Plus Therapeutics Inc (PSTV) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the year-end financial results conference call on today, the 12th of March 2010. Throughout today's recorded presentation all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions) I will now hand the conference over to your host, Mr. Christopher Calhoun, CEO of Cytori Therapeutics. Please go ahead, sir.

Thank you, Danny. Good morning, and welcome to Cytori Therapeutics year-end 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 as 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 date they are made.

2009 was a great building year for Cytori. We more than doubled the number of Celution systems in the market, believe the number of patients treated surpassed 1,000, and made significant improvement for our products that make them more competitive in the marketplace.

We saw sequential quarterly and year-over-year increases in consumable reorders with the reorder rate in Q4 nearly matching the full year reorders for 2008. On the clinical frontier, we completed three European clinical trials.

Additionally, we have seen positive evidence of therapeutic effect in a broad array of investigator-led studies. Particularly exciting is the data from the wound healing and radiation injury patients treated in Nagasaki as well as the urinary incontinent treatment going on in Nagoya.

We also gained important new barriers to entry, more than doubled our patent portfolio to 21 issued patents with more than 100 applications pending. Looking forward to 2010, we expect to continue to grow our cosmetic and reconstructive surgery revenue worldwide. This includes the launch of our PureGraft aesthetic body contouring products in the US.

Additionally, we have just received clarity from the FDA regarding the pathway for the Celution System and we're now executing our plan to initiate a soft tissue PMA and US IDE study. Danny, we'd like to now open up the call for questions.

Thank you, sir. (Operator Instructions) And there will be a short pause while participants register for a question. (Operator Instructions) And the first question comes from Steve Brozak from WBB Securities. Please go ahead, sir.

Okay, this is going to be the most difficult thing in just asking one question, so I better make may question count, huh?

On the -- given the robustness of your product pipeline, and given the data that you're seeing back, especially on the European side, what would you say would be the most important feedback that you would look to see within the next, let's say, six months for the demonstration in terms of both medical commercial importance viability?

Why don't you address that one, and then I will jump back in the queue after you give us some of that granularity on that, please?

Steve, hi, good morning, it's Chris. Thanks for the question. The foundational opportunity here is that the Celution system is really a platform, and I think that's where you're going with this.

And the first application for this is in the area of soft tissue reconstruction. And I think that with now 1,000 patients around the world treated, a couple of trials done in Europe and Asia, I think we feel really good that there's a strong therapeutic effect there, and we're excited to be moving forward in the US with a clear regulatory pathway to get this approved.

But as you mentioned, as a platform there are really a lot of other areas that we can apply this technology, and we intend to. The cardiovascular trial data that's coming out May 7th, I think that will be important to look for a therapeutic signal.

Are we seeing an effect with these cells in different indications that would then trigger to move forward to both European, US, and outside of Europe and US markets into trials? That will be an important metric to look for. And I think also looking at some of these investigator-led trials that are going on around the world.

For example, the breast reconstruction work was really initiated by some investigator-led work in Japan back in 2006 that ultimately led to us getting into this market. I think there are clear early signals from a couple of these areas, particularly the radiation injury and the wound healing, some of the early difficult patients that have been treated and effectively show closure and healing within about 12 weeks is particularly exciting. These are very, very difficult cases.

In addition, some of the incontinence patients that have been treated in Nagoya, there's, again, a very difficult patient population there. If you look more broadly at the opportunity for urinary incontinence, particularly female stretch urinary incontinence, it's an enormous market.

And the male radical prostatectomy patient population is probably the most difficult subset of the incontinence market. So if we're showing very positive signals there, then I think that moving up to these bigger but maybe less difficult patients to treat is positive.

And as noted in the letter, there are a variety of other investigator-led efforts that are going on, everything from renal to liver to HIV facial wasting. So there's a lot of pipeline of development, if you will, that's being created in this open architecture where doctors around the world have patients with needs. They believe that having access to stem or regenerative cells is going to be important, and the Celution enables that.

So by having access to these cells they're able to get in and get early data that we can mine for the most ideal opportunities to then pursue and develop into the market.

Great. So in recapturing what you have gone over, you've got a wealth of different external investigators that are basically leveraging off of your platform, and the idea is that if something is going to come back, it may be more than one thing, and obviously since it's that proverbial paradigm shift, that's -- that will be the key driver as to what we see next?

I think you could probably -- if you are looking for an analogy, it's kind of like where the computers were in the 80s. When Microsoft came without the early operating system, there wasn't a lot of useful software out there. But by having an open architecture of their code, individuals around the world could then develop application sets for the software.

We see it today with the iPod, where now the iPod is a new tool and there's thousands of apps that are available. The Celution is doing the same thing. We get this tool out there, and these doctors are really app developers. So when we talked about incontinence, we may have an app for. Or if there's wound healing, we could have an app for that.

And that's exactly what we're seeing. And It's that multiplier that a small company can't afford to run all of these individual early studies on their own to look for those signals, but by having an open architecture and having our tool out there for people to use enables us to really get a wealth of information at very little if any cost to us, because we're actually selling these product to them, and they're revenue generating, so it's the ideal situation.

Great. Thanks, again. Let me jump back in the queue.

Thanks, Steve.

Thank you. And the next question comes from Brian Gagnon from Gagnon Securities.

I will not promise to limit it to one question. Mark and Chris, can you talk about consumable reorders and what that means for driving consumables reorders in 2010, talk a little bit in that vein about the international markets as well as this new PureGraft launch.

And if we want to keep it to one question, I'll just make my question long -- talk about the PMA process and how this will build a moat around the technology, and then a specific question, can others 510(k) off a PMA process?

Brian, don't go anywhere, because I may need you to refresh my memory about parts of your question, but I do remember the first one. And really, you address the issue of consumable and reorder usage. 2009 was a great year from the standpoint of graft and utilization of the technology.

So we went from roughly 100 reorders in Q4 2008 to over 250 in Q4. Part of that is just more systems on the market, but it's also more doctors using the technology on more patients to different applications, not only in the plastic and reconstructive surgery side but also on the translational side. So we saw strong growth in the consumable reorders over the year.

On the systems side, we saw steady growth, and part of that was really burning through some inventory at our distributors over the year which peaked sort of mid-year and it has now come down as a percentage of systems, revenue systems, as we call them in the field, the inventories now down to lower than it was in Q4 2008.

So you've got growing consumable usage, and a lowered inventory to distributors for the systems, and we're actually going direct in many of these markets where we had gone through distributors before. So those are all great signs in terms of steady growth for the business. But the implication of your question really is how are you going to drive growth going forward.

And so the concept here, Chris, kind of hit on it, was that we have this great core technology. It's clearly useful in finding an audience in the cosmetic and reconstructive surgery field. Well, that market is really for natural soft tissue filling. That's an emerging trend in the plastic surgery community as they go away from implants and other man-made materials to wanting a more natural feel.

So how do we drive that opportunity? Well, the technology we have really represents, the opportunity to address that market comes from this core technology. This is really our first business in the market. So from a sales perspective, and this is not just Europe and Japan and the more global markets, but it's also in the US We really now have solutions for doctors who want to address some natural soft tissue fill market.

And we're building more of a direct sales force. We can go in, we've got harvest technology, cell processing technology, PureGraft is part of that as you mentioned.

Celution is really the flagship and the way to get the absolute best results, but we also have delivery technology. So now our sales force can walk into a doctor's office and say, we really have best practices technology for fat graft, and we're building the sales infrastructure to be able to leverage that. We're also trying to drive [MB] awareness.

There's a direct consumer component here. You see on our website and cellenrich.com and cellreconstruct.com, that there's the ability to drive consumers to physicians. We're trying to expand that as best we can.

Finally, once we get reimbursement for the breast cancer reconstruction in Europe, and I think the early signs for that are good, that that will further expand the market, because now it's not just the cash pay market, it's also the reconstruction market.

How many sales people do you have now, and how many would you like to drive that to this year?

Well, if you add up Japan, and you add up Europe, and you add up the US, you're really talking about approximately 10 direct full-time or near full-time focused sales folks. So I think we're happy to have a stronger balance sheet, but we're trying to scale into that, so that the growth in the consumable sales helps us grow the sales force. I imagine that will grow probably in the 5 to 10 over the course of a year, the direct sales folks.

We believe sales are going to continue to grow, particularly with being able to offer PureGraft immediately in the US So I think you'll see kind of a logical step-wise growth in that area.

Are physicians ordering PureGraft already?

Yes.

Okay. And maybe talk about the PMA process and what this means for others who would like to kind of piggyback off your technology, and how does this build a moat by having clinical data on your device?

Well, it's a good question, and it's kind of inherent in the regulatory process that if you have a 510(k), which generally means more clinicals that you predicate against things that are already out there, that it's good in the sense that it's fast in terms of time to market, so you can sell products more quickly. But other people can also follow you into the market more quickly because they can leverage off your predicate.

So from a short-term perspective, we'd rather be a 510(k). But if you take a long-term approach with respect to the technology, you would rather create more barriers for potential device competitors that may have devices or some other related products coming behind you that they have to meet the same bar that Cytori has met, which means 10 years of work, the right reagent, such as (inaudible) so they are clinical grade, of which there are no competitors in the market right now.

The right portfolio of device related performance data, preclinical data, and, frankly, clinical experience that we can import from around the world into the FDA. That's an enormous barrier that we believe we'll be able to set by virtue of going down the PMA process. So in way, it's mixed. But if you take the long-term view, it's actually -- we think it's a good thing.

It's also important that to really have the clarity. I think we've been trying to work through the system, the FDA, and the right way to get clarity on how to sell a -- what is a device product that in the end elaborates a potent mix of sales to treat patients, and it's unlike anything that's out there.

So we recognize that with a new product like that, there is the possibility that -- to have prolonged discussions. Frankly, we're just glad to have clarity. We've been planning on doing clinicals in the US We've been doing that for six months, and we're ready for the meeting.

So I think this really, along with all the work we've done with our IP position, our first to market status, and now with this regulatory clarity in the US, I think it creates yet another barrier to entry.

Okay. And the last thing is you mentioned reimbursement in the EU. You got something earlier in the year. What are you seeing as far as the reimbursement agencies coming back to you, and what do you think the timeframe is for getting much of Europe reimbursed?

Well, it will be a staged process. So for example, in Tuscany, where we had -- a user of the system at the major cancer referral center in Tuscany, he's been going to bat with us with his local reimbursement authorities because he believes in the technology, he's treated 80 patients and wants to make it available broadly and thinks the government should pay for it.

So here's an example that prior to the formulating our reimbursement dossier in Europe, which is pending the 12-month data from RESTORE 2, you've got a doctor that's going to bat with the reimbursement authorities in his regional government, and there's the possibility that could be a ripple effect within the country of Italy. But we believe that the Tuscan government is going to pay for consumables for their patients relatively soon.

So that's an example of how from a grass roots approach that doctors that are using technology believe in it and want to make it available. But really, because of the fragmented nature, some of those may continue to happen almost accidentally.

We'll feel comfortable when we have our reimbursement dossier put together, which is probably first half 2011, ready for submission to the notified body so they can explain -- so they can grant us expanded claims based on the clinical data, and then also go in a targeted way to reimbursement authorities throughout Europe.

So there may be some things that develop over the years, but I think that is a key event, that first half 2011, where the clinical data is fully reported at 12 months, reimbursement dossier is ready is a key time.

Okay, last question. Cost of doing a PMA in the US?

Well, the critical driver of that is, what does your clinical trial look like, what sort of data do you need to collect, and how many patients do you need to treat? And those are still open issues. However, it should be more closely aligned to the cost of the RESTORE 2 study in Europe, not the more expensive cardiac clinical trials.

So in theory this could be low-single-digit millions, $2 million, $3 million, depending on how much data, but that gives you kind of a general target for what we're looking for. We don't think it it's going to be necessarily an overly expensive study to get approval in the US

Thanks. I'll get back in queue.

Thanks, Brian.

Thank you. The next question is from Jason Napodano from Zacks Investment Research. Please go ahead with the question.

Good morning, gentlemen.

Hi, Jason.

As far as cosmetic and reconstructive surgery, I assume that would not include indications such as chronic wounds or urinary incontinence, but specifically, in cosmetic or reconstructive surgery do you think the FDA views a difference between the two terms, cosmetic or reconstructive procedures, and I ask just in terms of medical need or safety assessments that are required, or just the risk/benefit profile for the patient?

Jason, it's Marc Hedrick. So it's a good question. And the FDA will look at our proposed study on the basis of what we're going to claim. And our claims will be formulated based on the feedback that we have with the FDA.

Our goal right now is to target the study for which we hope to get an investigational device extension, and ultimately approval into the soft tissue fill market, most likely for a reconstructive application. So will that be specifically for breast cancer or for irradiated soft tissues, which are two possibilities? We really won't know until that dialogue.

So I think the key is the claims. It's not so much how they view cosmetic versus reconstructive. The key is the claims. But our goal is, in the end, it's time to market. So as we calibrate with respect to what our claims are with the FDA, an important driver that's in the back of our head is time to market.

And we know that once the technology gets in the market, there's more liberty with respect to how doctors ultimately use it, even though we're at strict limitations on how we can market the system.

Okay. And maybe I will violate the rule with just one more quick question. Can you give us a sense of what you were required to do for approval of PureGraft and kind of relate that to what might be necessary for a trial for Celution?

Well, they're very different products and do very different he things. In the end, have different regulatory pathways. So it's a good compare and contrast. So PureGraft was approved through the 510(k) system without clinicals but have very good claims, claims where it hasn't been particularly the highlighted but we're very happy with because it's indicated for aesthetic body contouring.

But we were able to obtain those claims and that approval through the 510(k) system without clinicals. That in and of itself -- we think it's going to be a revolutionary device in the fat grafting world for processing fat grafts. I can explain more later if anyone is interested.

However, because the Celution system is pulling cells out of the fat and then recombining them with the fat tissue, which gives you, in our view, the significant performance difference that you get by using Celution over PureGraft or other techniques of fat grafting, that the FDA, for a variety of reasons that I've mentioned earlier, has taken this, hey, you're going to need a clinical trial sort of approach through the investigational device exemption path and ultimately pre-market approval to use the system.

Got you. Thank you very much.

Thanks for the question.

Thank you. And the next question comes from from [Yegol Matrimovich] from Rodman & Renshaw. Please go ahead with your question.

Good morning, gentlemen, and thanks for taking the question. I'm standing in for Ren. Maybe we could dig a little deeper into the regulatory landscape for the PMA. What sort of feedback was there in the letter from the FDA? And along those lines, have you set up a meeting yet with them? When could these studies initiate, and what would the trial look like, and how long would they take?

Hey, [Yegol] it's Marc. Thanks for the question. Just a small bit of history. So we've really gotten, over the last year, two key pieces of feedback from the FDA. Remember back in the summer, which we felt like it was important news, that we would be regulated as a device, not as a biologic.

So not a three-phase regulatory pathway, but rather a pilot pivotal approach that we have now with respect to the PMA, which may, in the end, we may be able to improve upon because we have a lot of clinical data from Europe that might be useful within the US

So that the first key correspondence that was definitive that we would be regulated as a device. This most recent, over the last couple of weeks, about going through the PMA approach within FDA was relatively focused on the fact that they didn't feel like we were substantially equivalent with other 510(k)s on the market, and, therefore, we would require clinicals. But there was no color or flavor as it relates to why that would be or how we should proceed relative to clinicals.

Really, that's going to be an assessment that we make based on our discussions with the agency. And so because, when he we found out last summer that we were going to be a device, we began at that point planning for a device trial. And as we mentioned previously, we thought we would likely end up doing some clinical work in the US, either as heavyweight 510(k) or a PMA. So we've been planning all along.

So we're ready to go right into our meeting. We've filed for that meeting. Generally that takes about 60 days. And at that point we'll have more clarity on what that trial looks like, and it's not inconceivable that we could be enrolling the first patient in 2010 in that trial.

Okay, thank you. And I maybe I will just violate the rule and ask one more question. If you could talk a bit also about the PureGraft system, you have have sales in 1Q 2010, and do you have any projections for revenue for the full year for 2010 for that product?

Thanks for the question and the invitation to talk about PureGraft. The way to think about PureGraft conceptually is that the way doctors have processed these fat grafts for 100 years, you probably would agree, are barbaric. Sometimes they take kitchen tools, sterilize them, and use them in the OR. Some doctors use a non-sterile centrifuge.

Some people use cheesecloth even to filter out impurities and things. So as we began to understand, by virtue of our R&D team, not only how stem cells can help the fat graft, we also began to understand that the way a fat graft is prepared is totally inadequate, and I would argue it's barbaric.

So our engineers looked at different ways to process fat graft in a way that makes the fat graft preparation the best it can be. Back to this idea of Cytori as a best practices Company in this particular space.

So the idea came to our team that, hey, why don't we use the properties that hemodialysis has used and [impaired liver] dialysis has used to dyalize the fat graft to remove the impurities sterilely, (inaudible) at the bedside, high volume, very rapid, and also reduce the amount of water because doctors generally want a drier fat graft with less water than a wetter fat graft because it's easy to counsel the patients about the procedure.

It just so happens that we were able to develop this product based on that lipodialysis concept and it's a great product for us because it competes immediately in the market, because we have approval, with other ways of fat grafting, and allows us to build the sales force in the US today, and begin to get in front of doctors to begin the pre-selling work for Celution when it gets approved through the PMA process.

So with respect to sales of PureGraft, I think we're optimistic, although we really just, in beta sales right now, that we formally launched at the ASAPS, the American Society of Aesthetic Plastic Surgery, meeting in April. Thus far the feedback has been good from the doctors that have used it and the response has been good. We've begun to advertise the product.

But having said that, there are no specific projections on revenue related to that that I can share with you at this time, although we're very optimistic about the utility of the product.

And then just one last question, if I may, on the 4Q numbers. Just trying to gauge in terms of how many of the 16 additional systems were actually new sales versus systems that were in the hands of distributors that were then put into the field. Give us some clarity there, please?

Sure. So the -- I think as a big picture point, the the number of systems that we call revenue systems is actually becoming increasingly closer to what we would refer to as the installed base. I shared on, the bigger trend earlier, in that the number of systems that have been in inventory, largely through distributors, remember, we brought on GE and several new distributors throughout 2009.

Actually, it peaked during the year and has actually gone down to pre-Q4 2008 levels. So there will be some level of ongoing inventory, but the number of revenue systems in the field is going to continue to increase and the relative percentage of those units that are in the field are actually, roughly the same or perhaps going down.

So that will be reflected throughout the year, and the increasing number of those systems will go out to actual end users and not go through a distributor inventory process.

With respect to the number of those systems that have gone out to real customers, the lion's share of those have gone out to end users. But I think it's because -- some are actually -- have gone to distributors, and we don't have complete visibility into the timing that these units go out to distributors. And some go out, doctors do a few cases, then come back.

We kind of decided not to report kind of on a percentage basis quarterly what those numbers are. But the majority of those systems are going directly into doctors' hands these days, and that's going to continue to increase.

Okay, thank you very much and good luck in the coming quarter.

You bet, thanks for the question.

Thank you. And the next question comes from Ted Tenthoff from Piper Jaffray. Please go ahead with your question.

So I appreciate that you're still determining the design and size of the PMA study, but how long specifically does this PMA requirement delay US launch? And to kind of follow up on that, will you be permitted to do any studies in the US until the system is approved?

And does the fact that you now require a PMA and won't be approved in the US push out any potential US therapeutic partnerships?

Hi, Ted, it's Marc again. I've got Alex Milstein here, if he wants to chime in about clinicals, and that's really his area of expertise. But I would disagree that this is a delay.

We've mentioned over the last year that we were unclear about what the regulatory pathway would be on a short time to market, it could be a 510(k), but our message has always been we felt like there would be clinicals, and now we know what it is. So if you look at the timing, if we have a meeting in 60 days, we get a handle on what the clinical trial looks like, the claims, the number of patients, and whether or not there's a control group.

It's not inconceivable that we could be in the clinic by the end of the year. We have GCP garnered data in the context of our RESTORE 2 study in Europe. As you know, that data looked awful good December at its first cut. We think that data, that we intend to take an interim cut on the six-month and 12-month data, probably the second half of this year to use that with respect to the FDA to hopefully only do one study in the US

So to use that data that was gathered in a way that we knew it could be useful for the US The GCP guidelines will help ensure that, then we think it's possible that we could only do one study that's more on the order of this 70 or so patients, perhaps more in the US to get approval.

So if you assume that that's going to be -- the FDA is going to be looking for 12-month timeframe that probably puts us from today, maybe two-and-a-half years or so, to get in the market. So is that a delay? It depends on how you look at it.

Okay. And will you be permitted to do any studies in the US until you are approved? And what do you think this does to potential partnering discussions?

By definition, what we seek from the FDA is what's called investigational device exemption, so it's an exemption so that we can do clinical studies in the US So that's why I say, I think it's -- reasonably good case scenario, but if things go according to plan we could be treating the first patient in the US in 2010 this year.

That's a remarkable turnaround from where we've been the last couple years when we've been largely focused on markets outside the US And just to give you a little bit more color, once we're through the IDE process, it's possible to expand the use of the system into other areas to provisions in the device law such as treatment use, regulations, continued access, emergency use, capacity use issues. So there's a way, once we get the IDE approved to then maybe expand into other markets.

That's more what I meant, in terms of other studies beyond just soft tissue.

Let me answer your -- the fee part of that question around partners. I think it's a big area for us this year. There's a lot of stuff coming together so we've been talking to a variety of different groups in a variety of different interest areas. And it's a thing that's continually taking more and more of my time and mind share as well as couple of other key members of the team here. So it's becoming more active, let's say.

In the area of the soft tissue applications, there are -- there's conversations going on, and I can tell you that it doesn't -- it's not negative for them at all, actually, it's very positive, because I think that, as Marc described earlier, having a longer term perspective, which these partners clearly do, building barriers and generating data that could be used for reimbursement and for market penetration and adoption is really what these guys want to have. And the thing that helps drive potential partnerships in this area is the clarity.

So the fact that we got the clarity quickly, and now we have a defined path, and now it's working out the metrics of the trial and executing on it, I think really helps us in terms of potentially getting a partnership.

Fair enough. When do you think will you get reimbursement in the EU in Japan, and how much do you think you can actually grow really with just overseas?

I think Marc covered that a little bit earlier that we're leveraging the RESTORE 2 data that comes out, so we have our dossier that's going to be prepared and submitted once the RESTORE 2 data is finally complete. Sometime first half of 2011.

So there's -- but along the way we're starting to see, not only from some grass roots things going on, but we're starting to see signals that we may see earlier reimbursement in not pan-Europe but in certain key geographies. A lot of our revenues these days and a lot of our procedures is really more from the cosmetic side where reimbursement is not an issue. It's all private pay.

I think that's driving a lot of the growth right now. Certainly adding in the ability to reconstruct patients that have no other alternative is going to be a nice additional market for us.

So I think we have a lot of runway ahead of us as we really pioneer this new opportunity for natural soft tissue filling and augmentation. There seems to be a growing demand for that, and I think even an emerging trend in the plastic surgery field on a global basis for this natural soft tissue filling. And if you think of that then Cytori is really the pioneer and the leader with the soup-to-nuts really well thought through scientific product portfolio to address that new market. We're really best positioned for that.

When you look at growth in 2009 and going forward, the system numbers look great. I mean, you're up 150%, give or take, if you're looking at 140% on systems, 150% on consumables, but revenues are really only up 29% and that's that total revenue number. So what's the disconnect here between these systems getting out there and actually growing the top line?

I think, Ted, there's a blend of direct versus distributor pricing to us. So as we have more distributors doing sales, then our net price, our net revenue is down. For the places that we're direct, for example, Japan, where we get the highest price point, the more of those sales we have, then it weighs our revenue on the higher end.

So I think somehow it's a sales mix of direct versus distributors, and I think what Marc described earlier is that we're tending now to go more towards direct sales than distribution related sales, so we should see that improve over the year.

I mean, it's still a pretty big difference, so I just don't know that that fully explains a doubling in systems and a growth in revenues.

Ted, it's Mark Saad. If you look at 2008, you had a pretty meaningful number of the systems that were in 2008, those early sales, a lot of them went to distributors, and if those go into the field, those distributor sales, we don't make the same revenue on those.

And then when you get to 2009, and also in 2008 we also had a stem cell bank that was kind of carried the revenues higher, and it was higher priced bank than the one we got in 2009, so there was probably a $600,000 revenue delta between the bank of 2008 and the bank of 2009. So there's some gaps like that, it's all part of this early commercialization, but I think if you try to micro-analyze it on a percentage level, we can get lost in the trees.

If we look overall, there's an increase in systems out there, were there more distributor-based sales through the period? Certainly through the first nine months of 2009, yes, and that's just part of the reality of early commercialization. Now we've been increasing our relative emphasis on direct sales, which does carry, for us, higher revenues.

So as we look forward we expect more direct sales-based pricing, which would increase the system number, but also remember that over time, the systems being the razor, is a critical part of the story, but the story is the razor blade, and that's where you certainly saw a lot of growth in 2009. It's coming together quite well, and I think if you want to look at, well, with our bank in 2008, that was higher priced than the one in 2009, I think you can micro-analyze that and it doesn't necessarily tell you the story.

I think the revenues don't yet show what's behind the revenues, which is a greater number of those systems proportionately that are in the field being used when reorders are coming. But that is a precursor to revenues, which is physician utilization, physician reorders. The top line revenues kind of mask that because there's a lot of distributors sales in there that if you're over focusing on a quarter-to-quarter, it doesn't really show the story.

Over time, it will, but in the first few quarters we could certainly get caught up in that, but if we're really trying to show what's happening, it's a greater number of physicians getting the system, then coming back to us for reorders, and that drives this long-term opportunity with the pipeline value building and building.

Thank you. And the next question comes from David Moskowitz from Pyramid. Please go ahead with your question.

Thanks, guys. With the PMA process now kind of back -- the ball's back in your court as to how you are going to proceed, obviously going to make a proposal to them, are you going to be look at some of the more acute indications in the soft tissue space, different than some of the cosmetic applications?

Hi, Dave, it's Marc Hedrick. We haven't decided as yet exactly what our claims are going to be, because we have contingency plans based on our discussion with the FDA. Our goal is to leverage the data that we've already collected and do one trial in the US It's likely that it would be reconstructive, rather than cosmetic.

It's likely that it would be for soft tissue filling, plus or minus the breast, plus or minus for irradiated tissues, that's our general feeling right now. But it's difficult to be definitive until we have those discussions with the agency.

That's interesting, because it's sort of a trade-off. If you're going for the quickest path to market that might be a relatively much smaller market versus doing a more significant trial it opens up much broader applications, how are you kind of thinking the about that?

Well, I think the critical thing for us, just as in Europe, and just as in Japan, and it's the same in US, it is time to market. We want to get the system in the doctors' hands so they can begin using it. So an important driver of that trial is the Q&A that we have with the FDA, and how they view whether or not there's a control, whether or not their concerns are related to the breast in particular, whether or not there's a control group, how they view the data from Europe primarily, but also some of the other investigator-initiated studies that have been performance.

Frankly, it's difficult to predict. All we can do is be 100% prepared and do our contingency planning so that when we have -- when we have their feedback, we'll be able to go.

The good thing about having a soft tissue fill application, or claims related to that, is that you can sell the system all day long for that, and that could be either reconstructive or cosmetic, even though your trial may be geared more towards a reconstructive application.

It really does help crack the market. I think once you crack the market in that space, the utilization will come.

Thank you.

Thanks for the question.

Thank you. And the next question comes from Neil Gagnon from Gagnon Securities. Please gop ahead with your question.

Yes, good morning. In your letter to shareholders you mentioned opportunity for partnership. I sense that this will wait for the [Apollo] and precise trial data, and can you fill in a little more about what are you thinking about here?

Neil, I think if you take a 40,000-foot view of the Company, partnership has always been something we've been striving for. But we've had opportunities along the way, but we've chosen not to do some, and I think because we really want to find the right balance of getting the right partner and the right deal, and so some of that was just maturing the Company to a point where partners can really value the therapeutic component of the technology.

And I think that we're moving much closer to that now. It's a clarity of the regulatory. It's now clinical data coming out of multiple trials. It's clinical data coming out of these investigator-led efforts that are bringing positive data in new areas that we really didn't have much effort or data before.

And so there's this confluence of things that's going in and driving interest in the Company and the technology. And I think also, from the sort of macro level, as you're looking around the field, I think that one thing that we've done a nice job of that's now really being appreciated by potential companies that are looking at the space, is the business model is pretty clear, that we have a -- an affordable realistic approach to cell therapy that just makes sense from a business level.

And I think that that's been one of the challenges in the overall field. So with all of these things coming together, I know I'm certainly spending a lot of my time now working on this. A lot of it is driven by companies that are effectively coming to us. And the cardiac data, we'll see how that looks in May, but that could potentially be a driver for a partnership as well.

I think that it the's really moving to the next steps and to fund a US study and a European study, partnership would be appropriate for that, but there are a lot of other areas too that I think that we're seeing interest and we're seeing activity on a partnership level. So I can't -- it's not really at the point I can give you any specific.

These are obviously -- take enormous amounts of time and are complex conversations and potential deals, but the message, I think, the overall message from me is that we've never been in a better position to get a meaningful partnership, and it's a priority and it's something that we're working on every day. I think that it's going to happen in six months or 12 months or 18 months, yes, I think we're trying to do it, and we've got a lot of interest, and I think the stars are lining up that this is now a real possibility.

Thank you.

Thanks, Neil.

Thank you. And the next question comes from Brian Gagnon from Gagnon Securities. Please go ahead with your question.

Sorry, we're tag teaming from you across the world. Can you talk a little bit about your cash position and what's happened to the cash balances in Q1 and where you think will you end up the year? That's one. The second one is can you talk a little bit more about reorders of consumables and where you see it going and I will ask the question. How is Q1 going?

Hey, Brian, it's Mark Saad. I'll take on the balance sheet and let the other Marc take on the consumables. We made a lot of progress on the balance sheet and we ended the year, really at a cash level that was consistent with the cash level of Q3.

And that was in spite of Q4 being a major investment quarter in key areas of marketing, development, (inaudible) PureGraft, finishing enrollment of RESTORE 2, all the work around preparing for those studies, the marketing materials to help open up these markets. It was a fairly meaningful investment quarter we were able to make in Q4 thanks to some of the improvement in our ability to raise capital and also leave it relatively flat at the end of the year.

And then since then, it's only gotten better, and I think the numbers on the release show since the end of the year we've brought in an additional over $14 million. And so if you were to run that, plus the $13 million we had at the end of the year, we're sitting really in a pro forma position stronger than we've had in years. And based on that amount, based on where we think -- what we think we're going achieve realistically, you can easily get us well into 2011, and then you match that with an ongoing commitment that has performed quite well, and potentially further than that.

So where do we end up the year? It's always tough to predict exactly, but you don't need to assume major growth in revenues, you don't need to assume partnership dollars, both of which we think are possible, and you still get well, well into 2011, potentially further.

Okay. Good.

Hey, Brian, I'll take a crack at the consumable question. From a big picture perspective, if you go back to Q4 2008 and you kind of look quarter-by-quarter over the year, we've effectively grown each quarter in terms of the total number of consumables shipped and the number of reorders. The number of reorders, we use that term, reorder, to mean a doctor that's attained a system, that's bought their first group of consumables and now it's coming back and buying more. So that's quarter-over-quarter growth.

Will it continue to grow every quarter? I don't know. There may still be some lumpiness, but 4 points really make a trend. So if you look cumulatively, at the end of 2008, I think it was maybe just under 800 consumables that were out there at the end of 2008. I think we're over 2,000 consumables through 2009.

So the trend is clear to us in terms of number of consumables. Not to say there won't be some lumpiness felt. From a revenue perspective, we're starting to think in terms of, okay, we've got a half million dollars plus growing quarter-over-quarter of consumables that we can count on, plus the system sales.

And so you're starting to see an early picture of the relative contribution of that annuity stream growing. And just to give you a little bit of color, if you look at most of the growth in terms of utilization, it's really been through Celution utility in Europe, which is effectively doubled on a monthly basis, a number of reorders and consumables that are being used in Europe, over the last four to six months.

You see real growth with respect to consumable utilization, and I use that term loosely, in Europe, and you're also seeing consumables increase with respect to laboratory equipment or stem [source] sales in the US So that's contributing now in an increasing way to the number of reorders. And the last thing I would say is that with respect to going forward, in terms of Q1, we're continuing to see new doctors using the technology.

We're preparing for the addition of PureGraft consumables, primarily in the US, early on this year, to contribute, not to Q1, but to the remainder of the year. So there are a lot of really good trends and good signs with respect to the overall consumable utilization and the business in general.

I'm actually pretty impressed with the consumable reorders. That's kind of given you 1,000 plus a year just on the reorder rate as you're growing additional machines that are going out there. So these guys must actually be really using this, and the patients, if you have done over 1,000 patients today, and if they're reordering 250 plus in a quarter, then that's, depending on if they're double using them, it's at least 200 new patients a quarter that are being used for this procedure.

That's true. Another way to think about it is, every day there's going to be an average, a few people being treated by Celution. But what that also says is, sort of like the orthopedic model that you need to -- the doctors need to wait for the bone to heal before they know if the treatment works.

Doctors that have had this now for many months are knowing in terms of their practice and happiness of the patients that this technology works better than what they were doing before. Therefore, they're going to not only continue to use it, but figure out how they can expand its use. Those are all trends we're seeing in the market.

Thanks.

Thank you.

And the next question comes from [Yegol Maltrimovich] Please go ahead with your question.

Hi, good morning. Just the previous question prompted a thought regarding the consumables, if I may. Could you just give us some sense as to how the consumables sales are breaking down? Is this a situation that a small number of doctors are doing most of the reordering, or is it more evenly spread across the full installed base?

Well, it's a good question, and the reality is that the distribution is very wide. So these aggregate numbers that we've been reporting on a monthly basis encompass, on one end, very high volume users that are doing more than one patient per week, sometimes many more than one patient per week, in their cosmetic practices.

At the other end of the spectrum, you've got individuals that have bought the system for a translational clinical trial purpose and perhaps have had the system for a year and have only treated five patients. So the level of blend of these numbers is significant.

We're moving towards a time where we're going to begin to track more and more of the specific utilization factor as we work through exactly what that metric should be, and then we'll be able to provide more detail in terms of how utilization is looking, really in more of a high use model, which is in a cosmetic and reconstructive surgery practices, and be able to look for a back view at how that number is changing on a quarter-to-quarter basis.

We're just not there yet, based on the number of systems that are out there right now, and their dispersion in a variety of different practice environments.

Great, thanks for taking the follow-up.

Thank you.

Thank you. And the next question comes from Louis Corrigan from Kingsford Capital. Please go ahead with your question.

Hi. I was wondering about the APOLLO trial. My understanding is that it was initially expected to enroll 48 patients, and that only 14 patients were enrolled, and it's obviously a dose ranging trial, but there was only one dose applied, and it obviously can't show efficacy.

What you're looking for are some positive signals. But, again, my understanding is that the trial was stopped because you basically changed out the equipment with the Olympus device.

And so assuming that it does show a positive signal, how many patients will you have to enroll for a follow-up trial? Will it be a dose ranging trial? And how long do you think that will take to enroll given that the first trial took two years to enroll?

Well, Louis, thanks for the question, and about APOLLO, that's something that we're looking forward to reporting the data from that trial in May, two different venues. So let me go back in history a little bit with respect to the trial planning, its execution and how we got to where we are today.

Originally the trial design was for a 48-patient dose escalation study randomized double-blind prospective with the idea that at each dose increase we would go back to the Data Monitoring and Safety Board with respect to that and get approval to go to the next dose. So also it's important to know that going into that study, we had done a lot of preclinical work, and we had a strong indication internally, based on the preclinical work, that indeed there was a biological signal, an improvement in the size of the myocardial infarction when cells were given versus controls in animals.

But we didn't have a lot of clarity into whether this could be safe. In other words, doing a fat removal, a liposuction procedure in a patient in the early post-myocardial infarction environment. We felt it could be potentially problematic. So the original trial design was really kind of a best case sort of approach.

However, as we got through the trial, and we worked through some of the issues with respect to harvest and bleeding and feasibility and went to the Data Monitoring and Safety Board, they actually gave us -- deemed that the study was safe and feasible at that level.

So based on that, and based on kind of a holistic look of not only where we were in that study with how the investigators felt about how the patients were doing, our ability to pull that trial off and have it be deemed safe and feasible, and then extrapolating back to what I view as extremely strong, as strong as any preclinical study in the field in terms of the biological signal.

We felt that we could declare that safe and feasible, have that data looked at more quickly, and now we're benefiting from that because the data is going to be coming out in May, and then really plan not the safety and feasibility step, but the definitive step in Europe, then hopefully time that with respect to, as you mentioned, the next generation of the Celution system, which in our view, is the ultimate hospital-based [cath lab] based system for extrapolating -- for extracting those cells and putting them back in patients.

So in some respects, it's all come together on time, that the device will be ready for hopefully whatever next trial we may or may not do. And that we'll be ready with the trial design with respect to the notified bodies in Europe to get on label, reimbursable therapy for one of these particular studies, and that really depends on how the data gets reported out in May.

I guess I'm trying to get a realistic timeframe for what this will take, because, I mean, these 14 patients were done by one doctor and one site, and my understanding is nine patients actually received the therapy. That's a small, isolated trial.

If the results show some good signals, it seems to me that you would need to do a multicenter trial that would essentially involve, I don't know, 100, 200 patients, and it took two years to enroll 14 patients. What's a realistic timeframe for when we could get results from a follow-up trial?

Well, so you're right, so effectively, the first study was done at one center. It was [further] to enroll. As we worked out some of the feasibility related issues with respect to the study, that's what the study was for. Because we're regulated as a device in Europe, and also a device in the US, the next step study is really -- that was meant to be a feasibility and safety study. The next step is meant to be your pivotal study.

And so you're exactly right on in that that would be a multicenter study. I don't know if the will be 200 patients. Could be less.

But that will be a multilayered study, at multiple universities, cardiac centers around Europe and potentially could be -- could include investigative sites outside of Europe in other markets to broaden the approval and the penetration of the systems around the world. So what's the timing of that particular study?

I think it's hard to talk about that until the data comes out. And what application, but I think we're working in the background and planning what may or may not be our next steps, and we intend to have a very clear message about that very soon.

We do not appear to have any further questions. Please continue with any points you wish to raise.

Okay, thank you. I just want to update a couple of the websites that were mentioned earlier. One is cellenrich.edu, and one is cellreconstruct.edu, not .com. So cellenrich.edu and cellreconstruct.edu. I encourage you to take a look there.

2010 is lining up to be an exciting year for Cytori. We have our first commercial product portfolio in the market now approved and available in 59 countries. Clarity on the regulatory path to the market in the US PureGraft is now available, selling and launching in the US market as an entry-level product.

Data is increasing the evidence that Celution system, stem and regenerative cells, work in a variety of applications. We have a rich and maturing product pipeline and increasing lead in our approach to cell therapy with significant barriers to entry.

Ultimately, we stand today a much stronger Company than ever before and we'd like to thank you for your time and ongoing interest in Cytori.

Ladies and gentlemen, this concludes today's year end financial result conference call. Thank you for your participation, and you may now disconnect.