Plus Therapeutics Inc (PSTV) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the third quarter financial results conference call.

During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Monday, November 9, 2009. I'd now like to turn the conference over to our host and CEO, Mr. Chris Calhoun. Please go ahead, sir.

Good morning and welcome to Cytori Therapeutics third quarter 2009 conference call. Before we begin, we want to advise you that over the course of our call and question-and-answer session, 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 statement to reflect events, trends or circumstances after the date they are made. Now, let's turn to the quarter.

In the first nine months of 2009, we've experienced very positive signs that we're building a solid foundation for our business. Our technology continues to reach more physician practices and as a result, we are seeing related growth in consumable sales.

In Q3 specifically, we saw a marked reduction in inventory at key distributors and thus an increase in the number of systems that have been installed and are now being operated. This is being driven mostly by demand in Europe within the cosmetic surgery market where Celution customers are starting to aggressively market cell-enriched cosmetic surgery to patients as a means to differentiate their practice.

We are also making progress in our clinical trials. For our breast reconstruction study, 69 out of 70 patients have been treated and completion of enrollment is imminent. This month, the last patients will come in for their primary six-month follow-up in both of our cardiac studies. Also this month, we will be submitting our Celution 700 510(k) to the FDA for which a response from the FDA could result in an initial market clearance or allow us to further define a specific path. Collectively, we view these events as setting us up for an exciting six months.

And with that, we would like to open up the call for questions. Jeremy?

Thank you, sir. We will now begin the question and answer session. (Operator Instructions) Brian Gagnon, Gagnon Securities.

Can you talk a little bit about the investigator-led studies, what's going on with those, and where do you stand on some of the progress? And is it possible that any of these are going to lead into expanded trials and/or therapeutic programs for you in the future?

Brian, as you know, we are pretty excited about a lot of these investor-led studies because we are focused on our core areas of cosmetic and reconstructive surgery and our cardiac work. But the investigator-led studies really allow us to expand the platform.

And based on some of the data that's been coming out as well as the revenue that we're generating, we've seen an increase in both partner interest and more active conversations with partners. For example, recently we've signed a nonbinding letter of intent with a group for a specific field in Japan based on one of these investigator-led studies. It's likely a Q1 event, but it shows the model of the potential value of some of these translational activities.

Okay, a nonbinding letter of intent? What does that mean? Could this be something substantial for the Company as in potentially upfront money and/or milestones and royalties? And could you maybe expand and give us a little idea how a structure of a transaction like that might look?

I think you are thinking about it in the right way. Obviously there's no guarantee this will get done. It's a nonbinding letter of intent. But I think it shows the interest.

The structure, again, because there's confidentiality around some of these things, I can't go into specific detail. But I think you are thinking about it right.

It would be a meaningful deal to us with significant upfront and then milestones and then ultimately a commercialization model. So I think you're looking at it exactly the right way. And I think it shows the model and how we can really leverage the value of a lot of this investigator-led work.

That's fantastic. Well, good luck on getting i done. Can you give us some idea on system sales? Is anything really happening in the US and what types of markets are they looking at at this point?

I'm going to hand over to Marc Hedrick for the sales update.

Thanks for the question. The US is just really getting off the ground. We are selling with our partner, GE, in the US.

Remember that we don't have specific regulatory approval for the StemSource system, which is the system that is being sold in the US today. It's being sold as laboratory equipment really for clinical research. Doctors can acquire the system and use it, but it's used through the practice of medicine and it's not a medical device and we can't make claims about that and don't and neither does GE.

However, having said that, there's spillover interest in the US based on the interest and demand that we've seen in Europe and also in Japan. And we're seeing more and more physicians, potential key opinion leaders, visiting Cytori, expressing interest at meetings in the US about the technology; and in fact, giving presentations at major meetings, talking about the future of plastic and reconstructive surgery and using our technology as part of their talk. So we're still early, but we really are pleased with the level of excitement and demand we think we are seeing in the US.

Good. Thank you. I will get back in queue.

Joe Feshbach, Joe Feshbach Partners.

Hi, just can you provide a little more color on the thought behind reacquiring some of these distribution rights, what the impact will be, when we should -- when it was done and when we should see that impact start to show up in the numbers? I guess some of -- and sort of to that end, what sort of momentum in terms of sell-through do you have this quarter versus the quarter we just completed, now that you have sort of reorganized this?

Hey, Joe. It's Marc Hedrick. Thanks for the question.

As I answer the question and think about the answer, I'd put it in context and say that while we're seeing steady growth in terms of systems going out the door and systems getting to patients and to physicians, the goal is to really drive to an inflection point in sales and continued acceleration of sales.

Part of that is an ongoing relook at better tailoring our channel model. And as you know, we have a direct sales force -- let's take Europe, for example, where we have a handful of individuals selling direct. We also have a significant partnership in 10 countries with GE Life Sciences. We also have distributors in areas like Greece, Spain and Poland.

So we are working through these different models in each location. But one of the things that we have noticed by virtue of our relationship with GE, for example, is that GE does a good job in terms of their communications and interactions with large institutions, where they may have a breast center and sell radiological equipment at that breast center. Whereas Cytori tends to have better relationships and greater reach into private practice and individual plastic and reconstructive surgeons.

So a lot of this tailoring really is allowing GE to focus on where their strengths are, letting Cytori focus on where our strengths are and then letting the margins reflect the amount of work that Cytori is doing in building the market in those private practices. With respect to MBA, who's our partner in Spain, Italy and Portugal, similar thing there, where Cytori has its European base of operations in Italy.

We are driving a lot of the business in Italy, whereas MBA's located in Spain, it just made sense that Cytori drive that business on a go-forward basis in Italy. So over the next year, that really lays the foundation for Cytori driving its own sales force, its channel and its own business to a greater degree than it has been over the last year.

(multiple speakers) So when we think about growth, I think there will be some system sales in Europe related to GE and these large institutions and they will drive those and Cytori will focus on the private practice cosmetic market. I think it's a win-win all the way around.

Got it. And are you -- do you guys have a good read on distribution inventories? You kind of alluded to the idea that they were pretty much emptied out, dried out, whatever, in your letter. So should we start to see -- I would assume that because you are going direct, we'll see higher margins, higher revenues and perhaps we have cleaned up the distribution inventories so we might see a little reacceleration in system and instrument sales. Are those all fair assumptions?

Yes, I think so. The way I would explain the inventory situation is that over the last two quarters or so, we have been working with partners, big partners like MBA and GE Life Sciences, to burn down their inventory.

As we've gotten their sales force trained, we've increased their ability to get systems installed and up and running and service customers. That inventory has been bled down. But at the same time, there is a competing factor which is we're bringing on new distributors, like GE in Thailand, our Polish distributor, Middle East, and others.

So that offsets and increases inventory until we get them trained and up and running so they're self sufficient. But the overall net trend is that inventory levels are going down. A lot of the systems that have been in inventory over the last year or so have been burned down and you are getting systems in the doctors' hands.

You're seeing doctors beginning to use the technology on patients that are now six months and longer out. They're getting more comfortable with the technology and they are doing more patients. They are building their own internal marketing efforts and we're working with those practices to do that.

And their practices are growing and that is reflected in the increasing consumable reorders. So those are the exact trends that you want to see in a growing business like this. It's exciting now to see the numbers coming through and really seeing the business build.

Got it. Can you just comment a little bit on how the quarter to date looks versus last quarter from a sellthrough point of view? Is it too early to --

Well, I think if you can look backwards as an instructive point for looking forwards, and if you dial back for the last four quarters, we've seen universal quarter over quarter growth in the number of systems in our revenue base from -- it was about 42 systems back in Q4 2008 to 85 today. If you look at the number of overall consumables shipped, I think back in Q4 2008, it was 179, and we are up to 314; roughly doubling reorders, reflect that same trend of roughly doubling over the last year. And then you sort of drive that into Q4, you see that continuing growth so far in Q4. So our visibility is that those trends continue, yet while that's all well and good, we are trying to accelerate that growth and that's why the focus on sales and marketing support for doctors, enhanced product features, better tailoring the channel model and getting US regulatory approval are all clearly critical in creating an inflection point for the technology globally.

Great. All right, well, that's great. I'll get back in the queue.

Ren Benjamin, Rodman & Renshaw.

I guess just a couple of numbers questions. You mentioned that there were 314 consumables shipped this quarter. Clearly things are still growing but it seems to be growing a little bit slower from let's say previous quarters.

So can you give us a sense as to -- you still have all the marketing efforts that's ongoing, you're trying to, of course, tap the cosmetic market and I understand all that. But can you give us some sort of color as to how you see this growing substantially into the new year? And then maybe some color as to how many of these orders were -- of the consumables shipped were reorders versus new ones. Then I have a couple of other questions as well.

It's Marc again. Thanks for the question. So the way I would look at the trends is consumable reorders and overall demand is growing. And it's a little deceptive to look at that delta in 313 to 314 over Q2 to Q3.

Remember, layered on that is a relatively slow European season in August and September. We have clinical trials that are winding down or (technical difficulty) down over the last couple of quarters. But competing with that are increasing reorders.

So reorders were up from last quarter to this quarter and have been up every quarter for the last year. Overall consumable orders have been up every quarter, quarter over quarter last year. So you'll see, as we've said all along, you're going to see some variability.

But we have never had a quarter over the last year where consumables haven't been up quarter to quarter, and we're seeing that pull through demand in terms of number of cases. In October we had the most number of revenue based cases in a month than we have ever had in Europe.

We're monitoring that as closely as we can. You are seeing it at the end user level. You are seeing it at the doctor level and the patient level and those are the exact trends you want to see.

Are we going to see -- I guess one question is what percentage of the 314 were reorders, if you could spell that out for us? And then the other is would you expect to see some sort of softness in let's say the end of the fourth quarter as well, just like you mentioned the August/September timeframe, the November/December timeframe going to kind of lead to softness in sales as well, just because of the holidays?

Well, the percentage of the overall consumables shipped that are reorders is greater than 50%. It's been greater than 50% basically every quarter over the last year. So it's kind of hanging in that kind of 50% to 60% range each quarter.

Because as we bring on new distributors, that means new stocking orders and also their continuing base of reorders. You kind of see that reorder trend ticking up a little bit slowly each quarter to quarter. But it's still greater than 50%.

With the clinical trials ending, that contribution to the overall consumable shipments is going down. So the relative importance of the reorders is growing. And revenue related to that is another measure of growth is there in that for every quarter over the last year, we've increased the amount of revenue attributable to consumables, both the total revenue and reorder revenue. So that is growing quarter to quarter and it's grown roughly 100% year-over-year, looking back through the entire four quarters of last year.

So we see those trends continuing to grow. And with respect to the fourth quarter, it's hard to say, but because we are a much stronger position than we were let's say last year and over two or three quarters, I think what we're seeing now is indicative of that strength that we have in the market, of a growing partnership with GE. We're seeing our own sales force making efforts. And the Christmas holiday is relatively short, for example, in Europe. But it's not a six-week holiday like you see in the September/August time frame. So there might be some kind of seasonal variability and we see that in the numbers, but the overall growth trend is clear.

Okay. Of the 15 -- this is just semantics here, but just to get some clarity. Of the 15 new systems that were shipped, you mentioned 12 were sold to physicians and distributors. Where did the other three go?

Well, we've got some systems that are in a small loaner pool. So there are a group of physicians that either are direct customers or are customers or potential customers of our distributors who maybe aren't quite ready to buy the technology, but would like to try it out and do a few cases.

And early on in developing a market, that's something that we anticipated and we prepared for. So every quarter, a few systems might go out to physicians and they will use the technology and the goal is that we convert them to a sale after they get a little bit of clinical experience. So not every system that goes out in our revenue base is a sold unit, although the vast majority are, and a few go into that loaner pool either directly or through our distributors.

And what's the hit rate then with the loaner pool? So if you had a number, let's just say 10, you probably have the actual number, but what has been the hit rate or the ability to convert them into sold units then?

I would look at it this way and that's I can't think of an instance where someone has had a loaner unit and they have wanted to give it back.

Okay, can you give us an update as to what is happening with the stem cell banking component? What can you tell us about how things are growing there?

For those that aren't that familiar with banking, I think the -- our sense is that there is growing verbal commitment towards banking and people are taking actions; business, investigations, discussions reflecting their interest in banking.

Banking is -- you could divide it up into those large institutions, particularly in Japan, who are interested in more of the broader appeal for their constituency for banking and treating the overall health of the patient. In other words, you bank the cells when the patients are younger, when they get old, they will have young cells and you can use it for heart attacks and other things.

That is going to be driven by these large institutions who have long buying cycles and it's a pretty big ticket item. And we and our partner, Green, are working with those big institutions and those are long sales cycles. But we think those will come eventually, particularly as the overall breadth of the clinical applications grow.

Can you remind us just how many sales have already taken place?

So we've sold basically two systems. One to a large institution, as described, that's Kyoto Prefectural University in Japan. And that is a big public institution, long buying cycle and that technology has been installed. And then also to a cord blood banking company in Greece, which is a little bit different flavor of that same model.

The emerging interest is really on private practices and individual physicians who now have the core solution or StemSource technology in their practice, they're doing patients, they like their results. Many cases, they have extra fat tissue or stem cells they would like to store for the patient, A, because in an era of regenerative medicine, it doesn't make sense to throw cells away.

Those cells are valuable and a patient that has been treated once is likely to be treated again. But the second thing is if the physician banks those patients in a bank that they control, they effectively have captured that patient on a go-forward basis.

So if that patient wants to be retreated, it will mean that that patient will call that physician back, have a revisit and that can mean both treatments related to the cell therapy for that patient, but also potential other treatments. So it's a way to enhance the lifetime value of that particular customer.

So we're seeing more and more interest from private practices and smaller groups interested in getting a slimmed down version of the bank for their practice or group of practices. And stay tuned to see how that market develops. But in the end, all of these banking models will be driven by clinical success, not vice versa.

And I guess one last question having more to do with guidance. I don't remember -- just looking at my model, but I have somewhere close to let's say $10 million in revenues for this year, which doesn't seem like it will be achieved and I don't remember if that was guidance provided by you guys or not. Do you have any revised guidance and then how should we be thinking about 2010?

I think we certainly talked about the guidance last quarter on the call. We acknowledged it was going to be a challenge. In meetings that we've had, in the webcasts since then, we've reacknowledged it's going to be a challenge.

I don't think there's any great mystery to that. And at the same time, we also said that we see a building strong funnel of revenues; both large practice, small practice, banks, etc., all building strong momentum in terms of what we think are the realistic revenues to get in the near term. We continue to see that building.

No different than before, the 2009 anticipated number is certainly a challenge. Internally, we still are driving toward achieving those revenues. And if we do that, we think we can grow very significantly in the near term and the long term. And I think -- so I would focus less on the $10 million number, consistent with what we said before and consistent with what we are seeing.

But at the same time, I think we're driving to an inflection point that while we're defining a new market here, there is no path to follow. We are creating our own path and in doing so, a lot of good things are happening, a lot of things that show us that revenue well in excess of that number are possible and we're driving to that.

So without giving you a specific number, because I think that's proven to be difficult to predict, I think you can see a lot of very tangible evidences of physician experience, patient experience, growing installed base, driving to inflection point that could make a good case for strong growth. And I think that's where we're going to focus.

Mark, just as a follow-up to that. You know, the inflection point that I think both Marks have mentioned, how do you characterize that? I understand it's easy to see as far as revenues going up, but what do you need to see prior to that being registered, let's say on a P&L statement?

It's Marc Hedrick again. We can smell the inflection point. And the question is making a -- back to my clinical background. You have to make a diagnosis in the field of what is holding things back from the perspective of increasing adoption on one hand, people buying the technology and putting it in their practice; and on the other hand, driving throughput, the number of consumable sales.

I think there are four things that we tried to outline in the letter that I'll kind of focus down on a little bit that will contribute to that inflection point. And with the caveat that we can't predict when it's going to happen, but we feel confident it will and we just need to drive as hard as we can to that.

So number one is making our customer physician practices successful. So doctors are not used to selling cell therapy and stem cell related technology. So marketing and sales support, we've done some internal restructuring. We are working incredibly hard, devoting a lot of resources to putting tools into doctors' practices to make it easy for them and their business.

Folks have [been to practice] to sell the technology. We have added a new Vice President, David Oxley, to run our sales support group, which is a way to say marketing. There's a clear interest on the consumer side for the technology.

So when you have any physician that's particularly astute at marketing, goes out and gets a presentation or gets some media attention, the number of calls that flood their practice almost closes down their phone lines. So you really see patients saying, yes, I want stem cell treatment X or stem cell treatment Y.

So we are starting to see the beginning in Cytori as we develop this of a direct-to-consumer approach that will grow in scale with the business. And that includes increased media exposure, trying to leverage a focus on local markets and minimize costs initially, but growing that.

So there's this whole marketing and sales support function that's been increasing, growing and morphing over time. The second part of that is improving the features and benefits of the technology.

Perhaps you remember the press release of a few weeks ago where we put out a major new release of a software that's really geared towards allowing the doctor to have more tissue volume available and cell volume to treat individual patients. On a practical level, that means in a lot of patients whereas before they could only do a one cup size breast augmentation, now they can do two cup sizes, for example.

So not only providing -- broadening the utility of the technology, but decreasing the time so it works better in the patient-doctor workflow and the doctor can basically boost his pay per hour during the day using the technology. So [it improves] the practice economics.

And then on an ongoing basis, the [peer graph] technology that's coming out, Celution One, , the Olympus version that's coming and perhaps things in the future are all geared towards enhancing the product features and benefits and its use in the practice. And two other things to highlight.

One I highlighted previously was just better tailoring the channel model by letting GE do what GE does best, let Cytori do what Cytori does best. And the same with MBA and going direct in places where maybe we haven't before and capturing that margin are all important in tailoring that channel model to make it more successful. And then finally, what we haven't really touched on is our US regulatory strategy.

We are happy that we're going to be a device. We are hopeful we are going to be a 510(k), and as soon as we get regulatory approval in the US, then we look forward to launching the Celution family of products in the US where we think demand is already there.

So all those things together I think drive towards an inflection point. And having the number of people that we have in the field interacting with the customer, having customers coming to San Diego and taking a tour and seeing the technology, hearing the presentation, all just lead us to the strong belief that inflection point is coming.

Can you -- I guess just one last question. The US regulatory strategy, can you just give us an update as to sort of what are your thoughts there, what's the timing, when might we be looking for an approval?

Sure. So remember in the US, Ren, and for those that are not as familiar; the StemSource device sold through GE in the US is sold as laboratory equipment. It's not a medical device. And there are limited things we can claim about that system.

We do have some 510(k) approvals on components of the device in the US and those are predicates. We also have -- there are products that are external to the Cytori, that are also predicates for the Celution system. And so married with that, we have feedback from the FDA that says that we will be regulated through the Center for Biologics as a device and that a 510(k) is possible and feedback on that will come after we file it, which will be this month.

And we expect over the course of two, three months, we will get feedback from the agency. And in the best case scenario, relatively early in 2010, if it's a 510(k) path, which would be the best option in terms of speed to market, that we will have kind of general claims like we have in Europe and allow us to get on the market in the US with a medical device under a 510(k) clearance.

In terms of the slowest path would be if we had to do a PMA and the clinical trials related to that, and that would probably take more like a late 2010/2011 sort of timeframe depending on the nature of those clinicals. And then also possible is something in between where we do really a heavyweight 510(k). So it's a 510(k) but with some clinicals. Part of what our clinical team is doing right now is contingency planning based on what we hear back from the agency, so that when we do hear back or we begin to get correspondences back that lead us down one direction or the other, that we are ready to move with either commercialization or with a clinical strategy.

Great, guys. Thank you very much and good luck.

[Erica Leon], Noble Financial.

It seems like a good number of questions have already been asked. It looks like you've done a very good job with this cost containment. I'm curious if this is now done and will start growing from this level or if you can give us any guidance.

It's Mark Saad. To your point, we did a lot of cost containment specifically in R&D and within that, a lot of the early science and product development that had to get us through the key milestones, as well as on the G&A side. With that in place, our hope is to hold the line, probably grow marketing a little bit where we are seeing some payoff for that. Within R&D, we should be able to continue to keep the science and hopefully the product development low.

Clinical, there's always the opportunity to grow that. I think we look at that pretty rigorously. We've completed enrollment of our heart studies and, as you heard, we've got completion of enrollment is imminent for RESTORE 2.

There will be ongoing follow-up there with the clinicals. So we expect that number, that subcomponent of R&D to be reasonably stable considering those factors. So overall, I would say trying to keep the overall operating costs stable. Some things hopefully coming down a little bit, some things growing a little bit likely on the marketing side.

Okay. That's definitely helpful. And I know you're looking at getting the RESTORE 2 data that you will have out at San Antonio Breast. Do you have any timeframe for the cardiac results to be presented?

Right, we think both cardiac studies are going to be available, the data from those studies, that six-month primary endpoint data will be available in the first half of 2010, and likely that APOLLO could be sooner, which is the heart attack study, on the earlier end of things, maybe late Q1 if possible.

So probably APOLLO first and then more likely in latter end of the first half, PRECISE. (multiple speakers) as far as which meeting goes, I mean there's a number of different meetings that are sort of the noteworthy cardiac meetings and that really drives a lot of the timing there. And so there's a number of different meetings, as you could imagine, that are being looked at based on when the data is available and what the right venue is. So I think that's more likely to drive that.

Okay. That's definitely helpful. And then I guess as a last question, these placements that you made in the US, are you including that in what you would call StemSource revenue or are you including them more into the basket along with Europe?

When we say StemSource revenues, we don't break it out, between banking and system sales, we talk about that. Technically these are StemSource systems that are available in the US, but we include them in the overall base of systems.

Okay, that's definitely helpful. And I'm guessing you probably won't let us know how many you have placed this quarter in the US?

It would be hard to give a number. We do see some encouraging signs this quarter that Q4 got off to a faster start, for what it's worth. We take every day as a new day so it is hard to in a business where you're just a few quarters into commercialization to make any tangible sign of trends. But if the first few weeks of the quarter are indicative, we feel like Q4 is off to a good start.

Okay. That's very helpful, thank you very much.

Jason Napodano, Zacks Investment Research.

Just looking for an update on your cash raising activities with Seaside. You have probably completed as of today probably either 10 or 11 transactions. You're coming up on that 13th transaction, and just wondering if you think that you will continue with the 14 through 26 or when you look at your cash position now, do you find it sufficient enough that you will eventually stop those offerings?

I think Seaside has been achieving everything that we had hoped they would do as a fund in terms of their commitment and recently acknowledging their ownership position, that they are a long-term holder versus just a financing vehicle. So I think they have delivered their part of demonstrating that they're a fund and it's been a good program for us to really minimize the overall dilution, staying away from warrants and other things like that and knowing who our investor is. And those are very important for us as a Company in the transition stage, that we have strong confidence in who the fund is and why they are investing.

So with that in mind, we have the agreement in place. We'll look at the opportunities available to us at that time and the only thing I would offer is that it's been a productive and successful venture so far.

They have lived up to what we believed in them and it's been far more attractive than some of the hedge fund deals that are out there as well. We see a number of different opportunities as we go forward. It was mentioned a little earlier that we signed an LOI nonbinding with a group for a commercial partnership. There are other things we think will drive significant capital into the Company and that this could be a good accelerator of those.

Okay. As far as their ownership position, they are above 5% now. Have they made any comments on where they would like to get to?

We believe they have an interest in building a long-term position in the 10% area.

Okay. Okay.

And as always, that's what's represented to us. So that's all we can offer.

Steve Brozak, WBB Securities.

Seems like quite a few folks have asked a lot of questions, so I am going to defer to a background question, because something struck me as interesting and I would like you to elaborate on it.

You did a deal with GE on Thailand. Now in putting two and two together, Thailand is considered -- how should I put it? One of those places where people travel for the medical procedures and for travel healthcare.

What kind of color can you give us on that? Because it's interesting when you have a place like that where the prices you get are so much different and there are more on the cutting edge. What can you tell us about that? And I'll have a follow-up question after that. Because that's the one country where it kind of took me a little bit in terms of asking some granularity.

Steve, hi. It's Chris Calhoun. I think you're right. I think there is this significant growing market for what is being classified as 'medical tourism' and there's some leading markets that are evolving in that space and Thailand is certainly one of them.

I know that Dubai is looking at it. Singapore has been active in this area probably 15 years. There's some other places that are probably less advanced like, Costa Rica, maybe Mexico, Israel to some extent. So this idea of medical tourism is really a very interesting area and it is a growing market for sure.

In Thailand, we have been kind of going in and out of there for a number of years, really looking for the academic centers and the real kind of long-term oriented groups versus kind of an opportunistic approach, which I think Thailand has seen some of. There has been an ability to go to Thailand for a number of years, pay a lot of money for early cell therapy applications.

Recently the Thai government has cracked down on a lot of that. They've just instituted a whole new regenerative medicine policy. So the government has kind of taken control of particularly cell therapies and trying to really regulate that field. And so we're fitting within the Thai government's new definition of cell therapy.

And we've been in there working with a couple of the leading hospitals in Thailand, again which GE, as a partner, has tremendous relationships into. So I don't know if this is going to be a massive new amount of business for us. I probably wouldn't look at it that way, but yet another market opportunity that we are leveraging; and again with GE and their relationships even into government and ministry, not just in at a customer level. So on a lot of levels, we're leveraging our partnership relationships as well.

Actually, that prompts me to a follow-up question. You had mentioned a few other places like Mexico, basically people are obviously unfairly or so derisive of it. But with places like Thailand, you're talking about you see a lot of advanced cardio procedures being done at a fraction of the cost or you see other elective procedures done.

I would guess that this would lend it -- that the elective procedures certainly with breast would lend itself very well to that kind of an approach. Would you concur? And at the same time, with the number of patients that are going over there for procedures on the cardiac side, that would be the next area to conquer. Is that something that makes sense?

To the first point, I think yes and no. I think that in terms of the economics, I wouldn't say it's cheaper. I think people are paying richly for access to cell therapy. And this echoes what Mark said that we are seeing in the market that there is, despite whatever kind of regulatory conservativism's out there or kind of early markets, there is a significant and growing interest by individuals to have access to cell therapy for their healthcare.

And in markets where they don't have access to it, whether from a regulatory point of view or just from a clinical access point of view, they are going to where they can get it, particularly for things like cardiac. Thailand has been an early mover in that area. It's certainly not cheap from what we understand.

And even into places like India, which you may not initially think of, but it's projected that within a year or two, India will be the largest cardiac market in the world. I think there are these opportunities out there, and that's where our business model I think is really unique and well positioned that what we do is we provide access to cells in an affordable, easy workflow way and without all of the potential complications and complexity of a cell manufactured environment.

So that business model and the economics associated with that really make it affordable and appropriate to get into these maybe tertiary markets. Whether it's for medical tourism or just directly for the market itself, I think we're really well positioned in that regard.

Okay, I will switch to one last question because the year -- inflection points have been mentioned several times. And I know that you look at competition, not necessarily obviously in the stem cell area, but competition in terms of devices.

Have you noticed a bifurcation in terms of acquisitions of equipment? Because we have been monitoring that hospitals are not just stopping buying. They're basically canceling orders that they have had in place.

Are you seeing a bifurcation where they are willing to talk to you where they're basically saying we're not going to buy anything new in any other product areas for the foreseeable future, whereas you guys are differentiated obviously by the novelty of equipment and they're willing to talk to you guys based on that? Is there some granularity you can give on that? And after that, I will hop back in the queue.

Steve, it is a complex question. I think that what we are seeing is if you really look back 18 months, there was no cell therapy market, at least from a device point of view. We have created this, and so we're pioneering it and the early customers are really characterized as the early adopters.

And so I think that you're right in that these groups are probably reaching out to us and finding us and we're finding them without a lot of the other overhang of some of the other issues that are going on. I mean it certainly affects some accounts.

For example in Japan, I know that there was a bank that was an institutional bank backed by a governmental grant. There was a recent election there that basically changed the whole probably 50 year history of how the government was being run and the party.

And as part of that, they've kind of put a hold on all funding and really reshuffled the deck for all the grants that were out there and they are relooking at that. So there is an impact in some ways on us by some of these things.

But I think in general, to look at it, I don't think we are as affected as others because there is this new area. The guys looking at it are, particularly on the early adopter side, the leading kind of innovative type of physicians and practices and institutions and we are finding demand there.

Now how that compares with somebody buying a liposuction machine or GE selling a new MRI, I don't really know. But our numbers and our experience is what it is and we are really finding growing demand.

Great, thanks. I look forward to seeing that inflection point real soon. Thank you.

Steve Dunn, Jesup & Lamont Securities Corporation.

I will make this quick. I kind of want to focus on the 510(k) versus IDE, PMA thing. Have you gotten any more color from the FDA on which way they are leaning? As everyone knows, they're getting very tough on the 510(k)s. So are you getting any color or changes in stance since July?

It's Marc Hedrick. So, no, we really don't have any further color from the FDA beyond the formal decision that it will be regulated as a device. But I think that is a next one to two quarter event. We will have more granularity and then be able to know.

It is -- there are benefits and downsides to a 510(k) versus a PMA. So we want to work with the agency to find the best regulatory approach for our technology that protects our ability in the market going forward, but also speeds us to the market as quickly as we can. And right now, we are in the mode of getting a 510(k) filed and contingency planning for whatever the agency comes back with.

I guess I didn't hear exactly what the predicate device would be for a 510(k). Could you give us a little bit more (multiple speakers)?

Sure, so Cytori has three approvals, clearances for 510(k)'s on the core system, on the canister and on the enzyme. So those represent three separate 510(k)'s cleared and that are performed by Cytori's regulatory group.

In addition, there are other enzymes that are out there; for example, for the digestion of the lining around oocytes that are similar, where those cells are reimplanted back into the same patient, and blood concentrators and other systems that concentrate cells that are approved through the 510(k) process. So part of the strategy is to marry what is outside the Company with what's inside the Company to produce a compelling argument to the Center for Biologics for a 510(k) approval. We think we have a good shot and we're giving it everything we have, but recognizing that it's out of our control.

Okay, so you are saying you're drafting up that document now. If they come back and say, look, we want you to file an IDE and go through the PMA process, how long would that take you to switch gears? Do you already have something in mind on what that PMA trial would look like?

Yes, so I think to a point earlier, I think we're contingency planning through all of that so that we have a clinical trial strategy that's ready to go with minimal downtime. And so with respect to interactions with the agency, it's not necessarily you wait for 90 days and then you get your answer.

It's an interaction and so you can leverage the information that you get on an ongoing basis with the agency to better tailor your ultimate approach, were we have to go down a clinical path, either a heavyweight 510(k) or a PMA. But at the same time, just remember that we can be a successful company on what we're doing in Europe and in Japan and that a significant -- we are an important part of the overall global economy, but we also are -- the lion's share of our sales and marketing efforts are focused outside the US. So with the US, it's going to come and we're going to push it as quickly as we can. But we're also going to become a successful company based on what we are doing in Europe and in Asia.

All right. Last question. It doesn't necessarily pertain exactly, but the Isologen, which is now Fibrocell, they filed a BLA for autologous fibroblasts that went in front of the CTGT committee. What they found for wrinkles -- they found safety issues, or they were not convinced that there was not a -- tumorigenicity issues closed. Have you had any feedback from the FDA since that's also through CBER regarding that and what you're trying to put through with the Celution 700?

Well, we're very familiar with Isolagen, its products and the regulatory approach that was used in that case. Recall that that's a cultured product and it's beyond minimal manipulation, which is one of the key kick-down factors in the FDA for whether it's regulated as a biologic or a device. That was regulated as a biologic, not as a device.

It's so really a completely -- it's apples and oranges.

Right.

And so having that feedback from the FDA that we have that says we're regulated as a device, as we always thought and as we are regulated in Europe as well, as a device, not a biologic or a drug, makes us feel confident that not only do we have a good shot at a 510(k), but that we will be seen completely differently from a regulatory and safety perspective even if we are regulated in the Center for Biologics because we have a completely different approach and a completely different technology.

Fantastic. Thanks, Marc.

Neil Gagnon, Gagnon Securities.

A couple of questions. You used the term that you want to hit this inflection point, and I guess that is a code word for breakeven on ongoing revenue. Is that correct?

I think our vision of what an inflection point is is when the revenues related to the systems being in the field, both the system revenue, but also seeing that big pickup that we think will come from the consumable reorders, where it's going to become more obvious to people outside the Company that there is a strong and growing business here. And we think the fundamental pieces to that are getting new systems into the customer's hands, getting them past that early experience timeframe where they are getting comfortable with what the technology does and the impact on the patients and then getting more and more of them to where they are making it a big part of their practice.

And that will then in turn show itself in revenues, where I think as one outside the Company is able to see that revenue growth really step up and realize this is not a short-term but a very long-term trend, that the inflection point will be when I think people realize it's a foregone conclusion we're going to get there.

Okay. So it's some combination of continued increase in the system space, plus increased consumables, driving higher revenues and lower losses.

Right. So if we look backwards through the last four quarters going from 42 revenue-based systems to 85, well, that implies 10 or so per quarter. What is it going to take to get that 10 steady growing number, which in and of itself can drive good things as more and more of them become active systems? What changes that number to make it go from 10 to 20 --?

To where it really -- more and more of the funnel of interested customers have seen enough where they then come over and actually get the system in their offices. And then similarly to what you said, of the small percentage of users that are -- make it a very big part of their practice, what point of experience for these customers is a big swing of those installed base going to make it a big percentage of their practice? I think those are the two key drivers.

Okay. And the term you are using in this release, revenue base, 85, those are actually production machines out in the field, not machines being used for experiments?

Just to be clear, when we say revenue base, what we mean are those systems that have been sold to distributors, directly to physician end users, or systems that are in small loaner pool or -- but they are not the pure clinical trial systems.

These either are or will be production machines, not in the clinical trial?

Right.

Okay, good. I just wanted to make sure of that. Back earlier, you mentioned that you had a nonbinding letter of intent and possibly being a Q1 event. Can you size that for us in terms of what it might mean to you in money?

I really can't, but I would just again characterize it as a meaningful event. It is still not a done deal, but obviously we're pretty excited about the opportunity. It would be meaningful upfront and then meaningful milestones with a very nice long-term commercialization structure.

I can't give you really more than that on this. But I think this will be a very good deal for a specific market in a specific territory. And then we can leverage on that to going to a lot of other places in the rest of the world where there's interest as well.

Okay, would you give us just a little idea of what are the things you've -- left to be done in getting over the hurdle line?

Well, it's a process. There's a lot of due diligence that is behind us. There's still some yet to go. The group is obviously doing their internal work and contracts and so forth. There's no lack of landmines out there. But hopefully -- we have landed some reasonable partnerships in the past, we have experience with it. We feel confident that at least from our part, we will do what it takes to get this done and we hope that we can deliver that in Q1.

Good, thank you.

Bart Blout, Sawtooth Capital.

One, I wanted to know -- anybody that has followed the Dr. Todd Malan and heard what he has to say, etc., etc., why they wouldn't already know that follow your Company that this is already a foregone conclusion that it's going to be -- play a particular role in the stuff it is trying for. Number two, I don't understand how many Todd Malan types there are out there or Todd Malan wannabes or followers that would also be candidates to follow up on and why we haven't, or maybe we have, proceeded to attack those guys with full course right away so that we can get more stuff going on out there, the world of understanding our product.

Bart, thank you for the questions. With respect to the US market, it is still really early. There are -- through GE, there are some institutions and physicians that are acquiring the StemSource laboratory equipment and they are contemplating how to use it clinically.

It's still really early in the US, but as mentioned before, there are a lot of physicians that have come through the office here or through our booths in the US that are clearly interested in bringing the core technology into their practice. And I think from a US perspective, while it's nice to be able to sell the -- work with GE to sell the StemSource laboratory equipment systems, in the end for us, we want to have a regulatory approval through the FDA and sell the technology for clinical applications. That's really our -- I would say that's our main focus in driving that to that point as quickly as we can.

I understand, but they would -- seem like it would cause demand to go to overseas to Europe or something.

Well, there is demand. For example, and I hesitate to use any physician names or practice names, but there are instances in the US where because the technology is not approved in the US that the customers have gone overseas for their treatment to physicians that have the Celution system in Asia or in Europe and have their treatments done there. And that trend has not gone unnoticed by physicians in the US.

One last thing. If Todd Malan is on TV in Arizona on ABC, obviously somebody thinks it's okay for him to be doing what he's doing or he would be under some pressure to stop it.

We can't -- individual practice of medicine is what it is. So all we can do is continue to work with GE, sell our laboratory equipment in the US and get regulatory approval for the Celution system. We do our best to work with individual physicians to let them know our view of what is the best way to implement the technology or to -- how to best understand the technology in light of their practice, and we will continue to try to do a better and better job of that.

No, I understand. You have a tough job there. But in conclusion then, do we have a way of offering the system at a price that is -- I mean, what do you do to make them try it out? What do you charge? Everything is a different arrangement?

Well, if you just take Europe, for example, and our partnership with GE. So our goal always is to sell the technology, the system at full retail price, directly to end user customers and work with them to maximize consumable utilization and make their patients happy and make their practice successful. And so while we had always liked the economics to be absolutely the greatest for us right off the bat, we understand it's new technology and we, in some cases, have to roll up our sleeves and with an individual doctor who wants to acquire the technology, use it in their practice but may have economic limitations or practice limitations, that means that a leasing arrangement might work better or a loan-to-buy sort of strategy might work better.

And so a lot of what we've talked about this morning is really driving to an inflection point, which part of that is to provide the best possible marketing, sales support and tools for doctors to be successful and helping them acquire the technology in their practice when they may have a limitation on capital equipment, for example. It's an important part of that, and that is not unique to us. It's for every company that has a capital equipment component. But we want to make that a minimal barrier to entry for these physicians.

Thank you. Mr. Calhoun, I show no further questions at this time. Please continue.

Great; thanks, Jeremy. Well, I think there's a couple key takeaways today. One, we really have a real business here and it is growing. The second thing is, and we talked about it some, but just to rehighlight that, that there's real near-term value drivers, particularly in corporately sponsored clinical trials.

And we've got data coming out as early as next month from RESTORE 2 and then likely Q1 for APOLLO and then Q2 for PRECISE. So there's a rich pipeline of data coming out that we think are going to be key value drivers for the Company.

I think from what you're hearing, we're steadily building momentum. Many of the core elements are there to achieve global scale. And together with our strategic partners and core Celution and StemSource products, we strongly believe that Cytori is setting the standard for point-of-care regenerative medicine. And looking forward, we will continue to focus on expanding our installed base of systems as well as increasing the rate of consumable usage per system.

I want thank you for your interest in Cytori and we look forward to updating you on our growth and progress, building our brand and restoring patient lives. Thank you.

Ladies and gentlemen, this concludes the third-quarter financial results conference call. If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325; and for international participants, 1-303-590-3030 and enter the access code 4178319 followed by the pound key. The replay will be available until November 16, 2009. ACT would like to thank you for your participation. You may now disconnect.