiated study, so the idea is that there are doctors out there who want to treat patients and don't have a good way to do that and are willing to in may cases buy solution and/or StemSource units and then use those in the context of their IRB or other body to treat patients and assess the utility of the technique.

It informs us about how the technology can be used in a broader way than we have been focusing on and then helps our decision-making in terms of future clinical studies and mechanisms related to studies that we're conducting right now. So the studies themselves, you can kind of break them down into there are those that are a little bit more mature that have been going and have treated patients. Then there are those that are still on the drawing board but they're helping drive unit sales and will be reporting clinically utility in those down the road.

I think the one that's treated the most patients so far that is probably of interest is urinary incontinence. University of Nagoya is doing a study where they've treated -- so far it's really a preliminary study treating five patients.

These are men with the worst form of urinary incontinence. It's related to prostate cancer and radical prostatectomy and five out of five have been treated.

The early results from those are that some patients are completely better and some are improving. And the sense from that study from the physicians who report to us periodically is that they want to proceed with a bigger trial. So that's very promising.

That's an enormous market. It's the toughest group of patients to treat and we're pretty excited about the very preliminary results there.

There is a liver insufficiency study and thus far, four out of nine patients have been treated in that study and they are continuing to [enroll] the patients. It's a little too early to know how that's going in terms of results. But it seems to be moving forward.

The wound healing study that's going on in the University of Nagasaki is going to increase the enrollment starting this fall. We treated one patient in that study and that continues to -- we think that's going to be promising based on our breast work and the radiation related results that we have seen so far in the breast and we're looking forward to accelerating the enrollment in that.

We have treated one patient with ischemic cardiomyopathy again, also in Japan, as well as a patient who is at risk for renal insufficiency after partial nephrectomy. One patient has been treated in that study that it's too early to tell, but we're very excited potentially about the utility of the technology for acute kidney injury.

So that's kind of where we are with those that have enrolled patients in those studies. Then there are also a group of studies that are appending or awaiting approval either from an IRB or MHLW and include breast reconstruction, including the National Cancer Center and a consortium of three other universities in Japan. Peripheral arterial disease, that's another three university consortium on specifically pressure source.

(inaudible) is facial wrinkles, burns and subsequent acute kidney injury studies. So these are all studies that are investigator initiated. We get reports from the physicians but we don't directly sponsor them or plan them.

So, so far; so good. We're very excited about the overall investigator initiated opportunity in general.

Great, thank you for the update. I guess one other question regarding the regulatory designation now that Celution will be classified as a device. Can you take us through -- I know you kind of mentioned it, Chris, earlier is that -- maybe the timeline as to how long it could take for an approval.

Could we dig down a little bit deeper into what exactly is required at this point in order to achieve marketing approval of this product? Can you take us through the difference between maybe a PMA and -- what's the other one? Is it a 510 (multiple speakers) or 501? I'm not too sure. But can you take us through the different processes here under device and where you are in this process?

Sure. Ren, it's Chris. So the determination basically was to say whether we're going to be regulated under device regulations or biologic or drug. So the good news is they came back.

As we've thought and everybody else around the world regulates this as a device, so does now the FDA decided that we're a device which is important because a drug or a biologic pathway would be anywhere from five to maybe 15 years. So that would be a really long pathway.

So luckily we have -- and we always believed all along that we weren't going to be in that pathway. So now we are a device.

So going forward, there are several different possibilities. The first is what they would call Class II device which is 510(k)-able. 510(k) means that there are predicate devices out there that have already been approved that we are similar to those kinds of devices.

We believe there are a list of those such devices and claims that are similar to the claims we are seeking such that a 510(k) is possible. So the first step would be to apply with a 510(k) application for a Class II device using these existing predicates that we know and some of them frankly are our own predicates that we have established over the years. So we know very well what those claims are and what the data supporting them are.

Then FDA could come back with even within the context of a Class II or 510(K) type application and request some clinical work and the scope of that clinical work and what they would look for particularly for the application we are intending to put in front of the FDA. It's hard to really predict what kind of clinical trial but usually with a 510(K) type application, the number of patients and so forth would likely be small, would likely be safety oriented would likely be short observation points.

They'd be looking for kind of major adverse events that are early on and not looking for long-term type risk typically. So if it's a 510(K) application that is acceptable, we go through a couple of rounds of questions, the process is probably on the order of about a year.

Once we start, if needed, getting into some clinical work; that could extend that process depending on the clinical work anywhere from another six months to as much as a couple of years, depending on the magnitude of that, enrollment rates and so on and so forth. If it's required to be a Class III device -- so they say well, you're not really like these predicates. This is really something different, something novel, then you do why they call a pre-market application and then not 100% of the time but probably in the 90% of the time range, those require clinical work, clinical trials.

Those are done under an IDE. So then we would file an investigational device exception to do the trial. And again, the scope and the breadth of that trial would need to be worked out with FDA on what they're seeking in terms of either proof of some claims or is it just -- particularly safety related data.

The trial that we're -- the claims that we are seeking right now are effectively to take out a patient's fat tissue, run it through our system, get rid of some of the dead cells and the red blood cells and other things that we don't want, take cells that are naturally living on the surface of these tissues, separate them out and put them back and then put this tissue graft right back into the patient.

So from a claim point of view, it's appropriate for the markets that we're primarily going after. But they're not super high bar claims, we don't think. These are a little bit more than tissue grafting. We're just reorienting the tissue the way it was naturally to get the effect of persistence. So it's hard to imagine super long, complicated and expensive trials.

So in that case, the Class III device where we're filing PMA and trials could be on the order of more towards two years, maybe three years depending on the trial work. I mean it's conceivable that it could go longer.

But in our best guidance right now is kind of thinking the one to two years timeframe and if there's bigger trial work required, maybe two to three years. And we'll know over the next probably six months as these applications go in and we start getting feedback from FDA, how they are going to look at it, if they accept it as a 510(k) and then whether or not they're going to require a clinical trial. We'll have clarity by that probably sometime either late this year or early next year as these applications kind of get through the process.

Terrific guys. Well thank you and congratulations.

And just one final thought. If we do require some clinical trial work, it's not necessarily net negative. I think that we're going to need that data anyway to help potentially for some reimbursement and market traction over here year anyway. We'll pull in the work that we've done around the world but having an ongoing trial in the US may not be a terrible thing anyway.

Jason Napodano, Zacks Investment Research.

Hey guys. Thanks for taking the question.

Just a big picture kind of thought question on healthcare reform and potential for increased -- I don't know if you want to call it [syntax] or elective surgery tax. But I think there is some legislation that could potentially increase taxes on elective surgeries. So I'm wondering your thoughts on that and if that could be a potential hurdle coming down the line, increasing and maybe reducing reimbursement rates and increasing the out-of-pocket pay by patients.

Hi Jason, it's Chris. There's a complex issue there obviously. If it's government reimbursed, things like for breast reconstruction after cancer, I don't think co-pays are allowed by patients. I think it would have to be entirely covered by the insurance system and probably wouldn't be associated with the sin tax because this is more medically oriented and reconstructive and is probably not part of that anyway.

From the cosmetic market where the sin tax is being contemplated, we'll kind of have to see how that plays out. I think it's a level playing field. So if the costs go up, they go up across the board; wouldn't directly affect our technology adversely compared to any other variable options that patient would have, meaning implants or so forth.

But I think that from a macroeconomic point of view, yes it hurts. This is a market that's already suffering from the economy and it's adding an additional cost to patients that are seeking this type of therapy is not going to help the market overall. But it doesn't specifically punish what we are doing.

Neil Gagnon, Gagnon Securities.

You folks reaffirmed your guidance number of $10 million for this year with $3.2 million in first half. Give us some of your thinking and why you have this confidence that the second half is going to be essentially better.

It's Mark Saad. We are at a point where we know the variability of the system sales, certainly of the StemSource banking sales. And that's something we have acknowledged, we've talked about, we live with and we work hard to wrestle those sales to the ground. As we look forward at the end of the first half, we had to use the information that's available to us which is largely the substance of the sales funnel or the specific data systems we have that have granularity for individual potential customers both on the system side, on the reorder expectations for the existing installed base and also for what's now a much smaller part of the overall current year as we said at the beginning of this year was the banking side where there's still a few that we believe are at the very end stages of the contracting that we think can and should get and ultimately will get done.

We have put all this together. We look at the identifiable sales funnel and goals for the year and we have more than enough revenue opportunity to meet our goal. We always love to meet it and beat it earlier in the year than later, but as we look forward we see a substantive sales funnel that's getting traction.

Really the questionable item being timing was for the system sales and certainly the banking sales has been highly variable and we've talked about that. But we feel very strongly about the quality and the substance of the funnel and the team working to get those done.

Let me ask you a bit more specifically. On the banking potential, do you have items in your funnel where you are convinced that some of this won't get done in the second half of the year?

We said some of this will be or will not be?

Will be.

We can't be convinced of anything until it's done. I don't think anyone could believe us if we said anything but that. So we know until it's done, it's not done. And there is that attitude here of you can have a reconfirmation of a buyer several times through these processes where they reconfirm their intent to buy, you clear another hurdle, especially with these institutional sales with government hospitals where it's just enormous amounts of layers and bureaucracy involved.

So rather than just going from interest to demand which we see on the plastic and reconstructive surgery side where we have a fairly good handle on when those orders can come through, specifically when it's a larger academic hospital which are extremely valuable to us in making sure that the technology is well validated and we see that happening, the timing and level of the reconfirms you is seemingly exhaustive.

So we are internally inpatient because we want to get those done yesterday. But at the same time for those customers, you have to be patient. And so we are managing that the best that we can to get those done.

And so we can't be completely confident that they will happen. We have an internal belief that they will happen based on the substance of the dialogue and the reconfirms and then just the endless series of red tape. But we just can't accept them as done until they are done and that's what the team has to focus on in the second half.

Okay, so on the banking -- well on the system sales then as you are discussing this Chris and Mark, it sounds like you have enough in the funnel that gives you confidence about your goal for the year.

We know that there is enough in the funnel to achieve the goal. We still have to get them done and a system sales versus a consumable sale where we are actually able to see some trends in the consumable side, we just haven't hit the inflection point where consumables are driving the number.

So as far as system sales are going to be meaningful and this year we have said that they will be, this is a meaningful system sale year to get to an installed base, there is going to be that inherent variability. If we look at the quality of the funnel and the inflection point, is there enough things happening on the patient experience side, physician experience side, other collateral factors that are supporting the inflection point to where these sales start to move up on the curve which we believe fundamentally will happen. The question is when.

Those things are coming together to give us some confidence that that funnel is achievable. But until we have done it, it's not been done. So I think there is a significant opportunity to accomplish our goals on the system sales side outside of banking but we will need some banking to come through I believe to meet the number.

Okay, can I ask how much will GE help you in the system sale this year?

Hi, Neil; it's Chris. The partnership with GE particularly in the US is early. We did get an opening order from them last quarter that we have talked about and we believe that the team here is actually out there working pretty hard. They're at a lot of meetings, there's a lot of exposure, they're introducing a lot of accounts.

So it's really too early to trend that. But I think that we are relying in some part on GE sales particularly in Europe where there's a more established market there and label for the clinical applications where they can actually sell Celution products.

And in the US, it's a little early to kind of predict that out but we are seeing a lot of interest here. Can GE together with our help and support convert that into sales? We believe they can and we're working hard to accomplish that.

So we didn't -- when we partnered with GE, we didn't change our guidance. I don't think we didn't all of a sudden expect that because you have this big channel partner that you're going to just have explosive growth.

Having been through it before, we know how it works with these big companies and there's a lot of bureaucracy within them. There's other stuff in their bag they focus on.

So we took a very cautious approach in our modeling and in our forecast to the GE contribution for the year. And I think we are pretty much on track with where we think that's going to be. As Mark said, it has to play out but our expectations of bringing in GE weren't incredibly high or it didn't really change our model. It was kind of planned all along.

Change subjects -- where do you have your operating expense down to now and what is the prospect on operating expense over the next six to 12 months?

Hi Neil. It's Mark. Our operating expenses in terms of what -- if you strip out sort of the stock-based comp and non-cash items (multiple speakers) we had a goal to get that down to the $20 million range which was a significant decrease over prior year.

We were at -- overall at about the $35 million level in the prior years. If you strip out some of the non-cash items, you were closer to $30 million. With the moves that we're taking both in the third and fourth quarters of 2008 as well as at the end of the first quarter 2009, we have hit our goal of getting those cash operating expenses down to $20 million.

So that has been done. The other side of the equation to help us on the net loss goals was clearly some gross margin to offset some of those expenses I guess that eventually as we get further out in installed base and traction to get towards profitability, having that operating expense line much reduced. So we are down.

We're comfortable we have achieved that cost side of the goal. There's more we could cut, I would say, in areas marginally and we continually look at areas as aggressively as we can internally on that side. We know we can't cut our way to profitability, that we need the revenues.

So there's some important marketing and sales expenses that we think are worthwhile and supportive of the revenue and gross margin goals we have. So we are looking at it all very carefully. I think there's some areas where we need to invest in. You'll see on the R&D side and the G&A side, we just continually wrench that back as aggressively as possible.

But I think at the moment now, we're at a good place from an operating expense standpoint. We're going to continually look at it, try not to grow it and if necessary pare it back a little more but really aggressively focus on the revenues.

[Ken Arnold], Oppenheimer.

Good morning gentlemen, two question -- two-part question. One, can you update us on APOLLO and PRECISE and when you expect to report preliminary results? And the second question in a different field is what you are seeing around Europe especially -- or in Tel Aviv with the cosmetic and reconstruction market i.e. areas of like facial rejuvenation, if you can update on both of those I would be appreciative.

I will ask Marc Hedrick to address those questions for you.

Hi Ken. Thanks for the questions. So we are in a little bit of a quiet phase with respect to APOLLO and PRECISE.

For those of you that are relatively new, the story that APOLLO is a acute myocardial infarction randomized double-blind prospective clinical trial. It has completed enrollment of the review board for that study, has said that it's feasible and safe.

And so now we are in the process of collecting the more detailed, specific cardiac related imaging data and study data to not only get more granularity with respect to safety but also with respect to efficacy with the caveat that the study is not powered for efficacy per se. So we're continuing to incrementally get patients out beyond that six month post treatment window where we accumulate the data, we record it, we fill in any gaps.

And then once we get the last patient to that six-month window, then we will have the opportunity over the next couple of months then to put that data together and then hopefully by the first part of 2010 Q1, we will have that data available. And so that's the AMI study APOLLO.

And PRECISE which is a chronic ischemic study, that again is fully enrolled. We have met our key end points with respect to the review board for that study as well. And we are in a similar pattern with respect to that study that we are continuing to accumulate data for that study with a similar reporting timeline in Q1 of 2010.

So with respect to cosmetic and reconstructive surgery and specifically facial rejuvenation and other areas, this is where I think our near and intermediate term growth is going to come and we see really exciting and growing ND interest globally and not just plastic surgeons but also cosmetic dermatologists and others who have the capability within their practice to do liposuction under local anesthesia or general anesthesia, process the tissue and put it back into the face and/or the breast or in any other area that requires soft tissue augmentation.

You asked specifically about facial treatment and rejuvenation which is where we are seeing a lot of increasing interest and the way this works is that the trend in plastic surgery, cosmetic dermatology and other areas is when someone grows old, the skin gets loose and you just make an incision around the ear and you tighten the skin and you get rid of the wrinkles but patients don't look quite normal because when they age, not only does the skin get wrinkled, but you lose some of the volume.

So for men and women who have mild to moderate aging and not just an overwhelming amount of wrinkles, if you can restore the soft tissue volume reliably, reproducibly; you can basically do a facelift without any incisions. And so doctors are picking up on this and this is one of the biggest trends I think I see in plastic surgery.

It's doing facial augmentation or facial rejuvenation without these big scars with injections. And so -- because cosmetic dermatologists, the market is much beyond plastic surgeons. You can actually accomplish the procedure.

And so you're talking about Tel Aviv, Michael [Shefflin] or in London or potentially any place where the technology is available; doctors can use this as a way to make patients look younger without the scars that you get by doing face lifts. So incredibly exciting opportunity, I think it's going to help drive our near and intermediate term growth objectives.

Does this -- is this done -- you mentioned sometimes done on a local?

In fact, Kenny, I was in London -- just to give you kind of a clinical caveat -- with a cosmetic dermatologist who treated a patient who walked into the OR which was really a procedure room, not an OR, and set down on the chair, had a small amount of local injected, had the fat removed. She walked out of the operating room, went to the waiting room, looked through a magazine.

Another case was done in the same room while she was waiting and the tissue was processing. So the doctor didn't lose the ability to use that operating room or that procedure room while the tissue was processing.

And then when the second case was done, the patient walked back into the OR, sat down, had some local anesthesia and effectively had a cell enhanced or stem cell enhanced face lifting procedure under local and went home that day without staying overnight with minimal bruising and almost no scarring. So it can be to done completely as an out-patient procedure with minimal sedation or impairment to the patient.

So a disposable obviously is required for each one of those procedures?

Exactly. So just like any other Celution procedure, it requires one consumable per treatment.

Sounds terrific. Thanks you for your time.

Ted Tenthoff, Piper Jaffray.

Great, thank you very much. So just to come back to some of the earlier questions regarding the regulatory situation. Were you referring to specifically to reconstruction and tissue repair applications with respect to the medical device or would that include the cardiac applications as well?

Hi Ted. It's Chris. The application we submitted to FDA for the RFD, the claims on that were tissue applications, not -- we didn't include cardiac in the first pass. What we think this does, this sets the bar that the device is a device.

If you look at it, it is a device. We're not selling a biologic product, we're not selling a [cell]. We sell a tool.

And then how they are going to regulate under -- when we go for expanded claims for let's say cardiac use, we think that's definitely going to be Class III and that it's going to be requiring trials in the US, pivotal trials. But it does make it pretty clear that the device for looking at these more therapeutic related trials, that they will be IDE trials.

It says that four or five times in the letter back from FDA. So I think they -- although we looked at it as a tissue application, our understanding is that (inaudible) contemplated that this puts a cell output out and that in the context of expanding claims for that cell output, that it will be IDE trials to be done for expanding claims. That is the way I understand it.

Good, excellent and congratulations on that. A couple of follow-ups, if I may. I know the Olympus milestone came a little bit earlier than we were expecting. Do you expect any incremental milestone revenues from Olympus this year for reporting the data?

Hey Ted. It's Mark Saad. I don't currently expect any additional such milestones this year. It's not impossible, but I think it's unlikely. I think if you look at the balance sheet and the deferred revenue line, that is largely made up by Olympus related development revenues and I expect that of the remaining amount, there could be ballpark estimates in the 2 to $3 million range in the first half of 2010, by that timeframe.

I think that's plausible and would likely -- and to give more granularity behind that -- that's likely to come from -- as these are reviewed every quarter with outside auditors and all the relevant people, likely to happen at the time of the report from the six-month endpoints. So I think that's likely to be first-half 2010.

That's why I said that timeframe I think is realistic for a milestone of about that magnitude. And then the remaining parts of that deferred revenue are likely to come thereafter probably not until 2011 timeframe, 2011/2012 for the remaining time frame. So I'm not expecting a big number from that, certainly not this year.

Okay, good. That's really helpful. If I may just with respect to Seaside, I saw the -- and I appreciate you keeping us tracked up on that. How many shares in total have been issued to Seaside?

Seaside currently has been issued 1.1 million shares in four separate closings. So that included one closing before the end of Q2 and then three subsequently for an incremental $2.5 million. And I would just want to point out on Seaside, that is a group that has done a significant amount of work on Cytori over a period of months. And at the same time given that they were not as well-known as some other funds out there, we did a significant amount of work on them, appreciating that anyone who wants to buy over time requires I think management to do significant work to know what their intentions are.

We believe it is Seaside's intention to build a long-term fundamental position. I think that would be different from other types of transactions that may broadly come in similar structures.

We developed a strong comfort zone with the Seaside team, with the principles that their intent to build a position and we think that is playing out. So we think the opportunity with that is if we can achieve positive progress and milestones as we expect to, that we can hopefully increase that average price significantly over the timeframe of their investment.

And for what it's worth, we have been cash neutral since putting this deal in place. So even at the levels that we are at -- so in terms of where -- the stock price levels we're at -- it has at least covered our operating expenses and cash burn.

Great. Just to doublecheck on that, so you said five total raises or four? Because it says $0.8 million in the second quarter and subsequently $2.5 million. So to get to 1.1 million shares, it's 225 per quarter, right?

275 every two weeks.

275, okay. Great, that's helpful. Good, and then lastly just to be absolutely sure, there were no stem cell placements in the second quarter, correct -- StemSource?

That's correct Ted. So if you looked at Q1, you saw one installation of a StemSource bank. So that contributed approximately $600,000 in Q1.

So if you were to look at the Q1 revenues, you take out $600,000 for the StemSource bank and then the remainder you could assume was Celution systems and then now we have we also have StemSource -- other StemSource research and laboratory equipment now that fall under the StemSource umbrella. So there were StemSource revenues in Q2 but not what we would have defined as a StemSource bank. So there was no bank in Q2 in our -- given the significance of those revenues when and if they are achieved, which of course we hope they will be, it's our intent that we will announce when we close those deals so that people have some ability to forecast when they are going to see those revenues.

Excellent, very helpful.

Thank you Ted.

Bart Blout, Sawtooth Capital.

Hi guys. I wondered if you could relate to us any indication about how many uses or how many people have come from outside of Europe and/or Asia for treatments of any kind using Celution.

Hi Bart. It's Chris. It's tough to really track that. I mean, so I guess if I interpret your question right, are we seeing medical tourism specifically for Celution procedures? I haven't heard much about those.

Doesn't mean they are not happening are not existing. I know there's interest. We get e-mails and contact from patients quite frequently that are looking for centers around the world to seek treatment and we don't get in the middle of that. We may refer them to somebody and then kind of get out of the way. So I don't know that that is really something we would really be able to know or track.

In other words, no doctors have mentioned it.

Yes, I haven't -- in my personal interaction with these guys, I haven't heard of anything. I know there is a growing amount of interest in patients as they hear more about it from the press and in the media. There's definitely growing interest in having this done. Now whether they're actually signing up and traveling around the world to get it done, I just don't know it yet.

(Operator Instructions) Erica Selin, Noble Financial.

Thank you for taking this follow-up. I had a question on the cost of goods. It looks like that's ticked up a bit in the quarter and I was hoping you could provide some information on why that is occurring.

Hi Erica. It's Mark Saad again. I think it's really similar to what we said last quarter and where the general range of cost of goods -- of the gross margin that we are seeing so far and admittedly in a period where the overall volumes have a long way to go to where we benefit from scale. So I think that's an underlying point in general.

We expect strong gross margins with these products. We think that's extremely viable based on the pricing we see, the price potential we see and where costs should be at some reasonable scale, scale that we're certainly not yet at.

So I think with that put aside, even than the current scale environment, we're somewhere in the 40 to 60% range depending on largely whether or not we're making a direct sale or a sale through a distributor. So if you looked at the revenues in Q1, there are two major components.

The first was a StemSource cell bank and our gross margins on installing a cell bank which has a lot of equipment related to it is approximately 50%. If you looked at the margin for the quarter, we were in the low 40s.

And so what that would infer, it would accurately infer that as the system -- Celution system related sales in Q1 were almost entirely distributor based sales. So to GE and to others where we're making a distributor sale, our margin is less. So if you looked at a bank, probably in the ballpark of 50% plus some distributor sales, that's where you got that total number for Q1.

If you look at Q2, everything was extremely similar, in fact remarkably similar maybe in terms of a little mix difference between systems and consumables. We saw some pickup in the consumables as we talked about.

But everything was otherwise fairly similar Q2 versus Q1 with the exception of the fact that we didn't have a bank installation. So if you take that out, it really was extremely similar. And as you go forward, our expectation is we do expect more direct sales. It's just in Q1, Q2 we didn't have many of those and our expectation is that we will see some of those returning based on the effort of the direct sales team that we have. And so that's in the funnel.

So I think an expectation that the margin will pick up from direct sales is reasonable. It's just going to depend on the mix quarter to quarter. And if it's all distributor based like we saw, it's going to be at the lower end of that 40 to 60 range and then hopefully it will be a mix. Then you're going to see it return to the middle. And then with scale where a significant amount of these costs involve sort of that overhead burden which just sort of punishes you at the lower scale, that is another area where we expect that to change once again with scale.

(Operator Instructions) [Ken Arnold], Oppenheimer.

Mark, I want to follow up on that investigator initiated study of urinary incontinence, how that works. I'm a little in the dark on that. (multiple speakers) how they actually use the technology in that study.

So let me preface that by saying that the core Celution technology can yield a formulation of cells that can be customized to a particular disease. For example, the cardiac output, the plastic surgery output and the urology output and what you put back in the patient can be completely different and that is the beauty of the platform.

It requires perhaps software changes or some formulation after the sales are processed. But it just makes the system so incredibly versatile. So if you look at the urology application, it is a prime example of that versatility.

So the problem in these men that have had radical prostatectomy is really twofold. Number one, their urinary sphincter doesn't contract very well. These cells from the Celution -- cells alone without any really much else done to them are rife with smooth muscle elements and progenitor stem cells that can turn into smooth muscle. So the idea is that you treat part of the problem, the sphincter problem, by direct injection of the cells to bulk up the sphincter.

The second part of the problem is scarring and the edges of the urethra don't close well. And so they need help coapting so that you can just -- bulk needs to be there but bulk that lasts, that's permanent that gets those edges to coapt so the sphincter can actually, when it does activate, can close that off and provide continence and no leakage even when you cough or stress or other things.

So as part of that treatment to treat that scarring, we take some of the stem cells plus the fat tissue, mix it together and inject that just into the scarred area just beneath the lining to get that coaptation. So you're really getting two formulations for that specific application.

It's all done at the same procedure with just a little different technique by virtue of the surgeon. So the idea then is you get a sphincter that contracts stronger and the doctor that is performing the study is measuring that and also measuring the blood flow and through MRI evaluation the residual fat tissue. That is all part of the data that's being collected as well as endoscopic [doppler] data.

So that gives you -- it provides a pretty robust assessment of the blood supply in that scarred area. So you're getting a lot of data points with a really pretty complex treatment. And because the incontinence and the physiology of the incontinence in these men is much more difficult I think than in women because you've got this scarred environment, if it works in men, then we think there's a reasonable chance that it could work in women as well. So overall, pretty bullish on this opportunity. I think the next step really is to do more patients, get some more data and then go from there.

So there's been five patients, it says here in the shareholder letter. How long has the first one been since treatment?

The first patient was treated in the spring and really five patients were enrolled over the course of about three months and the early patients are showing really promising results. The later patients, still a little bit early.

But we are optimistic enough about the treatment based on the doctor going forward to try to doing -- broadening the enrollment and doing a more specific trial. So that dialogue is going on back in Japan with the IRBs and MHLW. So pretty excited about that opportunity, frankly.

Okay, thanks and congratulations. I just looked, you guys have a new website up. Very informative. Thank you.

Neil Gagnon, Gagnon Securities.

In the past, we have talked about the number of Celution machines on the consumable-only basis for you to cover your reduced OpEx of $5 million a quarter. That number was around 100. Has anything changed in your thinking about that?

Hi Neil. It's Mark Saad. I think the 100 example that I have provided and I think is still accurate is based on one machine at the private pay level. So we think the end-user pricing for consumables in the private pay, which we think should be going forward maybe a low watermark in general for what future consumables may be across a wide variety of areas where you may see better pricing with data etc. and claims, but if you're really where we are now in terms of end sales pricing which is in that private pay area and the average pricing that Cytori sees on average either between the direct sales and the distributor sales, then 100 machines that are quite active but not by any means maxed out, these machines can run certainly three times a day.

None of them are at that level today but if we can get them at perhaps two or three times a week, then at the average pricing that we see for consumables, without any system sales or anything else, that's two to three times a week, three times a week at $2000 consumable. 6000 times 50 weeks times 100 systems is $30 million.

And at any reasonable, plausible gross margin on that kind of scale; that would exceed our cash requirements for operating costs. So 100 systems that are active at that -- to that degree which is significantly active but by no means capacity, that drives a profitable company.

How we actually get the profitability may certainly be different. But I think that was intended to show that what you need to get to profitability from utilization point is not particularly dramatic. Where I think frankly we believe it will more likely be is where we will probably have a few hundred systems getting to a lower average utilization point, probably triggering the profitability point rather than 100. We're not going to stop at 100. Our expectation is that we will be well past that.

Gentlemen, at this time, there are no further questions. Please continue with any closing comments that you may have.

Look, there's something really remarkable going on. Doctors around the world are now able to harness a patient's own stem and regenerative cells and treat things that they never have been able to treat before as Mark kind of identified in some of these investigator initiated studies.

And patients around the world are benefiting. What we are doing is steadily building momentum to establish this new market in regenerative medicine. Many of the core elements to achieve global scale have now been put in place.

And together with our strategic partners, our core Celution and StemSource products, we strongly believe Cytori is setting the standard for point of care regenerative medicine. Looking forward, we continue to focus on expanding our installed base of systems as well as increasing the rate of consumable usage per system. Thanks for your interest and time today. We look forward to updating you again in three months on our growth and progress.

Thank you. Ladies and gentlemen, this does conclude the Cytori Therapeutics second quarter 2009 financial results conference call. If you'd like to listen to a replay of this conference, you may do so by dialing either 1-800-406-7325 or for international participants, 303-590-3030.

You will need to enter the access code of 412-6637. (Operator Instructions). We do thank you for your participation. You may now disconnect your lines at this time.